CB Aviation, LLC v. Hawker Beechcraft Corp., CIVIL ACTION NO. 2:10-cv-1411-JD

• Decision Date: 08 November 2011
• Docket Number: CIVIL ACTION NO. 2:10-cv-1411-JD
• Parties: CB AVIATION, LLC, Plaintiff, v. HAWKER BEECHCRAFT CORP., Defendant.
• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

CB AVIATION, LLC, Plaintiff, v. HAWKER BEECHCRAFT CORP., Defendant.

CIVIL ACTION NO. 2:10-cv-1411-JD

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dated: November 8, 2011

DuBOIS, J.

MEMORANDUM

I. INTRODUCTION

This case arises out of the sale of an airplane by defendant to plaintiff pursuant to a sale agreement executed in October 2007. In September 2009, plaintiff discovered that the airplane had a structural defect and filed suit claiming breach of contract, breach of express and implied warranties, and rescission based on mutual mistake of fact. Defendant has raised three defenses: (1) a release agreement the parties signed before they discovered the defect at issue; (2) failure of plaintiff to afford defendant its right to cure the defect; and (3) rescission and revocation of acceptance are not appropriate because a third party has foreclosed upon the aircraft.

Presently before the Court are plaintiff's Motion for Partial Summary Judgment and defendant's Second Motion for Summary Judgment. For the reasons set forth below, both defendant's motion and plaintiff's motion are granted in part and denied in part. Specifically, the Court grants defendant's motion with regard to plaintiff's rescission claim and denies defendant's motion in all other respects. The Court grants plaintiff's motion with respect to plaintiff's breach of contract and breach of express warranty claims and denies plaintiff's motionas to plaintiff's rescission and breach of implied warranty claims. A jury trial is required to determine whether plaintiff properly revoked its acceptance of the airplane and the amount of plaintiff's damages.

II. BACKGROUND

A. The Resale Aircraft Purchase Agreement

In October 2007, plaintiff and defendant entered into the Resale Aircraft Purchase Agreement (the "Agreement" or "Sale Agreement") by which defendant sold plaintiff a Raytheon Aircraft Company Model Beech 390 (Premier I) aircraft (the "Aircraft"). (Resale Aircraft Purchase Agreement, CB Aviation, LLC's Resp. Opp'n Hawker Beechcraft Corp.'s Second Mot. Summ. J. ("Pl.'s Resp."), Ex. A.) Defendant manufactured the Aircraft. (Hawker Beechcraft Corp.'s Resps. CB Aviation, LLC's First Set Requests Admis., CB Aviation, LLC's Mot. Partial Summ. J. ("Pl.'s Mot."), Ex. D.) The sale price of the Aircraft was $4,194,250, payable upon delivery. (Resale Aircraft Purchase Agreement, Pl.'s Resp., Ex. A.)

Section II, paragraph 1 of the Agreement states that "at the time of [plaintiff's] acceptance of the Aircraft . . . , the Aircraft will be in an airworthy condition with all systems, installed equipment and engines functioning normally; [and] with all applicable published airworthiness directives and mandatory services bulletins completed." (Id.) Section IV, paragraph 7 of the Agreement states that the Aircraft is a used aircraft and that plaintiff "AGREES THAT, EXCEPT FOR THE SELLER'S REPRESENTATIONS IN SECTION II, PARAGRAPH 1 . . . , THE AIRCRAFT IS PURCHASED 'AS IS, WHERE IS, AND WITH ALL FAULTS.' [PLAINTIFF] ACKNOWLEDGES THAT, IN PURCHASING AND

ACCEPTING THE AIRCRAFT, [PLAINTIFF] HAS RELIED SOLELY UPON ITS OWN INVESTIGATION OF THE AIRCRAFT." (Id.)

Before defendant delivered the Aircraft, the purchase price was paid in full. (Decl. of Carl E. Chetty ("Chetty Decl."), Pl.'s Resp., Ex. B ¶ 4.) Defendant delivered, and plaintiff accepted, the Aircraft on February 22, 2008. (Certificate of Final Acceptance and Delivery, Def. Hawker Beechcraft Corp.'s Second Mot. Summ. J. ("Def.'s Mot."), Ex. B.)

B. The Release Agreement

On March 2, 2008, Carl Chetty, the CEO of CB Aviation, flew the Aircraft for the first time as pilot-in-command. (Chetty Decl. ¶ 7.) During the flight, the exterior baggage door "departed from the Aircraft, causing damage to the Aircraft fuselage, tail, and engine nacelle." (Id. ¶ 7.) Plaintiff threatened to sue, and in response defendant offered to repair the Aircraft and give plaintiff an $80,000 credit toward defendant's maintenance program. (Id. ¶¶ 9-12; Settlement Agreement and Release, Pl.'s Resp., Ex. F ¶ 1.) In exchange, the parties executed a Settlement Agreement and Release (the "Release" or "Release Agreement") on April 3, 2008. (Settlement Agreement and Release, Pl.'s Resp., Ex. F.)

Two recitals appear at the beginning of the Release: "[1] WHEREAS, the baggage door departed [the Aircraft] on or about March 2, 2008, and the [A]ircraft needs to be repaired; [and 2] WHEREAS, the parties desire to resolve any claims associated with the baggage door departure upon mutually acceptable terms." (Id.) The Release contains eight paragraphs of specific provisions. The first paragraph states that defendant would repair "the damage caused by the door separation," at its own cost, and that defendant would "credit $80,000 towards CBAviation's Support Plus program." (Id.) The second, third, and seventh paragraphs deal with the specifics of the repairs. (Id.) In the fourth, plaintiff agreed to "release and fully discharge [defendant] . . . from any and all claims, demands and causes of action they have or claim to have against [defendant] arising out of or relating to the baggage door separation incident or the purchase of the [A]ircraft." (Id.) The fifth states that the Release is not an admission of liability on the part of defendant, and the sixth calls for the parties to keep the terms of the Release confidential. (Id.) The eighth paragraph is an integration clause. (Id.)

C. The Cuts in the Center Pillar

On September 2, 2009, defendant discovered cuts in the center pillar of the Aircraft's windshield during a routine 1800-hour inspection at defendant's service facility. (Timothy Gray Aff. ("Gray Aff."), Def.'s Reply Pl.'s Resp. Opp'n Def.'s Mot. Summ. J. ("Def.'s Reply"), Ex. J ¶ 5.) Neither plaintiff nor defendant knew of the existence of the cuts prior to the 1800-hour inspection. (Def.'s Resps. Pl.'s First Set Requests Admis., Pl.'s Mot., Ex. D ¶ 15; Pl. CB Aviation LLC's Statement of Uncontroverted Facts Supp. its Partial Mot. Summ. J. ¶ 17.) The cuts were discovered when the windshield was removed; they could not be seen with the windshield in place. (Def.'s Resps. Pl.'s First Set Requests Admis., Pl.'s Mot., Ex. D ¶ 12.) As a result of the cuts, the Aircraft did not conform to its FAA type certificate and thus was not airworthy. (Id. ¶ 19; Dep. Thomas Graham Christy ("Christy Dep."), Pl.'s Mot., Ex. F, at 139, 143.)

At the time of the 1800-hour inspection, plaintiff was leasing the Aircraft to Freedom Jet Express, LLC ("Freedom Jets"). (Pl. CB Aviation LLC's Statement Uncontroverted Facts Supp.Its Partial Mot. Summ. J. ¶ 25.) When defendant discovered the cuts, it immediately notified a representative of Freedom Jets. (Gray Aff. ¶ 6.) Defendant thereafter repaired the cuts and informed Freedom Jets that the repairs were complete and that the Aircraft was ready to be picked up. (Dep. Brian Sutch ("Sutch Dep."), Def.'s Mot., Ex. E, at 102; Christy Dep. 152-53.)

Upon learning of the cuts, Mr. Chetty decided that he lacked confidence in the Aircraft's safety. (Dep. of Pietro Cuomo ("Cuomo Dep."), Def.'s Reply, Ex. L 75-76.) On September 25, 2009, Mr. Chetty sent an email to defendant asking defendant to call him and stating, "I have decided I do not want this [A]ircraft back. I am very disturbed with the defects this [A]ircraft has and I cannot put my family in it." (Email from Carl Chetty to Don Mercer, Sept. 25, 2009, Pl.'s Mot., Ex. G.) On November 25, 2009, counsel for Mr. Chetty sent defendant a letter explicitly "demand[ing] rescission of the transaction and that [defendant] immediately repurchase the Aircraft from [plaintiff] and that the parties be returned to their respective positions ab initio." (Letter from Mark B. Goldstein, Esq., to Pamela E. Bailey, Esq., Nov. 25, 2009, Pl.'s Mot., Ex. H.) Neither plaintiff nor Freedom Jets ever retook possession of the Aircraft after the 1800-hour inspection.

D. Webster's Repossession of the Aircraft

Webster Capital Finance, Inc.¹ ("Webster") financed $3,714,825 of the purchase price of the Aircraft secured by a lien on the Aircraft. Loan Schedule No. 1, Compl. Exs. D, H, Webster Capital Fin., Inc. v. Chetty Builders, Inc., Nos. 10-5207, 10-5208, 10-5209, 2011 WL 2039058(E.D. Pa. May 20, 2011) (DuBois, J.).² Plaintiff began making monthly payments pursuant to the loan agreement ("Loan Agreement") in April 2008. Webster, 2011 WL 2039058, at *2. When plaintiff learned of the cuts in the center pillar, it entered into an Amendment and Restatement of Loan/Lease Agreement (the "Amended Loan Agreement") with Webster. Id. The Amended Loan Agreement called for the repayment of $3,497,438.26 in forty-seven monthly installments, which plaintiff began making on August 1, 2009. Id. Plaintiff paid a total of $756,383.14 to Webster between April 2, 2008, and March 4, 2010. Def.'s Mot. Open Confessed J., Ex. A, Webster, 2011 WL 2039058.

Plaintiff stopped making payments to Webster after March 4, 2010. Id. at *3. Webster thereafter notified plaintiff that Webster was accelerating the debt and demanding payment of the entire balance of the loan, as was authorized by the Loan Agreement. Id. Webster filed a Complaint in Confession of Judgment for Money in this Court on October 5, 2010, and the Clerk of the Court entered judgment against plaintiff on the same day in the amount of $4,259,299.72 plus interest. Id. at *4. The amount of the judgment was disputed by plaintiff; plaintiff and Webster disagreed over whether plaintiff made payments before March 4, 2010, under the Loan Agreement or, rather, under a different financing agreement involving a helicopter unrelated to the instant case. Id. at *3. That dispute was resolved on May 25, 2011, by agreement; Webster and plaintiff agreed to reduce the judgment to $3,600,000, and the Court issued an Order to that effect on that date. Order, May 25, 2011, Webster, 2011 WL 2039058. The agreement and theOrder also required plaintiff to turn over to...