Feliciano-Muñoz v. Rebarber-Ocasio

• Decision Date: 11 August 2020
• Docket Number: No. 18-2075,18-2075
• Parties: Luis A. FELICIANO-MUÑOZ; Air America, Inc., Plaintiffs, Appellants, v. Fred J. REBARBER-OCASIO, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

970 F.3d 53

Luis A. FELICIANO-MUÑOZ; Air America, Inc., Plaintiffs, Appellants,

v.Fred J. REBARBER-OCASIO, Defendant, Appellee.

No. 18-2075

United States Court of Appeals, First Circuit.

August 11, 2020

José R. Olmo-Rodríguez, for appellants.

Carlos A. Mercado-Rivera, Caguas, PR, with whom Mercado Rivera Law Offices was on brief, for appellee.

Before Torruella, Dyk,^* and Barron, Circuit Judges.

TORRUELLA, Circuit Judge.

Plaintiff-Appellant Luis A. Feliciano-Muñoz ("Feliciano") appeals the district court's grant of summary judgment and dismissal of his complaint with prejudice with respect to his breach of contract and incidental deceit claims against Defendant-Appellee Fred J. Rebarber-Ocasio ("Rebarber"). Although we agree with the district court that the exact nature of Feliciano's allegations are elusive, we find that the district court erred in concluding that Feliciano did not assert a breach of contract claim. The court also abused its discretion when it employed the Federal Rules of Civil Procedure Rule 12(b)(6) standard in dismissing Feliciano's breach of contract claim, instead of the summary judgment standard, when the court had before it a motion for summary judgment. Therefore, we vacate the district court's decision on this issue and remand with instructions to reinstate the breach of contract claim. Regarding Feliciano's secondary theory of liability related to deceit or "dolo," we affirm the district court's grant of summary judgment.

I.

A. Factual Background

In September 2014, Feliciano approached Rebarber to buy all of the shares of Air America, Inc. ("AA"), an outfit owned by Rebarber that provided airline services pursuant to Federal Aviation Regulations Part 135. In an earlier commercial venture, Feliciano had bought and owned Cub Pipers, small one-passenger airplanes, which are considerably different from the multi-engine, multi-passenger commercial airplanes that comprised AA's six airplane fleet.

Feliciano first sent Rebarber a letter of intent ("LOI") on September 30, 2014, in which he proposed to purchase one hundred percent of AA's shares at a price of $1,500,000. On October 21, 2014, Rebarber sent an email rejecting the terms of the first LOI, stating his intention that the deal be "as is" without language qualifying the deal as "offer subject to" or "satisfaction to the buyer." The email stated that "[i]t was [Rebarber's] understanding that [the buyer] ha[d] everything [he] need[ed] to make an unconditional offer" and that Rebarber was "more than willing to be accountable for any claims, penalties, fees, law[suits], unpaid invoices, etc[.] up to the closing date." Feliciano then sent a second LOI on November 6, 2014, and finally, a third was issued on November 12, 2014, which Rebarber signed. The final LOI did not contain language to the effect of "offer subject to" or "satisfaction to the buyer" and did not reference the condition of the airplanes or guarantee the operation of the airline or the retention of employees or pilots. Nor did the final LOI include "as is" language.

During this period, to assist him with the purchase, Feliciano hired two accountants and an aviation consultant, Verlyn Wolfe. Wolfe's company Wolfe Aviation offers advice on aircraft acquisitions, sales, and services. Rebarber provided Feliciano with spreadsheets containing information about the airplanes that had been requested by the aviation consultant. Rebarber provided the airplane serial numbers, as well as lists of the airplanes' avionics and equipment. According to Feliciano, Rebarber disallowed mechanical inspection of the airplanes because it would hurt the morale of AA's employees if they believed Rebarber was selling. Still, Feliciano, accompanied by his accountant, was allowed to, and did in fact, visually inspect the airplanes and take pictures, including photos of one of the plane's interior. As Feliciano pursued AA, at least one of his consultants attempted to sway him to abandon the deal, advice that he did not heed.

The deal culminated on December 17, 2014, when Feliciano and Rebarber executed a Stock Purchase Agreement ("SPA"). For a price tag of $1,300,000, Rebarber sold eighty percent of his stock in AA to Feliciano. In addition to a prior $100,000 deposit, Feliciano paid $950,000 at signing with a final installment of $250,000 scheduled for twelve months later, secured by a lien on one of the company's airplanes. The SPA stated that it contained the entire agreement between the parties. The SPA, like the third LOI, contained neither "as is" language, nor the language "offer subject to" or "satisfaction to the buyer" and did not expressly reference the condition of the airplanes or guarantee the operation of the airline or the retention of employees or pilots. However, the SPA did contain language that, according to Feliciano, was inserted to safeguard his investment "[p]recisely because Plaintiff Feliciano was not allowed to inspect the [airplanes'] mechanical equipment with mechanical experts." Feliciano points to the following language at Article I, Section C(ii) in the SPA as protecting his investment:

The Corporation and/or Seller [Rebarber] have satisfied 100% of any known accrued expenses and debt of the Corporation. Any unrecorded or undisclosed expenses and liabilities related with the operations of the Corporation prior to this date (the "Unrecorded Expenses") found by the Purchaser [Feliciano] after the date hereof, shall be paid by Seller to the Corporation upon claim thereof by Purchaser or the Corporation supported by adequate evidence. If Seller fails to reimburse the Corporation, in addition to any rights available at law to collect the Unrecorded Expenses, Purchaser shall have the right to deduct or set-off the Unrecorded Expenses from face value of the Note. All expenses incurred by the Corporation prior to the date hereof shall run on the account of the Seller; and all expenses incurred by the Corporation after the date hereof will run on account of the Corporation. In addition, any expenses incurred by the Corporation after the date hereof that should have been incurred by the Corporation prior to this date, will be on the account of the Seller and shall be considered Unrecorded Expenses.

According to Feliciano, Section A of Article IV of the SPA was also included to safeguard his investment by indemnifying him against a breach of Rebarber's representations:

Seller agrees to indemnify and save and hold harmless the Purchaser from and against all losses, claims, causes of action, obligations, suits, costs, damages, expenses ... and liabilities which the Purchaser ... may suffer or incur or be compelled to or be subject to and which are caused by or arise directly or indirectly by reason of the breach of any representations and warranties of the Seller contained herein.

Feliciano explains that Sections D and I of Article II serve as said representations, for which Rebarber would be liable if breached:

The Corporation has all operating authority, licenses, franchises, permits, certificates, consents, rights and privileges (collectively "Licenses") as are necessary or appropriate to the operation of its business as now conducted and as proposed to be conducted and which the failure to possess would have a material adverse effect on the assets, operations or financial condition of the Corporation. Such Licenses are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Licenses, and no proceeding is pending that could result in the revocation or limitation of any such Licenses. The Corporation has conducted its business so as to comply in all material respects with all such Licenses .... [And t]he Corporation has no material unrecorded or unreported liabilities or contingencies.

Prior to signing the SPA, Feliciano represents that he evaluated "AA's financial records and aircraft flight and maintenance log books from which it appeared that AA was operating in compliance with regulations, and that its aircrafts [sic] were in excellent condition[ ]." Feliciano also states that Rebarber assured him that the airplanes were in excellent condition and that AA could operate with its current staff of two full time pilots and one part-time pilot.¹ Additionally, Rebarber had assured Feliciano that the airline operated in accordance with Federal Aviation Administration ("FAA") rules and regulations. Regarding the airplane logs, only scheduled inspections and routine maintenance appeared on the logbooks prior to December 14, 2014; there were no entries then, or in the year that followed, that would ground the airplanes.

Only a week after signing the SPA, on December 23, 2014, Feliciano discovered "maintenance[ ] and repair[ ] issues that placed the licenses and permits at risk which were not recorded on the logbooks and should have been recorded and repaired before the purchase."² AA thus incurred expenses to repair the airplanes and purchase new equipment, which according to Feliciano, "should have been done before the SPA." In addition, AA incurred the collateral costs of chartering flights, the result of having to ground the airplanes, according to Feliciano.

A year later, Feliciano's final payment to Rebarber came due under the terms of the deal. Feliciano notified Rebarber that he was exercising his right to set off a claim against Rebarber for the full amount of $250,000 and was requesting an additional $25,395.46 to top it off. Feliciano charged Rebarber with having breached the contract because equipment in all six airplanes had either been broken or inoperative and the airplanes had had to be grounded and expenditures incurred in order for the airplanes to be airworthy. Rebarber, in turn, rejected these allegations. Feliciano then sent him the $250,000 payment, and approximately a year later, filed this suit.

B. Procedural History

On September 26, 2016, Feliciano and AA filed a diversity action against Rebarber in the United States...