Jayhawk 910VP, LLC v. WindAirWest, LLC

JAYHAWK 910VP, LLC, Plaintiff, v. WindAirWest, LLC, Defendant.

No. 18-11534-KGG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

April 7, 2020

MEMORANDUM & ORDER ON MOTION FOR SUMMARY JUDGMENT

Plaintiff Jayhawk 910VP, LLC (hereinafter "Jayhawk" or "Plaintiff") has brought a breach of contract claim against Defendant WindAirWest, LLC ("WAW" or "Defendant"), contending that WAW breached the an aircraft lease by failing to pay the full amount of the additional charter fee that was due because WAW declined to exercise an option to purchase the aircraft. WAW brought six counterclaims against Jayhawk - breach of contract, fraud/intentional misrepresentation, negligent misrepresentation, tortious interference with contract and/or business relations, conversion, and unjust enrichment. WAW contends that Jayhawk was in material breach of a subsequent agreement, committed fraud, negligent misrepresentation, tortious interference and conversion arising out of charges on WAW's vendors' accounts. WAW also brings an unjust enrichmentclaim, contending Jayhawk used WAW's air carrier certificates to operate the charter business while negotiating the final terms of the purchase of WAW.

The dispositive motion currently pending before the Court was brought by Jayhawk as to some of WAW's counterclaims. Jayhawk seeks partial summary judgment on part of the breach of contract claim and summary of judgement dismissing the other claims in their entirety. For the reasons set forth below, Jayhawk's motion is GRANTED in part and DENIED in part.

FACTUAL BACKGROUND

Plaintiff Jayhawk 910VP, LLC (hereinafter "Jayhawk") is a Kansas limited liability company, with its offices in Wichita, KS. Jayhawk's sole asset was a Cessna Citation X Model 750 business jet, tail number N910VP ("N910VP"). Jayhawk was formed to purchase N910VP, refurbish it, and sell it. Jayhawk acquired N910VP in 2012. The purchase of N910VP was financed through Intrust Bank and subsequently refinanced through Rose Hill Bank.

Defendant WindAirWest, LLC ("WAW") is a Delaware limited liability company with its offices in Ventura, CA. WAW held an FAA Part 135 Certificate No. 11WA358N, which authorized it to conduct commercial air transportation operations. In 2015, Jayhawk and WAW began negotiating WAW's purchase of N910VP, ultimately agreeing to a lease with an option to purchase. On or about April 27, 2016, Jayhawk (as the "Owner") and WAW (as the "Lessee") entered into an Aircraft "Dry" Lease Agreement ("April 2016 Dry Lease") concerningN910VP with a term expiring on May 31, 2017. Jayhawk and WAW also entered into an April 27, 2016 Aircraft Services Agreement ("April 2016 Aircraft Services Agreement") pertaining to N910VP. Upon executing the April 2016 Dry Lease and April 2016 Aircraft Services Agreement, WAW took delivery of N910VP to use in its charter flight operations under its FAA Part 135 Certificate.

The April 2016 Dry Lease provided for WAW's payment of monthly Rent, Guaranteed Charter Fees, and Maintenance Program payments. Section 2 of the April 2016 Dry Lease provided WAW an option to purchase N910VP:

In consideration of the mutual premises herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by Owner, Owner hereby grants to Lessee and exclusive option to purchase the Aircraft on any date during the period from August 1, 2016 to May 31, 2017, for a purchase price in the amount described in paragraph C of Exhibit B (the "Purchase Price"). ... In the event that Lessee elects not to exercise its option to purchase the Aircraft, then on May 31, 2017, Lessee shall pay the Owner the amount described in paragraph D of Exhibit B by way of an additional charter fee in consideration of Owner having ceased to market the Aircraft for sale during the Term.

The amount of the additional charter fee referenced in Section 2 is $250,000. When WAW entered into the April 2016 Dry Lease, it intended to exercise the purchase option.

The April 2016 Dry Lease contains a provision regarding WAW having "Operational Control" of N910VP as defined by Federal Aviation Regulations:

Section 3.1 Operational Control. Pursuant to 14 C.F.R. § 135.25(b) (and any other applicable provisions of theFARs), Lessee shall have exclusive use of the Aircraft during the term. In Accordance with the provisions of 14 C.F.R. Part 1.1, with respect to a flight, operational control shall mean the exercise of authority over initiating, conducting or terminating such flight. ('Operational Control'). During the Term, Lessee shall have and maintain exclusive operational control of the Aircraft. This Agreement is a 'dry lease' of the Aircraft, as that term is understood under the Federal Aviation Regulations and applicable federal law, and Lessee acknowledges and agrees that Lessee is solely responsible for providing its own properly qualified flight crew and crew the Aircraft. Pilots shall, at all times, (i) meet all applicable FAA and insurance requirements, (ii) be approved in advance by any insurance carrier then providing coverage for the Aircraft and/or Lessee's operations of the Aircraft (provided that any pilot who is qualified to fly the Aircraft under any then-applicable open pilot endorsement issued by the applicable insurance carrier shall be deemed approved by same), and (iii) be properly certified, rated and qualified to operate the Aircraft.

(Id. at § 3.1).

WAW paid the first guaranteed charter fee payment of $100,000 under the April 2016 Dry Lease. Rent payments of $35,000 were paid to Jayhawk in May and June 2016.

In June 2016 WAW hangared N910VP at the facilities of Castle & Cooke Aviation Services, Inc. ("Castle & Cooke"), a fixed based operator at the Van Nuys, California, airport. While hangared there, N910VP rolled into other aircraft, significantly damaging N910VP (the "Castle & Cooke Incident").

Extensive repairs required N910VP to be moved to the Cessna facility at Textron Wichita, where it remained from June 2016 through December 2016 for the necessary repairs. WAW continued to pay monthly lease payments of $35,000 to Jayhawk during the time N910VP was out of service for repairs.

On October 11, 2016, WAW filed a lawsuit against Castle & Cooke seeking damages resulting from the damage to N910VP in California state court, WAW, LLC v. Castle & Cooke Aviation Services, Inc., Case No. LC104747, Superior Court of California, County of Los Angeles (the "Castle & Cooke Litigation"). On December 9, 2016, WAW and Castle & Cooke participated in a mediation, at the conclusion of which, Castle & Cooke's insurer agreed to pay $300,000 to WAW. The payment did not, however, resolve the lawsuit.

On December 14, 2016, WAW paid Jayhawk $299,652 of the $300,000 payment from Castle & Cooke's insurer. WAW's payment was applied to the $250,000 of guaranteed charter fee payments, the December 2016 rent payment, and a Rolls Royce Corporate Care payment, under the April 2016 Dry Lease. Jayhawk would not release N910VP into service unless these items were paid from Castle & Cooke's insurer's payment.

After N910VP was damaged, Jayhawk claimed that under the terms of the April 2016 Dry Lease, WAW was contractually obligated to pay Jayhawk for any diminution in N910VP's value resulting from the Castle & Cooke Incident. Jayhawk secured valuations showing the damage diminished N910VP's value by at least $650,000.00. WAW took the position in the Castle and Cooke litigation that the damage to N910VP diminished its value by $1 million.

N910VP was returned to service with WAW on December 22, 2016. WAW used N910VP to conduct charter flight operations through the expiration of the April 2016 Dry Lease on May 31, 2017.

On June 2, 2017, WAW returned N910VP to Jayhawk at the expiration of the April 2016 Dry Lease. WAW did not exercise its option to purchase N910VP and ceased the charter operations of N910VP. WAW's stated reasons included that N910VP was worth less because of the damage it sustained and the purchase option price was no longer acceptable; the damage to N910VP and the six months it was out of service caused significant damage to WAW's business, and "the financial difficulty the accident created within the company made this situation somewhat untenable ... [a] situation where third party actions had completely turned the business inside out, financially and operationally"; the uncertainty caused pilots to quit, and made WAW unable to hire pilots or "other people [it] needed to hire to run the business correctly"; and the ongoing litigation with Castle & Cooke, "with no imminent resolution in sight" and "dealing with legal matters associated with the business." Jayhawk contended that under the terms of the April 2016 Dry Lease WAW is required to pay Jayhawk an additional charter fee of $250,000 upon the expiration of the April 2016 Dry Lease because it elected not to exercise its option.

Upon return of N910VP to Jayhawk in May 2017, the only aircraft owned by WAW was an Astra aircraft. WAW made the decision it was not going to conduct operations with the Astra. Instead, WAW sold the Astra, and used the proceeds to pay its legal bills incurred in the Castle & Cooke Litigation.

During June and July 2017, Jayhawk and WAW discussed the payment of the $250,000 additional charter fee. A potential agreement discussed was Jayhawk's purchase of a membership interest in WAW, the terms of which would include the forgiveness of WAW's payment of half of the additional charter fee. On July 11, 2017, WAW paid Jayhawk $125,000 of the $250,000 additional charter fee. During the discussions with Jayhawk, WAW wanted an agreement with the following terms: Jayhawk or its principals would acquire a majority membership interest in WAW and at the close of the transaction, WAW would pay the remaining $125,000.00.

The terms of the potential purchase of the majority membership interest in WAW would be part of a mutually agreeable and definitive purchase agreement that would set forth all the...