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March 16, 1995


The opinion of the court was delivered by: SHIRA A. SCHEINDLIN



 I. Introduction

 Plaintiff Wilmington Trust Company ("Wilmington") sues defendant Aerovias de Mexico, S.A. de C.V. ("Aeromexico") for breach of a Lease Agreement ("Lease") entered into on December 1, 1992. Wilmington claims that Aeromexico is in default under the terms of the Lease, which is for a McDonnell Douglas MD-82 aircraft, because it failed to make a required rental payment of $ 685,511.63 on October 24, 1994. Wilmington further claims that Aeromexico's default accelerates its obligations under the Lease and requires it both to return the aircraft and to pay liquidated damages in the amount of over $ 9 million.

 On January 3, 1995, Wilmington moved for summary judgment pursuant to Fed. R. Civ. P. 56 on all of its claims against Aeromexico. *fn1" After reviewing the parties' submissions, the Court granted Wilmington's motion at the conclusion of oral argument on February 15, 1995. The Court held that Aeromexico's failure to make a rental payment was an "event of default" as defined under § 14(a) of the Lease which entitled the Series A Certificate Holder ("Series A Holder") to direct Wilmington to accelerate Aeromexico's remaining obligations under the Lease. However, the Court declined to issue a final judgment at that time and ordered the parties to submit a proposed order and judgment specifying the amounts owed by Aeromexico to Wilmington under the Lease.

 Although Wilmington submitted a proposed order and judgment on March 2, 1995, the parties could not agree on several issues and submitted letter-briefs detailing their positions regarding these disputed issues. This Opinion and Order supplements the Court's oral ruling of February 15, 1995 by addressing these additional issues raised by the parties. The Court also addresses the enforceability of the liquidated damages clause contained in the Lease, an issue that was the primary focus at the February 15, 1995 oral argument. Familiarity with the underlying facts and circumstances is assumed for purposes of this Opinion.

 II. Discussion

 A. Liquidated Damages

 The Court's February 15, 1995 oral opinion held that the liquidated damages clause, which is contained in § 15(h) of the Lease, was not an unconscionable penalty clause under New York law. See Transcript of Hearing ("Tr."), February 15, 1995 at 45-46. In its proposed order, Wilmington seeks, pursuant to § 15(h), the return of the aircraft as well as a money judgment of $ 8,978,112.70, plus interest. Wilmington computed this amount under § 15(h) by adding i) the amount of the missed rent payment ($ 685,511.63) to ii) the "Stipulated Loss Value" ($ 10,100,000.00), which is owed to plaintiff upon a "Lease Event of Default" -- such as a missed rent payment -- and a declaration by the Series A Holder that the Lease Participation Certificates are due and payable, and then subtracting iii) the proceeds already received from the Cash Collateral Account ($ 1,789,699.75) and iv) a payment made by Aeromexico on December 1, 1994 ($ 17,689.10). With interest (calculated to February 17, 1995), the total amount due under Wilmington's proposed order is $ 9,227,809.08. See Wilmington Letter, dated March 2, 1995 ("Wilmington Let.") at 3. *fn2"

  Aeromexico contends that this relief computed under § 15(h) is excessive and constitutes an unenforceable penalty clause under New York law. Aeromexico argues that allowing Wilmington to recover both the remaining Lease payments as well as the aircraft itself is a double recovery which is "grossly disproportionate" to the amount of actual damages Wilmington will experience as a result of Aeromexico's breach of the Lease. See Defendant's Memorandum of Law ("Def. Mem.") at 21-24.

 In order for a court to enforce a liquidated damages clause under New York law, the clause must specify a liquidated amount which is reasonable in light of the anticipated probable harm, and actual damages must be difficult to ascertain as of the time the parties entered into the contract. *fn3" Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420, 425, 393 N.Y.S.2d 365, 361 N.E.2d 1015 (1977). A clause which provides for an amount plainly disproportionate to actual damages is deemed a penalty and is not enforceable because it compels performance by the very disproportion between liquidated and actual damages. Id.; Fifty States Management Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 577, 415 N.Y.S.2d 800, 389 N.E.2d 113 (1979); Leasing Service Corp. v. Justice, 673 F.2d 70, 73 (2d Cir. 1982). The enforceability of a liquidated damages provision can be determined by the court as a matter of law. Leasing Service Corp., 673 F.2d at 74; Bigda v. Fischbach Corp., 849 F. Supp. 895 (S.D.N.Y. 1994).

 When analyzing the reasonableness of a liquidated amount, a court must also give due consideration to the nature of the contract and the attendant circumstances. See J.R. Stevenson Corp. v. County of Westchester, 113 A.D.2d 918, 493 N.Y.S.2d 819, 823 (2d Dep't 1985); Bigda, 849 F. Supp. at 902. Relevant to this inquiry is the sophistication of the parties and whether both sides were represented by able counsel who negotiated the contract at arms length without the ability to overreach the other side. Bigda, 849 F. Supp. at 902-903; Boyle v. Petrie Stores Corp., 136 Misc. 2d 380, 518 N.Y.S.2d 854, 861 (Sup. Ct. N.Y. Co. 1985). Moreover, a court should not interfere with the agreement of the parties, absent some persuasive justification. Fifty States Management Corp., 46 N.Y.2d at 577. Finally, the party challenging the provision -- here, Aeromexico -- has the burden to prove that it was not freely contracted to and is in fact an unenforceable penalty clause. See P.J. Carlin Construction Co. v. City of New York, 59 A.D.2d 847, 399 N.Y.S.2d 13, 14 (1st Dep't 1977); Rattigan v. Commodore Intern. Ltd., 739 F. Supp. 167 (S.D.N.Y. 1990).

 Under these principles, the Court disagrees with Aeromexico and reaffirms its holding of February 15, 1995 that § 15(h) of the Lease is not an unenforceable penalty clause. As Wilmington correctly argues, the Lease cannot be divorced from the overall structure of the underlying transaction when analyzing the liquidated damages clause. The Series A and Series B Holders originally loaned over $ 17 million to Wilmington to purchase the aircraft leased to Aeromexico. Wilmington, as trustee for the Series A and Series B Holders, now seeks to recover the outstanding loan principal for the Series A and B Holders through the judgment amount and the proceeds from the sale of the plane. The approximately $ 9 million money judgment sought by Wilmington is essentially the Series A Holder's outstanding loan balance, while the proceeds from the sale of the plane are to be used to repay the Series B Holder's outstanding loan balance. Thus, the transaction is not simply a lease arrangement, but rather a loan made by the Series A and B Holders to allow Wilmington to purchase a plane and lease it to Aeromexico on their behalf. *fn4"

 Viewed from this perspective, the amounts sought by Wilmington pursuant to § 15(h) of the Lease are reasonably proportionate to the actual damages suffered by Wilmington and the Certificate Holders. As discussed above, the proposed order submitted by Wilmington provides that Aeromexico is to pay a judgment of approximately $ 9.2 million and return the aircraft. The judgment amount and proceeds from the sale of the plane are first to be used to pay the Series A Holder approximately $ 8.9 million, *fn5" which is the current amount owed to it by Aeromexico, and then to pay the Series B Holder approximately 5.7 million, *fn6" which is the principal owed to it as of the date of default, with interest. These payments, in addition to the $ 1.7 million previously withdrawn from the Cash Collateral Account, will provide the Series A and B Holders with a total payment of approximately $ 16.4 million. See Wilmington Let. at 3-4.

 Had Aeromexico not defaulted, Wilmington would have received $ 12.5 million in rent over the remaining six years of the Lease term. Under § 19 of the Lease, Wilmington would also have received at the expiration of the Lease term the aircraft or -- if Aeromexico had decided to keep the aircraft for itself or sell it to a third party -- an additional payment of between $ 3.8 and $ 8.7 million. *fn7" Thus, Wilmington would have received between $ 16.3 and $ 21 million over the remaining term of the Lease. Assuming that actual damages would be measured by the present value of the amount Wilmington would have received under the Lease, *fn8" a recovery of $ 16.4 million at the present time cannot be said to be "grossly disproportionate" to a potential loss of $ 21 million dollars. Even if Wilmington's recovery under § 15(h) of the Lease turned out to be more than the present value of the remaining amounts it would have received under the Lease, that clause provides for no more than the acceleration of the outstanding principal amounts owed to the Series A and Series B Holders. *fn9" See Rattigan v. Commodore Intern. Ltd., 739 F. Supp. 167 (S.D.N.Y. 1990), citing Fifty States Management Corp., 46 N.Y.2d at 577 (upholding an acceleration clause in an employment contract even though the accelerated amount was much greater than the present value of what the employee would have received under the contract in part because "acceleration clauses...common in loan and lease agreements, occasionally are denied enforcement as penalties, but 'in the vast majority of instances...these clauses have been enforced at law in accordance with their terms.'"). In addition, the proposed order also provides that any excess amount from the judgment and proceeds from the sale of the aircraft are to be returned to Aeromexico; assuming that the sale occurs at some point before the end of the Lease term in 2001, Aeromexico will receive a higher residual value of the aircraft after the sale than it would have received at the end of the Lease.

 Perhaps most significantly, Aeromexico's counsel conceded at oral argument that the Lease was a transaction entered into by sophisticated parties who were represented by able counsel. Tr. at 13-14. No evidence was presented by way of affidavit or otherwise that the terms of the Lease were not freely contracted to by able parties, and "absent some element of fraud, exploitive overreaching, or unconscionable conduct" on the part of Wilmington, the Court must enforce the agreement of the parties. Fifty States Management Corp., 46 N.Y.2d at 577. *fn10"

 B. Final Judgment Issues

 The parties have indicated that three issues remain with respect to a final judgment consistent with the Court's oral decision of February 15, 1995: i) the applicable post-judgment interest rate to be applied to the amounts owed to the Series A and Series B Holders; ii) the Series B Holder's entitlement to the "Break Funding Amount" provided for in the Lease and Trust Agreement; and iii) whether the proposed judgment is final under Fed. R. Civ. P. 54 given that the order does not adjudicate Wilmington's claims for attorneys' fees and the expenses incurred in collecting the judgment amount and selling the aircraft.

 i. Post-Judgment Interest

 The parties do not agree on the post-judgment interest rate to be applied to the proposed judgment amount of over $ 9 million. Specifically, the parties differ on whether the amounts to be paid to the Series A and Series B Holders are "money judgments" governed by 28 U.S.C. § 1961(a) (1994) or whether these amounts should instead be governed by the interest rate set forth in the Lease and Trust Agreement. *fn11"

 Section 1961(a) provides in pertinent part:


Interest shall be allowed on any money judgment in a civil case recovered in a district court...Such interest shall be calculated from the date of the entry of the judgment at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury Bills settled immediately prior to the date of the judgment.

 28 U.S.C. § 1961(a) (1994). The language of this statute is mandatory: once a claim is reduced to judgment, the original claim is extinguished, and a new claim, called a judgment debt, arises. Section 1961(a) governs the interest rate on this judgment debt. Carte Blanche (Singapore) v. Carte Blanche (Int.), 888 F.2d 260 (2d Cir. 1989), citing Kotsopoulos v. Asturia Shipping Co., S.A., 467 F.2d 91 (2d Cir. 1972).

 By its terms, of course, § 1961(a) only applies to a "money judgment." Wilmington claims that, while a "money judgment" will be entered in Wilmington's favor, no money judgment is to be entered in favor of either the Series A or Series B Holders, who only receive payment after Wilmington distributes the cash received from the damage award and sale of the aircraft. *fn12" While Wilmington admits that it is acting for the benefit of the Certificate Holders, it claims that it is not acting as their agent and its duty, pursuant to § 3.2 of the Trust Agreement, is therefore to pay the Certificate Holders the contractual rate of interest when calculating post-judgment interest.

 The Court rejects this claim as to the Series A Holder. While the money judgment in Wilmington's proposed order nominally runs between Wilmington and Aeromexico, the Series A Holder, through Wilmington as the trustee for the trust of which the Series A and Series B Holders are the beneficiaries, is in effect reducing its claims against Aeromexico to judgment. Indeed, the Trust Agreement provides that, in an event of default, Wilmington must act according to the instructions of the Series A Holder, which include exercising all of the remedies under § 15(h) of the Lease. See Laskaris Aff., Ex. 1 at § 15(h). The money judgment calculated under § 15(h) embraces the "Stipulated Loss Value" to be paid to the Series A Holder -- which is in effect the Series A Holder's outstanding loan balance -- and the money judgment is thus for all intents and purposes the amount that will be paid to the Series A Holder to satisfy its debt on the aircraft.

 However, the Court finds that § 1961 does not apply to the amount to be paid to the Series B Holder. The Series B Holder holds its Loan Certificates "without recourse," meaning that it can only look to the proceeds from the sale of the plane to satisfy its debt and that Aeromexico cannot be compelled to pay any shortfall. See Wilmington Let. at 7. Thus, because the Series B Holder's only potential recovery is through the sale of the aircraft, a "money judgment" is not entered in favor of the Series B Holder. *fn13" In addition, the Court agrees with Wilmington that it would be unfair to deprive the Series B Holder of the contractual rate of interest on its debt given that it is required to wait until the aircraft is sold before collecting any money. See Wilmington Let. at 7. Thus, the Series B Holder is entitled under the Trust Agreement to a post-judgment interest rate of 12.77%. See Laskaris Aff. at Exhibit 4.

 ii. The Break Funding Amount

 The parties do not agree on whether the Series B Holder is entitled to a "Break Funding Amount" payment of $ 657,977.00. *fn14" The Break Funding Amount is determined by calculating the present value of the unpaid principal and interest scheduled to be paid under the Series B Lease Participation Certificates at the time of a default by Aeromexico. This amount is first discounted using the "Market Rate" (defined in Schedule III of the Amended Trust Agreement as the "Treasure Note Proxy Rate" or the rate equal to the yield on a hypothetical U.S. treasury instrument with a maturity equal to the average life of the remaining Series B Lease Participation Certificates at the time of determination) and next using the "debt rate" of interest (defined in Section 1.1 of the Amended Trust Agreement as approximately 10.77%). See Laskaris Aff., Exhibit 5 at Schedule III and § 1.1. The difference between these two discounted amounts is the Break Funding Amount. Thus, the Break Funding Amount formula results in a payment equal to the difference, on a present value basis, between the interest that the Series B Holder would have been paid under the Lease had Aeromexico not defaulted and the interest that the Series B Holder would have received had it invested the outstanding balance of its loan in United States treasury securities with the same remaining term. See Wilmington Let. at 10. In addition, "Market Rate" in Schedule III is defined as the Treasury Note Proxy Rate plus the "spread" amount in effect at the time the prepayment (i.e. Aeromexico's default) occurred. See Laskaris Aff., Exhibit 5 at Schedule III ("'Market Rate' means the Treasury Note Proxy Rate plus the spread in effect on the date of such prepayment."). The chart immediately below this definition lists the "spread" amounts in the following manner: Date of Prepayment (in months from Spread funding date) (in basis points) 37 through 48: 175 49 through 60: 250 61 through 72: 300 73 through 85: 375


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