Free Proposed Findings of Fact - District Court of Arizona - Arizona

EXHIBIT "A" General Electric Capital Corporation v. Goodman Excerpts of Reporter's Transcript of Proceedings Trial Continuation ­ March 2, 2005 at 2:18 p.m. REDIRECT EXAMINATION OF JAMES CARMICHAEL BY MR. GOODMAN: Pg. 3, Ls. 6-18: Q. Jim, just to recap for a moment, we've determined based on the schedule that General Electric in fact did calculate its recovery at full performance under the leases to be ­ Court Reporter: Counsel, can you repeat the number, please? Q. A. Yes, $1,063,745.40. Is that correct? Yes.

Q. What I'd like to do right now is direct your attention back to the schedule entitled, Capital B Financial Terms. Are you with me? A. Q. A. Pg. 4, Ls. 7-18: On Schedule 1, yes. On Schedule 1, on the face of the document; correct? Yes.

Q. What I'd like to do is direct your attention to subsection B on the face of the schedule. Do you see that, Jim? A. Yes, Schedule I, subsection B, financial terms.

Q. Does that define the total return, at least in General Electric's mathematical calculations, in terms of what they thought they would do at the expiration of these leases? A. Yes, that was set up at the beginning of the lease, yes.

Q. Let's talk about the difference in a hypothetical sense of damages that GE is contending they incurred 24 hours before the expiration of the leases. And then I want to contrast that to what GE would have been entitled to 24 hours ­ 24 hours after the 60 month expiration terms.

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Pg. 5, Ls. 4-7:

Q. Do you see that in payment one, General Electric feels it is entitled to a $100,000 penalty at the signing of the contracts? A. That's what I referred to earlier, yes.

Pg. 5, Ls. 16-19:

Q. In fact, highlighted for the Court, this was attached ­ this schedule was attached as Exhibit 3 to the Kovacs' deposition. Do you see that? A. Yes.

Pg. 6, Ls. 5-25:

Q. Would General Electric 24 hours after full performance of the contracts at 60 months and one day be entitled to any amounts above and beyond $1,063,745.40? A. No.

Q. You have had extensive discussions with General Electric about paragraph 11; am I correct? A. Yes.

Q. And what I'd like to do is take you through and ask you whether any of these damages in total would be applicable one day after full performance of the lease contracts. Are you with me so far? A. Yes.

Q. Okay. In this lease damage provision, this liquidated penalty, punitive damage clause, call it what you will, okay, General Electric has claimed today in your cross-examination that they are entitled to all contract damages, past due and future rent; correct? A. Q. A. Q. Pg. 7, Ls. 1-25: Q. A. Yes. Not reduced to present value; correct? Correct. Plus liquidated damages under the contracts as they have ... . . . defined them; correct? Correct.

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Q. A. Q. A.

Plus casualty damages under paragraph 8; correct? Correct. Defined as a casualty occurrence; true? Yes.

Q. Plus, quote, all other sums then due and owing under this agreement; correct? A. Correct.

Q. Plus the sales proceeds in disposition of the equipment; correct? A. Correct.

Q. Plus GE gets to keep all of the sales proceeds without accounting to the lessee; true? A. True.

Q. And then in GE's sole and exclusive discretion, it keeps any surplus as GE has defined it; correct? A. Correct.

Q. And finally, in GE's sole and exclusive discretion it also gets to keep all terms under the above and demand a deficiency based in conformity with the contracts that it has interpreted in its sole discretion; correct? A. Correct.

Q. Now, back to my original predicate. Within 24 hours at the expiration of 60 months, assuming that all of the lease . . . Pg. 8, Ls. 1-3: Q. . . . payments had been made, isn't it true that GE is not entitled to one dime under this punitive damage clause? A. They would get nothing.

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Pg. 8, Ls. 11-25:

Q. Are you aware of positions that General Electric has taken in other cases where it in fact has repudiated the punitive damage clause it asked you to construe today? A. Yes.

Q. I'm going to read you a quote: Thus, this Court should presume that the Illinois courts would adopt the unanimous view of those courts which have considered Section 2A504, namely, that in order to be a reasonable and thus enforceable liquidated damage provision, it must not put the lessor in a position legally superior to that which it would have occupied had the lease been fully performed. Were you aware that General Electric, in fact, authored that position in the in re: Montgomery Ward holding case in preparation for your testimony today? Pg. 9, Ls. 1-25: A. Yes.

Q. Mr. Tsang asked you multiple questions about your views on market disposition, commercially reasonable behavior. Do you recall that? A. Yes.

Q. Would you please illustrate for the Court how or what efforts General Electric took in this case to reasonably or commercially market the equipment at issue? A. None to my knowledge.

Q. Were you ever provided any documents or did General Electric ever disclose to you, or to these defendants, the marketing efforts that it undertook to dispose of the collateral in this case? A. To my knowledge, no.

Q. Do you know whether, in fact, General Electric contacted any of the following entities in this metropolitan area to sell the equipment? And I'd like to give you some names and get your reaction. Do you know a company by the name of Rinker? A. Yes.

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Q. Is Rinker a multinational redi-mix and mining concern located in the Valley? A. Q. A. Pg. 10, Ls. 1-25: Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. They have operations in the Valley, yes. RMC? Yes, they have. Cemex? Yes. Hanson? Yes. Imix? Yes. Fort McDowell Tribe? Yes. Maricopa Redi-Mix? Yes. Salt River Sand & Rock? Yes. Sunland Materials? Yes. Universal Materials? Yes. G & G? Yes.

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Q. A.

Rock-Solid? Yes.

Q. How many other sand and gravel operations are there in the local metropolitan area in terms of what would be considered a viable market for this equipment? A. There's got to be a least a dozen more. There's Circle H. There's a lot of smaller players in the market that . . . Pg. 11, Ls. 1-15: . . . this would fit well for. Q. Out of the two dozen or so entities that we've talked about, do you know whether General Electric contacted one of them? A. No.

Q. Would it be your understanding or would you disagree with the fact that General Electric, in fact, negotiated a contract for the sale of this equipment by January of 2004? A. I've read that somewhere, yes, probably Kovacs' testimony. Q. And they did not market the equipment to any of the entities we just discussed; true? A. True.

Q. Did they make any marketing efforts whatsoever that have been provided to you under document disclosures in this case? A. Pg. 11, Ls. 20-25: No.

Q. Do you feel that parties to a contract ­ and based on your experience as a CEO, chief operating officer and an accountant, are you trained in terms of the implied covenant of good faith and fair dealing how parties are to treat one another in the enforcement and performance of contracts? The Court: You may answer the question. A. Yes.

Pg. 12, Ls. 2-7:

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Q. Would you describe for me in terms of good faith performance or adherence to these contracts what you would have normally expected General Electric to do in disposition of a commercially reasonable manner in this case? Pg. 12, Ls. 14-25: A. They would have advertised the sale, they would have talked to people who used this equipment, they would get in bids and offers. And of course then they would also realize the true value of those original materials was even greater because of the in-place nature of it. Q. In fact, isn't it true that General Electric negotiated a secret contract in January of 2004 with one company and one company only, that being Arizona Materials? Mr. Tsang: The Court: Q. Pg. 13, Ls. 1-5: Objection. Sustained.

Were you ever advised or did General . . .

. . . Electric ever disclose that it had contracted with a single buyer for this equipment in January of 2004? A. It was either in January or December, I can't remember. December 2003 or January 2004. For about the 300 ­ actually I think it was 380 or something.

Pg. 13, Ls. 22-25:

Q. Did you find a provision in these contracts in which GE either disaffirmed, discounted or tried to divorce itself from its obligations of good faith and fair dealing to these defendants? A. No.

Pg. 14, Ln. 1: Pg. 14, Ls. 4-25:

Q. Did you find a covenant, a clause, a provision in any of these contracts which would allow General Electric to act in any manner other than in a commercially reasonable fashion to these defendants? Mr. Tsang: The Court: A. Objection. You may answer the question.

No, they were ­ no, there was no disavowment of that, no.

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Q. Mr. Tsang has indicated that he feels that General Electric is still owed damages of approximately $350,000. Have I summarized that correctly? A. Well, the numbers have continued to change with him. But it's my understanding the last one is around 34 or 350,000. Q. In fact, the damage claims in this case have vacillated from approximately 980,000 to 1.3 to 1.5 million. Today we've heard another number of 350,000. Does that aptly describe the moving target of damages by General Electric in this case, at least as stated today? A. Yes.

Q. Were you aware that General Electric had negotiated, without the benefit of appraisal or any valuations at all, the equipment at issue in this case in January for $350,000? Pg. 15, Ls. 13-25: Q. Did General Electric have the benefit of any valuations or any appraisals or any other document that they have disclosed in this case to prove that a commercially reasonable value in January of 2004 was $350,000? A. No.

Q. In fact, General Electric finally obtained a liquidated appraisal in March of 2004, two to three months after the negotiated contract for the sale and disposition of this equipment. Do you understand that? A. Q. Yes. What was the value of that appraisal in March of 2004?

A. With liquidated, not in place value was I believe 445 or $446,000. Pg. 16, Ls. 1-24: Q. Up through March of 2004, under subparagraph 10 of the master lease agreement, had General Electric ever at any time alleged any damage, disrepair, destruction or impairment to the equipment that was the subject of this litigation? A. No.

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Q. Have they since March of 2004 ever alleged a defect to that extent in this litigation? A. No.

Q. So we now have an appraisal as of March 2004 where GE feels in its estimation the equipment is valued at $446,500; true? A. True.

Q. Within 30 days in April, as quickly as three weeks after General Electric received its appraisal, based upon its valuation of this equipment, what in fact did General Electric sell the equipment for to its single selected buyer? A. $350,000.

Q. Did you understand why General Electric would take a 35 percent or a $100,000 discount to the value of the equipment that it appraised three weeks earlier? A. Oh, absolutely not.

Q. You had discussed paragraph 14 under the lease contract earlier; am I correct? A. Pg. 17, Ls. 4-25: Correct.

Q. . . . do you see subsection C under "tax benefits"? A. Yes.

Q. Do you remember when General Electric was crossexamining you about your inability to ascertain the tax benefits? Do you recall that whole discussion? A. Yes.

Q. In fact, GE placed their tax benefits on the face of the contracts; true? A. They ­ yes, sir, recovery period and then depreciation matters, yes.

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Q. And in fact, before I read paragraph 14, the tax benefits are part and parcel of their economic yield rolled up into the monthly amortized lease payments; true? A. Yes.

Q. And I'll quote from paragraph 14, the economic yield and cash flows shall be computed on the same assumptions, including tax rates, as reviewed by lessor in originally evaluating the transaction, paren, quote, net economic return, close quote, close paren. Is it your understanding that that was a term specifically included by General Electric in the formation of these contracts? Pg. 18, Ls. 1-11: A. Yes.

Q. And again, the net economic yield, at least based on General Electric's calculations, are simply the monthly lease payments; true? A. Times 60 months, yes.

Q. Isn't it true, Mr. Carmichael, that when you reviewed General Electric's specified representative, the corporate representative on General Electric's damage, that in fact General Electric had no way to reasonably relate its damages in this case as alleged before this Court to the stipulated loss value table? Pg. 18, Ls. 14-25: A. Q. A. Q. Yes, Mr. Kovacs had it in his deposition. Would you please refer to page 52? Okay. Line 13, and read the question for the Court?

A. Yes. It says ­ the question is to Mr. Kovacs: Do you have any information as you sit here today whether that calculation bears any relationship at all to damages, if any, that General Electric has sustained in this case? Mr. Kovacs' answer on line 17 was, no idea. Q. Would you read the next question, please?

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A. .. Pg. 19, Ls. 1-9: A.

The next question: Will you be presenting any evidence or .

. . . testimony relative to my prior question?

The answer: No. Q. Would you ­ would you turn to Mr. Kovacs' deposition at page 65? A. Okay.

Q. And by the way, were you ever given any other expert information from General Electric, other than the sworn deposition testimony of Mr. Kovacs, on GE's behalf? A. Pg. 20, Ls. 2-7: No, no.

Question by Mr. Goodman: When the parties entered into the agreement, on what basis did you anticipate the damages that were part and parcel of the formula that were incorporated into the contract? A. I wasn't there, I wasn't part of the underwriting process, so I don't know how that transpired.

Pg. 22

RECROSS-EXAMINATION OF MR. CARMICHAEL BY MR. TSANG: Q. So would you state that GTI had a purchase option under the contract? A. Q. A. Q. A. Q. Yes. Would you say that that is a residual value ­ No. -- fee? No. No. Why is that?

Pg. 22, Ls. 9-19:

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A. Because it just says at fair market value. Residual value is something that you come up with before and say the residual value at the end of the lease is going to be A, B or C or X. Pg. 23, Ls. 6-15: Q. But you did have the opportunity to review Mr. Kovacs' deposition prior to you preparing your report; correct? A. As answered earlier, yes.

Q. You also gave testimony regarding what Mr. Goodman referred to as a punitive damage clause in the lease? A. Q. Yes. Can you find that for me in the lease?

A. It's probably the stipulated value where you have a damage right off the bat from day one based on the stipulated value table of $100,000 or something about like that. Q. A. Q. Pg. 23, Ls. 24-15: Pg. 24, Ls. 1-14: There wasn't a default here after day one, was there? No. Okay. And it's not a punitive damage clause per se, is it?

By Mr. Tsang: And how do you determine it as being punitive? A. Well, I still think liquidated damages ­ we got into this, liquidated damages are only set when you can't ascertain mathematically from the document returns itself where it really is even applicable. So I look at the stipulated loss value as the liquidated damage, which is inapplicable. You can't determine everything of what GE expected out of this lease from that paragraph B on the Schedule 1. Q. So you're saying that the liquidated ­ there are no liquidated damages here because the parties knew what their damages would be in the event of a default; correct? A. It's ­ it could be calculable, yes.

Q. Okay. Then at the end of the lease term, how would the parties know what the condition of the equipment is? A. I don't guess they care. It's not in there.

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Pg. 24, Ls. 21-25:

Mr. Tsang: Well, he's saying ­ Mr. Carmichael is testifying that GE Capital would not know its damages ­ would know its damages once the lease is signed at the end of the lease term, or if there would be a default under the lease. So I don't understand how GE Capital would know that if the . . . . . . leases were five ­ is a five-year term. But Mr. Carmichael is testifying that GE Capital would know its damages. And I would just like to know how he comes to that conclusion. The Witness: Again, you can calculate what was due at full performance was the million 64, you subtract what payments would have been received up to that date of nonperformance. You would have the remaining payments, UCC would present value those and in turn give value to the equipment returned early. A. They would only receive damages for what they wouldn't have gotten at full performance. They knew what they would get at full performance. Q. And they wouldn't know the fair market value of the equipment; correct? A. No.

Pg. 25, Ls. 1-3:

Pg. 25, Ls. 6-11:

Pg. 25, Ls. 21-23:

Pg. 26, Ls. 2-4:

Pg. 26, Ls. 22-25:

The Witness: GE is saying that the Court should hold up that any liquidated damage provision should not put the lessor in a position that is superior to which it would have had had the lease been fully performed. Q. By Mr. Tsang: Where is that quote from?

Pg. 27, Ls. 4-25:

A. General Electric appellate brief in re: Montgomery Ward, April 26, 2003, page 13. Q. Okay. Now, is the liquidated damages clause in that case identical to the liquidated damages clause in this case? A. Well, I think ­ it's putting you in a better position had you just had full performance. Q. That's not my question. I'm just asking, in that case that you were referring to, in re: Montgomery, is the liquidated damages clause in that case identical to the one that we're dealing with here?

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A. Q.

I cannot answer that. What does that case have to do with this case?

A. Because it's giving GE's stance on what they think how enforceability of liquidation clause can be ­ should not be more than what you would have received at full performance of contract. Q. Were they referring to a liquidated damages provision that is identical to the one here? A. All I know is they were talking about liquidated damages.

Q. Okay. So, in fact, it may not have any relevance to this case; correct? Pg. 28, Ls. 3-9: The Witness: Per my reading of the paragraph, I think in a generic sense it does have ­ it does have relevance to this case. Q. By Mr. Tsang: were identical? Mr. Goodman: Just generically, if and only if the provisions

Object.

The Witness: No. Any liquidated damage provision. Pg. 28, Ls. 21-25: REDIRECT EXAMINATION BY MR. GOODMAN: Q. Mr. Carmichael, you were asked several questions about General Electric's ability to predict the value of the equipment at expiration of these lease contracts. Do you . . . Pg. 29, Ls. 1-25: . . . recall that? A. Yes.

Q. In fact, the contract doesn't require anything more of the lessee in this case other than return of the equipment; true? A. Correct.

Q. In fact, General Electric reserves unto itself exclusive authority under paragraph 10 to in fact review, appraise, inspect and evaluate the equipment to its own satisfaction that it was in the shape it was in when delivered to the property; true?

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A.

Yes.

Q. Did General Electric claim at any time during the last 14 months of this litigation that it was impaired in its ability to inspect, evaluate and appraise this equipment and given full access to the equipment for those purposes? A. They ­ to my knowledge they were given full access.

Q. Is there any reason that you can ascertain why General Electric needs any predictive capabilities as to the value of the equipment the day after the leases expire in this case? A. Not after full performance, no.

Q. And that's simply because the equipment is handed back, and General Electric did not specify a residual amount to be included in this contract in the four corners of the contract; correct? A. Pg. 30, Ls. 1-4: Correct.

Q. Incidentally, General Electric also specifically excluded any renewal rights of the parties to re-lease this equipment; true? A. There were no renewal options under this agreement.

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