Jacobs no longer owns the Aircraft and does not have any financial obligations related to the
Aircraft, the acceleration clause in the Lease Agreement obligating RutAir to pay the remaining
monthly rent payments for the remainder of the term of the Lease Agreement, which would
amount to $1,400,000.00 for the 56 additional months of the term, would create a windfall for
BA Jacobs.

Section 356(1) of the Restatement (Second) of Contracts provides, in part:

(1) Damages for breach by either party may be liquidated in the agreement but

only at an amount that is reasonable in light of the anticipated or actual loss

caused by the breach and the difficulties of proof of loss. A term fixing

unreasonable are liquidated damages is unenforceable on grounds of public policy

as a penalty.
Restatement (Second) of Contracts § 356 (1979); see also Grossinger Motorcorp. Inc., 240
Il App.3d at 749. The Court finds that the losses to BA Jacobs are calculated easily, and that the
liquidated damages allowed for in the Lease Agreement do not approximate the actual damages
in this case. While actual damages may include, among other damages, loss of the monthly rent
payments after the Aircraft was repossessed but prior to it being sold, once the Aircraft is sold,
BA Jacobs no longer has the carrying costs of the equipment and recovering all of the monthly
rent payments would be a windfall for BA Jacobs. This creates an incentive to default RutAir,
repossess and sell the Aircraft as soon as possible, and collect the remaining lease payments
anyway.

Given the failure to account for early recapture and sale of the Aircraft in the Lease

Agreement, the Court finds that the acceleration clause is an unenforceable penalty, and

Plaintiff's Motion for Summary Judgment on Damages is denied.


judgment entered herein. Based on the terms of the Lease Agreement and Guaranty Agreement,
BA Jacobs is entitled to recover its reasonable attorneys’ fees and costs, which can be
determined after an evidentiary hearing in this matter.
IV. CONCLUSION

For all of the reasons discussed in the Court’s Memorandum Opinion and Order, Plaintiff
BA Jacobs’ Motion for Summary Judgment as to Damages is denied [ECF No.76]. This case is
set for a status hearing on December 15, 2015, at 10:45 a.m. to discuss scheduling a date for an
evidentiary hearing to determine BA Jacobs’ actual damages resulting from RutAir’s breach of

the Lease Agreement.

It is so ordered.

, :
~My |
Jeffrey T. Gilbert *

Ynited States Magistrate Judge

Dated: December 8, 2015


In interpreting provisions that affix the amount of damages in the event of a breach, courts “lean
toward a construction which excludes the idea of liquidated damages and permits the parties to
recover only actual damages.” Grossinger Motorcorp, Inc., 240 Ill. App.3d at 749 (quoting Arco
Bag Co. v. Facings, Inc., 18 Ill. App.2d 110, 116 (1st Dist. 1958)).

To be valid under Illinois law, “a liquidation of damages must be a reasonable estimate at
the time of contracting of the likely damages from breach, and the need for estimation at that
time must be shown by reference to the likely difficulty of measuring the actual damages from a
breach of contract after the breach occurs. If damages would be easy to determine then, or if the
estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a
penalty.” Lake River, 769 F.2d at 1289-90 (citation omitted). When the amount set in a
liquidated damages clause is not a reasonable estimate of the damages that might flow from the
breach of a contractual promise, courts have refused to enforce such clauses on the grounds that
they are penalties. See e.g., Lake River Corp., 769 F.2d at 1289-90; National City Healthcare
Finance v. Refine 360, LLC, 607 F.Supp.2d 881, 884 (N.D. Ill. 2009); AAR International Inc. v.
Vacances Heliades S.A., 349 F.Supp.2d 1114, 1116-17 (N.D. Ill. 2004); General Electric Capital
Corp. v. Laser Hair Removal, 97 F.Supp.2d 1210 (N.D. Ill. 2000); Grossinger Motorcorp, Inc.,
240 Ill. App.3d at 750; Callahan v. Balfour, 179 Il.App.3d 372, 534 N.E.2d 565 (1st Dist.1989).
“[DJamages must be a specified amount for a specific breach, not a penalty to punish for
nonperformance or as a means to secure performance.” Grossinger Motorcorp, Inc., 240 Ill.
App.3d at 750 (citation omitted).

In the instant case, the Court finds that the acceleration clause in the Lease Agreement is
an unenforceable penalty because the Lease Agreement does not take into account the effect of

the early recapture of the leased Aircraft, which BA Jacobs subsequently has sold. Because BA


B. Calculation of Actual Damages

Notwithstanding the fact that this Court has found the acceleration clause unenforceable,
BA Jacobs still is entitled to recover its actual damages. Illinois law seeks to place the non-
breaching party in as satisfactory a position as it would have been had the breach not occurred
and had the contract been performed. See Equity Insurance Managers of Illinois, LLC v.
MwNichols, 324 Il.App.3d 830, 837, 755 N.E.75, 80 (1st Dist. 2001).

In its Motion, BA Jacobs states that at the time it repossessed the Aircraft on April 2,
2011, RutAir owed BA Jacobs $71,364.97, which amount consisted of pilot fees, airfare engine
reserve fees, delivery charges, late fees, rent, maintenance, and postage. BA Jacobs LR 56.1(a)
Statement of Facts [ECF No. 77], at 117. RutAir disputes that the Aircraft was repossessed on
April 2, 2011, and instead asserts that the Aircraft was repossessed on March 30, 2011. RutAir
and Levy LR 56.1(b) Response to BA Jacobs’ Statement of Facts [ECF No. 80], at 117. RutAir
also disputes that the outstanding balance it owed BA Jacobs at the time of repossession was
$71,364.97, and asserts that it was “about $46,000.” Jd. These are disputed questions of a
material fact.

BA Jacobs also has presented evidence that it suffered damages after it repossessed the
Aircraft and attempted to mitigate its losses, and that it suffered losses from the sale of the
Aircraft. BA Jacobs LR 56.1(a) Statement of Facts [ECF No. 77], at 1 18-20. These alleged
damages also can be quantified easily. While some of these amounts are in dispute, which
prevents resolution on Plaintiff's Motion for Summary Judgment on Damages, these damages

can be quantified and the Court can resolve any disputed issues of fact at an evidentiary hearing.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

BA JACOBS FLIGHT SERVICES, LLC,
an Illinois Limited Liability Company,

Plaintiff,
No. 12 C 2625

Vv.

RUTAIR LIMITED, a/k/a RUTAIR LLC,
a Jamaica Corporation, and GEORGE
LEVY, an individual,

)
)
)
)
)
)
) Jeffrey T. Gilbert
) Magistrate Judge
)
)
)
Defendants. )
MEMORANDUM OPINION AND ORDER
On January 27, 2015, this Court issued a Memorandum Opinion and Order [ECF No.74],
granting partial summary judgment in favor of Plaintiff BA Jacobs Flight Services, LLC and
against Defendants RutAir Limited and George Levy as to their respective liability under a Lease
Agreement and Guaranty Agreement that are the subject of this lawsuit. This matter is before the
Court on Plaintiff's Motion for Summary Judgment as to Damages [ECF No.76]. For the reasons
set forth below, Plaintiff's Motion is denied.
I. BACKGROUND
The Court assumes familiarity with the underlying facts of this case and its previous
Memorandum Opinion and Order [ECF No.74]. On December 1, 2010, Plaintiff BA Jacobs
Flight Services, LLC (“BA Jacobs”) entered into a lease agreement (the “Lease Agreement”)
with Defendant RutAir Limited (“RutAir”), in which BA Jacobs agreed to lease to RutAir a 2010
Cessna Caravan 208B aircraft (the “Aircraft”) for a period of five years with monthly rent of
$25,000, among other terms. As a condition of BA Jacobs entering into the Lease Agreement,

Defendant George Levy (“Levy”), who is the Managing Director of RutAir, signed a personal


C. Damages under the Guaranty Agreement

This Court previously entered summary judgment as to Levy’s personal liability under
the Guaranty Agreement. The Guaranty provides, in relevant part:

The Guarantor agrees that upon any default of the Lease in payment of the

Lessee’s indebtedness to the Lessor or any part thereof, the Guarantor will pay to

the Lessor, upon demand, the entire amount of the Indebtedness of the Lessee to

the full extent if this Guaranty . . . . The liability of the Guarantor under this

Guaranty shall not exceed the total sum of one year’s rental payments, being the

sum of $300,000, as provided in the Agreement, plus interest and any costs,

including attorney fees, that may be incurred in enforcing the payment of the

Indebtedness of the Lessee against the Guarantor, whether or not suit or action is

instituted.

[ECF No.77-4], Ex. D at §1. The Guaranty Agreement creates a separate remedy under which
BA Jacobs can seek recovery of its damages.

Neither RutAir nor Levy asserted any argument with respect to damages recoverable
against Levy under the Guaranty Agreement in their response to Plaintiff's Motion for Summary
Judgment as to Damages. Therefore, under the plain terms of the Guaranty Agreement, BA
Jacobs is entitled to recover up to $300,000, in damages from Levy plus any interest, costs and
attorneys’ fees, including any fees and costs incurred in enforcing any judgment.

D. Attorneys’ Fees and Costs

The Lease Agreement also provides for the recovery of attorneys’ fees and costs to the
prevailing party in the event a lawsuit is commenced to enforce the terms of the Lease
Agreement. Specifically, Section 19 provides, in relevant part:

In the event any suit or action is brought under this Lease to enforce any of its

terms, or in any appeal therefrom, it is agreed that the prevailing party shall be

entitled to reasonable attorneys’ fees, costs and expenses to be fixed by the trial

court and/or appellate court.

[ECF No.77-1], Ex A at §19. BA Jacobs has asserted that it has incurred attorneys’ fees and

costs of $52,185.61, to date and it seeks future fees and costs it will incur in enforcing any


guaranty (the “Guaranty Agreement”), in which he agreed to guarantee personally RutAir’s
payments under the Lease Agreement up to $300,000 in the event of a breach of the Lease
Agreement, plus attorneys’ fees and costs incurred by BA Jacobs in enforcing its rights under the
Guaranty Agreement. In this Court’s previous Memorandum Opinion and Order, the Court held
that RutAir breached the Lease Agreement. See [EFC No. 74], at 11. Now the Court must
determine what damages, if any, BA Jacobs may recover from RutAir under the Lease
Agreement and from Levy under the Guaranty Agreement.
II. STANDARD OF REVIEW

Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that “there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. Civ. P. 56(a); see Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 951 (7th Cir.
2013). In deciding a motion for summary judgment, the court “review[s] the evidence in the
record in the light most favorable to the non-moving party and draw[s] all reasonable inferences
in its favor.” NES Rental Holdings, Inc. v. Steine Cold Storage, Inc., 714 F.3d 449, 452 (7th Cir.
2013); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The party opposing
the motion for summary judgment “gets the benefit of all facts that a reasonable jury might
find.” Loudermilk v. Best Pallet Co., LLC, 636 F.3d 312, 314 (7th Cir. 2011). However, the
opposing party cannot rely on mere conclusions and allegations to create factual
issues. Balderston v. Fairbanks Morse Engine Div. of Coltec Indus., 328 F.3d 309, 320 (7th Cir.
2003). Nor can speculation be used “to manufacture a genuine issue of fact.” Springer v.
Durflinger, 518 F.3d 479, 484 (7th Cir. 2008) (citing Amadio v. Ford Motor Co., 238 F.3d 919,

927 (7th Cir. 2001)). A court will grant summary judgment “if no reasonable trier of fact could


find in favor of the non-moving party.” Hoppe v. Lewis Univ., 692 F.3d 833, 838 (7th Cir.
2012) (internal quotation marks omitted); Northbound Group, Inc. v. Norvax, Inc., 5 F.Supp.3d
956, 966-67 (N.D. Ill. 2013).

Ill. ANALYSIS
A. The Acceleration Clause in the Lease Agreement Is an Unenforceable Penalty

Section 18 of the Lease Agreement provides, in relevant part:

Notwithstanding any repossession or other action that Lessor may take, Lessee

shall be and remain liable for the full performance of all obligations on the part of

Lessees to be performed under the lease and specifically liable for the remaining

rent due to Lessor until completion of the lease.

[ECF No.77-1], Ex. A at 118. BA Jacobs argues that the terms of the Lease Agreement are clear
and unambiguous and that, in the event of a breach, it is entitled to, among other things, the
remaining monthly rent payments for the full term of the Lease Agreement. RutAir disagrees
and argues that the acceleration clause in the Lease Agreement is an illegal penalty and the Court
should not enforce it. Whether a provision for damages is a penalty clause or a valid liquidated
damages provision is a question of law rather than fact. See Weiss v. United States Fidelity &
Guaranty Co., 300 Ill. 11, 16, 132 N.E. 749, 751 (1921); M.I.G. Investments Inc. v. Marsala, 92
Ill. App. 2d 400, 406, 414 N.E.2d 1381, 1386 (2nd Dir. 1981). See also United Order of
American Bricklayers & Stonemasons Union No. 21 v. Thorleif Larsen & Son, Inc., 519 F.2d 331
(7th Cir. 1975).

There is no fixed rule applicable to all liquidated damage provisions, and each one must
be evaluated on its own facts and circumstances. See Grossinger Motorcorp, Inc. v. American
Nat. Bank and Trust Co., 240 Ill. App. 3d 737, 749, 60 N.E. 2d 1337 (1st Dist. 1992). Illinois
law recognizes the distinction between a liquidated damages provision and a penalty. See Lake

River Corp. v. Carborundum Co., 769 F.2d 1284, 1289 (7th Cir.1985) (collecting Illinois cases).