Colgan Air, Inc. v. Raytheon Aircraft Co.

• Decision Date: 18 October 2007
• Docket Number: No. 06-1069.,06-1069.
• Citation: 507 F.3d 270
• Parties: COLGAN AIR, INCORPORATED, Plaintiff-Appellant, v. RAYTHEON AIRCRAFT COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

507 F.3d 270

COLGAN AIR, INCORPORATED, Plaintiff-Appellant, v. RAYTHEON AIRCRAFT COMPANY, Defendant-Appellee.

No. 06-1069.

United States Court of Appeals, Fourth Circuit.

Argued: May 24, 2007.

Decided: October 18, 2007.

ARGUED: Mark Andrew Dombroff, Dombroff & Gilmore, P.C., McLean, Virginia, for Appellant. Michael Gordon Jones, Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., Wichita, Kansas, for Appellee. ON BRIEF: Morgan W. Campbell, Thomas B. Almy, Dombroff & Gilmore, P.C., McLean, Virginia, for Appellant. Robert T. Hall, Holly Parkhurst Essing, Hall, Sickels, Frei & Kattenburg, Reston, Virginia; William L. Oliver, Jr., Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., Wichita, Kansas, for Appellee.

Before KING and GREGORY, Circuit Judges, and FRANK D. WHITNEY, United States District Judge for the Western District of North Carolina, sitting by designation.

Affirmed in part, vacated in part, and remanded by published PER CURIAM opinion.

OPINION

PER CURIAM:

Plaintiff Colgan Air, Inc., ("Colgan") appeals the district court's order granting summary judgment for Defendant Raytheon Aircraft Company ("Raytheon") on Colgan's claims of negligence, strict liability, and breach of express and implied warranties arising out of the crash of a Beech 1900D aircraft (Registration No. N240GJ) ("Aircraft") that resulted in the death of the pilot and copilot. Colgan alleged that several errors in the maintenance manual for the Aircraft, which was created and published by Raytheon, caused the fatal crash. In a published decision awarding summary judgment for Raytheon, Colgan Air, Inc. v. Raytheon Aircraft Co., 404 F.Supp.2d 893 (E.D.Va.2005), the district court held that the Used Airliner Airplane Warranty, executed by Colgan as part of its lease of the Aircraft, contained a waiver of right, which barred all of Colgan's claims against Raytheon. We affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

I.

A.

Colgan is a Virginia corporation that operates a regional air carrier in Virginia. As part of its business operation, Colgan contracted to lease several aircraft from both Raytheon Aircraft Credit Corporation ("RACC") and Raytheon Airline Aviation Services, LLC, ("RAAS"). RACC financed and leased to Colgan the Aircraft that is the subject of this matter.

Raytheon, a Kansas corporation, manufactured the Aircraft and also created, edited, and published the maintenance manuals for the Aircraft. Raytheon is a separate and independent company from the lessors of the Aircraft; however, Raytheon and RACC are both wholly-owned subsidiaries of Raytheon Aircraft Holdings, Inc. RAAS is a wholly-owned subsidiary of RACC and otherwise has no direct relationship to Raytheon.

Colgan executed several documents throughout the process of leasing the Aircraft, including the Definitive Agreement, Lease Agreement, and Side Letter Agreement that incorporated and modified the Used Airliner Airplane Warranty. On August 1, 2002, Colgan, RAAC, and RAAS¹ entered into the "Definitive Agreement," whereby the parties agreed to certain terms that would govern transactions among them as they related to the leasing of several aircraft. Essentially, the Definitive Agreement was the broad contractual statement regarding how all the aircraft were going to be leased by Colgan from RACC and RAAS. Among other general provisions that would govern the leasing of aircraft, the Definitive Agreement stated that RAAS would provide to Colgan "Support Items," which included a maintenance manual.² Additionally, the Definitive Agreement provided that the aircraft were to be leased pursuant to the terms of a form lease, which was attached to the Definitive Agreement as Appendix 1 and entitled "Operating Lease Agreement between Raytheon Aircraft Credit Corporation and Colgan Air, Inc." ("Lease Agreement"). Colgan and RACC signed the Lease Agreement for the Aircraft on January 3, 2003, and the Aircraft entered service with Colgan the very next day.

The Lease Agreement specifically provided that RACC was not the manufacturer of the Aircraft, stated that it was providing the Aircraft "as is," and disclaimed all warranties and liability. The Lease Agreement further provided that Colgan was under an obligation to maintain the Aircraft in accordance with the manufacturer's maintenance manuals and in compliance with all applicable Federal Aviation Regulations. The lease also stated that any manufacturer warranty would be subject to a separate contractual agreement, called the Used Airliner Airplane Warranty.

On January 9, 2003, RAAS supplied the Used Airliner Airplane Warranty pursuant to a Side Letter Agreement between RAAS and Colgan, which provided that the terms of the Used Airliner Airplane Warranty were otherwise applicable to the lease transaction. Raytheon was not a party to this Side Letter Agreement, although Raytheon was the issuer of the Used Airliner Airplane Warranty. The Used Airliner Airplane Warranty stated that Raytheon warrants that "each part of the Aircraft," except avionics equipment and engines, were free from defects in materials, workmanship, or design for a period of thirty days. (J.A. at 361). The Side Letter Agreement between Colgan and RAAS extended the manufacturer's warranty for the Aircraft from thirty days to ninety days. (J.A. at 359).

The Used Airliner Airplane Warranty also contained a disclaimer of warranties and an exclusive remedy provision. Specifically, the Used Airliner Airplane Warranty stated the following:

3. TO THE EXTENT ALLOWED BY APPLICABLE LAW, BUYER WAIVES AS TO RAYTHEON AND SELLER ALL OTHER WARRANTIES, WHETHER OF MERCHANTABILITY, FITNESS OR OTHERWISE. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.

4. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE OBLIGATIONS OF RAYTHEON SET FORTH HEREIN SHALL BE THE EXCLUSIVE REMEDIES FOR ANY BREACH OF WARRANTY HEREUNDER, AND, TO THE SAME EXTENT NEITHER RAYTHEON NOR SELLER SHALL BE LIABLE FOR ANY GENERAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, ANY DAMAGES FOR DIMINUTION OF MARKET VALUE, LOSS OF USE OR LOSS OF PROFITS, OR ANY DAMAGES TO THE AIRCRAFT CLAIMED BY BUYER OR ANY OTHER PERSON OR ENTITY UPON THE THEORIES OF NEGLIGENCE OR STRICT LIABILITY IN TORT.

(J.A. at 361).

B.

On August 26, 2003, the Aircraft crashed off the coast of Massachusetts shortly after takeoff, destroying the Aircraft and killing the only two passengers onboard: the pilot and co-pilot. Immediately prior to the accident, Colgan's mechanics had performed a maintenance procedure installing a new elevator trim tab cable. Colgan's maintenance crew performed the procedure using the maintenance manual for the Aircraft, which was published by Raytheon.³ The parties agree that Colgan's maintenance personnel, referencing the maintenance manual then in effect, installed the trim tab cable such that the trim tabs operated in reverse.

The REPS Manual contained a section within Chapter 27 entitled "Flight Controls-Description and Operation," which included the following language:

Proper winding of the cables on the pedestal and actuator drums, is shown in . . . the Elevator Tab Control Cable Winding illustration in Chapter 27-30-04 for elevator tabs, ensures against crossing the cables and causing improper trim tab movement.

(J.A. at 156A). Clicking on the underlined portion of the language above led to Figure 201 of Chapter 27-30-04, which depicted the forward trim cable drum backwards or 180 degrees from the properly installed position, and shows the open, keyed side of the drum, instead of the flat side. Colgan claimed that its maintenance crew followed the REPS Manual's directions as depicted in Figure 201, resulting in the reversal of the action of the elevator manual trim system.

Colgan also asserted that the table of contents for Chapter 27 failed to contain a reference or hyperlink to an operational check that would have revealed the problem with the trim tabs. Because Colgan's maintenance personnel did not locate or find the appropriate operational check, which was included in both the paper and REPS versions of the manual, they proceeded to devise their own check. Their check was not sufficient to disclose the problem with the Aircraft's elevator trim system. Colgan contended that these two defects with the REPS Manual — the reverse drawing and the missing hyperlink — proximately caused the Aircraft to crash. These defects appeared in all relevant versions of the manual, both electronic and paper.

As a result of the maintenance procedure, when cockpit controls were used to set the trim tabs at a nose up position, the trim tabs actually moved to a nose down position. Because the trim tabs operated in reverse, the Aircraft was unable to gain altitude following take-off and ultimately crashed. Neither maintenance crew nor the pilots discovered the error prior to the fatal flight.

C.

Colgan filed a complaint in the United States District Court for the Eastern District of Virginia on the basis of diversity of citizenship, alleging state law claims against Raytheon for breach of express and implied warranties, negligence, and strict liability. Raytheon disputed all claims and also asserted that any defects in the manual did not proximately cause the accident. Raytheon also defended on the basis that the maintenance manual was part of the Aircraft such that the claims were barred by the disclaimer in the Used Airliner Airplane Warranty. Following discovery, both parties moved for summary judgment.

In granting summary judgment for Raytheon, the district court did not rule on the cause of the accident, but proceeded upon the premise that the defects in the maintenance manual existed and were the proximate cause of the crash. After considering the Used Airliner Airplane Warranty, the district court concluded the manual was "part of the Aircraft" and therefore governed by the terms of the Used Airliner...