The opinion of the court was delivered by: GESELL
Connex Press, Inc., registered owner of a Sabreliner 60 executive jet, complains that defendant International Airmotive, Inc. ("IAM")
conducted an unreasonable foreclosure sale of the airplane in violation of section 9-504(3) of the Uniform Commercial Code. Maryland Code 1957, Art. 95B § 9-504(3). Compensatory and punitive damages and other relief are sought, and defendant counterclaims. The case was tried to the Court without a jury. Following extensive discovery and pretrial proceedings many facts were stipulated, numerous documents were presented, and 17 witnesses appeared at trial.
The disputed sale occurred on October 10, 1974, at the Cambridge, Maryland, airport. IAM, then the secured creditor, was the only bidder. It bid $325,000.00. IAM, after making substantial expenditures, sold the plane, in March, 1975, for $855,000. This was not a routine creditor transaction. The circumstances leading up to the sale, which were elaborately detailed by the evidence, will be briefly summarized.
Connex purchased the Sabreliner from IAM in February, 1971, under a conditional sales contract. IAM assigned the Connex note to American National Bank and Trust of New Jersey. Ownership of Connex became the subject of controversy and extensive litigation in the Bahamas where the plane was located. The Sabreliner was the principal asset of Connex, whose stock was held by Fairborn Corporation, Ltd. At the instance of Butler, who claimed to be the true principal shareholder of Connex, a Bahamian court enjoined removal of the Sabreliner on February 19, 1974. On February 20, 1974, however, Robert Vesco and his associates, who were involved in the controversy over ownership of Connex, caused the Sabreliner to be flown to Costa Rica in apparent defiance of the Bahamian court order. On February 25, 1974, at Butler's initiation, Slatter was appointed liquidator of Fairborn by the courts. Slatter determined that it was his responsibility to liquidate the Sabreliner. Accordingly he undertook to gain control of the aircraft to arrange for its sale in the United States. He authorized IAM to "repossess" the aircraft and indicated that he was contemplating selling the aircraft promptly at a seven percent commission and netting $875,000, United States currency. A quick turnover was apparently expected. IAM estimated that its expenses would be around $30,000 and was indemnified for this amount by Slatter.
IAM "repossessed" the plane by payment to Vesco's pilot and other means. Because of continuing disputes involving ownership of Connex, Slatter failed to authorize IAM to proceed with the sale. IAM therefore continued to hold the aircraft, procured hull insurance for $1,000,000, and hid the plane from various interests seeking to regain or attach it. Expenses mounted. Litigation in the Bahamas continued to delay the sale. In May, IAM offered to purchase the plane from Slatter for $800,000, after obtaining appraisals (which ranged from $700,000 to $725,000) from three dealers. Later, in September, it made another offer to purchase the plane for $750,000. No sale eventuated, and IAM was given no authority otherwise to dispose of the aircraft.
A New Jersey bank, which continued to hold the conditional sale note, received payments through July.
The August payment on the Sabreliner note, however, was not made, and in early September 1974, the New Jersey bank declared the note in default and contemplated foreclosure. Any excess proceeds were to be interpleaded in a United States District Court for resolution of the conflicting claims to ownership of the aircraft.
Butler, with Slatter's knowledge, negotiated with the bank, looking toward a purchase or other disposition of the note, but these negotiations failed. IAM's expenses had continued to increase beyond original expectations because of the delay, and it was pressing to be made whole. IAM was in constant contact with counsel for Butler and Slatter, and with Slatter himself. It was eventually agreed between IAM and Connex, which was represented by Butler and Slatter, that IAM would purchase the bank's interest in the conditional sales contract for cash with a view to holding a foreclosure sale in accordance with applicable local law in order to protect IAM's interest and expenses in the aircraft. Any excess funds were to be preserved subject to the outcome of the controversy continuing in the Bahamas over ownership of Connex stock. This arrangement was made on September 19, 1974. IAM paid $242,825.41 for the note and proceeded promptly with the foreclosure sale on October 10, 1974.
2. The Conduct of the Sale.
IAM formally notified Connex, Butler and Slatter, and the interests adverse to them, of the sale. On September 30, 1974, the Supreme Court of the Bahamas ordered the plane returned and Slatter notified IAM on October 3. Slatter recognized, however, that IAM was acting within its rights and took no legal steps to block the sale, although he threatened to do so. Determined to press forward, IAM advised Slatter and Butler on October 4, 1974, that "substantial costs" had already been incurred "in providing for public notice of the sale throughout the United States by advertisements in The Wall Street Journal and other trade press in order to obtain an optimum and commercially reasonable price for the aircraft." IAM also advised that its expenses exceeded $50,000 and that any excess funds would be preserved.
In fact, a single identically worded ad was placed in The Wall Street Journal and in Trade-A-Plane. Both publications had national distribution. The Wall Street Journal ad appeared as a public notice and not in the Aviation Section of its advertising, which is customarily used by the trade.
The advertising expense was in fact minimal, amounting to $531.57. The Wall Street Journal ad was a column wide and 2 3/4 inches long. The Trade-A-Plane ad, also a column wide, was 2 1/4 inches long. Thirteen days elapsed between The Wall Street Journal ad and the sale, and the Trade-A-Plane ad gave five days' notice. Both ads were written in matter-of-fact cautious terms that in no way encouraged buyer interest.
IAM was a dealer in aircraft and knew the market well, yet it took no further steps to attract buyers. It knew that the logical potential buyers were not individuals but a group of dealers. However, it made no effort by mail or telegram to stimulate their interest in the sale, although this is the accepted practice in normal commercial sales of this type of used aircraft. Further, IAM had a mailing list of 5,000 individuals, dealers, and companies known to be interested in receiving notices of available jet aircraft, and it had an available sales force. It used neither resource in the disposition of this aircraft.
The plane itself was sold on an "as is" basis. No steps were taken to improve its appearance or even to replace broken eyebrow windows that were covered by insurance. It would have taken more than $30,000 to put the plane in top condition. Since the plane was kept at secret locations until the moment of the sale, which was held at a small out-of-the-way airport on the Eastern Shore of Maryland, no opportunity for close inspection of the plane prior to the sale date was afforded, even when one dealer sought to do so prior to sale.
This was far from a routine matter. The plane was worth hundreds of thousands of dollars.
Planes of this type had never been sold at a public auction and, indeed, large jet aircraft had apparently never been sold previously at a creditor's sale. IAM ...