Bp Group Inc v. Capital Wings Airlines Inc

• Decision Date: 14 March 2011
• Docket Number: Civil No. 09-2040 (JRT/JSM)
• Parties: BP GROUP, INC., Plaintiff, v. CAPITAL WINGS AIRLINES, INC., and DAVID N. KLOEBER, JR., Defendants. and DAVID N. KLOEBER, JR., Cross-Claimant, v. GERALD L. TROOIEN, Cross-Defendant.
• Court: U.S. District Court — District of Minnesota

BP GROUP, INC., Plaintiff,

v.CAPITAL WINGS AIRLINES, INC., and DAVID N. KLOEBER, JR., Defendants.and DAVID N. KLOEBER, JR., Cross-Claimant,

v.GERALD L. TROOIEN, Cross-Defendant.

Civil No. 09-2040 (JRT/JSM)

UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

DATED: March 14, 2011

MEMORANDUM OPINION AND ORDER

Aaron Mills Scott and Gary M. Hansen, OPPENHEIMER WOLFF & DONNELLY LLP, for plaintiff.

Michael H. Streater and Christianne A. R. Whiting, BRIGGS & MORGAN, PA, for defendant/cross-claimant David N. Kloeber, Jr.

George G. Eck, DORSEY & WHITNEY LLP, for cross-defendant Gerald L. Trooien.

This case concerns a contract between BP Group, Inc. ("BP Group") and Capital Wings Airlines, Inc. ("CWA") for which defendant David N. Kloeber, Jr. is a guarantor. BP Group and Kloeber have cross-filed motions for summary judgment, and BP Group has also moved to strike the expert report proffered by Kloeber. Because the contract was clearly breached and because Kloeber's affirmative defenses are unsupported by the record and applicable law, the Court will grant summary judgment to BP Group, deny summary judgment to Kloeber, and deny the motion to strike as moot.

BACKGROUND

BP Group is a Florida corporation named for its Chief Executive Officer, Ben Price. Kloeber and Jerry Trooien are Minnesota businesspeople and occasional business partners who co-owned a Minnesota charter flight company called JetChoice I, LLC ("JetChoice"). (Aff. of Aaron Mills Scott, July 29, 2010, Ex. A, Adams Dep. at 13-14, Docket No. 53.)

In 2008, Kloeber and Trooien acquired CWA, also a charter flight company. Such "on-demand air carriers" are licensed by the Federal Aviation Administration ("FAA") to conduct operations under Part 135 of the Federal Aviation Regulations ("FARS"). (Id., Ex. B at 2.) A "135 certificate" from the FAA allows the carrier to engage in commercial charters. Because a 135 certificate holder cannot own another 135 certificate holder, Kloeber and Trooien created a new parent entity, Corsair Aviation, LLC ("Corsair") which became the sole owner of CWA and JetChoice. (Id.) Kloeber held a majority position in Corsair while Trooien held a minority position.

This dispute arises out of an Aircraft Management Agreement executed in August 2008 by BP Group and CWA. (Id., Ex. B.) Kloeber signed the agreement on behalf of CWA, and Kloeber and Trooien both signed personal guaranty agreements to secure CWA's performance. (Id.) The Aircraft Management Agreement concerned a Gulfstream G200 jet aircraft ("the Aircraft") originally leased by Ben Price from First Union Commercial Corporation pursuant to a July 31, 2000 Equipment Lease ("the Headlease"). (Id. at 1.) First Union Commercial Corporation was subsequently acquired by Wachovia.¹ Price assigned his rights under the Headlease to BP Group. (Decl. of Michael H. Streater, Aug. 13, 2010, Ex. A, Price Dep. at 7, Docket No. 60.)

The Headlease includes a provision prohibiting BP Group from assigning, subleasing or otherwise transferring its rights or obligations with respect to the Aircraft without Wachovia's permission. (Streater Aff., Ex. B, Dep. Ex. No. 49, ¶ 12.1, Docket No. 63.) BP Group retains the right under the Headlease to sublease to a person or entity in its direct control. (Id.)

The Aircraft Management Agreement-drafted with the participation of defendants' counsel-was initially negotiated as an Aircraft Dry Sublease and Management Agreement ("Dry Sublease"). (Scott Aff., Ex. A, Overvig Dep. at 30, Docket No. 53.) BP Group sought Wachovia's consent to enter into the agreement, but Wachovia refused. (Streater Aff., Ex. B, Dep. Ex. No. 52, Docket No. 63.) Priceinformed Trooien and a JetChoice representative, Brian Overvig, ² of the development, and asked whether JetChoice or its counsel had "contacts" at Wachovia with whom they could follow up. (Scott Aff., Ex. P, Docket No. 53.) Counsel for JetChoice and CWA contacted Wachovia to prevail upon it to change its mind, but his efforts were unsuccessful. (Id., Exs. Q, R.) BP Group's counsel then redrafted the agreement as an Aircraft Management Agreement, stating by email, "Ben [Price] is prohibited from subleasing this aircraft to CWA by the terms of his Wachovia lease, but there is no reason why we cannot do this deal pursuant to a management agreement...." (Streater Aff., Ex. B, Dept. Ex. No. 12, Docket No. 61.)

The parties agree that at the time the Aircraft Management Agreement was executed, CWA, Kloeber, and BP Group believed that the agreement would comply with FAA requirements and would not violate the Headlease. (Id., Ex. A, Price Dep. at 29, Docket No. 60; Decl. of David N. Kloeber, Jr., Aug. 12, 2010, ¶ 4, Docket No. 58.) However, in the course of this lawsuit, Wachovia has asserted that it would not have consented to the Aircraft Management Agreement. (Streater Aff., Ex. A, Bolton Dep. at 31-32, Docket No. 60.)

Pursuant to the Aircraft Management Agreement, BP Group was to provide the Aircraft to CWA "on a non-exclusive, non-continuous basis and appoint CWA as the sole and exclusive charter operator of the Aircraft" for a term of approximately four years. (Scott Aff., Ex. B at 1, Docket No. 53.) Among other terms and conditions, CWA was topay BP Group an hourly fee for operating the Aircraft, with a minimum monthly payment of $80,000. (Id. at 6-7.) Of particular relevance to this dispute are the agreement's assignment clause ("Paragraph 27") and its provision regarding refurbishment. Paragraph 27 provides:

Neither party shall have the right to assign all or any part of its rights or obligations under this Agreement without the agreement of the other party; provided, however, that CWA may assign its rights and obligations under this Agreement to another Part 135 on-demand air carrier having common ownership with CWA.

(Id. at 9 (emphasis added).) The Aircraft Management Agreement lists several items under the heading "FEES PAID BY CWA, " including "aint and interior refurbishment." (Id. at ¶ 7 of Ex. A.) The agreement provides that BP Group will make the Aircraft available without the required monthly minimum payment while the Aircraft is out of service for paint and interior refurbishment. (Id.)

The day after signing the Aircraft Management Agreement, Kloeber sent an internal email to Brian Overvig of JetChoice and a financial consultant to Corsair, stating, "[The Aircraft Management Agreement] is in the name of CWA. Not sure if you want that or [JetChoice]." (Id., Ex. C.) By email on September 4, 2008, Overvig stated that "[i]t will have to go on [JetChoice]." (Id., Ex. D.) Corsair's Chief Financial Officer confirmed that "[t]he Ben Price G200 will be on the Jet Choice [135] certificate, entering service in early Jan09." (Id., Ex. E.) Kloeber agreed that his company's plan in fall 2009 was to put the JetChoice logo on the Aircraft. (Id., Ex. A, Kloeber Dep. at 162-63.)

On September 17, 2008, the Aircraft was flown from Sarasota, Florida, where BP Group's hangar is located, to JetChoice's headquarters in St. Paul, Minnesota, and finallyto Grand Junction, Colorado, where West Star Aviation ("West Star") commenced refurbishing and painting the Aircraft. (Aff. of Ben Price, July 29, 2010, at ¶ 4, Docket No. 54.) West Star was instructed to make the Aircraft look identical to JetChoice's two other aircraft. (Scott Aff., Ex. A, Victor Dep. at 23-34, Docket No. 53.)

By December 2008, West Star's refurbishment was completed. (Price Aff. ¶ 8, Docket No. 54.) The bill from West Star totaled $647,887.03. (Id. ¶ 7.) Although JetChoice could have completed the necessary paperwork and arranged for an FAA inspection, West Star refused to release the Aircraft until the bill was paid in full. (Scott Aff., Ex. A., Victor Dep. at 47-48, Docket No. 53.)

By that point, however, JetChoice was in dire financial straits and "there were a lot bigger issues than Ben Price." (Id., Adams Dep. at 102.) Kloeber and Trooien were "in the midst of a row about the whole company." (Id.) In an email on January 4, 2009, Trooien stated to Kloeber that the West Star payment "is one of the issues which you need to address and provide answers for. Ben [Price] has a legally binding contract that right now he can jam down our throat including damages." (Id., Ex. K (emphasis added).) In response to a question regarding this message, Kloeber testified as follows:

Q: Did you at this time believe that the contract with BP Group was not enforceable?

A: No. I expected Jerry [Trooien] to pay for his refurbishment.

(Id., Ex. A, Kloeber Dep. at 186.) Kloeber maintains that Trooien should be responsible for the refurbishment completed by West Star. (Id. at 93; Answer of David N. Kloeber, Jr. and Crossclaim Against Gerald L. Trooien, at 7-8, Docket No. 9.)

The Aircraft was grounded and held by West Star for months as the bill went unpaid. (Price Aff. ¶¶ 6-7, Docket No. 54.) Finally, on May 1, 2009, BP Group paid the bill in order to retrieve the Aircraft and make use of it. (Id. ¶ 7.)

BP Group filed suit against Kloeber, Trooien, and CWA, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. Kloeber has asserted counterclaims against Trooien. BP Group obtained an entry default against CWA on October 22, 2009, and dismissed its claims against Trooien without prejudice on January 7, 2010. (Docket Nos. 19, 20.) On October 25, 2010, Trooien filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, staying any claims against him under 11 U.S.C. § 362. (Docket No. 81.)

BP Group has moved for summary judgment against Kloeber. Kloeber has moved for summary judgment against BP Group, arguing that CWA is not liable to BP Group because the Aircraft Management Agreement is illegal and unenforceable and should be deemed void. Kloeber also argues that BP Group materially breached the agreement and failed to perform conditions precedent. In addition, BP Group has moved to strike the report and opinions of expert witness John Craig Weller...