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A Federal Aviation Administration decision to ground as unsafe 10 passenger jets that had been converted into cargo planes has led to separate multimillion-dollar jury verdicts. A California jury on March 1 made awards of $30.35 million for breach of contract and $47.5 million for fraud against GATX Capital Corp. and its now moribund venture, GATX/Airlog Co. Winning the case was Kalitta Air LLC, a Michigan air cargo company. It charged that GATX’s subcontractors used a defective design to modify the planes and that GATX had failed to tell Kalitta about problems and complaints involving earlier conversions. The defendants charged that the planes should never have been grounded, said GATX counsel Steven Neal of Cooley Godward. In 1996, the FAA issued airworthiness directives that “put limits on the amount of weight the planes could carry and made it uneconomical” to use them to transport cargo, Neal said. GATX contended that the directives were wrong and called the FAA actions “unfair and capricious,” Neal said. “If the FAA hadn’t issued the airworthiness directives,” the converted planes would still be flying and there would have been no litigation, he said. “There were never any problems with these planes.” The suit initially involved several companies that bought the converted Boeing 747s from GATX/Airlog, said Kalitta counsel Mark L. McAlpine of Bloomfield Hills, Mich.’s McAlpine & McAlpine. GATX settled with all but Kalitta, which bought two of the planes, and Evergreen International Airlines Inc., which bought three. The plaintiffs claimed that the modification design used by GATX’s contractors, Hayes International and Chrysler Technologies Airborne Systems, did not meet FAA requirements. The FAA originally had approved the design, McAlpine said, but backtracked after determining that the GATX jets were lacking an “external doubler of the thickness of the skin forward and below the cargo door.” In January 1996, the FAA grounded the planes and subsequently issued 17 service bulletins detailing how the planes had to be fixed. Evergreen attempted to fix one of its planes, said Evergreen attorney Michael Hennigan of Los Angeles’ Hennigan, Bennett & Dorman. Evergreen did as 16 of the 17 bulletins said, at a cost of more than $18 million, “but they were still not permitted to fly the plane,” Hennigan said. Kalitta, which bought from the last batch of planes that were converted, contended that it would never have bought the planes if GATX had informed the FAA of initial complaints from the users of the first converted planes, says Mr. McAlpine. JUST WRINKLES But any problems were minor wrinkles to be ironed out, Neal said. Informing Kalitta of them would have been akin, he said, “to forcing the seller of a house to tell the buyer every time you have to add a nail here or there.” In addition, he said, “the purchasers, including Kalitta, had people on site during every day of the conversion process.” At the trial, the defense tried to convince the jury that the FAA was wrong and that it had victimized the plaintiffs and defendants, Neal said. “The plaintiffs purchased these planes, and they’re still on the ground,” he said. “They’re victims, but so are we. We had to go out of the air cargo business.” Both sides played excerpts of deposition testimony from a Seattle-based FAA official to bolster their arguments, McAlpine noted. But, the Oakland, Calif., jury rejected the GATX view and after 12 days of deliberations found breach of warranties and failure to disclose material information. On March 1, the jury awarded Kalitta $30.35 million, plus interest, on the breach-of-contract count, and $47.5 million, plus interest, on the fraud count. The plaintiff contends that these judgments should be combined to create a total verdict of $77.85 million. The defense contends that Kalitta has to choose one. The court will determine this, said McAlpine. GATX has vowed to appeal. Prior to trial, GATX sued the FAA, seeking a finding of liability against the federal agency, but this was dismissed; GATX’s appeal of this dismissal is now pending.

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