Cessna Fin. Corp. v. Jetsuite, Inc.

437 F.Supp.3d 914

CESSNA FINANCE CORPORATION, Plaintiff,

v.JETSUITE, INC. and JS CJ3, LLC, Defendants.

JetSuite, Inc. and JS CJ3, LLC, Counterclaim-Plaintiffs,

v.Cessna Finance Corporation, et al., Counterclaim-Defendants.

Case No. 18-1095-EFM-KGG

United States District Court, D. Kansas.

Signed January 28, 2020

Jeffery A. Jordan, Nathaniel William Mannebach, Foulston Siefkin LLP, Wichita, KS, for Plaintiff/Counterclaim-Defendant Cessna Finance Corporation.

William R. Sampson, Zach Chaffee-McClure, Shook, Hardy & Bacon LLP, Kansas City, MO, for JS CJ3, LLC, JetSuite, Inc.

Anna C. Ritchie, Heather S. Esau Zerger, Kyle W. Malone, Lynn D. Preheim, Stinson, LLP, Wichita, KS, for Counterclaim-Defendants Cessna Aircraft Company, Textron Aviation, Inc., Donald Beverlin.

MEMORANDUM AND ORDER

ERIC F. MELGREN, UNITED STATES DISTRICT JUDGE

JetSuite, Inc. ("JetSuite") and JS CJ3, LLC ("JS") purchased several aircraft from Cessna Aircraft Company ("Cessna Aircraft"). JetSuite and JS financed that purchase through Cessna Finance Corporation ("Cessna Finance"). Cessna Finance sued JetSuite and JS, alleging that they defaulted on their payments. In turn, JetSuite and JS filed a counterclaim against Cessna Finance (and others) alleging that JetSuite and JS were fraudulently induced into purchasing the aircraft. JetSuite and JS seek monetary damages as well as rescission of the contracts arising from the purchase of the aircraft. This matter comes before the Court on Cessna Finance's Motion for Judgment on the Pleadings on JetSuite and JS's Counterclaims (Doc. 53.) For the reasons stated below, the Motion is granted in part and denied in part.

I. Factual and Procedural Background¹

JetSuite is a California corporation that provides private jet charter services to its clients. In 2012, JetSuite began discussions with Cessna Aircraft to purchase several Cessna CJ3 Citation Jet Aircraft ("CJ3 Jets"). After months of negotiations—many of which took place in California—JetSuite entered into a Letter Agreement with Cessna Aircraft to purchase 15 of Cessna Aircraft's CJ3 Jets; the Letter Agreement stipulated that a separate Purchase Agreement would be executed for each aircraft. JetSuite formed JS, a limited liability company, to own the CJ3 Jets. Ultimately, JetSuite and JS took possession of eight CJ3 Jets, and Cessna Aircraft eventually canceled the remaining seven orders. JetSuite and JS borrowed money from Cessna Finance to finance the purchase of the eight CJ3 Jets. For each jet, JS was required to sign a Promissory Note, a Security Agreement, and a Cross-Default Agreement; JetSuite executed documents promising to be a guarantor of JS's financial obligations.

Unbeknownst to Jetsuite and JS at the time of the purchase, Cessna's CJ3 Jets were prone to leaking lavatory fluids, causing significant corrosion throughout the aircraft. In March 2017, JetSuite discovered that the CJ3 Jets it purchased from Cessna Aircraft had extensive damage from the leaky lavatories. JetSuite took one of the jets to Textron Aviation Service ("TAS"), and TAS estimated that the repairs would take more than a year and cost $1,215,000. By the end of 2017, four of Jetsuite's eight CJ3 Jets were downed and out of service due to lavatory-related corrosion. Although the lavatory-related corrosion was the most severe issue with the CJ3 Jets, JetSuite and JS allege other problems also plagued the aircraft.

Cessna Finance sued JetSuite and JS, alleging that they failed to make payments on their loans. JetSuite and JS filed a counterclaim seeking, among other remedies, rescission of the Letter Agreement and all of the Purchase Agreements, Promissory Notes, Guaranties, Security Agreements, and Cross-Default Agreements. In their counterclaim, JetSuite and JS allege that Cessna Aircraft and Cessna Finance knew about the CJ3 Jets' propensity for corrosion and concealed this fact during the parties' negotiations. JetSuite and JS allege that Donald Beverlin—a senior sales representative of Cessna Aircraft—was acting as both Cessna Aircraft and Cessna Finance's agent when he made multiple representations to JetSuite and JS about the CJ3 Jets' exceptional performance, reliability, and operational availability. In the hundreds of written, telephone, and in-person contacts between Beverlin and JetSuite, Beverlin never mentioned lavatory-related corrosion as a potential issue in the CJ3 Jets.

JetSuite and JS filed their counterclaim against Cessna Aircraft, Textron Aviation, Inc.,² Cessna Finance, and Beverlin (collectively "Counterclaim-Defendants"), alleging fraud by silence, fraudulent inducement, a violation of the California Business and Professions Code, and conspiracy. Although Cessna Aircraft and Cessna Finance are distinct legal corporations, JetSuite and JS allege that "each Counterclaim-Defendant was the agent, servant, representative, alter ego, and/or employee of each of the others" and that each was acting "with the permission, knowledge, consent and ratification of each of the others" in concealing the CJ3 Jets' defects. To support the alleged relationship between Cessna Finance and Cessna Aircraft, JetSuite and JS highlight that Textron's Vice President and Treasurer, Mary Lovejoy, also served as a director of Cessna Finance. Additionally, although Beverlin was an employee of Cessna Aircraft, JetSuite and JS allege that Beverlin was also acting as Cessna Finance's agent in coordinating the financing of the purchase.

Cessna Finance filed a Motion for a Judgment on the Pleadings on JetSuite and JS's counterclaims. Cessna Finance primarily relies on the language within the parties' contracts to negate JetSuite and JS's fraud claims.³ Specifically, Cessna Finance points to the following provisions in the parties' contracts:

Borrower acknowledges and agrees that lender has not authorized any third party including, without limitation, the manufacturer of the aircraft or the seller, their affiliates, officers, agents or employees, to make any representations, warranties, promises, guarantees, covenants or agreements, oral or written, concerning the aircraft or the loan on lender's behalf, and further acknowledges and agrees that no such third party is lender's agent and that lender shall not be bound by any such purported representations, warranties, promises, guarantees, covenants or agreements.

...

In Consideration of the loan, except where prohibited by applicable law, borrower completely waives and surrenders the right to pursue, assert or interpose any claim or defense against the lender, in law or in equity (including, without limitation, any right to recoupment, setoff or counterclaim), based on the aircraft's title, airworthiness, merchantability, condition, description, durability, value, fitness or suitability for any particular use or purpose, or upon allegations that lender is so closely or intimately connected with the manufacturers or prior owner(s) of the aircraft, or with any other third party whatsoever, including, without limitation, the seller or their affiliates, that lender knew or had reason to know of facts about the aircraft or its title (or the borrower's dealings with such manufacturers, prior owner(s) or third parties or about their general business practices) that would support a claim, counterclaim or defense by borrower against such manufacturers, prior owner(s) or third parties.

...

Borrower hereby acknowledges that it has selected the aircraft for purchase without any assistance or inducement from lender or lender's agents or employees and that except for the advancement of funds pursuant to the note and this agreement, lender has not been involved in the purchase decision or purchase transaction. Borrower agrees that lender has made no warranties whatsoever concerning the aircraft express or implied, whether of title, airworthiness, merchantability, condition, description, durability, value, fitness or suitability for any particular use or purpose or otherwise, and that lender, except where prohibited by applicable law, hereby disclaims all such warranties.

Cessna Finance moves the Court to grant judgment on the pleadings on all four of JetSuite and JS's counterclaims. The Court now rules as follows.

II. Legal Standard

Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed as long as the motion is made early enough not to delay trial.⁴ The standard for dismissal under Rule 12(c) is the same as a dismissal under Rule 12(b)(6).⁵ To survive a motion for judgment on the pleadings, a complaint must present factual allegations, assumed to be true, that "raise a right to relief above the speculative level," and must contain "enough facts to state a claim to relief that is plausible on its face."⁶ All reasonable inferences from the pleadings are granted in favor of the non-moving party.⁷ Judgment on the pleadings is appropriate when "the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law."⁸ Documents attached to the pleadings are exhibits and may be considered in deciding a Rule 12(c) motion.⁹

III. Analysis

A. Fraud by Silence

JetSuite and JS allege that Cessna Finance committed fraud by remaining silent about known defects with the CJ3 Jets. The elements of a fraud by silence claim are: "(1) The defendant had knowledge of material facts that the plaintiff did not have and could not have discovered by the exercise of reasonable diligence; (2) the defendant was under an obligation to communicate the material facts to the plaintiff; (3) the defendant intentionally failed to communicate to the plaintiff the material facts; (4) the plaintiff justifiably relied upon the defendant to communicate the material facts to the plaintiff; and (5) the plaintiff sustained damages as a result of the defendant's failure to communicate the material facts to the plaintiff."¹⁰ Here, Cessna Finance disputes that...