The two remaining contract claims arise out of the alleged failure to
provide service records for the aircraft and its engine and the failure to
maintain an appropriate maintenance reserve escrow account. AAR's only
argument as to the service records is that the defendants waived their
right to insist on the delivery of the service records when they accepted
the aircraft pursuant to the lease supplement. I have already held that
waiver cannot be decided as a matter of law on the record before me, but
even if the lease supplement operated as a waiver of claims arising out
of the condition of the aircraft, the statement that "the Aircraft
satisfies the conditions set forth in the lease," Lease Supp. §
5 (iii), would not affect the defendants' entitlement to performance of
lease obligations independent of the condition of the aircraft. AAR
argues that the defendants did not plead that they gave notice of default
as required by 810 ILCS 5/2A-516(3)(a), or plead that they accepted the
aircraft on the assumption that existing nonconformities would be cured,
but this level of precision is not required under federal notice
pleading. A party need not allege the existence of all of the elements
necessary to prevail; it need only give notice of the basis of the
claim. Fed. 1K Civ. P. 8(a). The claim for the failure to provide
service records stands.
However, AAR argues that there is no basis for the claim of its failure
to maintain an appropriate maintenance reserve escrow account because no
such obligation existed under the lease. The defendants point to several
provisions of the lease and its exhibits, all of which were attached to
the counterclaim, but none of them requires AAR to maintain a maintenance
reserve escrow account. Exhibit E to the lease, § A(i)(b), defines
various payments as maintenance reserves, and § H provides for
reimbursement of the lessee by the lessor for maintenance that the lessee
paid for, but neither section even mentions an escrow account, much less
imposes a duty to maintain an "appropriate" escrow account. Because no
such obligation appears on the face of the lease, the defendants cannot
state a claim for breach on that basis. See Budget Rent A Car Corp. v.
Genesys Software Sys., Inc., 1996 WL 480388, at *2 (N.D. Ill. Aug. 22,
1996) (Grady, J.) (A "claim for breach of contract cannot stand absent an
allegation that a contractual provision was breached."). The motion to
dismiss the contract claim is therefore granted as to the allegations of
failure to maintain an appropriate maintenance reserve escrow account and
breach of oral promise, but otherwise denied.
The defendants assert a counterclaim for fraudulent misrepresentation
based on AAR's allegedly false representations that the aircraft engines
had undergone certain inspections and tests, that it was fresh from a
maintenance overhaul, and that it would repair the defects that were
discovered during the demonstration flight. These are the same facts
underlying the breach of contract claim, and AAR argues that this amounts
to no more than a claim for promissory fraud. Under Illinois law,
misrepresentations of intent to perform future conduct are not actionable
unless "the false promise or representation of future conduct is alleged
to be the scheme employed to accomplish the fraud." HPI Health Care
Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 682 (Ill. 1989).
"In order to survive the pleading stage, a claimant must be able to point
to specific, objective manifestations of fraudulent intent — a
scheme or device." Bower v. Jones, 978 F.2d 1004, 1012 (7th Cir. 1992)
One such manifestation of fraudulent intent is a breach that follows so
close on the heels of the promise that the intent not to keep the
promise may be inferred. Zic v. The Italian Gov't Travel Office,
130 F. Supp.2d 991, 995-996 (N.D. Ill. 2001) (Bucklo, J.) (citing Pepper
v. Marks, 522 N.E.2d 688, 691 (Ill. App. Ct. 1988)); Roxford v. Ameritech
Corp., No. 00 C 282, 2000 WL 1538661, at *2 (N.D. Ill. Oct. 17, 2000)
(Zagel, J.) (same). In Pepper, the court inferred fraudulent intent from
a promise that was broken only four days after it was made. 522 N.E.2d at
691. Here, AAR promised on May 14, 1998, when it entered into the lease,
to deliver the aircraft fresh from an overhaul and video boroscope before
delivery, and the defendants allege that these promises were broken seven
days later, on May 21, 1998, when AAR delivered the aircraft without
performing either function. This is sufficient to raise an inference of
fraudulent intent. The allegations with regard to these promises also
satisfy Fed. R. Civ. P. 9(b), which requires that the circumstances
constituting fraud be pleaded "with particularity"; this means "the
identity of the person who made the misrepresentation, the time, place
and content of the misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff." Vicorn, Inc. v.
Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994)
(citations omitted). Although these particular allegations do not appear
under the heading for the fraud claim, they are sufficiently pleaded in
the introductory paragraphs and the breach of contract claim.
The claim based on the oral promise to repair defects discovered during
the demonstration flight is also sufficient to state a claim for
promissory fraud. The promise to repair, as alleged, was open-ended, and
the counterclaim does not allege a date by which the repairs were to have
been made, so no inference of fraudulent intent can be drawn from the
timing. Nevertheless, a scheme to defraud may be found where the broken
promise is "embedded in a larger pattern of deceptions or enticements that
reasonably induces reliance and against which the law ought to provide a
remedy." Desnick v. American Broad. Cos., Inc., 44 E'.3d 1345, 1354 (7th
Cir. 1995). Although one broken promise is insufficient to show a pattern
or scheme to defraud, "a series of unfulfilled promises is better (though
of course not conclusive) evidence of fraud than a single unfulfilled
promise." Speakers of Sport, Inc. v. Proserv, Inc., 178 F.3d 862, 866 (7th
Cir. 1999). Here the defendants have alleged a number of related broken
promises, so it is premature to conclude that they could not prove a claim
of promissory fraud.
The fraud claim based on the oral promise to repair is also pleaded
with adequate particularity. The defendants allege that AAR (who)
promised on May 21, 1998 (when), at the demonstration flight in Oklahoma
City, Oklahoma (where) that it would repair the engine deficiencies at
its own expense (what). AAR objects that the defendants have not provided
the name of the person who made the promise, but where the only defendant
is a corporation or institution, "the institutional identity of the
caller, viz, that she [or he] was from [the corporate defendant], is what
matters." Blaz V. Michael Reese Hosp. Foundation, 191 F.R.D. 570, 574
(N.D. Ill. 1999) (Bucklo, J.); see also Heller Bros. Bedding, Inc. V.
Leggett & Platt, Inc., No. 01 C 3409, 2001 WL 740514, at *3 (N.D. Ill.
June 28, 2001) (Conlon, J.) (same); S.E.C. v. Park, 99 F. Supp. 2 d 889,
901 (N.D. Ill. 2000) (Kocoras, J.) (holding that it was sufficient to
identify individual who was defrauded by stating corporate affihation).
The fraud claim stands.
III. Motion to Strike Affirmative Defenses
AAR moves to strike all twelve of the defendants' affirmative defenses
technical and substantive grounds. I grant such a motion only when the
affirmative defenses are insufficient on the face of the complaint.
Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th
Cir. 1989). If the defenses are legally sufficient or raise questions of
fact, however, IL will allow them to stand. Id. As pleadings, affirmative
defenses are subject to the Federal Rules of Civil Procedure 8(a) and
9. See id.
In response to the motion to strike, the defendants withdraw their
first affirmative defense, for failure to state a claim, and their eighth
affirmative defense, for non-intentional misrepresentation. Their second
affirmative defense contains only a conclusory statement that "Plaintiff
has failed to mitigate its damages." Although some courts have held that
this kind of "bare bones conclusory allegation" is insufficient to
plead this affirmative defense, Franklin Capital Corp. v. Baker & Taylor
Entertainment, Inc., No. 99 C 8237, 2000 WL 1222043, at *5 (N.D. Ill.
Aug. 22, 2000) (Kocoras, J.), courts have generally held that "where
discovery has barely begun, the failure to mitigate defense is
sufficiently pled without additional facts," Fleet Bus. Credit Corp. v.
National City Leasing Corp., 191 F.R.D. 568, 570 (N.D. Ill. 1999)
(Aspen, J.) (citing cases). Although the answer and affirmative defenses
in this case were filed almost two years after the complaint, the case
spent nearly a year on appeal to the Seventh Circuit, and AAR has not
given any indication that discovery has progressed beyond the beginning
stages. The mitigation defense is sufficiently pled.
The defendants' third and tenth affirmative defenses relate to AAR's
failure to perform certain "conditions precedent." As I noted above, AAR
denies that any of the cited contract provisions are actually conditions
precedent. "A `condition precedent is one that must be met before a
contract becomes effective or that is to be performed by one party to an
existing contract before the other party is obligated to perform.'"
Catholic Charities v. Thorpe, 741 N.S.2d 651, 653 (Ill. App. Ct. 2000).
"[A] condition precedent . . . will not be found unless the intent to
create such a condition is apparent from the face of the agreement," id.
at 654, and the intent to create a condition precedent is a "question of
law where the language in the instrument is unambiguous," id. at 653.
"Conditions precedent are generally indicated by the terms `on the
condition,' `subject to,' `when,' `as soon as,' or other similar terms."
Chicago Graphic Arts Health and Welfare Fund v. Jefferson Smurfit Corp.,
No. 94 C 1957, 1995 WL 579538, at *7 (N.D. Ill. Sept. 28, 1995)
(Nordberg, J.). No such language appears in any of the contract terms
cited by the defendants. The defendants argue that sections 30 and 31 of
the lease, respectively lessor's and lessee's conditions precedent,
generally incorporate all other lease provisions and indicate that the
parties intended all of their respective obligations to be "subject to the
fulfillment" of the other's obligations. No reading of sections 30 and 31
bears this out. Neither section purports to incorporate all of the other
terms of the contract. Although the lessor, here AAR, was entitled to
demand that the lessee, here the defendants, had performed all of their
obligations prior to delivery, Lease § 30 (iii) (b), (c), there was
no such provision applicable to the defendants as lessees. In light of
the parties' decision to specifically identify conditions precedent,
which did not include the provisions relied on by the defendants, and the
parties' failure to include any language making the defendants'
performance subject to the maintenance overhaul or video boroscope
inspection, I conclude as a matter of law that those provisions were not
precedent." The third and tenth affirmative defenses are stricken.
AAR objects to the fourth, fifth, and sixth affirmative defenses
(respectively, waiver, estoppel, and consent) as conclusory. The
defendants allege for each that AAR had breached the lease and that it
had consented to having the engine taken off wing, repaired, and replaced
with a substitute engine. This is sufficient to give notice of the
claim. To the extent that the defenses are based on AAR's alleged breach
of the lease, AAR insists that the defendants must identify the specific
lease provisions breached, but those provisions were adequately
identified in the third affirmative defense.
The defendants seventh affirmative defense is a claim for false
representation. AAR argues that this is a counterclaim improperly pleaded
as an affirmative defense, but improper designation of a counterclaim as
an affirmative defense or vice versa is not a basis a for striking the
claim; instead I should "treat the pleading as if there had been a proper
designation." Rule 8(c). Accordingly, I decline to strike the affirmative
defense for the same reasons that I upheld the fraud counterclaim above.
The Lease contained a liquidated damages clause, Lease § 17(B),
which the defendants claim is an unenforceable penalty. See Affirmative
Defense No. 9. Although the validity of a liquidated damages clause is a
question of law, "each one must be evaluated by its own facts and
circumstances." Grossinger Motorcorp, Inc. v. American Nat'l Bank & Trust
Co., 607 N.E.2d 1337, 1345 (Ill. App. Ct. 1992). The defendants allege
that the amount of the damages provided for was unreasonable at the time
the parties entered into the lease, see id. at 1346, and there is nothing
in the record at this point to contradict that allegation. I must draw
all reasonable inferences in favor of the non-moving party at this
stage, so the affirmative defense stands. Nevertheless, to the extent
that the defendants also allege that the liquidated damages clause was
the "product of fraud and unreasonable oppression," they provide no
supporting allegations or particularity, so they may not rely on that
allegation. See Rule 9(b) (fraud must be pleaded with "particularity").
Finally, the defendants assert the existence of parallel litigation in
Greece and forum non conveniens as their eleventh and twelfth affirmative
defenses. These claims have already been fully adjudicated and rejected
by the Seventh Circuit, see 250 F.3d 510, so they may not be asserted as
affirmative defenses. The motion to strike is therefore granted in part
as to affirmative defenses one, three, eight, ten, eleven and twelve, but
I GRANT the motion to dismiss as unopposed with respect to the
defendants claim for non-intentional misrepresentation, and GRANT the
defendants request to replead their setoff claim as an affirmative
defense. The motion to dismiss the contract claim is GRANTED as to the
allegations of an oral promise to repair and a failure to maintain an
appropriate maintenance reserve escrow account, but otherwise DENIED; the
motion is DENIED as to the fraud claim. The motion to strike is GRANTED
in part as to affirmative defenses one, three, eight, ten, eleven and
twelve, but otherwise DENIED.