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TVPX ARS, Inc. v. Bombardier, Inc.

United States District Court, D. Utah

September 30, 2019

TVPX ARS, INC., in its capacity as Investment Trustee for the Dougherty Air XXI Investment Trust, LLC, Plaintiff,
v.
BOMBARDIER, INC., a Canada corporation, Defendant.

          Paul M. Warner, Chief Magistrate Judge

          MEMORANDUM DECISION AND ORDER

          ROBERT J. SHELBY, UNITED STATES CHIEF DISTRICT JUDGE

         Plaintiff TVPX ARS, Inc. is the current owner of the rights to a CRJ-200 aircraft (the Aircraft) initially sold in 1999 by Defendant Bombardier, Inc. Upon purchase of the Aircraft, TVPX assumed the rights to certain support obligations provided by Bombardier. Bombardier's support obligations were enumerated in various agreements. Under the terms of those agreements, Bombardier's duty to provide support to TVPX was conditioned on TVPX fulfilling certain obligations-one of which was to return the Aircraft to Bombardier by a specified date. TVPX claims Bombardier breached the agreements by failing to fulfill its support obligations. Bombardier maintains it had no duty to fulfill the support obligations because TVPX did not first comply with the condition that TVPX timely return the Aircraft. TVPX ultimately filed suit, asserting causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. Owing to the number of relevant parties and agreements involved, the facts underlying TVPX's claims are complicated. The legal issues arising out of those facts are not. Construing the various contracts under New York law, the task before the court is to identify the date by which TVPX was required to return the Aircraft to Bombardier if TVPX wished to compel Bombardier to provide the relevant support obligations.

         Now before the court are the parties' cross-motions for summary judgment, as well as TVPX's Motion in Limine seeking exclusion of Bombardier's rebuttal expert testimony.[1] TVPX moves for partial summary judgment on its breach of contract and promissory estoppel claims, while Bombardier moves for summary judgment on all of TVPX's claims. For the reasons discussed below, the court GRANTS Bombardier's Motion for Summary Judgment, DENIES TVPX's Partial Motion for Summary Judgment, and DENIES as MOOT TVPX's Motion in Limine.

         I. BACKGROUND [2]

         This case involves a series of transactions and agreements among several entities related to the Aircraft's initial sale and subsequent leases. Below, the court outlines the critical aspects of these transactions and agreements.

         A. Leveraged Lease Agreement

         Bombardier is an aircraft manufacturer. On December 10, 1999, Bombardier sold a CRJ-200 aircraft to the First Union Trust Company, as Owner Trustee.[3] The transaction was memorialized under what is commonly known in the airline industry as a leveraged lease[4]-a financing structure that “place[s] ownership of the aircraft in a profitable entity-the Owner Participant-which would put up a portion of the acquisition cost and take accelerated depreciation against its own profits.”[5] ICX Corporation acted as the Owner Participant in the transaction.[6] As such, it bore a portion of the Aircraft purchase price as an “equity investor (in order to obtain the benefits of accelerated depreciation).”[7]

         B. Midway Lease

         The same day Bombardier sold the Aircraft to First Union, First Union executed a lease agreement with Midway Airlines Corporation (the Midway Lease).[8] Bombardier was not a party to the Midway Lease.[9] The Midway Lease detailed Midway's and First Union's rights and responsibilities regarding payments, insurance, and inspection of the Aircraft.[10] Most relevant here, the Midway Lease specified the date Midway was to return the Aircraft to First Union according to the lease's Basic Term.[11] The Midway Lease defines ‘Basic Term' as the “period commencing at the beginning of the day on the Delivery Date and ending at the end of the day on the Expiration Date.”[12] Expiration Date is defined as “the date specified as such in the Lease Supplement executed and delivered on the Delivery Date.”[13] Lease Supplement No. 1 to the Midway Lease designates the Delivery Date as December 15, 1999, and the Expiration Date as June 15, 2016.[14]

         C. Residual and Deficiency Agreement

         Also on December 10, 1999, Bombardier entered into two agreements with ICX and First Union-the Residual Agreement and the Deficiency Agreement.[15] Under the Residual Agreement, Bombardier assumed certain support obligations at the expiration of the Basic Term of the Midway Lease.[16] Two support obligations are relevant here: (1) a remarketing obligation and (2) a residual value guarantee (RVG).[17] First, the remarketing obligation required Bombardier to act as ICX's “exclusive” remarketing agent for the Aircraft during a specified Remarketing Period.[18] The Remarketing Period was set to begin at the end of the Basic Term and concluded 240 days later.[19]

         Second, the RVG required Bombardier to guarantee payment of up to a specified Maximum Payment Amount if the value of the Aircraft at the end of the Lease[20] was less than the guaranteed Residual Amount.[21] Section 4 of the Residual Agreement conditioned Bombardier's requirement to pay the RVG on the Aircraft being returned within ninety days of the Return Date.[22] The Residual Agreement defines Return Date as the “date on or following the expiration of the Basic Term . . . on which the Lessee returns the Aircraft to the Lessor . . . and which is not later than ninety (90) days after the expiration of the Basic Term.”[23]

         Finally, Bombardier verified its intention to meet its support obligations via Section 7 of the Residual Agreement, titled “Agreement Absolute.”[24] The Residual Agreement permitted ICX, as Owner Participant, to assign its rights under the agreements.[25]

         D. Support Amendment Agreement

         In 2001, the Midway Lease was terminated when Midway defaulted.[26] As a result, First Union and ICX sought to enter into a new lease with Air Wisconsin Airline Corporation (the AWA C Lease). Before ICX entered into the AWA C Lease, it negotiated and entered into a Support Amendment Agreement (SAA) with Bombardier.[27] The S A A w a s meant to allow First Union, ICX, and Bombardier to forgo the need to renegotiate the Residual Agreement and the Deficiency Agreement in coordination with the pending AWAC Lease.[28]

         The SAA included the following relevant provisions:

         Section 2, Deficiency Agreement

ICX will enter into a lease (the ‘Lease') with Air Wisconsin Airline Corporation (‘AWA C ') for the Aircraft, for a term coterminous with the Midway Lease (plus up to two months if requested by ICX) and on terms and conditions otherwise agreed between ICX and AWAC consistent with Bombardier's rights under its CRJ financing support obligations to AWAC under the Purchase Agreement . . . .[29]

         Section 3, Residual Agreement

The parties hereto agree that upon ICX entering into the Lease, the Residual Agreement shall be amended so that it refers to AWAC and not to Midway, and to the Lease and not to the Midway Lease. For the avoidance of doubt, no other terms of the Residual Agreement shall be amended, including without limitation the terms “Base Residual Amount”, “Residual Amount” and “Maximum Payment Amount.”[30]

         Section 10, Headings

The headings of the various sections of this Agreement are for the convenience of reference only and shall not modify, define, expend [sic] or limit any of the terms or provisions hereof.[31]

         E. AWAC Lease

         On February 22, 2002, First Union and AWAC entered into the AWAC Lease.[32]The Basic Term of the AWAC Lease expired by its terms on April 4, 2017.[33] Bombardier was not a party to the AWAC Lease.[34]

         F. Assignments of the Aircraft

         Beginning on January 20, 2005, the rights to the Aircraft and the AWAC Lease transferred through a series of assignments, culminating in a Third Assignment to TVPX on November 29, 2011 (the Third Assignment).[35] Bombardier consented to the Third Assignment via a Manufacturer's Consent:

As of the date hereof, Manufacturer [Bombardier] hereby acknowledges and agrees to the assignment of the Support Amendment Agreement, the Deficiency Agreement, and the Residual Agreement to the Assignee and agrees to recognize and perform its obligations for the benefit of, Assignee as the “Owner Participant” thereunder and agrees that the conditions in Section 8 of the Support Amendment Agreement, Section 14(c) of the Deficiency Agreement, and Section 16(b) of the Residual Agreement to such assignments have been met with respect to these transfers.[36]

         Throughout the three assignments, Bombardier conducted extensive due diligence but was not aware that the Expiration Date written into the AWAC Lease-April 4, 2017-was different than the date required under the Midway Lease-June 15, 2016.[37]

         G. Dispute Over Basic Term in AWAC Lease

         In October 2014, TVPX asked Bombardier to consent to TVPX assigning TVPX's interest in the Aircraft to Global Principal Finance Company, LLC (Proposed Fourth Assignment).[38] In contrast to its past practice, Bombardier requested a copy of the AWAC Lease before it would consent to the assignment.[39] After reviewing the AWAC Lease, Bombardier learned it did not expire at the same time as the previous Midway Lease.[40] Bombardier notified TVPX of the inconsistencies in the termination dates between the AWAC Lease and the Midway Lease.[41] TVPX responded by requesting to amend the Residual and Deficiency Agreements in order to continue with the Proposed Fourth Assignment.[42] The parties ultimately were unable to agree on terms for a proposed amendment to the Residual and Deficiency Agreements.[43]

         Beginning in March 2017, TVPX contacted Bombardier concerning Bombardier's support obligations under the Residual Agreement.[44] Bombardier responded that it was under no obligation under the Residual Agreement because TVPX did not comply with the terms of the SAA-namely, that the AWAC Lease run coterminous with the Midway Lease.[45] On June 9, 2017, TVPX again contacted Bombardier requesting that Bombardier comply with its RVG support obligations.[46] Bombardier again denied it had an obligation to pay under the terms of the Residual Agreement.[47] Despite the disagreement, TVPX returned the Aircraft to Bombardier on May 4, 2017.[48] The return of the Aircraft fell within the Basic Term of the AWAC Lease, [49]but roughly ten months after the Basic Term of the Midway Lease.[50]

         H. Procedural History

         TVPX brought suit on June 26, 2017, asserting causes of action against Bombardier for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel.[51] After discovery, the parties filed the present cross-motions for summary judgment.[52]

         II. LEGAL STANDARD

         Summary judgment is appropriate when “there is no genuine dispute as to any material fact” and the moving party is “entitled to judgment as matter of law.”[53] A fact is material if it “might affect the outcome of the suit under the governing law, ” and a dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[54] Under this standard, the court will “view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party.”[55] The parties' cross-motions “are to be treated separately; the denial of one does not require the grant of another.”[56]

         Below, the court takes up in turn TVPX's claims for breach of contract, breach of the implied covenant, and promissory estoppel. In analyzing these causes of action, the court applies New York law, as required by the relevant agreements.[57]

         III. ANALYSIS

         A. TVPX's breach of contract claim fails as a matter of law.

         TVPX claims that Bombardier breached the SAA and the Residual Agreement by failing to fulfill its support obligations under the agreements. Bombardier responds that it is not required to fulfill its support obligations because TVPX failed to perform under the agreements. The court agrees with Bombardier.

         Under New York law, the elements of a cause of action for breach of contract are: (1) formation of a contract, (2) performance by plaintiff, (3) defendant's failure to perform, and (4) resulting damage.[58] Contracts are “interpreted as a whole and all writings forming part of the same transaction are interpreted together.”[59] “The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent.”[60] The best evidence of the parties' intent is the language of the contract itself.[61] When looking at the language of a contract, “form should not prevail over substance and the sensible meaning of words should be sought.”[62] That is, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.”[63]

         “A contract is unambiguous if the language it uses has ‘a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion.'”[64] “[P]rovisions in a contract are not ambiguous merely because the parties interpret them differently.”[65] Alternatively, “contract language is ambiguous when it is reasonably susceptible of more than one interpretation and there is nothing to indicate which meaning is intended, or where there is contradictory or necessarily inconsistent language in different portions of the instrument.”[66] Whether a contract is ambiguous “is a question of law to be resolved by the courts.”[67]

         Here, the parties' intent is clear from the face of the SAA and the Residual Agreement. The critical issue with respect to TVPX's breach of contract claim is identifying which Expiration Date governs the return of the Aircraft. TVPX maintains Bombardier breached its support obligations under the SAA and the Residual Agreement because the April 4, 2017 Expiration Date in the AWAC Lease governs.[68] The court disagrees.

         The SAA clearly and unambiguously establishes that the forthcoming AWAC Lease must expire on the same date as the Midway Lease. Section 2 of the SAA states: “ICX will enter into a lease (the ‘Lease') with Air Wisconsin Airline Corporation (‘A WA C ') for the Aircraft, for a term coterminous with the Midway Lease (plus up to two months if requested by ICX). ”[69] The Midway Lease defines the Expiration Date as June 15, 2016.[70] The court finds the meaning of these provisions when read in concert to be “definite and precise.”[71] Interpreting the SAA under its plain terms, it is clear the parties agreed the Expiration Date of the AWAC Lease would be June 15, 2016-not April 4, 2017.

         In light of this determination, it is undisputed that TVPX failed to perform its obligations under the terms of the Residual Agreement. TVPX concedes and the court agrees that the “occurrence of the Return Date was a condition precedent to Bombardier's payment obligation under the residual agreement.”[72] In other words, under the terms of the Residual Agreement, Bombardier's support obligations were conditioned on TVPX returning the Aircraft within ninety days after the expiration of the Basic Term which was September 13, 2016. It is undisputed that TVPX did not return the Aircraft until May 4, 2017-ten months after the Basic Ter m 's expiration.[73] To establish its claim for breach of contract, it is TVPX's burden to show that it performed under the terms of the contracts it claims were breached. TVPX's failure to perform under the SAA and Residual Agreement by not returning the Aircraft by the date required in those agreements is thus fatal to its claim.

         TVPX's further arguments in support of its breach of contract claim are unpersuasive. TVPX first argues the Expiration Date of the AWAC Lease controls because the SAA replaced the Midway Lease with the AWAC Lease “for purposes of the Residual Agreement.”[74] TVPX's argument suggests the SAA incorporated by reference all of the terms and conditions of the AWAC Lease into the Residual Agreement. The court concludes it did not.

         For a document to be incorporated by reference into an agreement, “two essential elements must be satisfied.”[75] First, “the document to be incorporated must be identified with sufficient specificity.”[76] Second, “there must be a clear manifestation of an intent to be bound by the terms of the incorporated instrument.”[77] Only the second element is at issue here. The S A A states the Residual Agreement is to be amended so that it “refers” to the AWAC Lease. The requirement that the Residual Agreement “refer” to the AWAC Lease, however, does “not provide a persuasive basis for the application of the doctrine of incorporation by reference.”[78]The SAA contains no language manifesting intent that the terms of the AWAC Lease will replace any agreed upon terms-such as those existing in the Residual Agreement or the SAA. In the absence of any clear manifestation of intent, the Expiration Date in the AWAC Lease does not govern over the clear language expressed in the SAA that the AWAC Lease would run for a term coterminous with the Midway Lease.

         TVPX next argues the SAA's requirement that the AWAC Lease be for a “term coterminous with the Midway Lease” applies only to the Deficiency Agreement.[79] This argument too is foreclosed by the plain language of the SAA. It is true the language requiring that the AWAC Lease run coterminous with the Midway Lease appears under Section 2 of the SAA, titled “Deficiency Agreement.”[80] The placement of the coterminous language under the Deficiency Agreement heading, however, provides no interpretative value in light of the clear and unambiguous language of the clause itself.[81] Section 2(a)-which contains the coterminous language-makes no reference to the Deficiency Agreement, but refers broadly to the AWAC Lease.[82] By contrast, Section 2(b) refers explicitly to the parties' obligations with the respect to the Deficiency Agreement.[83] More importantly, Section 10 of the SAA supplies the parties' mutual intent that: “The headings of the various sections of this Agreement are for the convenience of reference only and shall not modify, define, expend [sic] or limit any of the terms or provisions hereof.”[84] It is evident the parties intended the coterminous language of Section 2(a) to apply to the AWAC Lease and not the Deficiency Agreement.

         Finally, TVPX argues Section 7 requires Bombardier to provide support obligations under any and all circumstances.[85] The court does not read Section 7 to place such an expansive duty on Bombardier. Moreover, TVPX's interpretation of Section 7 runs afoul of several basic contract interpretation principles under New York law.

         First, TVPX's interpretation of Section 7 would render the express condition precedent included in Section 4(a) of the Residual Agreement meaningless. “It is a cardinal rule of contract construction that a court should ‘avoid an interpretation that would leave contractual clauses meaningless'”[86] If the court were to adopt TVPX's reading of Section 7, it would require Bombardier to fulfill its support obligations even if Section 4(a)'s express condition to return the Aircraft was not satisfied-thus, rendering the condition precedent without effect.[87]

         Second, under New York law, “clauses similar to the phrase ‘notwithstanding any other provision' trump conflicting contract ...


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