AAR International v. Nimelias Enterprises

• Decision Date: 27 April 2001
• Docket Number: No. 00-2737,00-2737
• Citation: 250 F.3d 510
• Parties: (7th Cir. 2001) AAR International, Incorporated, Plaintiff-Appellant, v. Nimelias Enterprises S.A., Vacances Heliades S.A. and Princess Airlines S.A., Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 510

250 F.3d 510 (7th Cir. 2001)

AAR International, Incorporated, Plaintiff-Appellant, v. Nimelias Enterprises S.A., Vacances Heliades S.A. and Princess Airlines S.A., Defendants-Appellees.

No. 00-2737

In the United States Court of Appeals For the Seventh Circuit

Argued December 7, 2000

Decided April 27, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 8090--Elaine E. Bucklo, Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Before Bauer, Manion, and Rovner, Circuit Judges.

Bauer, Circuit Judge.

AAR International, Inc. ("AAR") appeals from the decision of the district court granting the appellees' motion to abstain, stay and/or dismiss proceedings which AAR had brought against Vacances Heliades S.A. ("VH"). AAR also asks us to remand the case to the district court with instructions to deny VH's alternative motion to dismiss the action on grounds of forum non conveniens. For the reasons set forth below, we reverse and remand.

BACKGROUND

AAR leased a Boeing 737-3Q8 aircraft to VH for a term of 96 months pursuant to an Aircraft Lease Agreement in May of 1998. Shortly thereafter, VH subleased the plane to Nimelias Enterprises S.A., who in turn sub-subleased it to Princess Airlines. VH and Nimelias have assigned to AAR their rights under the sublease and subsublease, respectively. On November 23, 1998, AAR contracted to sell its rights in the plane, the lease, the sublease, and the subsublease to First Security Bank as owner trustee for the benefit of TA Air X Corp. However, on October 28, 1999, First Security Bank and TA Air X Corp. assigned and transferred back all such rights to AAR.

On August 23, 1999, First Security¹ provided defendants with written notice asserting that they were in default of their obligations under the various lease and sublease agreements in several respects. Specifically, AAR claimed that the defendants had violated the lease by: (1) permitting delinquent EuroControl charges of approximately Euro 700,000 to accrue on the plane;² (2) failing to keep the plane in serviceable condition by allowing an engine to be taken off-wing and to remain unserviceable for over one year and by failing to take required steps to enable the engine to be repaired and maintained; and (3) failing to pay variable rent under the lease for July, 1999. As a further response to these alleged acts of default, AAR and First National provided the defendants with written notice of termination of the lease on September 7, 1999.

VH claims that AAR failed to fulfill some of its obligations under the lease before it sent notice of the defendants' alleged default, and that at least one of the actions that AAR characterizes as an act of default was caused by AAR's prior breach. Specifically, AAR notes that the lease obliged AAR to deliver the plane "fresh from a Boeing Maintenance Planning Document C-7 check (overhaul) with all CPCP tasks current and completed." VH claims that the C-7 overhaul inspection "makes the [a]ircraft airworthy for at least 8,000 flight hours."³ However, VH claims that the plane's engines began to develop technical problems after about 3,500 flight hours, and that a subsequent maintenance check revealed that one of them was in need of immediate and extensive repairs. VH asserts that it needed certain maintenance records to perform the required repairs, including video boroscopes of the engine which the lease had required AAR to perform before delivering the plane to VH. VH maintains that it contacted TA Air (which was at that time the owner-participant of the plane and of AAR's rights under the lease) and requested the maintenance records (including the boroscopes), but that the records could not be found. VH claims that after investigating the matter, it concluded that the boroscopes had not been completed. VH claims that it was unable to repair the engine without the required maintenance documents, and was therefore forced to take the engine off-wing and to replace it with a substitute engine, which it had leased from another company at a cost of $700,000. According to VH, TA Air consented in writing to the engine substitution on June 3, 1999. VH sent the original engine to an Israeli company for repairs.

On October 1, 1999, less than one month after First Security and AAR had sent the defendants its notice of termination of the lease, VH filed a complaint before the One Member First Instance Court of Athens, Greece against "AAR Corp.," (AAR's parent company, which AAR insists is a wholly separate legal entity from AAR), Transamerica Equipment Financial Services, and TA Air. VH alleged that AAR and TA Air had breached the lease and caused VH damages by failing to perform required maintenance and by failing to provide VH with the information necessary to repair the engine. VH asserted that the defendants' termination of the lease was "invalid, improper and fraudulent" because: (1) it came from the owner trustee of the aircraft (First Security) rather than from the owner-participant (TA Air); and (2) it was "supported on non-existent and unfounded grounds, which have been created by those who have made the termination." (That is, VH claimed that AAR and TA Air were themselves keeping the engine off-wing, and therefore keeping the plane out of serviceable condition, by refusing to turn over the records needed to make the repairs.) The complaint sought the arrest of AAR's assets in Greece (including the plane)⁴ as security for VH's damage claims, an order prohibiting the deregistration and departure of the aircraft from Greece, and the maintenance of the status quo until a hearing on the merits of VH's damage claims.

On October 8, 1999 AAR Corp. and TA Air filed handwritten responses with the Greek court. AAR Corp. denied that the arrest of its assets and of the aircraft was necessary, arguing that it was a publically traded corporation with significant assets, and that therefore VH was exposed to no financial risk. AAR Corp. also argued that it should be free of any legal liability because AAR's rights in the lease were assigned to TA Air at the time that the engine failure occurred, and because the contract expressly provided that the plane was leased "as is" with no warranty. On October 11, 1999 the Athens court issued a brief handwritten provisional order prohibiting the deregistration and departure of the plane pending a subsequent hearing, which was set for November 11, 1999. At the November 11 hearing, counsel for the parties appeared and presented arguments. AAR claims that during the hearing, its local counsel orally argued that AAR was a separate entity from AAR Corp., that only the former was a party to the lease, and that VH had therefore named the wrong party in its complaint. On November 15, 1999, the court reaffirmed and extended the October 11th provisional order pending a final decision on the merits. On November 15, TA Air filed a written objection to the November 11 order, in which it argued that AAR, Corp. and AAR International, Inc. were separate entities. On October 28, 1999 TA Air transferred back its interest in the plane and the lease to AAR.

On November 22, VH filed a second action against "AAR, International Inc. Corp." and TA Air in the Multi Member First Instance Court in Athens (the "second Athens action"). This time, VH sought substantial damages for costs arising out of the failure of the original engine. Specifically, VH claimed $3.9 million to cover the cost of leasing a replacement engine, plus approximately $200,000 to cover late fees and a lost security deposit in connection with that leasing. VH's theory of recovery in the second Athens action was that AAR breached the lease by failing to perform the required video boroscopes on the engine before delivery, by failing to deliver the engine in working condition for 8,000 flight hours, and by failing to provide VH with the maintenance records necessary to repair the original engine. The damages sought covered the period from the filing of the first action on October 1, 1999 to the date of the filing of the second action. The Greek court set a court date for December 14, 2000. The parties dispute what was to occur on this date; VH claims that the case was "set for trial" on that date, while AAR contends (through the affidavit of its Greek attorney) that the December 14 date was for a preliminary hearing only, that no witness examination or discovery was scheduled to occur until after that date, and that no trial would likely occur for several years.

On December 13, AAR filed suit against VH, Nimelias, and Princess (the "appellees") in the Northern District of Illinois, seeking damages for the defendants' breach of the lease. The asserted grounds for the suit were identical to those stated in the written notice of default (namely, that the appellees had allowed the engine to go off-wing, that they had allowed EuroControl liens to accrue, and that they had failed to pay variable rent on the plane for July, 1999.) The complaint asserted that these acts of default justified AAR in terminating the lease in September, 1999. AAR sought damages in excess of $21 million to cover costs of returning the plane or of any engine to the United States, and of restoring the plane to airworthy condition. AAR also sought reimbursement for the EuroControl charges that it claimed it was forced to pay on Princess' behalf.

On January 25, 2000 the Athens court issued a written decision in the first Athens action under the title "Provisory Measures Procedure." After concluding that Greek law applied to the action, the court found several facts to be "probable" in light of its consideration of witness testimony, oral arguments, documents, and written submissions presented by the parties during the November 11 hearing. For example, the court found it probable that AAR Corp. and AAR are the same legal person, and that AAR Corp. failed to...