352 F.3d 775 (2nd Cir. 2003), 02-9347, Dallas Aerospace, Inc. v. CIS Air Corp.

Docket Nº:02-9347
Citation:352 F.3d 775
Party Name:Dallas Aerospace, Inc. v. CIS Air Corp.
Case Date:December 19, 2003
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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352 F.3d 775 (2nd Cir. 2003)

DALLAS AEROSPACE, INC., Plaintiff-Counter-Defendant-Appellant,

v.

CIS AIR CORPORATION, Defendant-Counter-Claimant-Appellee.

No. 02-9347.

United States Court of Appeals, Second Circuit

December 19, 2003

Argued Oct. 7, 2003.

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Stuart A. Jackson, Ré, Parser & Partners, New York, NY, for Plaintiff-Appellant.

Patrick P. Salisbury, Salisbury & Ryan, New York, NY, for Defendant-Appellee.

Before: WALKER, Chief Judge, NEWMAN and CARDAMONE, Circuit Judges.

JOHN M. WALKER, Jr., Chief Judge.

Plaintiff-appellant Dallas Aerospace, Inc. ("Dallas"), a buyer of a used jet engine from defendant-appellee CIS Air Corporation ("CIS"), appeals from the judgment of the United States District Court for the Southern District of New York (Barbara S. Jones, District Judge ), granting summary judgment to CIS.

Dallas and CIS are both corporations in the business of buying, selling, and leasing aircraft and aircraft engines. The various claims at issue in this appeal arose out of CIS's sale to Dallas of a JT8D engine in August 1997 under a written agreement. Months after the purchase, Dallas discovered that the engine had been involved in a hard landing years earlier that rendered the engine not "airworthy." "Airworthy" is a term of art in the aviation industry indicating that an engine is safe and that it comports with FAA requirements. Dallas brought this diversity action alleging various claims under New York law to recover the $1.15 million it paid for the engine.

The district court agreed with CIS that there was no genuine issue of material fact precluding a grant of summary judgment in CIS's favor and concluded that, as a matter of law: (1) for the purposes of Dallas's breach of contract claim, the agreement between Dallas and CIS, which disclaimed all representations about the engine, had not been modified; (2) for the purposes of its fraud claim, Dallas could not show it justifiably relied on any purported misrepresentation under the contract because (a) the contract specifically disclaimed the very representation alleged to be fraudulent, and (b) the truth of the allegedly misrepresented matter was easily discoverable by Dallas; (3) the contract terms were not unconscionable; and (4) no special relationship existed between the parties that would trigger a duty to disclose

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on CIS's part, for the purposes of Dallas's negligent misrepresentation claim.

I. BACKGROUND

A Japan Air Systems ("JAS") aircraft experienced a hard landing in Japan in April 1993. While the ensuing fire substantially destroyed the aircraft, the engine remained intact and was salvaged from the wreckage. The insurance company that took title to the engine sold it to Charlotte Aircraft Corporation ("Charlotte"). In 1996, American Air Ventures, Inc. ("AAV"), a broker, negotiated the sale of the engine to CIS and took title from Charlotte pursuant to a separate contract before transferring it to CIS for $425,000, which was paid directly by CIS to Charlotte. CIS paid AAV a finder's fee of $10,000.

CIS understood that it would have to overhaul the engine to get it back into "serviceable" condition under guidelines established by the engine's manufacturer, Pratt & Whitney ("P & W"), for returning a used engine to service in compliance with FAA regulations. CIS claims that it had no specific knowledge of the hard landing, however, and undertook a less expensive overhaul that was appropriate for used, but not incident-related, engines. CIS sent the engine for overhaul to ST Aerospace ("ST"), a reputable repair shop authorized by the FAA, with overhaul instructions that had been provided by AAV. CIS asserts that it relied on AAV because CIS has no internal technical staff. CIS paid approximately $350,000 for the overhaul and, in due course, ST returned the engine to CIS, certifying it--mistakenly as it turned out--as airworthy. ST was not aware of the engine's incident-related status, which, under the P & W guidelines, would have necessitated a $500,000 overhaul.

Upon return of the engine to CIS, CIS found Dallas as a willing buyer in August 1997, and the two parties quickly reduced their agreement to a written contract, subject to Dallas's inspection of the engine and its records. While the contract between Charlotte and AAV expressly stated that the engine had been involved in an accident, neither the contract between AAV and CIS, nor the one between CIS and Dallas contained any such provision. The extent of CIS's own knowledge about the hard landing and CIS's corporate relationship with AAV are both disputed. It is undisputed, however, that Dallas was not told prior to its purchase about the hard landing in Japan or that ST's overhaul was other than adequate. Dallas's extensive boroscopic physical inspection of the engine prior to purchase revealed no defects and its month-long "back-to-birth" review of the engine's records did not bring the fact of the JAS accident to light. Accordingly, Dallas consummated its purchase of the engine from CIS.

Dallas's contract with CIS, dated August 26, 1997, (the "Agreement") disclaimed that CIS had made any representations regarding the engine. It specifically disclaimed any representation as to the engine's airworthiness in Paragraph 8 and obligated plaintiff to accept delivery of the engine and its records "as-is, where-is" in Paragraph 7. All of the exclusions and disclaimers in the Agreement were "conspicuous," as required by § 2-316 of the Uniform Commercial Code ("UCC"), 1 and the Agreement contained an integration clause stating that "no warranties, representations or undertakings have been made by either party except as expressly set forth herein." On August 29, 1997, Dallas signed the Agreement as well as an Engine Delivery Receipt, which recited

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that Dallas "accepted delivery of" the engine and "confirms its acceptance of the[engine], in 'AS IS' 'WHERE IS' condition."

Dallas did not pay for the engine until September 9, 1997 or thereabout. Dallas claims that at the time it wire-transferred payment, it also delivered to CIS a purchase order that, after stating that "[a]ll the terms and conditions of this purchase are stated in the contract dated August 28, 1997," purported to modify the contract by requiring CIS to deliver a serviceable and airworthy engine that had "not been subjected to extreme stress or heat as in a major engine failure[,] accident, incident or fire." The status of the purchase order is a disputed issue and is discussed more fully in connection with Dallas's breach of contract claim below.

Dallas subsequently leased the engine to Sky Trek Airlines, and the engine was flown in daily service for several months without incident. In 1999, Dallas attempted to sell the engine, but the prospective buyer walked away from the negotiations after informing Dallas that the engine was incident-related. P & W confirmed this information to Dallas; P & W had always known about the engine's history because it keeps records on every engine it manufactures, including data related to incidents and accidents. While just who had access to the P & W records at the time of Dallas's negotiations with CIS is disputed, it is not disputed that both JAS and Charlotte knew about the engine's incident-related history and would not have withheld the information if they had been asked about it by Dallas at any time.

After unsuccessfully trying to recover its purchase price from CIS, Dallas filed suit against CIS for breach of contract, fraudulent misrepresentation, and negligent misrepresentation in the district court. Applying New York law, pursuant to the Agreement of the parties, the district court granted summary judgment in favor of CIS on all of Dallas's claims. This appeal followed.

II. DISCUSSION

A. Standard of Review

We review a grant of summary judgment de novo. Summary judgment is appropriate only if there is no genuine issue as to any material fact and the moving party is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When ruling on a summary judgment motion, the district court must construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. The Breach of Contract Claim

Dallas alleges that CIS breached their agreement by delivering an engine that was falsely represented as airworthy based on an airworthiness inspection for non-incident-related engines performed by ST. CIS responds that two clear and unambiguous contractual provisions in the Agreement disclaim any representation as to airworthiness. Paragraph 8 of the Agreement states (with emphasis in the original):

DISCLAIMER OF WARRANTY Seller has not made and does not make, nor shall Seller be deemed to have made or given, and hereby expressly disclaims, any warranty, guaranty or representation, express or implied, as to ... the[engine's] title, airworthiness, design, value, operation, condition, quality,

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durability, suitability, merchantability or fitness for a particular purpose ....

Paragraph 13D of the Agreement states:

This Agreement contains the entire understanding of the parties with respect to the purchase and sale of the[e]ngine, and no warranties, representations or undertakings have been made by either party except as expressly set forth herein. Any other previous oral or written communications, representations, agreements or understanding between the parties are no...

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