MD Helicopters Inc. v. Boeing Co.

• Decision Date: 15 August 2019
• Docket Number: No. CV-17-02598-PHX-JAT,CV-17-02598-PHX-JAT
• Parties: MD Helicopters Incorporated, Plaintiff, v. Boeing Company, Defendant.
• Court: U.S. District Court — District of Arizona

MD Helicopters Incorporated, Plaintiff,
v.
Boeing Company, Defendant.

No. CV-17-02598-PHX-JAT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

August 15, 2019

ORDER

At issue is Plaintiff/Counter-Defendant MD Helicopters Inc.'s ("MDHI") Motion for Summary Judgment (Doc. 146) and Defendant/Counter-Claimant the Boeing Company's ("Boeing") Motion for Partial Summary Judgment on MDHI's Force Majeure Defense (Doc. 123). The Court now rules on these Motions.

I. FACTUAL BACKGROUND

MDHI manufactures helicopters for commercial, military, and law enforcement markets. (Doc. 9 at 2 ¶ 7).¹ Boeing is an aerospace business that, among other product offerings, designs, develops, produces, sells, and offers support for military helicopters. (Docs. 9 at 3 ¶ 9; 16 at 2 ¶ 9). In July 2010, MDHI and Boeing entered into a Memorandum of Agreement ("2010 MOA"), (Doc. 138-3 at 41-67), providing that "MDHI and Boeing will cooperatively produce and support the AH-6i Aircraft in the worldwide market[,]" (id at 43). On October 6, 2011, MDHI and Boeing signed a Long Term Requirements

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Contract ("LTRC"), (Doc. 127-1 at 8-53), whereby MDHI agreed to build and sell, and Boeing agreed to buy, airframes and related components for use in the manufacture of Boeing's AH-6i helicopters, (id. at 10). (See also Docs. 138 at 3-4 ¶ 1; 147 at 2 ¶ 1). The LTRC incorporated the Boeing Company General Provisions 1 ("GP1"), (Docs. 127-1 at 43-51), which sets forth various terms governing the parties' relationship over the course of the AH-6i program. (See id. at 24-25 (stating that GP1 is "attached hereto and incorporated by reference" into the LTRC)).

On July 26, 2012, Boeing placed a purchase order for 24 airframes and related components for the AH-6i from MDHI by issuing Purchase Contract No. 648538 ("Purchase Contract") pursuant to the LTRC. (Doc. 127-1 at 55-82). MDHI signed this Purchase Contract in September 2012. (Docs. 16 at 15 ¶ 40; 29 at 5 ¶ 40; 57 at 7 ¶ 40). Under the Purchase Contract, the airframes and related components were to be delivered to Boeing on a rolling basis pursuant to a schedule set forth therein. (Docs. 127-1 at 56; 147 at 2 ¶¶ 2-3). The Purchase Contract and the LTRC provided that Boeing would make performance-based payments and delivery payments to MDHI after MDHI met certain production milestones. (Doc. 127-1 at 42, 81). Specifically, MDHI would receive a 15% payment after long-lead material orders were placed, 25% upon the loading of the airframe on the production line, 30% upon receipt of the airframe from MDHI's Monterrey, Mexico facility, and the final 30% upon delivery of the airframe to Boeing. (Id.). The Purchase Contract was also subject to the provisions set forth in the GP1, which the LTRC incorporated. (See id. at 43-51).

Although the Purchase Contract obligated MDHI to deliver all 24 airframes by December 11, 2014, (id. at 56), MDHI did not deliver the first airframe until June 25, 2015, (Docs. 127-10 at 68; 147 at 13). Thereafter, on August 14, 2015, MDHI and Boeing entered into a Memorandum of Agreement ("2015 MOA"), (Doc. 127-1 at 84-88), to resolve the parties' disputes regarding the scope of work, pricing, and delivery schedule for the AH-6i airframes that had arisen under the LTRC and the Purchase Contract. (Docs. 127-1 at 84; 138 at 4-5 ¶¶ 4-5; 147 at 3 ¶¶ 4-5). The 2015 MOA established a revised delivery schedule

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and new purchase price for each airframe, while retaining the performance-based milestones. (Doc. 127-1 at 84-85). The 2015 MOA also specified that the parties "agree that the Boeing Company General Provisions currently detailed on the Purchase Order will continue to apply according to the Purchase Order." (Id. at 85).

On March 7, 2016, the parties agreed to Purchase Contract Change 32 ("PCC-32"), which again modified the delivery schedule for Airframes 8 through 24. (Doc. 125-1 at 1-34; see also Docs. 125 at 1; 136 at 1). PCC-32 incorporates GP1 by reference. (Docs. 125-1 at 29; 125 at 2; 136 at 2). MDHI did not deliver Airframes 8 through 24 by the deadlines established in PCC-32. (Docs. 125 at 4; 125-1 at 37; 136 at 2). The following table shows the delivery deadlines to which the parties agreed in PCC-32, the actual dates on which MDHI delivered the airframes, and the delivery delay for each airframe:

Airframe	Contract Date	Actual Delivery Date	Days Late
8	April 29, 2016	June 27, 2016	59
9	May 19, 2016	September 14, 2016	118
10	June 3, 2016	October 6, 2016	125
11	June 17, 2016	October 20, 2016	125
12	July 1, 2016	October 27, 2016	118
13	July 18, 2016	December 8, 2016	143
14	August 1, 2016	January 9, 2017	161
15	August 15, 2016	January 24, 2017	162
16	August 29, 2016	January 24, 2017	148
17	September 13, 2016	March 21, 2017	189
18	September 27, 2016	March 21, 2017	175
19	October 11, 2016	March 21, 2017	161
20	October 25, 2016	March 27, 2017	153
21	November 8, 2016	April 18, 2017	161
22	November 22, 2016	May 2, 2017	161

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23	December 7, 2016	May 18, 2017	162
24	December 21, 2016	June 28, 2017 (short shipped)	189

(Id.).

On June 28, 2017, MDHI delivered Airframe 24 to Boeing without certain components, (Docs. 125 at 5; 136 at 3), as authorized by an agreement regarding the short shipment dated that same day, (Doc. 125-1 at 76-77). This June 28, 2017 agreement further required MDHI to install those missing components at Boeing's facility when they became available, (id. at 77), but MDHI never did so, (Docs. 125 at 5; 136 at 3). MDHI claims that it was "relieved from any obligation to install the 'short' parts on Airframe 24 when Boeing failed to pay the monies it owed under the terms of the contract." (Doc. 136 at 3). As a result of MDHI's refusal to install the missing components on Airframe 24, Boeing contends it was "required to purchase and retrofit the requisite parts itself to complete Aircraft 24, requiring Boeing to extend the AH-6i program beyond its anticipated end date." (Doc. 125 at 6).

MDHI alleges that it has since produced and delivered all 24 airframes to Boeing, but Boeing has "failed and refused to make performance-based payments for line-loading airframes 14, 23, and 24; has failed and refused to make final delivery payments for airframes 14, 22, 23, and 24; and has failed and refused to pay MDHI's invoice for Pressure Switches that MDHI supplied at Boeing's request." (Doc. 147 at 3-4 ¶ 7). In total, MDHI claims that Boeing owes $3,808,775.00 for these invoices, (id. at 4 ¶ 8), which are set forth below:

Date	Invoice #	Event	Amount Due
3/30/17	194375	Item 71 - PSR Switch	$18,275.00
4/26/17	7926715	Delivery of Airframe 22	$541,500.00
4/27/17	8019451	Line-loading Airframe 14	$541,500.00
4/27/17	8019453	Line-loading Airframe 23	$541,500.00

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5/23/17	7953638	Delivery of Airframe 23	$541,500.00
5/31/17	7988197	Delivery of Airframe 14	$541,500.00
6/20/17	8066389	Line-loading Airframe 24	$541,500.00
6/28/17	8070519	Delivery of Airframe 24	$541,500.00
Total Invoice Amount Due		$3,808,775.00

While Boeing "admits that it is in possession of the AH-6i airframes MDHI delivered," Boeing states that these invoices are not due and payable because MDHI's delivery of Airframe 24 was incomplete and nonconforming. (Docs. 16 at 4 ¶ 29; 138 at 5 ¶ 7). Boeing claims that it only accepted delivery of Airframe 24 "upon MDHI's promise to complete the installation of those missing components at Boeing's facility when they became available," but MDHI never did so. (Doc. 138 at 5 ¶ 6). Boeing further contends that it has incurred costs resulting from MDHI's delayed and defective airframes which are substantially greater than the payments MDHI claims are owed and which are recoverable from MDHI as either an "equitable price reduction" or "credit against any amounts that may be owed." (Id. at 5 ¶ 7).

Using the 24 airframes and kits which MDHI had built, in addition to other kits and systems built by Boeing and other suppliers, Boeing ultimately assembled the 24 Ah-6i helicopters. (Docs. 138 at 6 ¶ 9; 147 at 5 ¶ 9). Boeing sold these 24 helicopters for $234,700,000.00 to the U.S. Government who, in turn, sold them to the Saudi Arabian National Guard ("SANG"). (Docs. 138 at 6 ¶¶ 9-10; 147 at 5 ¶¶ 9-10).² The U.S. Government did not assess any monetary penalty on Boeing for the late delivery of these helicopters. (Doc. 128-5 at 375-76, Woody Dep. 19: 3-24, 22: 11-21).

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II. PROCEDURAL BACKGROUND

On August 3, 2017, MDHI filed suit against Boeing, (Doc. 1), and thereafter filed an Amended Complaint on September 11, 2017, (Doc. 9). MDHI seeks damages for breach of contract in an amount not less than the amount of its outstanding invoices, alleging that Boeing's refusal and failure to pay the invoices MDHI issued constitutes a material breach of the parties' contract for the sale of AH-6i airframes and the terms of the 2015 MOA. (Doc. 9 at 6-7 ¶¶ 31-38).³ In the alternative, should any required provision of the parties' agreement be ambiguous or undefined, MDHI seeks damages for breach of the implied covenant of good faith and fair dealing. (Id. at 8 ¶ 45).

On October 3, 2017, Boeing filed an Answer denying that MDHI is entitled to judgment in its favor or to any of the relief it has demanded. (Doc. 16 at 5 ¶ 50). That same day, Boeing also asserted nine counterclaims against MDHI, including: (1) Breach of the Asset Acquisition Agreement ("AAA"); (2) Breach of the Cross License; (3) Breach of the LTRC; (4) Breach of the GP1; (5) Breach of the 2015 MOA and PCC-32; (6) Breach of the Implied Covenant of Good Faith and Fair Dealing; (7) Conversion; (8) Tortious Interference with Contract and Business Expectancy; and (9) Declaratory Judgment. (Id. at 29-36 ¶¶ 121-65). On October 24, 2017, MDHI moved to...