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CAUFF, LIPPMAN & CO. v. APOGEE FIN. GROUP

August 7, 1992

CAUFF, LIPPMAN & CO., and ARTHUR J. BERNSTEIN d/b/a AMBER INTERNATIONAL Plaintiff,
v.
THE APOGEE FINANCE GROUP, INC. DAVID GOULD and RICHARD COSSE Defendants.



The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY

FINDINGS OF FACT AND CONCLUSIONS OF LAW

 CONSTANCE BAKER MOTLEY, District Judge.

 FINDINGS OF FACT AND CONCLUSION OF LAW

 The dispute in this case concerns an agreement entered into between plaintiff CAUFF, LIPPMAN & CO. ("CAUFF, LIPPMAN") and defendant THE APOGEE FINANCE GROUP, INC. ("APOGEE") on January 9, 1990, and APOGEE's alleged failure to perform under this agreement. CAUFF, LIPPMAN seeks $ 1,999,998.00 in compensatory damages resulting from APOGEE's breach of contract. *fn1" Plaintiff ARTHUR J. BERNSTEIN ("BERNSTEIN") d/b/a AMBER INTERNATIONAL ("AMBER") also sues APOGEE for breach of contract as a third-party beneficiary of the agreement. BERNSTEIN's third-party beneficiary claim is derivative of CAUFF, LIPPMAN's breach of contract action against APOGEE. In the event that they do not recover damages on their breach of contract claims, plaintiffs alternatively seek recovery in quantum meruit for the reasonable value of services performed.

 This action, which was tried to the court, began on June 1, 1992 and concluded on June 10, 1992. After reviewing all of the evidence in the case and weighing the testimony and exhibits received in evidence, the court now makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil procedure.

 I. FINDINGS OF FACT

 1. CAUFF, LIPPMAN is a Florida corporation engaged in the business of airplane brokerage. (Stipulated Fact 1). *fn2" CAUFF, LIPPMAN operates as a commercial jet aircraft lessor and is in the business of fleet-planning and world-wide consulting and financial planning for various airlines. (Tr. 19). Since its inception, CAUFF, LIPPMAN has handled in excess of one billion dollars in such transactions. (Tr. 20). CAUFF, LIPPMAN's principal place of business is Miami, Florida. (Stipulated Fact 1).

 2. The principals of CAUFF, LIPPMAN are Stuart Cauff ("Cauff"), Chairman and President, and Wayne Lippman ("Lippman"), Vice-Chairman and Chief Operating Officer. (Stipulated Fact 2).

 4. APOGEE is a Delaware Corporation with its principal place of business in New York, New York. (Stipulated Fact 4). APOGEE was formed in the summer of 1989 by Koninklijke Luchtvaart Maatschappij NV, KLM Royal Dutch Airlines ("KLM"), a Netherlands company, for the following purposes: (1) to assist KLM and its affiliates in disposing of new surplus aircraft; (2) to assist KLM and its affiliates in disposing of old aircraft; (3) to utilize the expertise of the individuals at APOGEE to structure and arrange aircraft financing for KLM and its affiliates; and (4) to perform the foregoing functions for unrelated third-party airlines. (Stipulated Facts 4, 5; Tr. 804-807). APOGEE is a subsidiary of and approximately eighty percent owned by KLM. (Stipulated Fact 5). APOGEE is primarily engaged in the business of equipment leasing and financing. (Id.).

 5. Defendant DAVID GOULD ("GOULD") is an individual residing in New York, New York, and is a Managing Director of APOGEE. (Stipulated Fact 6). GOULD was primarily responsible for negotiating the January 9, 1990 agreement between CAUFF, LIPPMAN and APOGEE. (Tr. 1126-27).

 6. Defendant RICHARD C. COSSE ("COSSE") is an individual residing in Connecticut, and is a Managing Director of APOGEE and its Chief Executive Officer. (Stipulated Fact 7).

 7. In the summer of 1989, KLM, APOGEE and a French airline, Air Littoral, S.A. ("Air Littoral") agreed that they would attempt to enter into a transaction whereby KLM would indirectly lease to Air Littoral six Fokker F-100 aircraft (the "Aircraft") through a series of United States and foreign-based purchase and lease transactions (the "overall transaction"). (Stipulated Fact 8). The structure of the overall transaction involved a series of intricate international transactions, and at one level contemplated the use of a United States financing source. (Id.).

 8. As part of the overall transaction, APOGEE was also arranging a European financing transaction that would generate additional profit for APOGEE. Originally, the overall transaction contemplated the use of a French tax lease transaction. APOGEE later substituted a Japanese tax lease transaction for the French tax lease transaction. (Tr. 260, 881-82). The change in the tax lease transaction did not involve CAUFF, LIPPMAN or BERNSTEIN, and did not alter CAUFF, LIPPMAN's duties under the January 9, 1990 agreement. (Tr. 260).

 9. KLM had several specific objectives in connection with the overall transaction, which were as follows: (1) to get the Aircraft out of KLM's fleet; (2) to generate cash and profit for APOGEE; (3) to enable Air Littoral to operate the Aircraft and sub-sublease the Aircraft in the world market place; and (4) to create cash flow for Air Littoral and capitalize its operations. (Tr. 24, 253, 808-810). KLM also wanted the transaction to be structured discretely, so that its capitalization of, and generation of profit for, Air Littoral would not be obvious to the outside world. (Tr. 1120-21).

 10. One of APOGEE's roles in connection with the overall transaction was to participate in the United States portion of the transaction and to arrange for United States based financing. The U.S. financing portion of the transaction would compete with an offer that Air Littoral and KLM had received from a French-based institution, Bangue Nationale de Paris ("BNP"), to finance Air Littoral's lease of the aircraft. (Tr. 857-58). The U.S. financing would therefore have to be the equivalent of or superior to the BNP offer. (Tr. 99; 857-59). As contemplated in the overall transaction, the United States financing would enable APOGEE to purchase the Aircraft from KLM in order to effectuate the rest of the overall transaction whereby the Aircraft would eventually be leased to Air Littoral. (Stipulated Fact 8). Obtaining a U.S. funding source would also generate certain tax benefits in the overall transaction. (Tr. 861-62).

 11. The transaction that gives rise to the present dispute is the United States financing portion of the overall transaction. (Stipulated Fact 8; Tr. 26-28).

 12. Plaintiffs' involvement in the U.S. financing portion of the overall transaction began in August of 1989. On August 10, 1989, BERNSTEIN and GOULD had a telephone conversation in which GOULD described the overall transaction to BERNSTEIN and expressed KLM's desire to transfer the Aircraft to Air Littoral. GOULD asked BERNSTEIN whether he could secure financing for and structure the United States phase of the transaction, thereby allowing the overall transaction to Proceed. (Tr. 249-251). GOULD requested that BERNSTEIN structure the overall transaction in such a way as to enable a party unaffiliated with KLM to take title to the Aircraft at some stage in the overall transaction in order to accomplish KLM's goals. (Id.). During this telephone conversation, BERNSTEIN recommended CAUFF, LIPPMAN as the unaffiliated company that could purchase and resell the Aircraft pursuant to KLM's requirement. (Tr. 251).

 13. At the time of this telephone conversation, GOULD did not have a structure for the U.S. phase of the transaction, nor had he secured a U.S. financing source. (Tr. 250). As a result of this telephone conversation, BERNSTEIN understood that GOULD had asked him to structure and procure a financing source for the U.S. phase of the overall transaction. (Tr. at 251-52).

 14. After BERNSTEIN's telephone conversation with GOULD on August 10, 1989, BERNSTEIN called Cauff and related the substance of the conversation to Cauff. (Tr. 21-22). Cauff informed BERNSTEIN that CAUFF, LIPPMAN would be interested in participating in the transaction if it met their economic needs. (Tr. 22).

 15. Cauff and BERNSTEIN subsequently identified Credit Suisse as the financial institution that was the best suited to provide the U.S. financing for the overall transaction. (Tr. 25). BERNSTEIN had a pre-existing business relationship with Credit Suisse. (Tr. 109, 644).

 16. In August of 1989, BERNSTEIN contacted Wallace Henderson ("Henderson"), assistance vice president of Credit Suisse, and informed him of the need for financing in the U.S. phase of the overall transaction. (Tr. 251-52, 643-44). Henderson indicated that Credit Suisse would be interested in providing financing for the U.S. phase of the transaction. (Tr. 252).

 17. GOULD and BERNSTEIN met in New York City on August 28, 1989 to discuss the transaction. At this meeting, GOULD stated that KLM wanted to use the overall transaction to supply capital to Air Littoral and again stated that APOGEE was looking for a U.S. financing source for the U.S. phase of the transaction. (Tr. 252- 54, 854). BERNSTEIN told GOULD that Credit Suisse was interested in providing the U.S. financing for the transaction. GOULD authorized BERNSTEIN to pursue further negotiations with Credit Suisse. (Tr. 252-53).

 18. BERNSTEIN later met with Henderson and Eric Noyes ("Noyes") of Credit Suisse on August 28, 1989 to discuss Credit Suisse's role in supplying the financing for the U.S. portion of the overall transaction. (Tr. 254-55). Henderson and Noyes expressed an eagerness to proceed with the transaction and requested a term sheet indicating the structure of the transaction as soon as possible. (Id.). BERNSTEIN faxed to Henderson a term sheet which he had prepared, dated September 6, 1989. (Pl. Exh. 3).

 19. During the initial stages of the discussions between APOGEE, BERNSTEIN, and CAUFF, LIPPMAN about the U.S. financing for the transaction, it was understood by all of the parties involved that KLM would guarantee APOGEE's duties and obligations in the U.S. phase of the overall transaction. (Tr. 257, 846, 855; Pl. Exh. 3).

 20. BERNSTEIN, GOULD and Cauff next met on September 5, 1989 in Miami. GOULD stated that if CAUFF, LIPPMAN was to be involved in the transaction, it had to secure financing for the U.S. phase of the transaction on terms better than the financing already available to Air Littoral by BNP, the French-based lender. (Tr. 26, 28). At this meeting, GOULD discussed with Cauff and BERNSTEIN the terms of the proposed financing Air Littoral had received from BNP, and emphasized that APOGEE had to "match or beat" the French financing package in order to participate in the U.S. phase of the overall transaction. (Tr. 100-101, 630, 815-16).

 21. Immediately following the Miami meeting, BERNSTEIN prepared various financing and lease schedules designed to provide GOULD with a proposed rental structure which would be salable to Credit Suisse and which would compete with the French financing already available to Air Littoral. (Tr. 255; Pl. Exhs. 2, 4). BERNSTEIN believed that these financing and lease schedules would be superior to the French financing and that Credit Suisse would agree to their structure. (Tr. 255-56). BERNSTEIN sent these schedules to GOULD, who then sent them to Air Littoral. Based on schedules prepared by BERNSTEIN and CAUFF, LIPPMAN, Air Littoral granted to APOGEE the exclusive right to arrange the financing of the Aircraft. (Tr. 44-49, 60-61, 257-59; Pl. Exhs. 2, 4, 7, 14, 237).

 22. On September 15, 1989, a meeting was held in APOGEE's office to discuss the economics of the U.S. phase of the transaction and the parties' relative profit margins. (Tr. 31-32). Cauff, BERNSTEIN, Lippman, GOULD, COSSE, and several other representatives of APOGEE attended the September 15 meeting. (Tr. 31). At this meeting, the parties agreed that the purchase price of each of the six Aircraft would be $ 21,500,000.00, and that the lease term would be fifteen years. (Tr. 42-43, 257-59; Pl. Exhs. 6, 237).

 23. Also at the September 15, 1989 meeting, CAUFF, LIPPMAN and APOGEE agreed that CAUFF, LIPPMAN would receive a profit of $ 1,999,998.00 for their role in the U.S. portion of the transaction, and that APOGEE's profit in the U.S. phase of the transaction would be $ 1,000,000.00. (Tr. 31-32, 55-59, 257, 259, 884; Pl. Exhs. 146, 241, 248). CAUFF, LIPPMAN's profit represents the difference between the price at which APOGEE was to sell each of the Aircraft to CAUFF, LIPPMAN ($ 22,166,667.00) (the "sale price"), and the price at which APOGEE was to repurchase each of the Aircraft from CAUFF, LIPPMAN ($ 22,500, 000.00) (the "repurchase price"). The difference between the sale price and the repurchase price is $ 333,333.00 per Aircraft, totaling $ 1,999,998.00 for all six Aircraft. (Tr. 55-56; Pl. Exhs. 146, 241, 248). Despite further negotiations and changes in the structure of the transaction, CAUFF, LIPPMAN's profit margin in the U.S. phase of the transaction never changed.

 24. It was immaterial to APOGEE whether CAUFF, LIPPMAN used its own money to finance the transaction or obtained financing from another source in terms of the value CAUFF, LIPPMAN brought to the transaction and the profit CAUFF, LIPPMAN would receive. (Tr. 1189-92).

 25. By the end of September, 1989, all of the essential terms of the contemplated transaction were acceptable to Credit Suisse and Credit Suisse was willing to proceed with finalizing the transaction. (Tr. 654-659). In early October of 1989, CAUFF, LIPPMAN and BERNSTEIN received a first draft of Credit Suisse's commitment letter which provided the basis for further negotiations with Credit Suisse. (Tr. 54).

 26. KLM confirmed APOGEE's exclusive right to sell the Aircraft in a letter dated October 4, 1989. (Tr. 573-75; Pl. Exh. 14).

 27. It was evident early in the negotiations with Credit Suisse that the proposed KLM guaranty was material to Credit Suisse's evaluation of the financing transaction. Accordingly, CAUFF, LIPPMAN sent a proposed draft of a KLM guaranty to GOULD on October 12, 1989. (Tr. 54, 56-60, 262-63; Pl. Exh. 13).

 28. On October 23, 1989, AMBER and CAUFF, LIPPMAN entered into an agreement whereby CAUFF, LIPPMAN agreed to pay AMBER a fee of one-half of one percent of the aggregate price of the Aircraft in connection with transactions in which BERNSTEIN acts as an agent. (D. Exh. T). The agreement makes payment of the fee contingent upon the actual closing of any given transaction. (Id.). 29. All parties agree that BERNSTEIN's fee for his services in connection with the U.S. financing portion of the overall ...


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