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Thursday, October 29, 2009
Would-Be Jet Buyers Sue Ex-CEO
By Richard Metcalf
Journal Staff Writer
People who lined up to buy the Eclipse 500 very light jet are suing former executives, employees and board members of the bankrupt jetmaker to get back tens of millions of dollars in deposit money.
In two separate lawsuits filed in state District Court in Albuquerque, the depositors claim Eclipse Aviation founder and former CEO Vern Raburn and others at the company misled them into increasing their deposits while knowing the jet orders would never be filled.
Both lawsuits say Raburn told depositors the company would produce 260 jets in its first year of production and 880 in its second year. Eclipse began production in November 2006 after getting full certification of the jet from the Federal Aviation Administration.
"From May 1998 through November 2008, Eclipse accepted non-fleet deposits on more than 900 aircraft but delivered a total of only 269 aircraft," says an amended complaint filed Oct. 16 on behalf of 133 plaintiffs from around the world.
Fifty-eight of the plaintiffs paid deposits of 60 percent of the Eclipse 500's price, which was advertised as $837,500 in June 2000, then gradually increased to $2.15 million in June 2008. Individual deposit amounts range from about $770,000 to more than $4.2 million for multiple planes.
The remainder of the plaintiffs paid much smaller deposits, 10 percent of the jet's price. One of the 10-percent depositors is identified as a New Mexico resident.
The complaint says Eclipse Aviation continued to accept deposits from prospective buyers right up to its filing for bankruptcy court protection, on Nov. 25, 2008, in Delaware. The company, which was more than $1 billion in debt, has since been liquidated.
The original Eclipse also failed to provide refunds as promised in 2008 to depositors who requested them, the complaint says.
Eclipse Aerospace, which bought the original company's assets through bankruptcy court, is not involved in the litigation. It is trying to set up a nationwide maintenance program for existing jets and exploring whether it might restart the manufacturing in the future.
In addition to getting deposits back, the complaint seeks damages and attorney fees for negligent representation, negligent failure to oversee and control, constructive fraud, breach of fiduciary duties, civil conspiracy and violations of the New Mexico Unfair Practices Act.
In addition to Raburn, defendants include former top executives such as Mark Borseth, Peg Billson and Mike McConnell. Other defendants were members of the former Eclipse's board of directors, including Harold A. Poling, Kent A. Kresa, Alfred E. Mann and Roel Pieper.
A second lawsuit, also filed this month, is on behalf of 45 plaintiffs from around the world, all of whom had paid the 60 percent deposits in 2007 and early 2008. None of those plaintiffs is identified as a New Mexico resident. The lawsuit makes the same basic arguments as the complaint filed Oct. 16. It names as defendants Raburn and other former executives, as well as lower-ranking customer service representatives. It does not name any former board members.
The success of the lawsuits will depend on the plaintiffs' ability to prove "real, live intentional wrongdoing," said Albuquerque lawyer Bill Davis, who is not involved in either of the lawsuits.
"No litigation would be successful against an ordinary business decision that was bad but made in good faith," he said. "However, there are many, many, many successful lawsuits that started back in the Enron days against corporate officers who hid information."
Since many of the defendants are not likely to have enough money to make restitution, Davis said the lawsuits may be targeting the liability insurance that had covered the corporate officers.
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