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Crowley v. Northern Aviation, LLC

Supreme Court of Alaska

May 10, 2019

BRETT CROWLEY; KNIK AIRCRAFT LEASING, LLC; and WINGNUTS AVIATION, LLC, Appellants,
v.
NORTHERN AVIATION, LLC and NA HOLDINGS, LLC, Appellees.

          Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, No. 3 AN-11 -10519 CI Eric A. Aarseth, Judge.

          Kevin T. Fitzgerald, Ingaldson Fitzgerald, P.C., Anchorage, for Appellants.

          Gregory S. Parvin, Law Office of Gregory S. Parvin, Wasilla, for Appellees.

          Before: Stowers, Chief Justice, Winfree, Bolger, and Carney, Justices.[Maassen, Justice, not participating.]

          OPINION

          CARNEY, JUSTICE.

         I. INTRODUCTION

         Two debtor limited liability companies (LLCs) executed security agreements in favor of two creditor LLCs, giving the creditor LLCs security interests in three airplanes. Disputes arose when the creditor LLCs, considering the debtor LLCs in default, took possession of two airplanes and removed and retained parts of a third airplane. After a bench trial the superior court entered judgment against the debtor LLCs and an individual associated with both of them. The debtor LLCs and the individual appeal, raising issues about default, seizure of collateral, and post-seizure notice; the individual also questions the judgment against him personally. We affirm in part, reverse in part, and remand for further proceedings.

         II. FACTS AND PROCEEDINGS

         A. Facts

         1. Businesses involved in the dispute

         The debtor LLCs in this litigation are Wingnuts Aviation, LLC (Wingnuts) and Knik Aircraft Leasing, LLC (Knik), both aviation-related LLCs. Brett Crowley was a member of both LLCs. Wingnuts operated a flight school that was, for most of the time relevant to this case, based at the Palmer Airport. Knik was organized to buy airplanes that Wingnuts could lease. Each debtor LLC had one other member: the other member of Wingnuts was Tara Chesnut, and the other member of Knik was Richard Walker, who also operated a separate aviation-related business.

         The creditor LLCs involved in this litigation are Northern Aviation, LLC (Northern) and NA Holdings, LLC; Jeffrey Helmericks is the sole owner of Northern and NA Holdings. Northern leased, maintained, and sold aircraft. NA Holdings offered "fuel, tie-down spaces, aircraft maintenance," and "[b]asic aviation support." All of the businesses involved in the litigation operated at the Palmer Airport.

         2. The Cessna loan

         On July 1, 2013, Knik signed purchase agreements related to two Cessna airplanes, one agreement with Northern and one with N8681U, "a sub-LLC of Northern Aviation at the time." The purchase agreements required Knik to make a 20% down payment on each aircraft, with the purchase to be completed in ten days. Because Knik was not able to obtain outside financing, Northern agreed to lend $72, 000 to Knik, and on July 10, Knik signed loan and security agreements for financing the Cessna airplanes. Helmericks obtained both contracts from an internet site. The loan agreement included a guaranty provision under which Crowley and Walker both "unconditionally guarantee[d]" Knik's obligations.

         The loan agreement set out a payment schedule over 15 years, recited that the loan was secured by the Cessnas, and listed events that would be considered default by Knik, including "a default in any security agreement which secures this [n]ote." The security agreement identified the two Cessna airplanes as collateral and gave Northern a security interest in them. It required Knik to "maintain insurance at all times with respect to all collateral against risks of fire, theft, and other such risks and in such amounts as [Northern] may require" and to "make all repairs . .. necessary to maintain any [c]ollateral in good working order and condition." The default provision of the security agreement specified that Knik would be in default "upon any non compliance with or non performance of [its] obligations" under the security agreement.

         Knik made the down payment in mid-July. Knik's subsequent payments frequently varied from the loan agreement schedule in both amount and timing, but Northern continued to accept them. Knik's sole source of income was Wingnuts's lease payments. It is undisputed that Knik never had insurance for the Cessnas. Helmericks was aware of the lack of coverage as early as late 2013. Helmericks and Crowley discussed alternatives to commercial insurance because of its cost but disputed whether they had agreed to a specific alternative.

         In November 2014 Crowley informed Helmericks that Wingnuts intended to move its operations to Wolf Lake, a location about seven miles from Palmer. Helmericks said Wingnuts could not take the Cessnas there; Crowley disagreed, and Helmericks told Crowley that Knik was in default and had been from the first month of the contract. A heated discussion that included Walker ensued. The exact sequence of actions in the Cessnas' repossession is disputed, but Helmericks, evidently with Walker's cooperation, secured the Cessnas in hangars. Helmericks agreed that Knik made another payment on the Cessna loan the following month. Northern later sold one Cessna, and at the time of trial the other Cessna was apparently still in Northern's possession. The record does not contain any written agreement between Northern and Knik following Northern's possession of the Cessnas, nor is there any type of written notice from Northern to either Knik or Crowley. At trial Crowley contended Knik had overpaid its obligation and was owed money on the Cessna loan.

         3. Contracts between Wingnuts and NA Holdings

         Wingnuts and NA Holdings entered into two written contracts and had an ongoing business relationship that resulted in Wingnuts incurring a debt to NA Holdings.

         Wingnuts entered into a one-year lease with NA Holdings on July 1, 2013, agreeing to rent office space and outside parking for up to four aircraft at the Palmer Airport. The lease, obtained from an internet site, required arbitration of any "controversy or claim relating to this contract."

         Wingnuts also bought fuel from NA Holdings, often on credit. NA Holdings sent Wingnuts statements that included not only the fuel costs but also Wingnuts's rent and what appear to be charges for renting aircraft. Wingnuts fell behind in payments.

         Ultimately, "Bret[t] Crowley, DBA Wingnuts Aviation" signed a loan document and a security agreement related to the delinquent account with NA Holdings. Crowley signed the loan agreement in early May 2014, with a principal amount of just over $38, 800; monthly payments were to be made over five years. The agreement contained a guaranty that Crowley and Wingnuts "unconditionally and personally guarantee[d] all the obligations of the [b]orrower under this [n]ote." The security agreement gave NA Holdings a security interest in a Mooney airplane stated to be owned "free and clear" by Chesnut and Crowley. The security agreement required Wingnuts to "keep the collateral free from unpaid charges, taxes, and liens," to maintain insurance, and to make all repairs needed to keep the collateral "in good working order and condition."

         Wingnuts continued to buy gas on credit from NA Holdings after the parties signed the loan agreement secured by the Mooney airplane. The parties refer to this ongoing debt as the "net 30" account. As of late October 2014, the unsecured net 30 account had a balance of a little less than $18, 500 and was unsecured.

         In August 2014 a student and Crowley did a "gear-up" landing at the Wasilla Airport in the Mooney. The Mooney sustained damage to its propeller and body, and Wingnuts missed its September 2014 payments. Neither Crowley nor Wingnuts took steps to repair the Mooney promptly.

         Discussions between Crowley and Helmericks became less cordial in the following months, although the cause of the friction was disputed. Helmericks indicated he was fed up with Crowley and Wingnuts, but Crowley contended that Helmericks had inappropriately disclosed Crowley's personal financial information and also hoped to prevent Wingnuts from moving its operations to Wolf Lake where Chesnut's father had purchased a hangar.

         In October 2014 Crowley and Helmericks exchanged numerous text messages related to finances. The interpretation of the text messages was disputed, as set out more fully below. On October 23 Crowley made a $ 19, 000 cash payment to one of Helmericks's businesses. The payment's disposition was also disputed: Helmericks applied the cash first to the net 30 account and then credited the balance to the loan secured by the Mooney; Crowley insisted he directed the payment to the Mooney-secured loan. In November 2014 Crowley informed Helmericks that Wingnuts intended to move its base of operations to Wolf Lake. On December 2, 2014, Wingnuts gave NA Holdings written notice that it was vacating its office space at the Palmer Airport as of January 1, 2015.

         The Mooney remained at the Wasilla Airport without its propeller, and in June 2015 Helmericks removed the radio (or avionics) - the terms are used interchangeably in the record - from the Mooney and took the equipment to his office. According to Helmericks he visited the airport to look at the plane and observed that someone had attempted to tape the window shut with duct tape but the tape had weathered over the winter. He said the door was unlocked - Crowley disputed this - so he entered the plane and removed the avionics. Someone reported the removal of the avionics to Crowley, who contacted the police, who in turn contacted Helmericks. According to Crowley, Helmericks told the police that he had the equipment in his office and that he had removed it through the window of the plane.

         In early November 2015 Chesnut completed an Application for Airworthiness Certificate in an apparent attempt to get the Mooney repaired. According to Crowley the permit was intended to get the Mooney to Wolf Lake so Wingnuts's mechanic could fix it. Crowley intended to put a propeller on the plane and fly it to Wolf Lake later that month. At about this time Helmericks removed the engine from the Mooney and placed it with Walker, where it remained at the time of trial. Helmericks testified that rather than litigate the return of the avionics, he "opted to leave them... in the cupboard, where they were secure," and he agreed that his position at trial was that he would release the engine and avionics to Crowley or Wingnuts if the debt was paid in full. The City of Wasilla impounded the Mooney in December 2015 because of unpaid fees. According to NA Holdings's closing argument at trial, the City of Wasilla intended to dispose of the Mooney.

         B. Proceedings

         1. Complaints and answers

         In February 2015 Crowley, in his individual capacity and through counsel, sued Northern for breach of contract and several other causes of action based on the business transactions between Knik and Northern. Northern answered the complaint.

         In early April 2015 Northern as a defendant and NA Holdings as a third-party plaintiff filed a motion under Alaska Civil Rule 14 to allow a third-party complaint against Knik, Wingnuts, and Crowley individually.[1] Shortly after the motion was filed, Crowley's attorney withdrew, citing a conflict of interest, and Crowley began to represent himself. The court granted the motion to allow the third-party complaint in June. The third-party complaint set out three different breach of contract claims: one for the Cessna transactions, one for the lease agreement, and one for the Mooney-secured loan. The fourth cause of action was for "delivery" of the Mooney. No summons was issued related to the third-party complaint.[2] Copies of the contracts were attached to the third-party complaint, but the complaint itself did not set out a cause of action against Crowley as an individual and only mentioned the Cessna loan guaranty.

         Another attorney entered an appearance on behalf of Crowley in early August. Crowley and Wingnuts, through counsel, answered the third-party complaint against them in April 2016 and asserted several affirmative defenses, including the illegality of the repossessions.[3] Wingnuts brought several counterclaims, [4] including breach of contract, replevin, interference with a prospective economic advantage, and conversion against Northern and Helmericks individually, but it did not bring a cross-claim against Knik.[5] The counterclaims mostly concerned actions taken with respect to the Mooney, although the factual allegations included Northern and the repossession of the Cessnas. Helmericks was not formally joined as a party, nor did anyone attempt to join Walker as a party.[6] Northern answered the counterclaims. In later pleadings, the attorney representing Northern and NA Holdings indicated that he represented Helmericks as well, although he never formally entered an appearance. His closing argument asked the court to award Helmericks and his businesses "the entire amount of damages they have incurred."

         2. Relevant motion practice

         At the beginning of the case in early April 2015, Crowley, still represented, filed a motion under Alaska Civil Rule 88 for the Cessnas' return, arguing that he was not in default on the loan agreement because, even though his payments had not been regular, he had paid more on the account than he owed up to the time of repossession and had in fact made a loan payment after the repossession. Northern opposed the motion and raised as a defense Crowley's lack of standing to assert Knik's rights. At the hearing on the motion, the trial court noted Northern's objection but allowed Crowley to proceed for purposes of the hearing in an effort to ascertain whether he (or Knik) had any colorable claim for the aircraft. At the conclusion of the hearing the court denied Crowley's motion because he had not met his burden of showing either the probable validity of his claim to the property or the "absence of any reasonable probability that a successful defense [could] be asserted"[7] by Northern.

         In early July 2015 Northern filed a motion for summary judgment on all of the claims in Crowley's complaint based on lack of privity, arguing that the contract underlying the original complaint was between Northern and Knik, not Crowley individually; because he was not a party to the contract, Northern argued, Crowley could not assert in his individual capacity any of the claims made in his complaint. The trial court notified the parties in October 2015 that it intended to grant the motion for summary judgment but, recognizing that Crowley had been self-represented for several months while the motion was pending, it gave him 15 more days to file an opposition. Crowley, through counsel, ultimately responded that he would "not assert a personal breach of contract claim," noted that Northern had filed a third-party complaint against Knik, and concluded that he did not oppose summary judgment. He argued the summary judgment motion should affect "only Count I, and possibly Count II" of the initial complaint and represented that he would "in short order" submit "a pleading cleaning up his claims." The court then gave the parties notice that it intended "to grant summary judgment dismissal" on all counts in the initial complaint unless Crowley filed an opposition or amended his pleadings by mid-March 2016. When Crowley did neither, the court granted summary judgment and dismissed all claims in Crowley's initial complaint.

         In July 2015 NA Holdings asked the court to order delivery of the Mooney to it pursuant to the security agreement. At the same time Northern asked the court to order Crowley to deliver the logbooks and keys to the Cessnas as well as "any additional documents required for registration" of those aircraft. In October 2015 the court issued an order inviting NA Holdings and Northern "to resubmit the affidavits attached to these motions to correct deficiencies" in them. They never did. In late October the parties stipulated that the logbooks, keys, and registration to the Cessnas were in Northern's possession. Apparently nothing else was filed related to the Mooney because the trial court deemed the motion related to the Mooney moot in January 2016.

         3. ...


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