Abs Partnership v. Airtran Airways, Inc.

• Decision Date: 21 October 2003
• Citation: 765 N.Y.S.2d 616,1 A.D.3d 24,2003 NY Slip Op 17654
• Parties: ABS PARTNERSHIP, Respondent, v. AIRTRAN AIRWAYS, INC., et al., Appellants.
• Court: New York Supreme Court — Appellate Division

1 A.D.3d 24

765 N.Y.S.2d 616

2003 NY Slip Op 17654

ABS PARTNERSHIP, Respondent, v. AIRTRAN AIRWAYS, INC., et al., Appellants.

Appellate Division of the Supreme Court of the State of New York, First Department.

October 21, 2003.

Gordon Gordon & Schnapp, P.C. (Elliot Schnapp of counsel), for respondent.

Greenberg Traurig LLP (Ronald D. Lefton, Toby S. Soli and Jennifer L. Neuner of counsel), for appellants.

OPINION OF THE COURT

SAXE, J.

The question presented on this appeal is whether the parties' contract is ambiguous on the question of how to determine the "Delivery Date" for purposes of defendant's right to cancel orders. We find the contract to be clear on its face, and therefore affirm the grant of summary judgment to plaintiff.

Plaintiff ABS sells aircraft noise reduction equipment known as "hushkits," which are designed to bring DC-9 aircraft into compliance with federal noise pollution regulations. Defendant AirTran Airways, Inc., successor in interest to Valujet Airlines, Inc., is a commercial passenger airline. Plaintiff ABS and defendant AirTran Airways's predecessor in interest entered into agreements whereby defendant would purchase a total of 44 hushkits. At issue in this appeal are hushkit order numbers 38 through 41, or, more specifically, the cancellation of those orders.

The Agreement contains a "Delivery Schedule" of "Delivery Dates" for the hushkits; the set delivery dates for the four hushkits at issue were June 15, 1999, July 15, 1999, August 15, 1999 and September 15, 1999. Section 11.2 of the Agreement, titled "Cancellation," permits cancellation on the following terms:

"Purchaser shall be entitled to cancel all or any portion of this Agreement with respect to one or more Hushkits by notifying ABS of such cancellation and paying ABS the applicable cancellation fee in accordance with and as set forth in Exhibit 8 hereto [see below]. Upon receipt by ABS of such notice and cancellation fee, this Agreement shall terminate with respect to the Hushkits identified by Purchaser in its notice to ABS, with neither party having any further rights or obligations under this Agreement with respect thereto. Purchaser shall pay a cancellation fee to ABS in the amount, and on the terms, set forth in Exhibit 8 hereto and such cancellation shall only become effective upon the receipt by ABS of such cancellation fee."

The cancellation fees payable by the purchaser in order to cancel an order are set forth in exhibit 8 to the Agreement: $50,000 where the order is canceled 61 or more days prior to the delivery date,^* $100,000 where the order is canceled 31 to 60 days prior to the delivery date, and $150,000 where the order is canceled 30 or less days prior to the delivery date.

In a letter postmarked July 15, 1999 and received by ABS on July 19, 1999, ABS was notified in writing of the airline's decision to cancel kits 38 through 44. The notice did not include payment of the cancellation fee, although AirTran indicated its intention to pay $400,000 in cancellation fees, according to the following formula: $100,000 for kit 38, and $50,000 each for kits 39 through 44.

However, because the set delivery dates for hushkits 38 through 41 were June 15, 1999, July 15, 1999, August 15, 1999 and September 15, 1999, respectively, ABS rejected this calculation of the fee due. Its position was that hushkits 38 and 39 could no longer be cancelled because their scheduled delivery dates were passed, and that in any event a notice of cancellation was only effective if accompanied by the cancellation fee. Therefore, when the $400,000 cancellation fee was finally sent to ABS by AirTran on September 24, 1999, it was applied by ABS to kits 42 through 44, because by the time it was received, the contract's set delivery dates for kits 40 and 41, as well as 38 and 39, had already passed.

ABS sued for the full contract price of hushkits 38 through 41, at a cost of $1,341,049 each, along with the price of certain spare parts that were delivered but never paid for. In its underlying motion for summary judgment, ABS claimed entitlement as a matter of law to lost profits amounting to $4,470,734.40, plus the price of the spare parts, reiterating its position that the cancellations of kits 38 through 41 were not effective. In opposition, AirTran asserted that it had an absolute right to cancel orders pursuant to section 11.2 of the Agreement, with the cancellation fee for each order not more than $150,000 per kit. It contended that the term "Delivery Date" as used in the Agreement meant the actual date for delivery, not the dates contained in exhibit 6, which were merely estimates, and that therefore it had not cancelled these kits after the "Delivery Dates" because no such dates had been in place; the exhibit 6 schedule had "lapsed," it maintained.

The motion court rejected AirTran's contentions, granting summary judgment on the breach of contract claim as to liability, and referred the issue of damages to a referee. The court concluded that movant had set forth a prima facie case that Air-Tran had failed to effectively cancel kits 38 through 41 because AirTran had not paid a cancellation fee until September 24, 1999, which was after the "Delivery Dates" for those kits had passed. The court rejected AirTran's argument that the cancellations were not untimely because no firm delivery dates had been set and ruled that, even assuming that the parties had deviated from the scheduled "Delivery Dates" in the past, Air-Tran had not demonstrated that the parties intended to abandon the schedule of "Delivery Dates" for kits 38 through 41. It noted that section 10.1 of the Agreement provided that in the event of a default by AirTran, ABS was entitled to be compensated for the loss of its anticipated profits. Finally, the court stated that, based on the Agreement, ABS is entitled to be compensated for "the value of materials that it purchased and services that it had performed, as well as the loss of its anticipated profits." Defendants moved for renewal so that the court could consider the testimony of AirTran's former chief financial...