Textron Aviation, Inc. v. Superior Air Charter, LLC

• Decision Date: 21 November 2019
• Docket Number: Case No. 18-1187-JWB
• Citation: 420 F.Supp.3d 1186
• Parties: TEXTRON AVIATION, INC., Plaintiff, v. SUPERIOR AIR CHARTER, LLC, Defendant Superior Air Charter, LLC, Counter Claimant, v. Textron Aviation, Inc., et al., Counter Defendants.
• Court: U.S. District Court — District of Kansas

420 F.Supp.3d 1186

TEXTRON AVIATION, INC., Plaintiff,

v.SUPERIOR AIR CHARTER, LLC, Defendant

Superior Air Charter, LLC, Counter Claimant,

v.Textron Aviation, Inc., et al., Counter Defendants.

Case No. 18-1187-JWB

United States District Court, D. Kansas.

November 21, 2019

Anna C. Ritchie, Kyle W. Malone, Lynn D. Preheim, Stinson Leonard Street, LLP, Wichita, KS, for Plaintiff/Counter Defendants.

William R. Sampson, Zach Chaffee-McClure, Shook, Hardy & Bacon LLP, Kansas City, MO, for Counter Claimant/Defendant.

Heather S. Esau Zerger, Stinson Leonard Street, LLP, Jeffery A. Jordan, Nathaniel William Mannebach, Foulston Siefkin LLP, Wichita, KS, for Counter Defendants.

MEMORANDUM AND ORDER

JOHN W. BROOMES, UNITED STATES DISTRICT JUDGE

This matter is before the court on Counterclaim Defendants' Motions to Dismiss (Docs. 51, 66.) The motions have been fully briefed and are ripe for decision. (Docs. 52, 64, 67, 69, 77, 82.) For the reasons stated herein, Counterclaim Defendants' motions are GRANTED.

I. Background

On June 26, 2018, Plaintiff Textron Aviation, Inc., ("Textron") filed this action against Superior Air Charter, LLC ("SAC"). Plaintiff alleges that it is a successor in interest to Cessna Aircraft Company ("Cessna") after a merger. Cessna and SAC entered into eight ProAdvantage agreements concerning eight different aircraft during 2012 to 2014. The ProAdvantage agreements provided price protection for maintenance costs and the ability to purchase parts directly. Pursuant to the terms, upon early termination, SAC must essentially pay any negative balance. The ProAdvantage agreements were allegedly terminated early. Textron also asserts that SAC breached a consignment agreement concerning aircraft parts and failed to pay on an open account. Textron seeks monetary damages, return of the consignment parts, attorney fees and interest. SAC previously moved to dismiss and compel arbitration. (Doc. 15.) This court denied SAC's motion. (Doc. 21.)

On June 24, 2019, SAC filed an answer and asserted counterclaims against Textron, Cessna¹ , Cessna Finance Corporation ("CFC"), and Donald Beverlin (collectively referred to as "Counterclaim Defendants"). (Doc. 30.) In essence, SAC contends that Counterclaim Defendants fraudulently induced SAC and related entities into entering the agreements concerning the sale of the aircraft. Textron and CFC are Kansas corporations. Beverlin is a California resident. SAC is a limited liability company organized in Delaware.

SAC alleges that JetSuite, Inc., is a private jet charter airline that provides transportation services throughout the United States. JetSuite, Inc., formed JS CJ3, LLC to own the aircraft purchased from Textron and it formed SAC to operate the aircraft. (Doc. 30 at 9.) SAC referred to itself and these entities as "JetSuite" throughout the allegations in the counterclaims.² (Doc. 30 at 5.) According to the allegations, Beverlin was an agent of Textron and coordinated the purchase and financing of the eight CJ3 aircraft. Discussions to purchase the aircraft began in 2012. Beverlin, Textron, and CFC allegedly made representations regarding the aircraft's exceptional performance. Allegedly, Beverlin made these representations during his visits to California. (Doc. 30 at 12.) However, there were widespread problems that involved lavatory chemicals leaking from the toilet onto the aircraft's fuselage and other parts of the aircraft. This resulted in corrosion on the fuselage. This problem was due to an alleged flaw in the aircraft's design. SAC alleges that the corrosion problems in the CJ3 were known by Beverlin, Textron, and CFC. (Doc. 30 at 14.) Beverlin, Textron, and CFC failed to inform JetSuite about the corrosion problems.

In September 2012, JetSuite entered into a Letter Agreement for the purchase of fifteen CJ3 aircraft. For each aircraft, JS CJ3 was required to execute a promissory note, security agreement, and a cross-default agreement. (Doc. 30 at 16.) JetSuite was to execute a guaranty.³ (Id. ) Moreover, Textron required SAC to enter into the ProAdvantage agreements. SAC alleges that it was induced into entering the ProAdvantage agreements and that none of the agreements would have been entered into had the JetSuite entities known of the corrosion problems. SAC further alleges that JetSuite was also induced into entering the related agreements regarding the purchases of the aircraft.

On March 23, 2017, JetSuite discovered corrosion on one of the aircraft. As a result, that aircraft needed extensive repairs. (Doc. 30 at 22-24.) The estimated cost of repair was $1,215,000 and the aircraft would not be ready to return to service for 395 days. The lavatory-related corrosion problems have resulted in four additional aircraft being out of service. The second aircraft was out of service around April 23, 2017. The third aircraft was out of service around December 1, 2017, and the fourth was out of service around December 15, 2017. (Id. at 24.) The remaining four aircraft have also required significant repairs. (Id. at 25.)

SAC filed its answer and counterclaims against Counterclaim Defendants on June 24, 2019. SAC asserts the following counterclaims against Counterclaim Defendants: fraudulent inducement; fraudulent concealment; civil conspiracy; and fraudulent business acts under Cal. Bus. & Prof. Code § 17200, California's Unfair Competition Law ("UCL"). Counterclaim Defendants move for dismissal on various grounds.

II. Motion to Dismiss Standards

In order to withstand a motion to dismiss for failure to state a claim, a complaint must contain enough allegations of fact to state a claim to relief that is plausible on its face. Robbins v. Oklahoma , 519 F.3d 1242, 1247 (10th Cir. 2008) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 127 S. Ct. 1955, 1974, 167 L.Ed.2d 929 (2007) ). All well-pleaded facts and the reasonable inferences derived from those facts are viewed in the light most favorable to SAC. Archuleta v. Wagner , 523 F.3d 1278, 1283 (10th Cir. 2008). Conclusory allegations, however, have no bearing upon the court's consideration. Shero v. City of Grove, Okla. , 510 F.3d 1196, 1200 (10th Cir. 2007). Rule 12(b)(6) requires SAC to allege "enough factual allegations in the complaint to set forth a plausible claim." Pueblo of Jemez v. United States , 790 F.3d 1143, 1171–72 (10th Cir. 2015) (internal citations omitted). In the end, the issue is not whether SAC will ultimately prevail, but whether SAC is entitled to offer evidence to support its claims. Beedle v. Wilson , 422 F.3d 1059, 1063 (10th Cir. 2005).

III. Analysis

A. Choice of Law

"A federal court sitting in diversity jurisdiction must apply the substantive law of the state in which it sits, including that state's choice-of-law rules." Hayden Outdoors, Inc. v. Niebur , 994 F. Supp. 2d 1206, 1208 (D. Kan. 2014) (quoting Vazirani & Assoc's Fin., LLC v. Heitz , No. 11– 1032–MLB, 2011 WL 2295027, at *2 (D. Kan. June 8, 2011) (internal citation omitted)). In this case, the ProAdvantage agreements have a choice of law provision. "Federal courts in Kansas routinely enforce the parties' contractual choice-of-law provisions under Kansas choice-of-law rules." Altrutech, Inc. v. Hooper Holmes, Inc. , 6 F. Supp.2d 1269, 1273 (D. Kan. 1998) ; see Brenner v. Oppenheimer & Co. , 273 Kan. 525, 539, 44 P.3d 364, 375 (2002) ("Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally effectuate the law chosen by the parties to control the agreement.") The choice of law provision in the agreements is as follows:

11.6 Governing Law. The laws of the State of Kansas, U.S.A., (without giving effect to its conflicts of law principles) govern all matters arising from or relating to this Agreement and all of the transactions contemplated herein, including, without limitation, validity, interpretation, construction, performance, and enforcement of this Agreement. The Parties expressly agree to exclude from this Agreement the 1980 United Nations Convention on Contracts for the International Sale of Goods, as amended and any successor thereto. This Agreement is not interpreted or construed for or against any Party on the basis of which Party drafted this Agreement.

(Doc. 52, Exhs. 1-8, § 11.6.)⁴

The court finds that the choice of law provision is broad and includes all matters relating to the agreements entered into by SAC and Textron. SAC does not argue that its claims fall outside the scope of the choice of law provision. Rather, SAC argues that the provision is not applicable because SAC has alleged fraudulent inducement with respect to entering into the agreements. The Tenth Circuit has held that a "plaintiff seeking to avoid a choice provision on a fraud theory must, within the confines of Fed. R. Civ. P. 9(b) and 11, plead fraud going to the specific provision." Riley v. Kingsley Underwriting Agencies, Ltd. , 969 F.2d 953, 960 (10th Cir. 1992) (citing to Scherk v. Alberto-Culver Co. , 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) and M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) ); see also Hammond v. Alfaro Oil & Gas, LLC , No. CIV.A. 10-1326-MLB, 2011 WL 976711, at *2 (D. Kan. Mar. 17, 2011). SAC does not argue that the counterclaims allege fraud going to the choice of law provision. Rather, SAC argues that Riley did not involve a choice of law provision and any discussion regarding choice of law was dicta and, moreover, that Aces Transp., Inc. v. Ryan Transp. Servs., Inc. , No. 05-2434 JWL, 2006 WL 1487008, at *5 (D. Kan. May 24, 2006), applies. (Doc. 64 at 3-4.)

The contracts at issue in Riley did in fact involve a choice of law provision. The following issues were raised in Riley at the district court level: "(1) whether choice of forum and law provisions in Riley's contract with Lloyd's were valid and enforceable, and (2) whether arbitration and choice of law provisions in Riley's contract with the...