## Facts

- A bank made multi-million-dollar loans to an air-ambulance business, secured by aircraft owned by a related company and guaranteed personally by the companies’ president.
- The security agreements required the aircraft owner to keep the aircraft airworthy and maintain Federal Aviation Administration (FAA) airworthiness certifications and supporting records.
- The FAA investigated the aircraft for poor maintenance and deceptive or false recordkeeping; the bank later refinanced and extended additional credit without knowing of the investigation.
- The FAA suspended airworthiness certificates for many aircraft based on maintenance and recordkeeping violations.
- The bank declared default, accelerated the debt, sued for breach of contract, fraud, and conversion, and obtained injunctive relief to prevent disposal of the aircraft.
- The aircraft owner separately settled with the FAA; the settlement left the certificates suspended pending record revisions and possible FAA reconsideration, and contemplated a sale to a buyer who might work with the FAA.
- After the borrower filed bankruptcy, the bank obtained relief from the automatic stay and sold the aircraft in a private disposition; a large deficiency remained.
- The guarantor disputed the deficiency, asserting the sale was not commercially reasonable because the bank did not restore or obtain FAA airworthiness certificates before selling and allegedly depressed the price.

## Issues

1. Whether the bank’s private disposition of aircraft collateral without restoring FAA airworthiness certificates was commercially reasonable under UCC Article 9, permitting recovery of a deficiency against the guarantor.
2. Whether the guarantor’s proposed expert testimony on commercial reasonableness was admissible under Federal Rule of Evidence 702 and reliability standards.

## Decision

- The court granted partial summary judgment for the bank on the deficiency claim against the guarantor.
- The court held the aircraft disposition was commercially reasonable as a matter of law on the record presented, despite the lack of restored FAA certifications.
- The court granted the bank’s motion to exclude the guarantor’s expert witnesses on commercial reasonableness.

## Legal Principles

- Under UCC Article 9 (as applied in Texas), a secured party’s disposition must be commercially reasonable in method, manner, time, place, and terms.
- Commercial reasonableness does not require obtaining the best possible price; it requires reasonable conduct under the circumstances.
- A secured creditor generally is not required to cure regulatory or maintenance defects in collateral—particularly defects caused by the debtor’s or pledgor’s misconduct—before disposing of the collateral.
- Expert opinions on commercial reasonableness must fit the governing legal standard and be grounded in the actual regulatory and market conditions; speculative or legally misdirected opinions may be excluded under Rule 702.

## Conclusion

The court held that the bank’s private sale of aircraft subject to FAA certificate suspensions caused by the debtor-side parties’ maintenance and recordkeeping failures was commercially reasonable under Article 9, entitling the bank to a deficiency judgment against the guarantor, and it excluded the guarantor’s expert testimony as unreliable and inconsistent with the applicable standard.


Whitney Nat’l Bank v. Air Ambulance by B & C Flight Mgmt., Inc., 516 F. Supp. 2d 802 (S.D. Tex. 2007)