Actually, loser-pays is a bit more dangerous than I thought!

September 12, 2016

I recently sold N428X, my Columbia-400 (once N844X, my Evolution, was ready for flight).

The buyer had his agent
->inspect the airplane,
->inspect the various paperwork as well,
->take the plane for a test-flight,
and decided that the $315,000 or so that we had agreed on for a $700,000 airplane when new was a fair enough deal. (Understatement of the century!)
His agent took the airplane away and flew it across the country home.

Fine!

Maybe 6 months or so went by without a peep of communication or concern from the buyer.

Then, the very first time I heard from him: A letter from his lawyer threatening to sue me because I had sold his client a ‘damaged’ airplane.

The damage claimed?
A years-old thumb-print sized indentation in the wing due to a bid-strike.

His agents’ inspection, test-flight, going-over of the annual inspection paperwork, acceptance of the airplane, signing of the sales contract, 6 months of elapsed time since the sale… none of it mattered. The buyer claimed that I had sold him a damaged airplane THROUGH HIS LAWYER. He never communicated any dis-satisfaction with me. He want straight to the lawyers.

In any rational world, the parties would discuss their grievances, and rapidly arrive at a solution.

In a less-rational world, the party claiming to be injured would run screaming to his lawyers, the lawyers would hash out a deal, and the matter would be settled with some sort of reasonable compromise, with some thousands of dollars wasted on bickering lawyers.

But this was a worse world than either of those two, and I think the REASON for it is rather interesting, and with an interesting lesson.

My contract with the buyer (written by him, not me) specified that if there was any sort of lawsuit between us, THEN THE LOSING PARTY WOULD PAY ALL OF THE LEGAL EXPENSES OF THE WINNER, INCLUDING ALL APPEALS!

In other words, if the guy threatening to sue me WON, then after years of stress and hundreds of thousands in dollars of legal fees were wasted on each side, then I would have to pay HIS fees, too!

Of course, it also went the other way: If I won, he would have to pay MY fees!

But here is where it gets truly nasty: Any jury looking at this case could very reasonably give the buyer some sort of judgement against me. I mean hey, in the mind of a jury, an airplane hitting a bird is a scary thing! Inspections be darned, a jury might very reasonably look at the cost of re-building the section of the wing that had had the bird-strike (which the buyer did) and, perhaps, split the difference on the re-build cost between the buyer and the seller. (Heck, if I was on the jury, then that might be a compromise that I would turn in!)

But, here is the problem: In the case that the jury awards a (possibly very reasonable) COMPROMISE verdict, demanding that I SHARE the re-build cost with the buyer, then under the contract… I DID NOT PREVAIL, AND WOULD HAVE TO PAY THE BUYERS LEGAL FEES.

You see the rub here? The re-build on the wing cost, apparently, $14,000 (!!!). If the jury said “Hey, the bird-strike happened before the sale, but the buyer still accepted the airplane after careful inspection… let’s just split it down the middle and have Austin pay $7,000 and the buyer pay $7,000.”, then I would be down for $7,000 in repair fees (OK) and perhaps hundreds of thousands of dollars in the buyers legal fees!!!!! (HOLY SHIT! $7,000 for actual work, hundreds of thousands of dollars for lip-flapping lawyers to argue for years!)

Let’s take a more extreme case. Let’s say that the jury found that I was 1% responsible, and the buyer was 99% responsible (heck, he accepted the airplane six months ago!) I would be in for $140 in repairs… and hundreds of thousands of dollars in defense fees!

You see, even if I had almost NO fault, the legal fees would be catastrophic.

Put another way, if the BUYER though he could get even ONE DOLLAR OUT OF A JURY, he might no problem running up hundreds of thousands of dollars in a legal fees… because he could just dump them on ME after the trial!

Put another way… as long as the buyer thought he could get SOMETHING out of a jury, HE HAD NO INCENTIVE TO COMPROMISE WITH ME AT ALL, BECAUSE I WOULD WIND UP PAYING FOR BOTH SIDES OF THE TRIAL!

You see, the normal checks and balances of the system did not apply here, because each side did not have to be responsible for their own legal fees.

All this because of a bird flew across an ILS beam and a single line in a contract.

So here is the lesson: AVOID CONTRACTS THAT SAY THAT THE LOSER PAYS ALL LEGAL FEES. IF THE OTHER SIDE THINKS HE CAN SAFELY GET EVEN A SINGLE DOLLAR OUT OF YOU IN COURT, TEHN HE HAS NO INCENTIVE TO NOT DRAG YOU THROUGH YEARS OF LITIGATION AND HUNDREDS OF THOUSANDS OF DOLLARS IN FEES TO GET HIS ONE DOLLAR IN COURT.

And THAT is a system that sucks donkey-balls.

So, from here on out, I will only sign contracts with parties where each party pays their OWN legal fees.
THAT WAY, each side will want to avoid a lawsuit EQUALLY!
In hindsight, as always, this is perfectly obvious, isn’t it?

PS: Because of the absurd pressure to settle this case for the reasons above, I agreed to pay ALL of the re-build cost.
AND my aircraft broker had to pay him the depreciation that his lawyers claimed that he endured for the ‘stigma’ of having had a bird-strike many years and annual inspections ago.