Delta Airlines v. Bombardier, Inc.
| Decision Date | 25 March 2021 |
| Docket Number | 1:20-cv-3025-GHW |
| Parties | DELTA AIR LINES, INC., Plaintiff, v. BOMBARDIER, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
For years Bombardier, Inc. ("Bombardier") sold commercial jets to Delta Airlines, Inc. In 2016, Delta agreed to buy a large number of Bombardier's newest jet—the "C-Series." In their agreement, Bombardier agreed to give Delta credits that it could apply towards "the purchase price of other goods (excluding aircraft) and/or services purchased directly from Bombardier." The credits worked like a discount to the purchase price of each aircraft purchased by Delta.
Years later, Bombardier sold a majority interest in the subsidiary that manufactured the C-Series to the European aerospace giant, Airbus. (Airbus eventually renamed Bombardier's former subsidiary "Airbus Canada.") After that transfer, Delta and Airbus Canada entered into an agreement to modify Bombardier's original agreements with Delta. The amendment provided that references to Bombardier in the agreements would be "deemed to be" references to Airbus Canada.
Bombardier ultimately sold its remaining interests in Airbus Canada to Airbus, completely exiting the business. Notwithstanding the fact that Airbus Canada is now a wholly separate company in which Bombardier holds no equity interest, Delta has demanded that Bombardier let Delta use credits issued by Airbus Canada to pay for goods and services provided by Bombardier. Delta claims that Bombardier remains obligated to do so under the terms of its original deal with Bombardier, which permitted it to apply credits to purchase goods and services from Bombardier. Delta's agreement to deem references to "Bombardier" as references to "Airbus Canada" unambiguously modified any right that Delta had to redeem the credits from Bombardier. As a result of the amendment, Delta can apply credits earned upon the sale of aircraft by Airbus Canada to the purchase price of other goods or services purchased directly from Airbus Canada, not Bombardier. Because Delta's own agreement unambiguously modified its ability to redeem credits issued by Airbus Canada for goods and services provided by Bombardier, Delta's claims against Bombardier for breach of contract must be dismissed.
Delta Airlines, Inc. ("Delta") is one of the world's largest commercial airlines. First Am. Compl. ("Am. Compl."), Dkt. No. 29, ¶ 17. Delta is a Delaware corporation headquartered in Atlanta, Georgia. Id. ¶ 13. Bombardier, Inc. ("Bombardier") is a diversified manufacturing company based in Montreal, Quebec. Id. ¶¶ 14, 18.
For many years, Bombardier manufactured and serviced commercial aircraft. Id. ¶ 20. Among the aircraft manufactured by Bombardier were its "Canadian Regional Jets" or "CRJs." Id. ¶¶ 6, 18. Bombardier manufactured several series of CRJs, including its model CRJ-200, CRJ-700, and CRJ-900 aircraft. Id. ¶ 18. "As the manufacturer of CRJ-series aircraft, Bombardier has been in the business of selling goods and services relating to the maintenance and operations of CRJs." Id. ¶ 19. Those goods and services included servicing its aircraft, the sale of spare parts, and training for maintenance and ground personnel. Id.
Delta purchased a number of CRJs from Bombardier over the years. Delta and Bombardier entered into a series of agreements related to the acquisition of CRJs, spanning the decades between 2000 and 2018. Id. ¶ 20. The contracts between Delta and Bombardier related to the CRJs "came to employ a common structure and form" over the years. Id. ¶ 21. Often, the parties signed a primary "purchase agreement," containing the base price of the aircraft. Id. Side letters or annexes contained other specific terms of the parties' deals. Frequently, those letter agreements obligated Bombardier to issue "goods and services" credits to Delta upon the delivery of new aircraft. Id. ¶ 21. Those credits functioned like a discount to the purchase price—they permitted Delta to use the credits to purchase any good or service "purchased directly from Bombardier." Id. ¶¶ 22, 30, 31. None of the purchase agreements entered into between Delta and Bombardier related to Bombardier's CRJs contained language limiting the application of these credits to the particular model of aircraft that was being purchased. Id. According to Delta, the lack of such aircraft-specific limitations in its contracts with Bombardier regarding CRJs was "consistent with the parties' course of dealing in applying the goods-and-services credits." Id. ¶ 24. "Prior to 2019, Delta used, and Bombardier has accepted, goods-and-services credits interchangeably, as to any good or service sold by Bombardier." Id. The complaint describes several instances in which Delta was able to use credits acquired through the purchase of one series of CRJs to goods and services associated with other series of CRJs. Id. ¶¶ 23-25.
In 2008, Bombardier launched the development of a new single-aisle aircraft—the "C-Series." Id. ¶ 2. The program was described as Bombardier's "big bet" to drive revenue in its commercial jet business. Id. Bombardier's big bet was not a winner. "The program was beset by long delays and extensive cost overruns." Id. ¶ 3. In October 2015, the company took a $3.2 billion write down on the value of the C-Series program, and it later accepted a $1 billion rescue packagefrom the province of Quebec. Id. ¶ 4. "It was against that backdrop - with Bombardier's very survival hanging in the balance - that Delta expressed interest in placing an order for C-Series aircraft." Id. The complaint alleges that given its desperate straits, in order to land an order from Delta, "Bombardier was willing to make valuable concessions to Delta extending across the entire scope of the parties' multi-layered business relationship." Id. ¶ 5.
Delta announced its intention to order up to 125 C-Series aircraft in April 2016. Id. ¶ 26. Delta's order was Bombardier's largest ever—and made Delta the largest customer for the C-Series. Id. ¶ 27. The potential value of the deal was substantial—over $5 billion. Id. As the parties negotiated the terms of the purchase agreement that would govern the order, Bombardier knew that Delta also intended to do substantial work to transform its fleet of CRJs—including the CRJ-700. Id. ¶ 28.
On April 27, 2016, Delta and Bombardier entered into a purchase agreement governing Delta's order for C-Series aircraft. Purchase Agreement No. PA-C0922 (the "Purchase Agreement"), Dkt. No. 63-3; Am. Compl. ¶ 29. Pursuant to the Purchase Agreement, Delta placed a so-called "firm order" for 75 C-Series aircraft and obtained an option to purchase up to 50 more. Am. Compl. ¶ 29. The Purchase Agreement established a list price for each of the aircraft, which was to be adjusted based on the optional features selected and the timing of the aircraft's delivery. Purchase Agreement §§ 4.1-4.4. The purchase price for the aircraft was to be paid in installments prior to delivery, with the balance due upon delivery. Id. § 5.1.2. The balance of the purchase price due at delivery for each aircraft was to be made "net of the applicable Credit Memoranda" set forth in two specified letter agreements, one of which, Letter Agreement '01, is described in more detail below. Id. Article 1 of the Purchase Agreement contains a series of provisions related to the interpretation of the agreement. Two of those provisions are particularly relevant to the Court's evaluation of the issues presented in this motion. First, Section 1.2 of the Purchase Agreement provides that "[t]he headings in this Agreement are included for convenience only and shall not be used in the construction and interpretation of this Agreement." Purchase Agreement § 1.2.
Second, Section 1.4 of the Purchase Agreement contains capitalized defined terms that apply throughout the Purchase Agreement. Section 1.4 introduces the list of defined terms with this statement: "In this Agreement the following expressions unless otherwise expressly provided, mean:" Two of those defined terms must be noted here. The term "Agreement" is defined to include not only the Purchase Agreement itself, but also letter agreements attached to the Purchase Agreement. Purchase Agreement § 1.4(d).2 The term "Aircraft" is defined in pertinent part to mean "any or all the Bombardier C Series model CS100 aircraft to be sold and purchased pursuant to this Agreement . . . ." Purchase Agreement § 1.4(e).3
The Purchase Agreement also addressed the capacity of its parties to assign their respective rights under the agreement. As a general matter, the Purchase Agreement prohibits such assignments without the prior written consent of the other party to the agreement. Purchase Agreement § 19.1. However, there are a number of exceptions to that general prohibition. Id.
One of those exceptions anticipated the transfer by Bombardier of its rights and obligations under the "Agreement" to the C-Series Aircraft Limited Partnership ("CSLP"). PurchaseAgreement § 19.7. As described earlier, the C-Series development program was under substantial financial pressure. In June 2016, the government of Bombardier's home province of Quebec agreed to invest $1 billion in the C-Series program. Am. Compl. ¶ 39. As part of that investment, Bombardier and Quebec formed a new partnership—CSLP. Id. Bombardier intended to assign its rights under the Purchase Agreement to CSLP. Id. So, in negotiating the Purchase Agreement, the parties included a provision that permitted Bombardier to do so, subject to a number of express conditions.
Section 19.7 of the Purchase Agreement provided the following:
Bombardier may assign, sell, transfer or dispose of (in whole or in part) any of its rights and obligations under the Agreement to CSeries Limited...
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