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October 14, 1992


The opinion of the court was delivered by: MIRIAM GOLDMAN CEDARBAUM


 Nacional Financiera, S.N.C. ("Nafinsa"), an industrial development bank and instrumentality of the Mexican government, seeks a declaratory judgment that it is not liable to a Delaware corporation, Americom Airlease, Inc. ("Americom") for attorneys' fees and expenses exceeding $ 666,000. Americom and its lender PacifiCorp Credit, Inc. ("PacifiCorp"), an Oregon-based finance company, incurred these attorneys' fees and expenses in attempting to secure the return of an aircraft which was the subject of a lease guaranteed by Nafinsa and assigned by Americom to PacifiCorp. Americom counterclaims for these attorneys' fees and expenses, as well as those that it continues to incur in this proceeding, and moves for summary judgment on the counterclaim. Nafinsa cross moves for summary judgment declaring its non-liability to Americom.

 Both sides agree that the lease entitled PacifiCorp to reimbursement for its attorneys' fees and expenses incurred during the period in which it was the assignee of the lease. The issues in this case are whether Americom is also entitled to reimbursement for attorneys' fees and expenses incurred by it during the assignment period, and whether Americom is entitled to recover the attorneys' fees and expenses of PacifiCorp which Americom paid under its indemnity contract with PacifiCorp.


 The following facts are undisputed.

 In 1974, National Aircraft Leasing, Ltd. ("NAL") leased a McDonnell Douglas aircraft to Aeronaves de Mexico, S.A. de C.V. ("Aeronaves") for a 15 year period ending in May of 1989. In a separate guarantee, Nafinsa unconditionally guaranteed Aeronaves' obligations under the lease, including the obligation to pay all "Rent" as defined in the lease.

 Maple Leaf Leasing Ltd, a Canadian corporation affiliated with NAL, later acquired the aircraft and NAL's rights under the lease as lessor of the aircraft. In 1986, Americom purchased the aircraft from Maple Leaf and acquired Maple Leaf's rights under the lease.

 To finance the transaction, Americom borrowed $ 24,500,000 from PacifiCorp. As security for the loan, Americom mortgaged the aircraft and assigned to PacifiCorp "all right, title and interest of Lessor in the Lease . . . together with the Guaranty of such Lease by Nacional Financiera, S.A. . . ." (Hart Aff. Ex. 1.) Americom also agreed to pay any attorneys' fees and expenses incurred by PacifiCorp in enforcing its rights under the lease. (Ault Aff. P 5.) Subsequent to the assignment, rent under the lease was paid directly by Aeronaves to PacifiCorp. (Hart Aff. Ex. 2 (Ault Dep.).)

 In April 1988, Aeronaves filed for bankruptcy in Mexico. The Mexican Bankruptcy Court appointed Banco Nacional de Obros y Servicios Publicos, S.N.C. ("Banobras") as trustee for Aeronaves. Americom and PacifiCorp jointly engaged Mexican counsel and commenced a proceeding in the Mexican Bankruptcy Court to separate the aircraft from the other assets of Aeronaves so that other creditors could not reach it. Banobras also commenced an ancillary proceeding in the United States Bankruptcy Court for the Southern District of New York. Americom and PacifiCorp retained separate counsel to represent their interests in that action.

 In September 1988, Americom agreed to allow Banobras to sublease the aircraft to Aerovias de Mexico, S.A., de C.V. ("Aerovias") for a period of two months. Aerovias was a Mexican airline organized to carry out the air service previously performed by Aeronaves. Americom refused to agree to an extension of the sublease when it expired in November 1988. Despite Americom's refusal, Banobras continued to operate the aircraft. (Ault Aff. P 20.) Americom then initiated an adversary proceeding in the United States Bankruptcy Court.

 Following extensive negotiations, Americom reached a settlement with Banobras in March 1989. Pursuant to the Aircraft Purchase and Settlement Agreement (the "Settlement Agreement"), Americom agreed to adjourn the litigation commenced in the Mexican and United States bankruptcy courts pending the sale or return of the aircraft. PacifiCorp was not a party to the Settlement Agreement, but was required to release its claims against Banobras in the Mexican and United States bankruptcy proceedings. (Ault Aff. Ex. 15 § 4.2(b).)

 On May 4, 1989 the aircraft was sold to Polaris Holding Company, a designee of Banobras.

 The lease provides that " 'Rent' shall mean Basic Rent and Supplemental Rent, collectively." (Ault Aff. Ex. 4 art. 1.19.) Basic Rent is the "aggregate rent payable throughout the term for each of the Aircraft and Spare Engine pursuant to Article 4(a) [of the lease] and any other amounts treated as rent payable under said Article 4(a) pursuant to any other provisions of the Lease." (Id. Ex. 4 art. 1.4.) The lease provides that Supplemental Rent is:

 all amounts, liabilities and obligations (other than Basic Rent) which Lessee assumes or agrees to pay hereunder to Lessor or others, including, without limitation, (i) Stipulated Loss Value payments, (ii) all amounts required to be paid by Lessee under the agreements, covenants and indemnities contained in this Lease and (iii) any and all liabilities, obligations, losses, damages, penalties, taxes, claims, actions, suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and nature whatsoever which may be imposed upon, incurred by or asserted against Lessor by reason of the failure of the Lessee to duly perform its obligations under this Lease.

 (Id. Ex. 4 art. 1.23.)

 The guaranty provides that "if Lessee fails to pay any Rent, Guarantor will immediately pay to Lessor an amount equal to such Rent and all damages resulting therefrom, including all reasonable expenses incurred in enforcing the same." (Ault Aff. Ex. 5.)

 The parties agree that the lease and guarantee should be interpreted under California law. Plaintiff contends, and defendant does not object, that the assignment of the ...

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