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UNITED AIR LINES, INC. v. ALG

December 4, 1995

UNITED AIR LINES, INC., Plaintiff,
v.
ALG, INC., d/b/a AVIATION LEASING GROUP, INC., and TAJIK AIR LIMITED, Defendants.



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, Chief Judge:

 United Air Lines ("UAL") brings this twelve-count complaint against Aviation Leasing Group, Inc. ("ALG") and Tajik Air Limited ("TAL"). TAL has discontinued its defense of the case and defaulted to both UAL and ALG. *fn1" UAL now moves for summary judgment on its five counts against ALG, as well as on three of ALG's counterclaims. In addition, with regard to Count IV of ALG's counterclaims, UAL moves for judgment on the pleadings. For the reasons set forth below, UAL's motion for summary judgment is granted in part and denied in part, and its motion for judgment on the pleadings is denied.

 I. Background

 As the events surrounding this litigation have been thoroughly recited in our previous opinions, see United Airlines, Inc. v. ALG, Inc., 873 F. Supp. 147 (N.D. Ill. 1995); United Airlines, Inc. v. ALG, Inc., 1994 U.S. Dist. LEXIS 15048, No. 94 C 3619, 1994 WL 583324 (N.D. Ill. October 17, 1994), we limit our discussion to the facts necessary for resolving the instant motions. *fn2"

 Beginning in September 1993, UAL and ALG negotiated for the lease of a Boeing 747 from UAL's reserves. In December, 1993, these negotiations culminated with UAL entered into an Operating Lease Agreement ("Lease") for one of these aircraft with ALG Trust--a Delaware trust formed by ALG for the sole purpose of leasing the aircraft from UAL and subleasing it to the eventual operator, TAL. In exchange for the use of the aircraft, ALG Trust agreed to pay basic rent, maintenance reserve payments, and any outstanding insurance premiums. Pl.'s 12(M) PP 22-32, 89. In the event of a default, ALG Trust also agreed to repay UAL for any legal fees and expenses incurred in pursuing its remedies under the Lease. Id. P 35-37. Although the Lease contained an "AS-IS, WHERE-IS" clause *fn3" --wherein UAL explicitly declined to warrant the airworthiness or condition of the vehicle--Exhibit I to the Lease nonetheless required the aircraft to "have had permanently and properly repaired any damage to the Aircraft that exceeds the requirements of the most recent FAA-approved maintenance program for the Aircraft for operation without restrictions." Def's 12(N), Ex. B, ยง 1(b)(ii). On December 3, 1993, ALG Trust accepted delivery of the aircraft and memorialized its acceptance in both an Acceptance Certificate and Supplement No. 1 to the Lease. Pl.'s 12(M) PP 15-19. Both of these documents indicated that ALG Trust found the aircraft to be in good working order and in compliance with the terms of the Lease.

 In conjunction with the execution of the Lease, UAL required ALG to enter into a Guarantee Agreement ("Guarantee"). The Guarantee stated that it was executed "in order to induce [UAL] to enter into the transactions contemplated by the Lease," and provided that:

 
[ALG] absolutely, irrevocably and unconditionally guarantees, as primary obligor and not merely as surety, the due and punctual payment in full, observance and performance by [ALG Trust] of the Obligations (whether by stated due dates, by acceleration or otherwise) (including Basic Rent or payment of Supplemental Rent unpaid after the due date thereof), the forgoing guarantee (in respect of payment obligations) constituting hereby a guarantee of payment and not of collection.

 Complaint, Ex. E, at 1. David Rowe, a vice president of ALG, signed the Guarantee on behalf of the company in December 1993.

 UAL alleges that ALG Trust and ALG failed to make various payments of basic rent, maintenance reserves, and insurance premiums. UAL also claims that ALG failed to return the aircraft, requiring UAL to ferry the aircraft from the United Kingdom to the United States. UAL sent ALG a notice of default in May 1994, and filed the instant action in June 1994 against ALG and TAL. In a letter dated July 6, 1994, ALG purported to rescind the Guarantee and the Lease, alleging that UAL failed to deliver an airworthy vehicle and attempted to interfere with a maintenance agreement between ALG and TAL.

 II. Discussion

 A. Counts I-V of UAL's Complaint and Counts I-III of ALG's Counterclaims

 UAL now moves for summary judgment on its claims against ALG, as well as on ALG's counterclaims for rescission (Count I), negligence (Count II), and breach of contract (Count III). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The moving party bears the initial burden of identifying "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed. R. Civ. P. 56(c)). The movant may satisfy this burden by presenting specific evidence on a material issue, or by pointing out "an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325. Once the moving party has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings; rather, the non-movant "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). In ruling on a motion for summary judgment we read the facts in a light most favorable to the non-moving party, Cuddington v. Northern Ind. Public Serv. Corp., 33 F.3d 813, 815 (7th Cir. 1994), and refrain from making credibility determinations, see Jackson v. Duckworth, 955 F.2d 21, 22 (7th Cir. 1992).

 In Counts I-V of its complaint UAL seeks to enforce the provisions of the Guarantee against ALG. In order to prevail, UAL must prove (1) the original indebtedness of ALG Trust, (2) ALG Trust's default, and (3) the guarantee of ALG Trust's debt by ALG. See Continental Bank N.A. v. Everett, 760 F. Supp. 713, 716 (N.D. Ill. 1991), aff'd, 964 F.2d 701 (7th Cir.), cert. denied, 506 U.S. 1035, 121 L. Ed. 2d 688, 113 S. Ct. 816 (1992); Juzwik v. Juzwik, 140 Ill. App. 3d 644, 488 N.E.2d 1319, 1322, 94 Ill. Dec. 926 (Ill. App. Ct. 1986) (citing Mid-City Indus. Supply Co. v. Horwitz, 132 Ill. App. 3d 476, 476 N.E.2d 1271, 1277, 87 Ill. Dec. 279 (Ill. App. Ct. 1985)). *fn4" ALG does not dispute that ALG Trust failed to make several payments to UAL, including basic rent payments from February 1994 to the end of the lease term, maintenance payments on the amount of time the aircraft was in operation in January and February 1994, and various costs incurred by UAL in repossessing the aircraft and seeking payment from ALG. Pl.'s 12(M) PP 47-88. *fn5" UAL also submits copies of the Lease and the Guarantee in order to prove that ALG Trust was obliged to make these payments, and that ALG was required to make up for any shortfall by ALG Trust. However, ALG maintains that it cannot be held ...


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