BOC Aviation Ltd. v. AirBridgeCargo Airlines, LLC

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BOC AVIATION LIMITED, Plaintiff, v. AIRBRIDGECARGO AIRLINES, LLC, and VOLGA- DNEPR LOGISTICS B.V., Defendants.

No. 22-cv-2070 (LJL)

United States District Court, S.D. New York

December 12, 2022

OPINNION AND ORDER

LEWIS J. LIMAN, United States District Judge.

Plaintiff BOC Aviation Limited (“BOCA” or “Plaintiff”) moves to hold Defendants AirBridgeCargo Airlines LLC (“ABC”) and Volga-Dnepr Logistics B.V. (“VDL,” and with ABC “Defendants”) in contempt of the March 14, 2022 ex parte order for immediate possession of aircraft and injunction, Dkt. No. 26 (“March Order”), and the November 21, 2022 Order for mandatory preliminary injunctive relief, Dkt. No. 70 (“November Order,” and together with the March Order, the “Orders”). For contempt of the March Order, BOCA seeks a daily fine of $30,000, with this daily fine doubling each week until ABC submits sufficient proof of compliance with the March Order by delivering to BOCA certified electronic copies of statements of no accidents or incidents. Dkt. No. 78. For contempt of the November Order, BOCA seeks a daily fine of $100,000 payable to BOCA with the daily fine increasing by $50,000 each day until Defendants submit sufficient proof that they are in compliance with the November Order. Id. BOCA also seeks damages, reasonable attorneys' fees, and costs incurred in connection with its application.

For the following reasons, the motion is granted in part and denied in part.

BACKGROUND

This case arises from the imposition of European sanctions against Russia and the imposition of Russian sanctions on foreign assets, including internationally leased aircraft. Plaintiff a Singapore corporation engaged in the business of purchasing, selling, and leasing commercial aircraft, owns three Boeing Model 747-8F airframes each equipped with four General Electric engines. Dkt. No. 41 ¶¶ 2, 6. ABC a Russian limited liability company, is a wholly owned subsidiary of VDL, a Netherlands company. Id. ¶ 7-8. ABC operates cargoairline services and leased the three aircraft from Plaintiff. Id. ¶ 7. This dispute concerns only one of those planes (the “Airframe”), identified by its Manufacturer Serial Number 60119 (“MSN 60118”), and its accompanying engines (with the Airframe, “the Aircraft”), all of General Electric Model GEnx-2B67/P Id. ¶ 3.

I. The Agreements Between the Parties Governing the Aircraft

Plaintiff leased the Aircraft to ABC pursuant to an Amended and Restated Aircraft Lease Agreement, dated as of November 13, 2015, and as amended and restated as of March 30, 2017 (the “60118 Lease Agreement”). Dkt. No. 47-1 at ECF p. 37. Also on March 30, 2017, Plaintiff acquired ownership of the Aircraft and entered into an Assignment, Assumption and Amendment Agreement with respect to the Aircraft (the “60118 Assignment Agreement”). Dkt. No. 47-1 at ECF p. 16. ABC and VDL are parties to the 60118 Assignment Agreement, which incorporates the 60118 Lease Agreement with Plaintiff as the new lessor. Id. at ECF p. 17-19.

Several provisions of the 60118 Lease Agreement are relevant to this dispute.

Section 12.02 of the 60118 Lease Agreement outlines in part the obligations of ABC as the “Lessee” and the rights of Plaintiff as the “Lessor” in the case of an “Event of Loss” with respect to the leased engines on the MSN 60118. In particular, the 60118 Lease Agreement requires the conveyance “as soon as practicable” of a replacement engine by conveying title to another engine of a “same or an improved” model. Section 12.02 provides the following:

[u]pon the occurrence of an Event of Loss with respect to an Engine not then installed on the Airframe . . ., Lessee shall give Lessor prompt written notice thereof and Lessee shall replace such Engine as soon as practicable after the occurrence of such Event of Loss by duly conveying to Lessor as a replacement for said Engine, title to another engine made by the Engine Manufacturer [General Electric] and of the same or an improved model and suitable for installation and use on the Airframe, which engine shall be free and clear of all Liens, and shall have a value and utility at least equal to, and be in as good an operating condition as, the Engine with respect to which such Event of Loss occurred, assuming such replaced Engine was of the value and utility and in the condition and repair as required by the terms hereof immediately prior to the occurrence of such Event of Loss.

Id. at ECF Page 84. An “Event of Loss” is defined in part in Section 1.01 of the 60118 Lease

Agreement as follows:

“Event of Loss” with respect to any Item of Equipment means any of the following events with respect to such Item: . . . (d) the condemnation, confiscation or seizure of, or requisition of title to, or requisition of use (for a period in excess of sixty (60) days, but in any event no longer than the last day of the Term) of, such Item by any Government Body; or (e) as a result of any rule, regulation, order or other action by any Aviation Authority, or other Government Body having jurisdiction, the use of such Item in the normal course of air transportation of persons or property shall have been prohibited for a period of more than six (6) months.

Id. at ECF Page 46.^[1]

The 60118 Lease Agreement also separately defines an “Event of Default” and outlines consequences for the occurrence of such an event. The parties agree that under the 60118 Lease Agreement, an “Event of Default” has occurred because reinsurance covering the Aircraft was cancelled and invalidated as a result of sanctions issued by the European Union against Russia. See Dkt. No. 54 ¶ 5 (Defendants stating that “[t]hrough no fault of Defendant Airbridge, reinsurance covering the Aircraft was canceled and invalidated as a result of sanctions issued by the European Union. The cancellation of reinsurance triggered a default of the Lease Agreement.”). Section 19.02 of the 60118 Lease Agreement provides that upon an Event of Default, and

[u]pon the written demand of Lessor with or without terminating this Lease and at Lessee's expense, cause Lessee to return promptly, and Lessee shall return promptly, the Aircraft and any part thereof . . . as Lessor may so demand to Lessor . . ., or Lessor at its option and provided that Lessor has sent Lessee a notice of termination, may enter upon the premises where the Aircraft or any part thereof is located and take immediate possession of and remove the same (together with any engine which is not an Engine but which is installed on the Airframe, subject to all the rights of the owner, lessor, lienor or secured party of such engine, and such engine shall be held for the account of any such owner, lessor, lienor or secured party or, if owned by Lessee, may, at the option of Lessor, be exchanged with Lessee for an Engine as if the original Engine had suffered an Event of Loss) by summary proceedings or otherwise ....

Id. at ECF p. 101.

Plaintiff and VDL also entered into a Guaranty Agreement dated as of March 30, 2017 (“Guaranty Agreement”). That Guaranty Agreement imposes an obligation on VDL, as the “Guarantor” to ensure the performance of ABC under the 60118 Lease Agreement:

Guarantor does hereby unconditionally and irrevocably guarantee to the Lessor (i) the due and punctual performance and observance by Lessee of each covenant, agreement, undertaking, representation, warranty and any other obligation or condition binding upon or to be performed or observed by it under and in accordance with the terms of the Lease and the other Operative Documents, . . . and (iii) in the event of any non-payment or non-performance, agrees to pay or perform or cause such payment or performance to be made upon notice from the Lessor of such non-payment or non-performance.

Dkt. No. 47-2 at ECF p. 3.

II. The March and November Orders

Pursuant to this Court's ex parte March Order, Dkt. No. 26, Plaintiff gained possession of the Airframe bearing MSN 60118. The March Order concluded that “[o]ne or more Events of Default have occurred and are continuing as [ABC] has failed to maintain the insurance on the Aircraft.” Dkt. No. 26 at 2. It further ordered, inter alia, that “BOCA is entitled to, and shall have, IMMEDIATE POSSESSION of the Aircraft (including all engines installed on the Airframe), the Aircraft Documentation, and all spare parts for the Aircraft.” Id. at 3. It also ordered that “BOCA comply with Section 19.02 of the [60118] Lease [Agreement] if any of the engines installed on the Airframe is not an engine that BOCA leased to [ABC],” and that “Defendant shall immediate TURNOVER to BOCA all Aircraft Documentation.” Id.

The Airframe bearing MSN 60118 arrived in the United States from Hong Kong with two of Plaintiff's own engines installed. The other two engines owned by Plaintiff are in Defendants' possession in Russia. At the time of the repossession, one of the engines installed on the Airframe was owned by non-party Rainbow Leasing Limited (“Rainbow”). The parties have referred to that engine as “Rainbow Engine 1.” Rainbow also owns another two engines of the same make and model. Dkt. No. 47-9. One has a serial number of 959208 and is currently located in Scotland. That engine is “Rainbow Engine 2.” The other has a serial number of 959221 and is currently located in the United Kingdom. That engine is “Rainbow Engine 3.”

Rainbow is an entity that is an affiliate of ABC and is a wholly owned subsidiary of V-D Ireland (“VDI”). VDI, in turn, is owned 69% by Defendant VDL and 31% by non-party Volga-Dnepr Airlines (“VDA”). Dkt. No. 80 at 9.

On October 21, 2022, Plaintiff filed a motion for injunctive relief by way of order to show cause. Plaintiff asked for an injunction that included the following language:

(i) Directing [VDL] to cause its subsidiaries to transfer

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