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In re Ryan Air Service, Inc.

United States Bankruptcy Court, D. Alaska
Jul 8, 1990
Case No. A-88-00075 Chapter 11 (Bankr. D. Alaska Jul. 8, 1990)

Opinion

Case No. A-88-00075 Chapter 11

July 8, 1990

Roy Longacre, Esq., Attorney for debtor.

John Hedland, Esq., and Sara Heideman, Esq., Attorneys for Brandon.

Lloyd Ericsson, JEsq., Special Counsel for debtor.

Jan Ostrovsky, Esq., Attorney for Unsec. Cred. Comm. Unites States Trustee.


ESTIMATION OF BRANDON ESTATE CLAIM


Index Page

1. ESTIMATED AMOUNT OF THE BRANDON ESTATE CLAIM 16

2. BACKGROUND 16

3. ESTIMATION PROCEDURE 17

4. COMPENSATORY DAMAGE CLAIM 21

5. PUNITIVE DAMAGE CLAIM 24

ESTIMATED AMOUNT OF THE BRANDON ESTATE CLAIM — The court estimates for the purpose of confirmation that the claim of the Estate of Stewart Eric Brandon, Jr. is $600,000 for compensatory damages, plus $12,000 for interest, and nothing for punitive damages. The total claim is therefore estimated at $612,000.

BACKGROUND — On November 23, 1987, a Beech 1900 aircraft operated by Ryan Air Service crashed on its approach to landing in Homer, Alaska during a commuter flight from Kodiak. Eighteen people died in the crash, including Stewart Eric Brandon, Jr. The crash was one of the precipitating causes of this chapter 11 bankruptcy case.

Ryan Air, through its insurance carrier, has resolved all wrongful death and personal injury claims except the Brandon Estate's claim.

The Estate of Stewart Eric Brandon, Jr. filed a timely proof of claim for $4,000,000 for compensatory and punitive damages for wrongful death. Ryan Air has coverage of $1,000,000 per seat for compensatory damages (and, possibly, attorney fees and cost protection which, under Alaska Civil Rule 82 could amount to about $100,000). The policy apparently does not cover punitive damages.

Debtor, Ryan Air, filed a plan of reorganization and disclosure statement which has been amended several times. The Brandon Estate claim is provided for in Class 6 of the plan. The plan provides "[t]hese claims are covered by insurance and are to received nothing under RYAN'S Plan of Reorganization."

ESTIMATION PROCEDURE — Ryan objected to the Brandon Estate claim initially, the matter was eventually set for a claim estimation hearing. 11 U.S.C. § 502(c), which provides:

(c) There shall be estimated for purpose of allowance under this section-

(1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; or

(2) any right to payment arising from a right to an equitable remedy for breach of performance.

The purpose of the estimation hearing was to value the Brandon Estate claim for confirmation purposes, but not for purposes of liquidating the claim or for distribution. 28 U.S.C. § 157(b)(2)(B) specifically prohibits a bankruptcy court from allowing or disallowing a wrongful death claim. § 157(b)(2)(B) provides:

(2) Core proceedings include, but are not limited to —

(A)• • •;

(B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11;
A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1010-1011 (4th 1986) and Matter of Poole Funeral Chapel, Inc., 79 B.R. 37 (Bankr.N.D.Ala. 1987). Because of the size of the Brandon Estate's claim, confirmation may be denied if there is a large punitive damage claim or a compensatory damage claim substantially exceeding the $1,000,000 insurance coverage. The claim must be estimated before the plan can be confirmed.Cf. Matter of Pizza of Hawaii, Inc., 761 F.2d 1374, 1382 (9th Cir. 1985).

Bankruptcy courts have some leeway in adopting procedures to accomplish the duty to estimate a claim. See Bittner v. Borne TOP Chemical Co. Inc., 691 F.2d 134, 135 (3rd Cir. 1982) and Matter of Baldwin-United Corp., 55 B.R. 885, 899 (Bankr.S.D.Ohio 1985).

The court adopted a hearing procedure which allowed a limited number of witnesses for each side (Docket Nos. 809 and 824). The Brandon Estate was allowed to use as witnesses at the estimation hearing:

(1) one family member,

(2) "[o]ne economist to quantify any compensatory damages which resulted from the aircraft accident,"

(3) "[o]ne expert qualified to discuss any alleged deficiencies in operations, maintenance, and/or training related to the accident, the related federal regulations for operations and air safety for the purposes of establishing punitive damages,"

(4) one legal or statistical expert to discuss the likely award under the facts presented, and

(5) one representative of an employer of the decedent.

Ryan Air was allowed to use as witnesses for its case:

(1) "[o]ne economist to quantify any compensatory damages which resulted from the aircraft accident,"

(2) "[o]ne expert qualified to discuss the lack of deficiencies in operations, maintenance, and/or training related to the accident, the related federal regulations for operations and air safety for the purposes of rebutting punitive damages,"

(3) one legal or statistical expert to discuss the likely award under the facts presented

(4) a representative of Ryan Air to the extent necessary to lay factual groundwork and rebut the punitive damage claim.

The direct testimony of the witnesses was submitted by declaration. The witnesses availability for cross-examination was required as a condition for admitting the declaration. Cross-examination was limited to five hours per side and not more than two hours per witness.

The litigants stipulated to many of the uncontested facts about the flight and parties. (Docket No. 832) For the purposes of the estimation hearing only, and not be taken as an admission in other proceedings, the parties stipulated that the bankruptcy court could estimate the Brandon Estate claim as if liability had been established.

The Brandon Estate presented the declarations of four witnesses: (a) Dr. Bradford H. Tuck, an economist (Docket No. 841); (b) Gordon Arteno, as an aircraft and maintenance expert (Docket No. 832); (c) Paul Dale, a manager of Mr. Brandon's last employer, Cook Inlet Processing, (Docket No. 836) and; (d) William Donohue, an attorney expert in representing plaintiffs in aircraft accident cases in Alaska (Docket No. 840).

Ryan Air used three witnesses: (a) Jerry Dennis, an aircraft accident investigator and safety consultant who had investigated the Homer accident for another party before being retained by Ryan Air; (b) Joyce Pickersgill, an economist, and (c) Eric Sanders, an attorney expert in representing plaintiffs in aircraft accident cases in Alaska.

The hearing was held on April 13, 1990, and only consumed about four or five hours. The Brandon Estate has complained that it was unduly restricted in presenting evidence of punitive damages by virtue of the restriction on the number of witnesses. In the court's opinion, the procedure worked well. It gave me the pertinent facts. It gave the parties a real chance to present evidence and argument for their respective positions. And, it was done in an expedited time frame which will still allow the consideration for confirmation of a chapter 11 plan.

COMPENSATORY DAMAGE CLAIM — Bradford H. Tuck, a Ph.D. in Regional Economics, testified in support of the Brandon Estate's compensatory damage claim. Stewart Eric Brandon, Jr. was born on November 24, 1963. He was unmarried, but was alleged to be the father of a four-year old daughter.

The year that Eric died, 1987, he had earnings $25,661, annualized to $28,643. Tuck was asked by the Brandon Estate's attorneys to assume that Eric's salary would increase to between $50,000 to $100,000 per year. This was based upon testimony of Paul Dale, manager of Cook Inlet Processing. Dale testified that Eric had worked at Cook Inlet Processing as a young man and had been given more and more responsibility.

Tuck did an analysis of compensatory damages using Osborne v. Russell, 669 P.2d 550, 560 (Alaska 1983) and Alaska Statute 09.17.040(b) as his guides. The economic loss was calculated alternately for Eric alone, as if he had no dependents, and with one dependent in the event of a finding of paternity for a daughter.

The losses were calculated at various levels, with income assumed to increase from $28,643 for the first year (at age 24) progressively to the tenth year (at age 33) where it leveled off until age 61. The projected compensatory damages were analyzed at five assumed high income figures: $50,000, $67,500, $75,000, $85,000, and $100,000. Tuck used a 1% discount rate to arrive a the present value of the loss. The exact methodology, justification, and calculations are shown on Exhibit B to Docket No. 841. The resulting compensatory damages calculated by Tuck are:

Assumed Present Present High Value of Value of Salary Loss With No Loss With One Dependents Dependent

$50,000 $388,004 $608,151 $67,500 $597,617 $865,989 $75,000 $687,451 $976,492 $85,000 $807,229 $1,123,828 $100,000 $986,897 $1,344,832

The Brandon Estate claims it is entitled to interest at 10 1/2% on the loss. For example, the Brandon Estate filed an affidavit of Sara Heideman, attorney for the Brandon Estate, on June 14, 1990, which included a "Paternity Evaluation Report" alleging a 99.99% probability of paternity. From this, the Brandon Estate argues that if the $75,000 high salary scenario were used, damages would be $976,492 at the time of death, but would be increased by interest at the statutory rate of 10 1/2% (Alaska Statute 45.45.010) to $1,284,086.98.

The economic expert for Ryan Air was economist Joyce Pickersgill. Her declaration for her direct testimony was a cursory letter (Docket No. 847.1). As background for making an estimate of compensatory damages, she reviewed payroll records of Brandon and a statement of Paul Dale, the Cook Inlet Processing manager. Her analysis was based on several optional methodologies. The range of economic loss which she found was from $98,305 to $212,290.

One of Pickersgill's methods used Bureau of Census data found in Household Wealth and Asset Ownership: 1984. Pickersgill extrapolated the data from 1984 to 1989, and estimated loss at $140,111 to $212,290. The second method used a Department of Commerce, Bureau of Economic Analysis,Disposition of Personal Income, 1929 — 1988 based on average rates of savings.

Both Bradford Tuck and Ryan Air's own expert on aircraft accidents and wrongful death cases, Eric Sanders, discredited Pickersgill's analysis. Tuck challenged the validity of her use of the Census data, which he said might be okay for statistical purposes, but was not valid to analyze a specific case. He found the use of a nationwide average savings rate much too general to use on a specific case. Sanders indicated the Pickersgill report did not comply with Alaska case law for calculating economic loss. See Osborne v. Russell.

Eric Sanders testified the tendency recently has been a decline in jury verdicts from what they had been in the 1970s and early 1980s. He guessed this might reflect a reaction to the general economic downturn Alaska has experience for the last five or six years. Sanders said juries tended to discount the conclusions of economic experts, and arrive at a percentage of the expert's damage opinion. In argument, Ryan Air challenges the assumption that Eric Brandon's salary would rise to $50,000 per year from $28,000 per year at the time of his death. Eric Sanders questioned the validity of a $75,000 estimate, intimating that it was too high. The Brandon Estate argues that Ryan has not rebutted Tuck in any way. The court is not bound to take Dale's testimony at face value.

I conclude that compensatory loss would be no more than $600,000, assuming the paternity of the four year old girl were established. This estimate uses $50,000 per year, which may by too optimistic. There are intimations even in the sparse testimony from Dale that Eric had some troubles in his personal life and, perhaps, in some of his work relations. If, as Sanders indicated, juries tend to discount the estimates of plaintiffs' expert economist, $600,000 seems to be a generous estimate by this court of the compensatory damages for the purpose of plan confirmation.

The Brandon Estate would not be entitled to interest past the date the chapter 11 petition was filed in this case, February 1, 1988. 11 U.S.C. § 502(b)(2). Interest would accrue from November 23, 1987 to February 1, 1988 at most, or approximately, $12,082.19, which I have rounded to $12,000.

PUNITIVE DAMAGE CLAIM — The Brandon Estate also claims substantial punitive damages. The expert it used was Gordon Arteno, a licensed commercial pilot with an Airline Transport Rating, with Multiengine Land endorsement. His direct testimony appeared at Docket No. 837. He is a designated FAA Federal Aviation Administration aviation safety counselor, a written test examiner, a pilot with 2,000 to 3,000 hours of military flying time, and over 4,200 hours civilian hours. He operates his own Part 135 air taxi certificate in medical evacuation operations.

Arteno reviewed the National Transportation Safety Report. His declaration specified various witnesses and report upon which he relied in rendering his opinion. These included:

(a) indications of icing conditions in the Homer area at the time of the accident;

(b) indications of sloppy weighing and loading procedures about three days before the accident on the same flight, including the large amount of deer meat flown out on November 20, 1987;

(c) a problem with the scale at Kodiak;

(d) a report by the Beechcraft Corporation "which strongly indicated that the Beech 1900 aircraft developed serious, potentially uncontrollable control problems if the aircraft was loaded beyond the aft center of gravity (CG) limit;"

(e) the statement of the Kodiak tower operator that the Beech 1900 took off with a high angle of attack, indicating the aircraft was heavy;

(f) the statement of Ryan's baggage handler in Kodiak that the co-pilot told him to load 1,500 pounds of cargo, and the aircraft seemed to be very heavily loaded in the rear;

(g) a statement of Paul Swanson, Ryan's former chief pilot, that it was common knowledge the Beech 1900 should not be loaded with more than 1,050 to 1,200 pounds of cargo;

(h) the statements Shane Hart and Robert S. Hurley that the aircraft took an exceptionally long takeoff run in Kodiak and settled back to the runway once before becoming airborne, presumably because of the weight;

(i) random loading of passengers in which a 300 pound man was loaded in the rear of the flight, exacerbating the aft CG problem, and;

(j) the statement of Ernest Keener, an FAA maintenance inspector, which the Brandon Estate's counsel related to Arteno, that Keener had been told by a former Ryan mechanic in September of 1986 that Ryan habitually flew overloaded, and which sought immunity for three pilots so they could verify the allegations.

On this latter point, immunity was never granted by the FAA, and the pilots never came forward. Ryan Air and the Brandon Estate dispute whether the Keener matter should be considered by this court, or would be admissible in the pending civil suit of Brandon Estate against Ryan Air.

Arteno's conclusion was that Ryan Air exhibited gross negligence and an intentional pattern of violating FAA load restrictions.

Jerry Dennis testified as an expert for Ryan. In 1987, he operated his own accident investigation and safety consulting business in connection with the aviation industry. He has been employed by the NTSB, and he is a pilot. He was retained (not by Ryan) within an hour of the accident to investigate it. He went to Homer the day after the accident. Because the NTSB was investigating, he did not get as close a look as he would have liked, but he did make some firsthand observations and had reviewed the NTSB report. He questioned some of the weights calculated by the NTSB. For example, he said a lot of the deer meat which was cargo may have absorbed water after the crash and been estimated at too high a weight. He said the cargo handlers in Kodiak had "inadvertently overloaded" the aircraft causing an aft center of gravity. Dennis also emphasized that the Beech 1900 had some inherent stability problems which were not the Ryan Air's or the pilot's fault.

The standard for awarding punitive damages in Alaska was set out in Sturm, Ruger Co. v. Day, 594 P.2d 34, 46 (Alaska 1979). The conduct must be shown to have been:

`outrageous, such as acts done with malice or bad motives or a reckless indifference to the interests of another'. Actual malice need not be proved. Rather, `reckless indifference to the rights of others, and conscious action in deliberate disregard of them

Ryan Air says there has never been a case in which punitive have been upheld against an airline. Ryan Air cites as applicable to the present case, Andor v. United Air Lines, Inc., 739 P.2d 128 (Ore. 1987). The Brandon Estate cites Soria v. Sierra Pacific Airlines, Inc., 726 P.2d 706 (Idaho 1986) in which an owner-lessor was found liable on appeal for punitive damages.

Ryan Air's argument is that the pilots were not suicidal, and the Brandon Estate must show that the pilots had such a disregard for their own safety as to be suicidal before punitive damages could be established. The Brandon Estate says sufficiently outrageous conduct can be established by showing a pattern of disregard for the load restrictions of the FAA. The Brandon Estate tries to show a pattern of willful violation of loading restrictions and cutting corners in disregard of passenger safety.

The underpinning of the Brandon Estate's punitive damage case is its attempt to establish a history of numerous flight operations while being overloaded. The only evidence of this is the NTSB report of the testimony of Ernest A. Keener, an FAA maintenance inspector. In September 1986 a Ryan Air mechanic told Keener of about 200 incidents of overloading which he said took place with the encouragement and knowledge of Ryan Air management. The mechanic, a disgruntled ex-Ryan employee, said three Ryan Air pilots would be willing to testify if they could protect their pilot's certificates by a grant of immunity. The grant of immunity was never approved by the FAA. The names of the three pilots was not discovered. NTSB Report 368-371. Apparently, a review of the Ryan Air weight manifests does not clearly show a pattern of overloading. NTSB Report at 444-445

I find the testimony of Keener would not be admitted in a civil suit to show a pattern of overloading and management disregard for FAA loading requirements. Alaska Rule of Evidence 801 and 802. Almost everything else the Brandon Estate has put forth to show the "outrageous" nature of Ryan Air's actions rises to no more than an ordinary negligence claim.

Punitive damages must be proven by clear and convincing evidence. Alaska Statute 09.17.020. I feel that the Brandon Estate will not meet that burden, based upon the showing made at the estimation hearing.

The Brandon Estate has complained they have been hindered by the automatic stay under 11 U.S.C. § 362 from investigating and establishing admissible evidence (such as finding some of the three pilots mentioned by the mechanic) to support a punitive damage claim. I believe the Brandon Estate could have moved much sooner to discover such evidence, and that it had a sufficient opportunity to make a case for punitive damages, but has not. Therefore, the claim for punitive damages is disallowed for confirmation purposes. Of course, the Brandon Estate can still show it is entitled to punitive damages in its civil action against Ryan Air. In re Nova Real Estate Investment Trust, 23 B.R. 62, 66 (Bankr.E.D.Va. 1982).


Summaries of

In re Ryan Air Service, Inc.

United States Bankruptcy Court, D. Alaska
Jul 8, 1990
Case No. A-88-00075 Chapter 11 (Bankr. D. Alaska Jul. 8, 1990)
Case details for

In re Ryan Air Service, Inc.

Case Details

Full title:In re RYAN AIR SERVICE, INC., Debtor(s)

Court:United States Bankruptcy Court, D. Alaska

Date published: Jul 8, 1990

Citations

Case No. A-88-00075 Chapter 11 (Bankr. D. Alaska Jul. 8, 1990)