The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Interlease Aviation Investors II (ALOHA) L.L.C. ("Interlease
II"), Interlease Aviation Investors III (TACA) L.L.C. ("Interlease
III"), and Mimi Leasing Corp. ("Mimi") (collectively, "Plaintiffs") filed
an eight-count Fifth Amended Complaint ("FAC") against Vanguard Airlines, Inc. ("Vanguard"), Pegasus Aviation, Inc.
("Pegasus"), Vanguard Acquisition Company ("VAC"), Airline Investments,
Inc. ("AII "), Seabury Group, LLC ("Seabury"), and Richard S. Wiley
("Wiley") (collectively, "Defendants").
In Counts I-III, Plaintiffs allege breach of contract against
Vanguard. In Count IV, Plaintiffs allege fraud against Vanguard and
Seabury, and in Count V, they allege negligent misrepresentation against
Vanguard and Seabury. In Count VI, Plaintiffs allege tortious
interference with contractual relations against Pegasus, VAC, AII, and
Wiley (collectively, the "Pegasus Parties"). In Count VII, Plaintiffs
allege unjust enrichment against the Pegasus Parties. In Count VIII,
Plaintiffs allege a fraudulent scheme against all Defendants.
Pegasus filed a four-count counterclaim against Interleave II,
Interlease III, and Mimi ("Counterdefendants"),*fn1 alleging intentional
fraud (Counts I and II), negligent misrepresentation (Count III), and
fraudulent scheme (Count IV). (R. 71-1, Corrected Countercl.)
Intervenor*fn2 VAC asserted identical counts in a four-count complaint.
(Compare R. 71-1, Corrected Countercl., with R. 68-1, Compl. in
Intervention.) The parties do not separately address Pegasus's Corrected
Counterclaim and VAC's Complaint in Intervention in their briefs. For
ease of reference, the Court adopts the parties' convention and generally
refers to the four counts as Pegasus and VAC's "Counterclaim."
Four motions are currently before the Court. The Pegasus Parties filed
a motion for summary judgment as to Counts VI, VII, and VIII of the FAC. Seabury
moved for summary judgment as to Counts IV, V, and VIII of the FAC.
Counterdefendants filed a motion for partial summary judgment as to
Counts I, II, and IV of the Counterclaim, and a motion for judgment on
the pleadings as to Count III of the Counterclaim.
For the reasons stated herein, the Pegasus Parties' motion for summary
judgment is granted as to Count VI (tortious interference), Count VII
(unjust enrichment), and Count VIII (fraudulent scheme) of the FAC.
Seabury's motion for summary judgment is granted as to Count IV (fraud),
Count V (negligent misrepresentation), and Count VIII (fraudulent scheme)
of the FAC. Counterdefendants' motion for summary judgment is granted as
to Counts I and II (fraud) and Count III*fn3 (negligent
misrepresentation), and denied in part as to Count IV (fraudulent
Summary judgment is proper when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). A genuine issue of triable fact exists only if "the
evidence is such that a reasonable jury could return a verdict for the
nonmoving party." Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir.
2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
106 S.Ct. 2505, 2510 (1986)). "Only disputes over facts that might affect
the outcome of the suit under the governing law will properly preclude
the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. The party seeking summary
judgment has the burden of establishing the lack of any genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23,
106 S.Ct. 2548, 2552 (1986). A party will successfully oppose summary
judgment only if it presents "definite, competent evidence to rebut the
motion." Equal Employment Opportunity Comm'n v. Roebuck & Co.,
233 F.3d 432, 437 (7th Cir. 2000). The Court "considers the evidentiary
record in the light most favorable to the nonmoving party, and draws all
reasonable inferences in his favor." Lesch v. Crown Cork & Seal Co.,
282 F.3d 467, 471 (7th Cir. 2002).
Plaintiff Interlease n is an Illinois limited liability corporation
with its principal place of business in Northfield, Illinois. (R. 134-1,
Pegasus's Rule 56.1 Statement, ¶ 1; R. 145-1, Pls.' Resp. to Pegasus's
Rule 56.1 Statement ("Pls.' Rule 56.1 Resp."), ¶ 1.) Its members are
citizens of Illinois and Iowa.*fn4 (R. 91-1, FAC ¶ 1.) Plaintiff
Interlease III is an Iowa limited liability corporation with its
principal place of business in Northfield, Illinois. (R. 134-1, Pegasus's
Rule 56.1 Statement, ¶ 1; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 1.) Its
members also are citizens of Illinois and Iowa. (R. 91-1, FAC ¶ 2.)
Plaintiff Mimi is an Iowa corporation with its principal place of
business in Dubuque, Iowa. (R. 134-1, Pegasus Parties' Rule 56.1
Statement, ¶ 1; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 1.) Interlease n,
Interlease III, and Mimi are engaged in the business of leasing
commercial aircraft. (R. 134-1, Pegasus Parties' Rule 56.1 Statement, ¶
1; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 1.)
Defendant Vangaurd was a Delaware corporation with its principal place
of business in Kansas City, Missouri. (R. 134-1, Pegasus's Rule 56.1
Statement, ¶ 2; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 2.) Vanguard was a
passenger airline which, at various times, leased commercial aircraft from
Plaintiffs and Pegasus. (R. 134-1, Pegasus's Rule 56.1 Statement, ¶ 2;
R. 145-1, Pls.' Rule 56.1 Resp., ¶ 2.) At all relevant times, Vanguard
was a publicly traded company with its own management and an independent
Board of Directors. (R. 134-1, Pegasus's Rule 56.1 Statement, ¶ 63; R.
145-1, Pls.' Rule 56.1 Resp., ¶ 63.) Vangaurd shares were at all times
publicly traded on the Nasdaq SmallCap Market under the ticker symbol
"VNGD." (R. 152-1, Seabury's Reply to Pls.' Resp. to Seabury's Rule 56.1
Statement ("Seabury's Rule 56.1 Reply"), ¶¶ 18, 20; R. 144-1, Pls.' Resp.
to Seabury's Rule 56.1 Statement of Facts ("Pls.' Rule 56.1 Resp. to
Seabury"), ¶¶ 18, 20.)
Defendant Pegasus is a California corporation with its principal place
of business in San Francisco, California, and is engaged in the business
of leasing aircraft. (R. 134-1, Pegasus's Rule 56.1 Statement, ¶ 4; R.
145-1, Pls.' Rule 56.1 Resp., ¶ 4.) Defendant Richard S. Wiley is a
California citizen and at all relevant times served as president, CEO,
and a director of Pegasus. (Id. ¶ 6.) Defendant VAC is a Delaware
corporation with its principal place of business in San Francisco,
California, and at certain relevant times, owned shares in Vanguard.
Defendant All is a Delaware corporation with its principal place of
business in San Francisco, California, (Id. ¶ 5.) AII owns 100% of the
stock of VAC. (R. 91-1, FAC ¶ 9.) As noted, the Court refers to
Pegasus, VAC, AII, and Wiley collectively as the "Pegasus Parties."
Defendant Seabury is a Delaware limited liability company with its
principal place of business in Stamford, Connecticut. (Id. ¶ 11.) Its sole member is a New
Jersey citizen. (Id. ¶ 11.) Seabury is engaged in the investment banking
business. (R. 134-1, Pegasus's Rule 56, 1 Statement, ¶ 3; R. 145-1,
Pls.' Rule 56.1 Resp., ¶ 3.)
II. Vanguard's Business Plan
Plaintiffs leased four aircraft to Vanguard.*fn5 Vanguard experienced
financial difficulties almost from the outset of its operations and had
fallen behind on lease rental payments to Plaintiffs under the Leases by
March 2000. (R. 134-1, Pegasus's Rule 56.1 Statement, ¶ 8; R. 145-1,
Pls.' Rule 56.1 Resp., ¶ 8.) In mid 2000, Vanguard engaged Seabury, an
investment-banking firm that specialized in aviation industry financing,
for the purpose of raising capital and acquiring new aircraft for
Vanguard. (R. 152-1, Seabury's Rule 56.1 Reply ¶ 29; R. 144-1, Pls.'
Rule 56.1 Resp. to Seabury, ¶ 29.) Seabury recommended, inter alia, mat
Vanguard develop a business plan. (Id. ¶ 30.)
In mid to late 2000, Vanguard developed a Business Plan to restructure
its operations. (R. 134-1, Pegasus's Rule 56.1 Statement, ¶ 9; R.
145-1, Pls.' Rule 56.1 Resp., ¶ 9.) Under the Business Plan, Vanguard
planned to change its flight schedules, passenger routes, capacity, and
aircraft fleet in order to transform Vanguard from a predominantly
short-to-medium haul airline to a hub-and-spoke operator. (Id.) The
Business Plan contemplated that Vanguard would phase out, over time, the airline's existing aged, inefficient, and high
maintenance aircraft like those that Vanguard leased from Plaintiffs, and
replace it with new, larger aircraft from a lessor such as Pegasus. (Id.
¶ 10.) Vanguard retained the Kiehl Hendrickson Group ("KH Group") to
prepare an assessment of hub opportunities for Vanguard. (R. 152-1,
Seabury's Rule 56.1 Reply ¶ 32; R. 144-1, Pls.' Rule 56.1 Resp. to
Seabury, ¶ 32.) Vanguard management chose, and its Board of Directors
approved, the Kansas City hub strategy over other alternatives. (Id. ¶
Vanguard presented the Business Plan to Pegasus in September 2000. (R.
134-1, Pegasus's Rule 56.1 Statement, ¶ 11; R. 145-1, Pls.' Rule 56.1
Resp., ¶ 11.) Thomas Mahr of Seabury contacted Wiley of Pegasus in
October or November 2000 to discuss leasing aircraft to Vanguard. (Id.)
Pegasus responded with a proposal for the lease of six to eight MD-80
aircraft, and Vanguard countered that, in order to go forward with the
lease deal, Vanguard would also need an equity contribution from
III. The Letter Agreement, Lease Deal, Inventory Deal, And Stock
Deal Between Vanguard and Pegasus
On December 1, 2000, Vanguard and Pegasus signed a Letter Agreement
which, among other things, committed Pegasus to lease to Vanguard at
least six (and up to eight) MD-80 aircraft, plus certain spare engines
(the "Lease Deal"). (Id. ¶ 12.) The Letter Agreement further provided
that Pegasus would loan Vanguard up to $4.0 million to be secured by
Vanguard's spare parts inventory (the "IAC Inventory Loan"). (Id. ¶ 13.)
The IAC Inventory Loan closed in December 2000, and International Aero
Components ("IAC"), an aircraft parts company owned in part by Wiley,
funded the first $3.0 million at that time. (Id.) The IAC transaction
provided Vanguard the ability to borrow an additional $1 million for a
total of $4 million. (Id.) The Letter Agreement further committed Pegasus to make a $3 million equity
investment in Vanguard (the "Stock Deal"), provided that the parties
could agree upon certain terms and conditions. (Id. ¶ 14.) Pegasus
formed VAC as the investment vehicle to take and hold the Vanguard shares
issued pursuant to the Stock Deal. (Id.) As a pre-condition to closing
the Stock Deal, Vanguard agreed to reach satisfactory agreements with all
of its existing lessors (including Plaintiffs) for lease deferrals. (Id.
The Business Plan that Vanguard and Seabury presented to Pegasus in
September 2000 contemplated that Vanguard would terminate certain 737
leases early. (Id. ¶¶ 10, 15.) Specifically, the Business Plan provided
that Vanguard would retire all of its 737 aircraft by the end of 2004,
even though several 737 leases extended beyond that time. (Id.)
In January 2001, Vanguard began seeking lease deferrals or early lease
terminations from its existing aircraft lessors, including Plaintiffs, to
address its short-term cash flow problems. (Id. ¶¶ 15-16.) In late January
2001, Vanguard's and Seabury's representatives met with Plaintiffs'
representatives in Chicago at the law offices of Plaintiffs' counsel,
Monica Carroll*fn6 (the "Chicago meeting"). (Id. ¶ 17.) Plaintiffs'
representatives included Philip Coleman, David Coleman (Philip's son),
and Carroll. (Id.) Defendants' representatives included Ellen Artist and
Ross MacKenzie of Seabury, and Vanguard's vice president and general
counsel, Brian Gillman. (Id.) The Pegasus Parties did not participate in
the Chicago Meeting, although they were aware that Vanguard was
communicating with its other lessors about lease deferrals. At the meeting, Vanguard provided Plaintiffs' representatives with two
documents: the "Vanguard Airlines Strategy Update January 2001 "*fn7
(the "Strategy Update") and the "Vanguard Airlines Presentation to Mimi
Leasing & Interlease Aviation January 2001" (the "Coleman Lease Deferral
Request"). (R. 152-1, Seabury's Rule 56.1 Reply ¶ 54; R. 144-1, Pls.'
Rule 56.1 Resp. to Seabury, ¶ 54.) MacKenzie presented the Strategy
Update on behalf of Seabury. (Id.) Artist and Gillman discussed the
specific lease deferrals that Vanguard sought from Plaintiffs, as well as
the dire financial condition of the company. (Id. ¶ 55.) Specifically,
Artist and Gillman informed Plaintiffs that: (1) Vanguard was insolvent
and could not meet its current obligations; (2) Vanguard had retained
Seabury to provide financing expertise; (3) Vanguard had strategic plans
to ensure reliability and to reduce costs by converting its fleet to a
different type of aircraft to be leased from Pegasus; (4) Vanguard had a
commitment from Pegasus to invest "$7 million in capital" in Vanguard;
(5) Pegasus committed to invest approximately $3 million of additional
capital, contingent upon Plaintiffs' deferral of Vanguard's lease
obligations; (6) Vanguard's economic survival depended upon Plaintiffs
deferring Vanguard's lease obligations as to two aircraft; and (7) as a
result of Pegasus's investment in Vanguard, Pegasus would become a
substantial Vanguard shareholder.
Plaintiffs' representatives at the meeting asked few, if any,
questions. (R. 152-1, Seabury's Rule 56.1 Reply ¶ 60; R. 144-1, Pls.'
Rule 56.1 Resp. to Seabury, ¶ 60.) Plaintiffs did not ask any
representative of Vanguard or Seabury whether the "$7 million in capital"
comprised equity, debt, or some combination of the two. (R, 134-1,
Pegasus's Rule 56.1 Statement, ¶ 22; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 22.)
After the meeting, Plaintiffs thoroughly read and discussed the
presentation materials, (Id. ¶ 21.) Carroll testified that she did not
recall discussing or explaining any of the material to her husband. (R.
152-1, Seabury's Rule 56.1 Reply ¶ 58; R. 144-1, Pls.' Rule 56.1 Resp.
to Seabury, ¶ 58.) Plaintiffs never engaged a third party to evaluate or
provide an opinion on any of the information contained in the Strategy
Update or Coleman Lease Deferral Proposal. (R. 152-1, Seabury's Rule 56.1
Reply ¶ 62; R. 144-1, Pls.' Rule 56.1 Resp. to Seabury, ¶ 62.)
V. The February Conference Call
In mid-February 2001, Mahr (Seabury's representative), Wiley (Pegasus's
representative), and Coleman (Interlease's representative) discussed the
Lease Deal and Stock Deal during a conference call. (R. 134-1, Pegasus's
Rule 56.1 Statement, ¶ 29; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 29.)
Wiley represented during the call that Pegasus and VAC were "serious"
about completing the transactions. (Id.) Wiley represented that Vanguard
would file for bankruptcy unless Plaintiffs cooperated with the lease
deferrals. (R. 145-1, Pls.' Rule 56.1 Resp., ¶ 29.) Coleman represented
that Plaintiffs believed in the Business Plan and would cooperate in the
Lease Deferral program. (R. 126-1, Counterdefs.' Mem, in Supp. of Part.
Summ. J., at 4.)
VI. The Agreements In Principle
On March 8, 2001, Plaintiffs executed four "Agreements in Principle"
which contemplated that within two weeks the parties would reach final
agreements for Plaintiffs to: (1) accept the early return of two
aircraft, and (2) agree to defer certain payments under the Leases as to
the remaining two aircraft. (R. 134-1, Pegasus's Rule 56.1 Statement,
¶ 30; R. 145-1, Pls.' Rule 56.1 Resp., ¶ 30.) The Agreements in
Principle further obligated Vanguard to provide each Plaintiff with a Promissory Note for the deferred lease
payments (the "Promissory Notes"). (Id. ¶ 31.) The next day, March 9,
2001, VAC paid $3.25 million for 300,000 shares of Vanguard preferred
stock pursuant to the Stock Deal. (Id. ¶ 32.) Later that day, VAC
received copies of the Agreements in Principle signed by Plaintiffs.
(Id.) After the Plaintiffs executed the Agreements in Principle, Seabury
had no further contact with Plaintiffs. (R. 152-1, Seabury's Rule 56.1
Reply ¶ 71; R. 144-1, Pls.' Rule 56.1 Resp. to Seabury, ¶ 71.)
VII. Vanguard's Further Financial Troubles
Vanguard continued to have difficulty meeting its short-term payment
obligations to lessors and other creditors, and by the end of April 2001
Vanguard concluded that it would need further financing. (R. 134-1,
Pegasus's Rule 56.1 Statement, ¶ 34; R. 145-1, Pls.' Rule 56.1 Resp.,
¶ 34.) In In May 2001, VAC agreed to purchase an additional $3.5 million
in Vanguard stock. (Id. 38) In May and June 2001, Plaintiffs and Vanguard
belatedly finalized the Promissory Notes contemplated in the Agreements
in Principle. (Id. 35.) David Rescino, Vanguard's CFO, determined that it
was necessary for Vanguard to obtain yet another set of lease deferrals
from its lessors. (Id. 39.) Rescino made a number of proposals to
Plaintiffs and other lessors. (Id. 40;) Plaintiffs refused to enter into
another set of lease deferral terms with Vanguard. (Id.)
On or about July 18, 2001, after denying Rescino's requests for further
lease deferrals, Plaintiffs served Notices of Default on Vanguard with
respect to the Leases of the two remaining Leased aircraft, thereby
perfecting their right to repossess the two aircraft. (Id. ¶ 41.)
Plaintiffs did not rescind or remove these Notices of Default at any
relevant time. (Id. ¶ 48.)
VIII. The July-August Negotiations At or about that time, Vanguard asked Wiley to identify an alternative
approach for Vanguard to resolve its Lease obligations to Plaintiffs.
(Id. ¶ 45.) Accordingly, in late July and again in August 2001, Wiley
met with Plaintiffs' representative Coleman. (Id.) Rescino was in charge
of Vanguard's efforts to negotiate further financial restructurings with
Plaintiffs. (R. 152-1, Seabury's Rule 56.1 Reply, ¶ 85.) Wiley met with
Coleman in Illinois at Palwaukee Airport on July 26, 2001. (R. 152-1,
Seabury's Rule 56.1 Reply ¶ 88; R. 144-1, Pls.' Rule 56.1 Resp. to
Seabury, ¶ 88.) Wiley and Coleman met again on August 9, 2001. (Id.)
Wiley and Coleman could not agree on a solution, and no settlement,
restructuring, or other agreement resulted from these discussions. (R.
134-1, Pegasus's Rule 56.1 Statement, ¶ 46; R. 145-1, Pls.' Rule 56.1
Resp., ¶ 46.)
IX. Vanguard's Bankruptcy
Vanguard filed for Chapter 11 bankruptcy on July 30, 2002. (Id. ¶ 72.)
At that time Vanguard had outstanding debts to Plaintiffs of
approximately $6.5 million, and to Pegasus of over $61 million. (Id. ¶
73.) On September 11, 2002, Vanguard filed a notice of bankruptcy with
the Court. (R. 7-1, Notice of Bankruptcy.) Plaintiffs' claims against
Vanguard are subject to an automatic stay pursuant to 11 U.S.C. § 362(a).
The Court has jurisdiction over the principal action and the
counterclaim pursuant to 28 U.S.C. § 1332 because there is complete
diversity of citizenship between Plaintiffs-Counterdefendants and
Defendants-Counterplaintiffs, and the amount in controversy of both the
principal action and the counterclaim exceeds $75,000. Venue is proper
under 28 U.S.C. § 1391(a). (R. 28-1, Order at 23 (J. Alesia).) ANALYSIS
I. The Pegasus Parties' Motion for Summary Judgment As To Counts
VI, VII, And VIII Of The FAC
A. Count VI: Tortious Interference With Contractual Relations
Plaintiffs allege that the Pegasus Parties tortiously interfered with
its Leases with Vanguard. To prevail on a tortious interference claim
under Illinois law,*fn8 a plaintiff must prove: "(1) the existence of a
valid and enforceable contract between the plaintiff and another; (2) the
defendant's awareness of this contractual relation; (3) the defendant's
intentional and unjustified inducement of a breach of the contract; (4) a
subsequent breach by the other, caused by the defendant's wrongful
conduct; and (5) damages." HPI Health Care Servs., Inc. v. Mt. Vernon
Hosp., Inc., 131 Ill.2d 145, 154-55, 545 N.E.2d 672, 676 (Ill. 1989);
Cook v. Winfrey, 141 F.3d 322, 327-28 (7th Cir. 1998). To survive summary
judgment, Plaintiffs must establish a genuine issue of material fact as
to the elements. Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th
Cir. 1999); see generally Common v. Williams, 859 F.2d 467, 469 (7th
Cir. 1988) ("Summary judgment is properly entered in favor of a party
when the opposing party is unable to make a showing sufficient to prove
an essential element of a case on which the opposing party bears the
burden of proof.").
The Pegasus Parties argue that Plaintiffs cannot prevail on their
tortious interference claim as a matter of law because (1) their conduct
was privileged and justified, and (2) their conduct did not cause Vanguard to breach its obligations under the
1. The Pegasus Parties' Alleged Misconduct
Plaintiffs fail to clearly identify in their summary judgment papers
the particular conduct that forms the basis of their tortious
interference claim. After digging through the statements of fact, the
Court identified all of the facts relating to the Pegasus Parties'
conduct. The Court addresses those facts, drawing all inferences in
a. Vanguard's Alleged Breaches
It is undisputed that Vanguard breached its contractual obligations to
Plaintiffs. Neither party, however, identifies the precise nature of
Vanguard's breaches in their summary judgment papers.
In the FAC, Plaintiffs allege that Vanguard breached its obligations
under the Leases, Agreements in Principle, and Promissory Notes by
failing to make required payments. (R. 91-1, FAC, Count I, ¶ 24 (Mimi),
Count II, ¶ 43 (Interlease III), Count m, ¶ 51 (Interlease II)
("Vanguard breached both Leases by, among other things, failing to pay
rents and maintenance reserves.").)*fn10 Plaintiffs appear to further
allege in the FAC that Vanguard breached its obligations under the
Agreements in Principle by failing to satisfy the terms of the early
termination agreement ...