Free Status Report - District Court of Arizona - Arizona

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Gerald H. Goldstein TX Bar No. 08101000 Cynthia E. Orr TX Bar No. 15313350 Goldstein, Goldstein and Hilley 310 S. St. Mary's St. 29 th Floor San Antonio, Texas 78205 210-226-1463

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA UNITED STATES OF AMERICA Plaintiff, versus 1. Lear Jet, Model 31A, Serial Number 31A-244, U.S. Registration No. N224LJ, Defendant. § § § § § § § §

CIV-04-363-PHX-JWS

STATUS REPORT

NOW COMES, ALBERTO ABED-SCHEBAIKAN, Calezar, Ltd., and Uptongrove, Ltd. and file this STATUS REPORT, and in support would show the Court as follows: PENDING CRIMINAL INVESTIGATION

18 19 20 21 22 23 24 25 26 27 28 the "Fines, Forfeiture and Penalties Unit of Customs and Bord." See Registry pages 1 2. investigation described in the Mexican media article, attached as Exhibit 1. However, the status of the investigation could change. The FAA registry website indicates that the Agusta and Cessna are still of interest to 1. The undersigned is still uncertain with regard to the status of a criminal investigation. While counsel has been advised by AUSA's Davitt and Patrick Murphy that the criminal investigation of this case is inactive and that they are unaware of the

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attached as Exhibit 2. Until the undersigned receives a formal report clarifying the status of the criminal investigation, counsel are in agreement with this Honorable Court's analysis in its "Order From Chambers [Re: Motions at Dockets 153, 156, 159, 161, and 171]" that the Court must stay the proceedings against Mr. Abed. As this Honorable Court rightfully found: "It is clear from the case law that Abed does not face a conundrum of constitutional magnitude, but both the Little Al and London courts recognized individuals who show how civil proceedings might prejudice them in a criminal case may be entitled to a stay of the civil proceedings. In light of that case law, Subsection 981(g)(2) should be read as acknowledging the same dilemma and resolving it by making a stay mandatory instead of discretionary. Because Abed faces that dilemma, the court must stay these proceedings. Accordingly, discovery directed him may not proceed, and his motions to quash and for a protective order must be granted." p. 7. The Agusta and Cessna continue to fly in Mexico and are still under a provisional secure order. SALE OF DEFENDANT PROPERTY Claimants have been advised that the Defendant property, Lear Jet 31A, pursuant to 28 U.S.C §2001(a), was sold at a public sale on June 23, 2006, for $4.4 million. Claimants and the Government are engaged in investigating and discussing the disbursement of proceeds from the sale of the Defendant property. EG&G has provided insufficient information to conclude this discussion. The Government is seeking this additional information from EG&G.

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The following information is intended to more fully set out the difficulties. The undersigned and the Plaintiff have not yet been able to obtain satisfactory information regarding the expenses for storage, maintenance, service and repair of the Lear Jet from EG&G. The letters and attachments from the Assistant U.S. Attorney and EG&G are attached as Exhibit 3 for the Court's information. This Honorable Court's Order for a Public Judicial Interlocutory Sale of Defendant 1 addresses the distribution of expenses for the maintenance, repair and sale of the Lear Jet to the fines, penalties, and Forfeiture Unit of Customs and Border Protections (U.S. Customs Service) and the sales proceeds from the sale of the aircraft. The following chart describes Claimant's concerns with the lack of information necessary to adequately determine the proper disposition of the sale proceeds of the Lear Jet. EG&G characterizes the exhibits to its August 25, 2006, letter as follows

16 17 18 19 20 21 22 23 24 25 26 27 28 3 matters which are not properly assessed in the Claimants' estimations. Exhibit 1: as total costs for storage, maintenance and service; Exhibit 2: is the costs associated with the interlocutory sale; and Exhibit 3: a cost estimate for replacement of the engines. However, these exhibits are not accurately characterized or contain

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"In the event that any party disputes the need for, extent of, or airworthiness of repairs performed pursuant to this Order the matter will be referred to an independent FAA Certified Aircraft and Powerplant Expert who will advise the Court regarding the issues involved. The expenses of the FAA Certified AP Technician shall be paid by the party determined by the Court to have failed to prevail regarding the issue presented to the expert." Paragraph 1, Court's Order, p.2. "The aircraft shall be returned to the MSP program prior to the auction of the aircraft at the expense of plaintiff...the engine shall be placed in approximately the same condition as of the date of seizure of defendant #1." Paragraph B, Court's Order, p. 3. "Brakes and landing gear hardware shows signs of rust or corrosion. The affected parts will be repaired or replaced at the expense of plaintiff to be brought within the compliance with the warranties provided by Lear Jet and FAA airworthiness standards." Paragraph C, Court's Order, p. 3. COURT'S ORDER PROVIDES

CHART I
EG&G DESCRIBES CHARACTERIZATION OF EXPENSES CLAIMANTS COMPLAINT OF DEFICIENCY

The procedure set out by this Honorable Court was not employed.

"1-B* Engine repairs and return to MSP $448,565.10" line 1 of EG&G Exhibit 2. Plaintiff is to bear these expenses.

"1-C* Safety of flight 41,071.61" Plaintiff is to bear theses expenses.

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COURT'S ORDER PROVIDES

EG&G DESCRIBES CHARACTERIZATION OF EXPENSES "1-D* Paint (touch-up) 19,500.00" This cost is to be born by plaintiff. EG&G, Exhibit 2, line 3. Plaintiff is to bear cost. "1-D Paint (strip & paint, 0/A touch-up) Note: BCI & CHP agreed costs for o/a touch up would be taken from sales proceeds. $14,971.66." EG&G, Exhibit 2, line 4.

CLAIMANTS COMPLAINT OF DEFICIENCY

"The [parts affected `from substantial contact with salt air and moisture'] will be repaired or replaced at the expense of plaintiff and shall be brought within the compliance of the warranties provided by Lear Jet and FAA airworthiness standards." Paragraph D, Court's Order, p. 3 (bracketed words taken out of order from that Paragraph). "The avionics shall be inspected, repaired, and certified as airworthy or the units may be replaced at the expense of plaintiff to be brought within compliance with the warranties provided by Lear Jet and FAA airworthiness standards." Paragraph F, Court's Order, p. 4. "To the extent that [`Annual and Mandatory Inspections,' `Airworthiness Directives,' `Phase Inspections,'and `limited life items'] is a regular expense of the operation of the aircraft, they are chargeable to the sale of the aircraft." Paragraph G, Court's Order, p. 4.

Claimants are unaware of the identity of "CHP" and are also not parties to any such agreement. Claimants take the position that the cost of this item should be borne by the Plaintiff.

"1-F* Avionics functional disc. $24,415.68" EG&G, Exhibit 2, line 5. Plaintiff is to bear that expense.

Please see Chart 2 at page 8. Most "G" category items are inspections which are either routine or which were necessitated by repairs required because of the deterioration of the aircraft.

The information provided about "G" items by EG&G is insufficient to adequately characterize the inspection.

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COURT'S ORDER PROVIDES

EG&G DESCRIBES CHARACTERIZATION OF EXPENSES No characterization

CLAIMANTS COMPLAINT OF DEFICIENCY

"Specific references to AD2004-03-08 regarding inspection and repair of the shear web structure which supports the engines. Plaintiff shall recover as costs from the net proceeds of sale the expense of the inspection...regardless of the maintenance required to be performed in Paragraph B above." Paragraph H, Court's Order, p. 4. It appears that Paragraph H also contains a separate provision for any additional FAA AD inspection which this Court charges to the Plaintiff's except for such an inspection cost which exceeds $68,000. "To the extent that, in the opinion of the FAA Certified AP Technician conducting the inspections, any FAA AD is or should be considered a warranty claim or manufacturers obligation of Lear Jet, plaintiff may make such modifications and repairs as required by the FAA AD in order to make the aircraft airworthy for the sale. In the event that the costs for the inspection exceed $68,000, plaintiff may recover the costs of these expenses as a cost from the net sales proceeds of the sale of the defendant aircraft, and the Court will consider at a subsequent hearing whether any setoff should be applied to any potential sum recovered by the appropriate party." Paragraph H, Court's Order, p. 5.

No characterization

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COURT'S ORDER PROVIDES

EG&G DESCRIBES CHARACTERIZATION OF EXPENSES EG&G characterizes exhibit 1 to its August 25, 2006 letter as the "total cost for storage, maintenance, and service..." However, exhibit 1 is titled in a manner which reflects costs of "repair" which this Court had allocated to the Plaintiff. These costs include: 1) relocation of aircraft to BAS for repairs, 2) costs of inspection and repairs to return aircraft and engines to an airworthy condition, 3) EG&G labor to monitor repairs, 4) office supplies/copies for monitoring repairs, 5) travel. These items total $870,759.77. In addition, exhibit 1 contains an inadequately described item entitled "EG&G, indirect costs." This amount totals $137,381.69. An additional note on the exhibit causes concern "Additional labor costs may alter the final costs." We think costs for storage and sale of the Lear Jet that we have $1,294,561.20 should be reduced by $1,007,840.31, for a total of $286,720.89. 1

CLAIMANTS COMPLAINT OF DEFICIENCY

"The net proceeds of the sale (sales price less commission, closing costs, storage, advertising, preparation and maintenance of the aircraft as noted herein, and other selling expenses) shall be used to pay off the outstanding taxes on the aircraft, if any, the costs incurred by Customs and Border Protection, to maintain the property since the seizure on September 16, 2002." Paragraph 6, Court's Order, p. 7.

"EG&G labor costs are direct costs associated with labor rates from individuals that worked directly on this project. EG&G indirect cost are approved DCAA rates applicable to Government contracts and contractor fees negotiated with the Government at the time the contract is awarded. This information is proprietary." EG&G, October 25, 2006 letter. Office supplies apparently related to reviewing invoices from an entity referred to as "BAS." Claimants are not aware that any party requested the monitoring. This Court provided a procedure for any disputed repairs which did not include the use of a monitor. W hile EG&G may have felt it was desirable to engage a monitor in the repair of the aircraft, this is not an expense which the Court authorized or to which any party agreed.

Claimants' subtracted in whole the $771,060.92 in Exhibit 1 for costs of inspection and repair to aircraft and engines to arrive at this storage costs figure. Those costs which this Honorable Court charged to the proceeds of the sale for regular inspections, sales expenses commission and advertising will be determined from EG&G's Exhibit 2 to the extent possible and expressed as a separate number. Also, the figure of $286,720.89 is believed to be too high for storage and maintenance of a Lear Jet. In San Antonio, Texas, the cost of hangaring a Lear 31 is $700 a month. 7

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"1-D* Paint (touch-up) line 3, exhibit 2 19,500.00 "1-B* Engine repairs and return to MSP" line 1, exhibit 2 "1-C* Safety of flight" line 2, exhibit 2 448,565.10 Items which Claimants believe are chargeable to Plaintiff Amount

CHART 2
Items regarding which Claimants have insufficient information "1-G Time change items" line 9, exhibit 2 "1-G Miscellaneous requirements" line 13, exhibit 2 "Shop supplies" line 15, exhibit 2 Amount Items which the Claimants believe the Court's Order makes chargeable against the sale proceeds Amount

9,165.25

"1-G ABC inspections" line 6, exhibit 2 "1-G ABC inspections (noncorrosion disc)" line 7, exhibit 2

29,525.80

41,071.61

10,005.16

43,082.21

1,882.91

"1-G Hourly inspections" 2 line 10, exhibit 2 "1-G Calendar inspections" 3 line 11, exhibit 2

410.00

"1-D Paint (strip & paint, o/a touch-up) Note: BCI & CHP agreed cost for o/a touch up would be taken from sales proceeds." line 4, exhibit 2 "1-F* Avionics functional test and disc)" line 5, exhibit 2 "1-G* ABC inspections (corrosion disc)" line 8, exhibit 2 "W indshield replacement" line 18, exhibit 2 TOTAL

14,971.66

20,583.16

24,415.68

"1-G Advisory directives" line 12, exhibit 2

355.50

47,320.13

58,343.85

$654,188.03

$21,053.32

$93,956.67

While Claimants do not dispute that this is a legitimate item, Claimants request a more detailed description of what the "Hourly inspections" entail. While Claimants do not dispute that this is a legitimate item, Claimants request a more detailed description of what the "Calendar inspections" entail, since the expense seems high. 8
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5.

As explained in a previous footnote, the storage costs of the Lear Jet for 2002-2006 appears to be rather high. An average cost to store a Lear Jet is approximately $700, in a hangar that holds two to three aircraft.

6.

In addition, Claimants disagree with the characterization by EG&G in its August 25, 2006 letter, at paragraph 2, that it's decision not to start the engines was based upon unavailability of the logbooks. The logbooks were available and upon learning that the Government had not seized them as was represented in the amended complaints and seizure notice, counsel obtained them. Counsel also provided notice of their location and availability by filing a notice with this Honorable Court.

7.

For the same reason Claimants also disagree with the comment in paragraph 3 of the August 25, 2006 letter from EG&G that: "The aircraft was seized without the engine logbooks; therefore, the engines could not be run." In addition, an expert in Lear Jet operations, maintenance and value, Ricardo

18 19 20 21 22 23 24 25 26 27 28 EG&G in the Plaintiff's Status Report at Docket No. 158 attachment A stating: "Honeywell was contacted on 03/02/2006 in regards to returning the engine to the Maintenance Service Plan (MSP) as required by the Court Order. The engines have been disassembled, inspected and repaired; new logbooks generated, and the engines have been removed from the Honeywell damaged engine list." 9 Morales, advised counsel that the engines could have been properly run and maintained without logbooks since MSP and CAMP enrollment of the aircraft provide hours history for the engines. This capability appears to have been admitted by

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Respectfully submitted, GERALD H. GOLDSTEIN Bar No. 08101000 CYNTHIA EVA HUJAR ORR Bar No. 15313350 GOLDSTEIN, GOLDSTEIN & HILLEY 310 S. St. Mary's St. 29 th Floor Tower Life Bldg. San Antonio, Texas 78205 210-226-1463 210-226-8367 facsimile BY: /s/ Cynthia E. Orr

CERTIFICATE OF SERVICE I HEREBY CERTIFY that on December 1, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants:

16 17 18 19 20 21 22 23 24 25 26 27 28 Allen B. Bickart 10 Lisa Roberts Assistant United States Attorney Member of New York Bar Two Renaissance Square 40 N. Central, Ste. 1200 Phoenix, Arizona 85004-4408 [email protected] Reid Pixler Assistant United States Attorney 2 Renaissance Sq. 40 N. Central, Ste. 1200 Phoenix, Arizona 85004-4408 [email protected]

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6508 N. 10 th Place Phoenix, Arizona 85014 [email protected] Douglas F. Behm Jennings Strouss & Salmon P.L.C. Collier Cntr. 201 E. Washington St., Ste. 1100 Phoenix, AZ 85004-2385 [email protected] Lawson Pedigo Miller, Keffer & Pedigo 8401 N. Central Expressway, Ste. 630 Dallas, Texas 75225 [email protected] Walter B. Nash III P.O. Box 2310 Tucson, AZ 85702 [email protected]

Natman Schaye Chandler & Udall, L.L.P. 33 N. Stone Ave., Ste. 2100 Tucson, AZ 85701 [email protected] and via U.S. Mail, first class, to the following who are not registered participants of the CM/ECF: Jennifer Collins Mark Hopson Sidley, Austin, Brown & Wood 1501 "K" Street, N.W. Washington, D.C. 20005 Geoffrey Young Ruden McClosky 11

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150 2 nd Ave., Suite 1700 St. Petersburg, FL 33701 Marc S. Nurik, Esq. Ruden, McClosky, Smith, Schuster & Russell, P.A. 200 East Broward Blvd., Ste. 1500 P.O. Box 1900 Ft. Lauderdale, FL 33302 and Leonard J. McDonald, Jr. Tiffany & Bosco, P.A. 2525 E. Camelback Rd. Phoenix, AZ 86015-4237.

____/s/___________________________ Cynthia E. Orr

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