Bombardier Aerospace Corp. v. Spep Aircraft Holdings, LLC, NO. 17-0578

• Court: Supreme Court of Texas
• Writing for the Court: Paul W. Green, Justice
• Citation: 572 S.W.3d 213
• Parties: BOMBARDIER AEROSPACE CORPORATION, Petitioner, v. SPEP AIRCRAFT HOLDINGS, LLC; PE 300 Leasing, LLC; Saracen Pure Energy Partners, LP ; Crane Capital Group, Inc.; James R. Crane ; Floridian Golf Resort, LLC ; Champion Energy Marketing, LLC ; and Crane Worldwide Logistics, LLC, Respondents
• Docket Number: NO. 17-0578
• Decision Date: 01 February 2019

572 S.W.3d 213

BOMBARDIER AEROSPACE CORPORATION, Petitioner,
v.
SPEP AIRCRAFT HOLDINGS, LLC; PE 300 Leasing, LLC; Saracen Pure Energy Partners, LP ; Crane Capital Group, Inc.; James R. Crane ; Floridian Golf Resort, LLC ; Champion Energy Marketing, LLC ; and Crane Worldwide Logistics, LLC, Respondents

NO. 17-0578

Supreme Court of Texas.

Argued November 1, 2018
OPINION DELIVERED: February 1, 2019

Brett David Kutnick, Jackson Walker LLP, 2323 Ross Avenue, Suite 600, Dallas TX 75201, Deborah G. Hankinson, Hankinson PLLC, 750 N. St. Paul St., Suite 1800, Dallas TX 75201-3262, E. Stratton Horres Jr., Wilson Elser Moskowitz, Edelman & Bicker LLP, Bank of America Plaza, 901 Main Street, Suite 4800, Dallas TX 75202-3758, Jennifer Alane Stagen, Hankinson LLP, 750 North St. Paul St., Suite 1800, Dallas TX 75201, Lee L. Cameron Jr., Wilson Elser Moskowitz, Edelman & Dicker LLP, Bank of America Plaza, 901 Main Street, Suite 4800, Dallas TX 75202-3758, for Petitioner.

Kevin F. Risley, Thompson, Coe, Cousins, & Irons, L.L.P., One Riverway, Suite 1400, Houston TX 77056, Andrew L. Johnson, Thompson, Coe, Cousins, & Irons, LLP, One Riverway, Suite 1400, Houston TX 77056, Giles Robert Kibbe, Crane Capital Group, Inc., 501 Crawford, Suite 500, Houston TX 77002, John Gregory Hergens Davis, Brown Sims, 1177 West Loop S Fl 10, Houston TX 77027-9030, Tanya N. White, Thompson, Coe, Cousins & Irons, LLP, One Riverway, Suite 1400, Houston TX 77056, Wade C. Crosnoe, Thompson, Coe, Cousins & Irons, LLP, 701 Brazos, Suite 1500, Austin TX 78701, Wallace B. Jefferson, Alexander Dubose, Jefferson & Townsend LLP, 515 Congress Avenue,Suite 2350, Austin TX 78701-3562, for Respondents.

Paul W. Green, Justice

572 S.W.3d 217

In this case, we must determine whether: (1) the court of appeals erred in determining that the evidence was legally sufficient to support the trial court's award of both actual and punitive damages to all plaintiffs; and (2) the limitation-of-liability clauses in the parties' agreements barred the punitive damages award, or alternatively, whether the punitive damages award was unconstitutionally excessive. We hold that the plaintiffs' appraisal expert's testimony was not conclusory, and therefore the court of appeals did not err in holding that the evidence was legally sufficient to support the award of actual damages to all plaintiffs. However, we hold that the limitation-of-liability clauses in the parties' agreements barred the punitive damages award. In light of this holding, we do not reach the issue of whether the punitive damages were excessive. Therefore, we affirm in part and reverse in part the court of appeals' judgment.

I. Background

The plaintiffs—SPEP Aircraft Holdings, LLC (SPEP), PE 300 Leasing, LLC (PE), Saracen Pure Energy Partners, LP, Crane Capital Group, Inc., James R. Crane, Floridian Golf Resort, LLC, Champion Energy Marketing, LLC, and Crane Worldwide Logistics, LLC¹ —filed suit against the defendant, Bombardier Aerospace Corporation, for breach of contract, breach of express warranty, and fraud.² In 2010, Jim Crane and Neil Kelley purchased a Challenger 300 aircraft from Bombardier for $ 19,850,000 through the purchasing companies, SPEP and PE.³ In the purchase negotiations, Crane and Kelley specified that they were agreeing to purchase a new aircraft.⁴ Bombardier and the purchasing companies entered into purchase and management agreements through Bombardier's subsidiary, Flexjet.⁵ The purchase agreement expressly provided: "Flexjet will not be liable to either customer for any indirect, special, consequential damages or punitive damages arising out of any lack or loss of use of any aircraft, equipment, spare parts, maintenance, repair or services rendered or delivered under this purchase agreement." Under the purchase agreement, Flexjet required SPEP and PE to provide it with a power of attorney for acceptance and registration over the aircraft. This gave Bombardier the exclusive power over inspection and acceptance of the Challenger 300 on SPEP's and PE's behalf. For this reason, SPEP and PE did not hire a third party to inspect their new Challenger 300, believing that "a new airplane ... wouldn't ... require an inspection" and that Bombardier was responsible for inspecting it. In the

572 S.W.3d 218

management agreement, Flexjet agreed to "manage and maintain the aircraft with reasonable care in accordance with applicable insurance coverage and within the standards and guidelines established by the [Federal Aviation Administration (FAA) ] and [to] comply with all laws, ordinances or regulations relating to the use, operation and maintenance of the aircraft." Flexjet also promised in the management agreement to "maintain ... all records, logs and other materials" required by the FAA and to "provide professionally trained and qualified pilots" to operate the Challenger 300. The management agreement also contained a limitation-of-liability clause similar to that in the purchase agreement. The clause provided: "Neither party hereto may be held liable to the other party for any indirect, special or consequential damages and/or punitive damages for any reason, including delay or failure to furnish the aircraft or by the performance or non-performance of any management services covered by this Management Agreement."

Due to dissatisfaction with the management services, SPEP and PE eventually canceled Flexjet's management of the Challenger 300. The Challenger 300 contained two main engines (left and right) manufactured by Honeywell in 2008. SPEP and PE's inspection of the Challenger 300's logbooks revealed that the left engine had been repaired for an interstage turbine temperature (ITT) split, which occurs when there is a difference in ITT between the engines. Further, the left and right engines had each been installed and removed multiple times on at least two other aircraft. According to Flexjet's Quality Assurance Programs Administrator, Wayne Banker, the left engine had also previously been repaired for water contamination and oil-wetted cavities. Banker and his supervisors knew about the left engine's history, and he knew that the Challenger 300 had "repaired engines," not new engines. Bombardier never told SPEP or PE about this engine history. One of Flexjet's pilots, Ryan Shifflett, noticed the ITT split during the Challenger 300's initial flight, and he informed the aircraft's Corporate Aircraft Logistics Manager, who then informed the Vice President of Sales—all of whom believed SPEP and PE should be made aware of the engine history. Ultimately, however, Bombardier's Director of Operations and Vice President of Operations told the Bombardier employees that the engine history was not their concern and that they were not to tell SPEP, PE, Crane, or Kelley about it.

Each engine had a warranty from Honeywell. The warranty for each engine provides: "This warranty shall expire seventy-eight (78) months from the date of shipment by Honeywell or sixty (60) months following interior completion and entry into service or three thousand (3000) Engine operating hours whichever occurs first." The FAA issued the left engine's Certificate of Airworthiness, a certificate certifying that the aircraft has been examined and is in compliance with federal rules, on August 12, 2008. The FAA issued the right engine's Certificate of Airworthiness on September 17, 2008. The Challenger 300 was not delivered to the purchasing parties, however, until December 6, 2010, years after each engine had previously been installed on other aircraft. The FAA then issued the Challenger 300's Standard Airworthiness Certificate on December 17, 2010. The parties dispute when the engine warranties began—either when the FAA issued the first Certificates of Airworthiness in 2008 (giving SPEP and PE a three-year warranty to each engine from 2010 when they purchased the Challenger 300, ending in 2013), or when the engines were installed on the Challenger 300 in 2010 (giving SPEP and PE a five-year warranty

572 S.W.3d 219

to each engine, ending in 2015). The purchasing parties believed they purchased new engines that would each come with a five-year warranty ending in 2015. An email from a Honeywell representative explained that both engines' warranties ended in September 2013 due to their engine delivery dates of September 17, 2008. Honeywell's position at trial, however, was that Honeywell had extended the warranties to December 2015, using the December 2010 acquisition date as the starting point.

The plaintiffs filed suit against Bombardier and tendered Delvin Fogg, a certified aircraft appraiser, as their expert at trial to testify to the diminution in value of the Challenger 300 in light of the non-disclosures—that is, he testified as to the price that SPEP and PE should have paid for the Challenger 300 and the damages as a result of the higher purchase price. Bombardier retained Kenneth Dufour as its own expert to provide an appraisal of the Challenger 300 at the time of purchase, assuming the aircraft was new when purchased. The jury found in favor of the plaintiffs on both the breach of contract and fraud claims. Under the doctrine of election of remedies, the plaintiffs elected to recover on the fraud claim. Therefore, the plaintiffs were able to recover exemplary damages. See TEX. CIV. PRAC. & REM. CODE § 41.003. The jury awarded $ 2,694,160 in...