Opinion ID: 1865218
Heading Depth: 1
Heading Rank: 5

Heading: Civil Aeronautics Board Escrow Regulations.

Text: As a part of the sales agreement, Hagen represented the accuracy of the April 30, 1979 balance sheet attached to the agreement. Moreover, he warranted that, to the best of his personal knowledge, Dittmann was in compliance with all applicable laws, rules and regulations of the city, county, state and federal governments. On September 24, 1979, the Civil Aeronautics Board (CAB) conducted a routine audit of Dittmann which disclosed that Dittmann's escrow accounts did not fully conform with current CAB regulations. The applicable CAB escrow regulations as found by the trial court were as follows: From August 15, 1978, until July 1, 1979, CAB regulations provided, in pertinent part, that all tour customer payments be placed in an escrow account at a bank with one account for each tour; that those funds not be used until 60 days prior to the tour's departure date (except to make refunds for cancellations) at which time the account could be drawn upon to pay the airline in full; that following the airline payment ground operators could be paid directly by the bank but only to the extent of 80% of the full amount of the escrow account. Any remaining funds could be withdrawn by the charter operator but not until 5 days after the tour returned at the earliest. 43 Fed.Reg. 36604 (1978), codified at 14 C.F.R. § 380.20 et. seq. (1979). Had Dittmann been in compliance with the regulations, its escrow account should have contained $251,787. Dittmann's April 30, 1979 balance sheet showed the cash account to contain $100,269 and the escrow account to contain $86,344, or $165,443 less than necessary to meet the regulation requirements on that date. The CAB did not review Dittmann's operations for any periods of time before the sale. The regulations involved became effective on August 15, 1978 with amendments effective on May 1, 1979 for charters scheduled to depart on or after July 1, 1979. Hagen, however, did not have personal knowledge of these CAB regulations. His office manager who handled the escrow accounts, did receive information concerning the escrow requirements just prior to the sale. The record reveals that Dittmann was not fully complying with the CAB regulations. Although Dittmann generally deposited tour customers' initial $100 deposits in the escrow accounts, Dittmann deposited some of the final payments in its checking account and paid some of the tour expenses prior to the time permitted. There was no claim by Monson or the CAB, however, that Dittmann was missing any money. After the audit, Monson notified the CAB that he would bring the escrow accounts into compliance. He was able to do so by depositing an additional $1,488 in escrow. Dittmann received no fine or other penalty.