Megayacht=Mega Lawsuit (BLOG) (Video) - PassageMaker
Nordhavn Fights To Survive After Boat Deal Goes Awry at Canada Border

Bob Conconi, a wealthy Canadian businessman and philanthropist, was overjoyed with his new Nordhavn 120 when he wrote: “You have to experience the majesty of Aurora, her stature and magnitude to get a starting point as to your feelings. She is impressive beyond my or Diane's expectations. She exceeds every dream we have had over the last four years in the build process.”

That was in August 2013. A year later Conconi refused to make the last $722,000 payment on the boat. Nordhavn’s builder, Pacific Asian Enterprises, sued to collect its money, and Conconi countersued, alleging that he had been “fraudulently induced” to purchase Aurora and that the boat was a lemon under California law.

The result was an epic 18-month, high-stakes legal battle to be decided by a jury. If Nordhavn lost, the company would likely have had to close its doors, and 75 people would have lost jobs, not including workers at its yards in China and Taiwan. If Conconi lost, the outcome might enable a criminal investigation.

We have obtained the trial documents and everything you read above and below this sentence is based on that public record. Nordhavn and PAE are used interchangeably, going forward.

There was a key moment when the relationship between Nordhavn and Conconi, who had previously owned three Nordhavns, began to implode. It happened when Aurora arrived at the Customs dock in Vancouver after having been delivered on her own bottom from China.

The boat was bigger than anything Nordhavn had ever built before, almost twice as large by volume as their second biggest offering (at the time the Nordhavn 86). But the timing to go big was gawd-awful. The original 120 customer pulled out of the project as the Great Recession unfolded, leaving Nordhavn with expensive tooling but no buyer and diminishing orders for its other models.

Conconi, meanwhile, was looking to move from his Nordhavn 86 to a 110-foot Westport motoryacht. The Nordhavn sales team convinced Conconi that they could meet or beat Westport’s high standard for quality, and he signed the purchase agreement in November 2009. The purchase price was $16 million, minus $5.5 million for the trade of the N86.

Delivery route.

Delivery route.

Then came the voyage from the factory in China to Vancouver, Canada. Nordhavn’s formidable marketing machine promoted the transpacific crossing on is website with blogs, videos and a running Q&A with followers of the brand. Conconi and his wife rode along as far as the Aleutian Islands, where they disembarked and flew home to await Aurora’s arrival.

Like most luxury yacht buyers, Conconi had assigned ownership to a business entity. Here is his testimony in a California Superior Court about how and why:

In Canada, we have what's called sales taxes…generally charged on the net of the transaction, so if you bought a $16 million boat and traded in $5.5 million boat…you would get a refund of the taxes you paid on the $16 million boat or $5.5 million boat. They net the two. In order to do that, the trade-in, which I did through PAE, it had to go from me to the Alberta Service Bureau and Alberta Service Bureau sold it to PAE, so PAE Purchased the boat from Alberta Service Bureau for $5.5 million.

Then Alberta Service Bureau would purchase from PAE a $16 million boat, so Alberta Service Bureau's real cost is the 16 less the 5.5. That would be the bill of sale that Alberta Service Bureau would issue to me. I would end up paying duty and taxes on the…on the $9.5 million instead of the $16 million. And this is the third vessel that we've done with PAE in this identical manner.

When Aurora arrived in Canadian waters, Nordhavn Vice President Jim Leishman, who was captaining the 414-ton vessel, saw that the ship’s customs brokering service received the documents needed for an inbound clearance. He expected procedures to be routine when Aurora docked at Vancouver. He was wrong.

Aurora was boarded on arrival by two agents of the Canadian Border Services Agency, whose list of jobs includes collecting duties and taxes on imported goods. As part of the clearance papers the CBSA had received an invoice from the factory in China for $8.9 million, but no documentation on the $16 million price, which also reflected the N86 trade-in and the prices of equipment provided to the factory by Nordhavn.

According to Leishman’s testimony, the CBSA agents became “aggravated” when he would not provide financial details of the 120 transaction and the role of the Alberta Service Bureau. He initially hesitated to give them Conconi’s name. “They had our passports,” he said. “And I’ve got…Chinese and Taiwanese Crew. Everybody’s anxious to get home, and these (CBSA) guys are dialing up the pressure.”

Jim Leishman, seated at center, at the helm of the Nordhavn 120 during delivery.

Jim Leishman, seated at center, at the helm of the Nordhavn 120 during delivery.

Because of Nordavn’s high-profile coverage of the Pacific voyage on its website, including references to the Conconis as buyers of the boat, Leishman said he believed that the CBSA agents were already somewhat acquainted with the facts, and even if they weren’t, the agents would eventually have learned Conconi’s identity by questioning Aurora’s crew. “Finally I concluded that there was no choice but to provide Mr. Conconi's name as the person they should talk to with regard to the ownership of this boat and Alberta Service Bureau and details of the transaction,” Leishman testified. “I'm thinking, I'm not going to lie.”

Then the agents telephoned Conconi, who has been watching Aurora’s arrival from his home with a view of the harbor, and summoned him to the docks. After an initial conversation with the agents, Conconi brought the crew their passports and told everyone to wait at a nearby restaurant. When the agents left, Conconi told Leishman that Aurora had been seized and he was to take the vessel to Reed Point Marina where he had a boathouse big enough for a 120-footer.

According to testimony, Conconi paid $2,326,518 (Canadian, presumably) to free his boat, which included full duty on the $16 million (U.S.) purchase price plus a 25 percent penalty for the initial failure to disclose. But there was more to it, as you can read in this remarkable exchange between Nordhavn attorney Frank Conner and Conconi attorney Joseph Pries during a May 2015 deposition of Conconi himself:

CONNER: Well, that was true, wasn't it…that the factory invoice that you presented to them did not include everything that was paid for the boat?

PREIS: We're going to object to this line of questioning under Fifth Amendment privileges. There's an ongoing criminal investigation. Don't respond.

CONNER: And is that—so the criminal investigation is not concluded?

CONCONI: No.

PREIS: Don't respond.

CONNER: Sort of an interesting question as to whether a Canadian citizen can take the Fifth.

PREIS: It's not an interesting question. It's well settled law.

In the countersuit against Nordhavn, Conconi initially sought a damages award because of harm caused by Leishman having identified him as the “owner” of the boat to Canadian authorities, but Leishman maintained he never did so. He had identified Conconi because Conconi was the only individual he knew of in connection with Alberta Services Bureau or ABS.

When Aurora was assigned to ABS there were only three places on the document for signatures. One was filled by Leishman’s signature, representing Nordhavn, while Conconi signed on behalf of himself on one line and on behalf of ABS on another. This became an issue at trial after it was revealed that Conconi had no official role or ownership in ABS.

The trial judge was skeptical of the claim for damages, even if Leishman had implied to the CBSA agents that Conconi was the legal owner at the time of arrival. Eventually Conconi’s legal team dropped this line of attack. Here’s what Judge Peter Wilson told Conconi’s attorneys:

It is very unclear to me at this stage why something as legalistic and technical as the proper tax on a boat gives rise to a cause of action if somebody in the process makes a mistake, even a careless, reckless mistake…I'm not going to assume that Canadian tax authorities would hear somebody say, "X owns the boat,” ignore all evidence to the contrary, latch onto that statement, and act upon it…How does a mistaken statement to Canadian customs give rise to a claim for damages when Canadian Customs then pursues the details of the vessel? Mr. Conconi has every opportunity to provide details with respect to the vessel, and Canadian customs ultimately makes its determination. 

Legal maneuvering and trial lasted 18 months as Nordhavn was forced to defend the quality of Aurora’s construction and its own reputation for honesty. Conconi said he had never really accepted delivery; Nordhavn argued that he had in fact done so. This is a big story and worthy of a book along the lines of Bruce Knecht’s “Grand Ambition: An Extraordinary Yacht, the People Who Built It, and the Millionaire Who Can’t Really Afford It.”

The scope of this blog is limited, focusing almost entirely on what you might call the original sin, whether you consider that sin to be Leishman’s disclosure of Conconi’s name to Canadian authorities or Conconi’s alleged failure to be upfront about the actual cost of Aurora.

Throughout the trial, according to transcripts, Nordhavn’s lawyer hammered away at his theory for Conconi’s motivation for going to trial. Fixing Aurora’s alleged defects and warranty claims and paying Nordhavn its final installment would have been much less costly than a full-blown court case. Attorney Frank Conner argued before the jury that Conconi’s strategy was to “unwind” the Aurora purchase by proving Nordhavn had acted fraudulently and had failed to deliver the quality promised in the build contract.

If the sale were undone, then Conconi was never the 120’s owner, and therefore never owed any duty, and should never be liable for criminal prosecution. But if the sale were undone, Nordhavn would be done-for.

On June 17, 2016, with 30 Nordhavn employees packing the back benches, an Orange County jury found for Nordhavn on all counts. Nordhavn received its final payment, and the trial judge awarded Nordhavn attorney fees.

Despite the drama, Aurora was resold. At the moment, she has reportedly transited the Panama Canal and is cruising the East Coast. A higher court is expected to release its decision on Conconi’s appeal in September—an appeal based entirely on rulings made by the judge, not facts in evidence.

Thereafter, expect complete account in the pages of PassageMaker magazine, based not just on court documents but interviews with the people involved.

Here's Nordhavn 120, the movie. It details the boat's construction and delivery.

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