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May 13, 2002


The opinion of the court was delivered by: Elaine E. Bucklo, U.S. District Judge.


AAR International, Inc. ("AAR") sues Vacances Hehades S.A., Nimehas Enterprises S.A., and Princess Airlines, S.A. (collectively, the "defendants") for breach of an aircraft lease. The defendants sought an abstention because of parallel proceedings pending in Greece, and I granted the motion, but the Seventh Circuit reversed. AAR Int'l, Inc. v. Nimehas Enters. S.A., 250 F.3d 510 (7th Cir. 2001). After remand, the defendants answered and filed counterclaims and affirmative defenses, which AAR now moves to dismiss and strike. The motions are granted in part and denied in part.

I. Background

AAR, an Illinois corporation, leased a Boeing 737-3Q8 aircraft to Vacances Hehades, a French corporation, pursuant to an Aircraft Lease Agreement in Nay 1998. Vacances Hehades subleased the plane to Nimehas Enterprises, a Cypriot corporation with its principal place of business in France, which then sub-subleased it to Princess Airlines, a Greek corporation. AAR claims that the defendants breached the lease by permitting delinquent EuroControl charges to accrue on the plane, failing to keep the plane in serviceable condition by allowing an engine to be taken off-wing for over one year, and by failure to pay rent under the lease.

The defendants filed a counterclaim, alleging that AAR breached the lease by failing to deliver the aircraft in the condition warranted under the lease. Specifically, they claim that AAR made and breached four relevant promises: (1) In the lease, AAR promised to deliver the Aircraft "fresh from a Boeing Maintenance Planning Document (MPD) C-7 check (overhaul) with all CPCP tasks current and completed," Lease § 1(D) (b), and that "[t]he engines will undergo a video boroscope inspection and power assurance run at or immediately prior to the time of the demonstration flight . . . Any discrepancies found not to be in compliance with the manufacturer's maintenance manual shall be corrected at lessor's expense," Id. § 2(A)(e). (2) After the demonstration flight, during which the need fQr certain engine repairs became evident, AAR orally promised to make the repairs at its own expense. Compl. ¶ 17. (3) AAR promised to deliver all service records for the aircraft and its engines when it delivered the aircraft. Lease § 2(A) and Lease Ex. I. (4) AAR agreed to maintain a maintenance reserve escrow account. Compl. ¶ 15. In addition, the defendants allege that AAR defrauded them by making these promises to induce the defendants into leasing the aircraft without any intent on the part of AAR to perform its end of the bargain. The defendants also include counterclaims for non-intentional misrepresentation and for setoff, and plead several affirmative defenses. AAR moves to dismiss the counterclaims for failure to state a claim and for various pleading deficiencies, and moves to strike the affirmative defenses.

II. Motion to Dismiss

A. Breach of Contract or Warranty

To begin with, AAR argues that the defendants' counterclaim, specifically paragraph 49, does not comply with Fed. R. Civ. P. 9(c), which requires that performance of conditions precedent may be alleged generally but that denials of performance or occurrence of conditions precedent "shall be made specifically and with particularity." Paragraph 49 alleges that "Vacances Hehades has fully performed all of its contractual obligations that are required of it under the terms of the Lease that have not been excused by either a failure of a condition precedent or AAR International's prior material nonperformance of its contractual obligations." The defendants' general allegation of their own performance is sufficient; what is troublesome is the general reference to excuse due to failure of conditions precedent. However, the reference in paragraph 49 to failure of conditions precedent relates only to the defendants' own performance, a matter which may be pleaded generally. In any event, the defendants identify two contractual obligations or "conditions precedent" in paragraph 15: delivery of service records and maintenance of a reserve escrow account. AAR's failure to deliver service records on May 21, 1998, and again upon request after April 1999, is adequately alleged elsewhere in the counterclaim. ¶ 19, 30. There are no specific or particular allegations about the failure to maintain an escrow account, but that claim is dismissed anyway for reasons explained below. In the alternative, AAR denies that either of these alleged contractual terms were actually conditions precedent, but if that is true, no particularity is required. See 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1304 (2d ed. 1990) ("Rule 9(c) only requires a denial of those matters that must be performed or have occurred as a prerequisite to suit."). I need not determine whether the contractual obligations were actually "conditions precedent" to resolve the Rule 9(c) question, but I will revisit this objection in my discussion of the affirmative defenses below.

The defendants characterize their counterclaim as one for breach of contract. AAR argues that they cannot maintain a breach of warranty claim dressed up as a breach of contract claim, but the label given to the claims in the counterclaim is of little significance. What matters is whether the defendants can state a claim under any legal theory, not how the complaint characterizes a claim. See Albiero v. City of Kankakee, 122 F.3d 417, 419 (7th Cir. 1997) ("Having specified the wrong done to him, a plaintiff may substitute one legal theory for another without altering the complaint."). In any event, the defendants have alleged both warranty and contract claims. The (i.C.C. governs the claims based on the Lease. See 810 ILCS 5/2A-102 (Article 2A "applies to any transaction, regardless of form, that creates a lease."). Under Article 2A, an "express warranty" is created by "[a]ny affirmation of fact or promise made by the lessor to the lessee which relates to the goods and becomes part of the basis of the bargain," § 5/2A 210(1)(a), or "[amy description of the goods which is made part of the basis of the bargain," § 5/2A-210(1)(b). The promises that the aircraft and engines would be tested and meet certain specifications prior to or at delivery fit this description. AAR argues that, because these promises do not appear in the section of the lease dedicated to "REPRESENTATIONS, WARRANTIES AND COVENANTS," Lease § 24, they should not be construed as warranties.*fn1 However, "[i]t is not necessary to the creation of an express warranty that the lessor use formal words, such as `warrant' or `guarantee', or that the lessor have a specific intention to make a warranty." 810 ILCS 5/2A-210(2). The remaining promises — to perform repairs, provide documents, and maintain an escrow account — do not fit the (U.C.C. description of warranty, but are standard contractual promises.

AAR argues that the warranty claim is barred by a disclaimer in the lease that says that "THE AIRCRAFT IS LEASED TO AND ACCEPTED BY LESSEE IN `AS IS' CONDITION AND WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES WHATSOEVER WITH RESPECT TO THE AIRCRAFT, EXPRESS OR IMPLIED, EXCEPT THE WARRANTY TO TITLE APPEARING IN SECTION 4A ABOVE." Lease § 4(B). However, this conflicts with AAR's promises in previous sections of the lease to deliver the aircraft in a certain condition "fresh" from the "overhaul," Id. § 1(D)(b), inter alia — and that the aircraft "otherwise shall be delivered to Lessee is an "AS IS, WHERE IS' condition." Id. § 1(D)(e) (emphasis added) . Ordinarily, acceptance of goods "as is" "implies that the seller is relieved of any further obligation to reimburse for loss or damage because of the condition of the goods." Lake Bluff Heating & Air Conditioning Supply, Inc. v. Harris Trust & Sav. Bank, 452 N.E.2d 1361, 1367 (III. App. Ct. 1983) . However, the "as-is" clause here was qualified by certain express warranties, and under the U.C.C., "a written disclaimer of an express warranty contained elsewhere in the same contract is generally inoperable." Id.; see also Snelten v. Schmidt Implement Co., 647 N.E.2d 1071, 1075 (Ill. App. Ct. 1995); 810 ILCS 5/2A-214. This general rule is subject to parol or extrinsic evidence "which would indicate that it is reasonable to construe the disclaimer as negating the express warranty," 452 N.EJ.2d at 1367, but none is presented here, and I draw all reasonable inferences in favor of the defendants for the purposes of this motion.

AAR attaches a signed "lease supplement" to its motion and asks me to consider it as evidence that the defendants accepted delivery of the aircraft on May 21, 1998. The defendants object because the lease supplement was not attached to or mentioned in their counterclaim.*fn2 See Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998) (Documents that are attached to motion to dismiss must be excluded unless they "are referred to in the plaintiff's complaint and are central to his claim."). Although the lease supplement itself was not mentioned in the counterclaim, an unsigned version of the lease supplement was attached to the lease as an exhibit and was attached to the counterclaim in that form.*fn3 The lease itself contemplated the lease supplement, which would be entered into at the time of the delivery. Lease § 2(D), Lease Ex. C. Moreover, the lease supplement, signed on May 21, 1998, was a written and executed modification of the lease entered into on May 14, 1998,50 it was part of the lease, which is mentioned in the counterclaim and is central to the defendants' claim. Under the "rule of completeness,

[W]hen parties engage on a chain of correspondence relating to a transaction within a short period of time, and then one party detaches and presents only certain links of the chain in its effort to state a claim for relief, the party against whom such an incomplete picture is painted is entitled to fill in the skeletal outline thus presented by the complaining party by adding the missing links.

Magellan Int'l Corp. v. Salzgitter Handel GmbH, 76 F. Supp.2d 919, 923 (N.D. Ill. 1999) (Shadur, J.) (citing Fed. R. Evid. 106). At least one court in this district has applied this rule at the motion to dismiss stage and considered exhibits which were necessary to paint a complete picture without converting the motion to one for summary judgment. Id. ...

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