Cases—Good Faith—No good faith duty to allow collateral to be re-leased

A finance company had no good faith duty to give its consent to re-leasing of aircraft by a financially troubled lessor, because the financing document put no restrictions on its ability to withhold consent, according to a federal court in Minnesota, applying New York law.

With extremely bad timing, Ameriquest Holdings got into the plane leasing business in 2000, getting financing from U.S. Bancorp.  Following the collapse of the airline industry after September 11, 2001, its leased aircraft were returned to it and it was unable to re-lease them domestically.  USB, insisting it only did business in the U.S., refused permission to lease the planes to other countries, including Pakistan, Nigeria, and Indonesia.  Ameriquest ultimately went bust, and USB repossessed the planes and sold them into the depressed market for a pittance.

Ameriquest argued that USB had a good faith duty to agree to the lease, but District Judge Ann D. Montgomery disagreed. USB had reserved the right to consent in the agreements, and there was no provision (such as the standard “not to be unreasonably withheld”) that would limit its discretion. Even if USB were unreasonable, Ameriquest had no complaint.

In the course of the opinion, Judge Montgomery also disposed of claims that USB’s sale of the planes was commercially unreasonable, and that the 9/11 events made the contract impossible to perform or frustrated its purpose.  U.S. Bancorp Equip. Fin., Inc. v. Ameriquest Holdings, LLC, 2004 U.S. Dist. LEXIS 24709 (D. Minn. Dec. 7, 2004).