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Trade Finance Partners, LLC v. AAR Corp.

March 31, 2008


The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer


This is a breach of contract and fraud action between Plaintiff Trade Finance Partners, LLC ("TFP"), on the one hand, and Defendants AAR Corp. and AAR Allen Services, Inc. ("AAR Allen"), on the other. AAR Corp. is a Delaware corporation with its principal place of business in Illinois; it provides various products and services for the aviation/aerospace industry. AAR Corp. is also the parent company to AAR Allen, an Illinois corporation with its corporate headquarters in Illinois. TFP is a New York limited liability company whose "trade finance" business includes providing business opportunities for its clients; its sole member is a Connecticut citizen, and its principal place of business is Connecticut. Thus, the court has diversity jurisdiction over this action. TFP and Defendant AAR Allen signed the "Strategic Trade Agreement" (the "STA") in early 2005. In that agreement, the entities agreed that TFP would solicit business for AAR Allen from companies the parties identified as "Target Accounts." In return, AAR Allen agreed to pay TFP a retainer upon signing of the STA. After TFP secured a purchasing or supply contract for AAR Allen from a Target Account, AAR Allen agreed to pay TFP an additional retainer and a percentage of the profits and efficiencies generated through the contract.

Then, in June 2005, AAR Allen and Northwest Airlines ("NWA") entered into a "Repair Services General Terms Agreement" (the "NWA-AAR Contract"). In this lawsuit, TFP contends that NWA should be deemed a "Target Account," and that TFP is entitled to payment of the retainer and a percentage of the profits AAR Allen realized from the NWA-AAR Contract. By failing to compensate TFP in connection with the NWA-AAR Contract, TFP alleges that AAR Corp.--purportedly liable as AAR Allen's parent company under an alter ego theory--and AAR Allen (together the "AAR Defendants") breached the STA. TFP also asserts that the AAR Defendants fraudulently induced TFP to enter the STA by promising to formally designate NWA as a Target Account, without ever intending to do so. The heart of TFP's claim is that NWA was a Target Account, and that TFP's efforts caused NWA to order products and services from the AAR Defendants and/or their affiliates. (2d Am. Compl. ¶ 21.) TFP alleges that, absent those efforts, NWA would not have ordered products and services from the AAR Defendants or their affiliates. (Id. ¶ 22.) Under the STA, TFP therefore claims that it is owed compensation. (Id. ¶ 23.)

In the governing complaint, TFP brings four causes of action: breach of contract against AAR Corp. (Count I), fraud against AAR Corp. (Count II), breach of contract against AAR Allen (Count III), and fraud against AAR Allen (Count IV). (2d Am. Compl.) All four claims explicitly rest on TFP's purported role in securing AAR Allen business from NWA. (Id. ¶¶ 30 (breach of contract against AAR Corp.); 40 (fraud against AAR Corp.); 45 & 49 (breach of contract against AAR Allen); 59 (fraud against AAR Allen).) Because there is no evidence from which a reasonable juror could conclude that TFP's efforts did, in fact, secure the NWA-AAR Contract, the AAR Defendants are entitled to summary judgment on all claims. TFP has also filed a motion for sanctions related to an electronic discovery dispute; that motion is denied.


I. The Parties

TFP claims to be a New York limited liability corporation (but is presumably a limited liability company) with its principal place of business in Greenwich, Connecticut. (AAR 56.1 ¶ 1.) TFP's sole member is Callen Cooper, a Connecticut citizen. (Id. ¶ 2.) AAR Corp. is a Delaware corporation with its corporate headquarters in Wood Dale, Illinois. (Id. ¶ 2.) AAR Corp. provides products and services for the aviation/aerospace industry, including both commercial and government customers. AAR Corp. is a parent to AAR Allen, which is an Illinois corporation with its corporate headquarters in Wood Dale, Illinois and its main office in Long Island, New York. (Id. ¶ 3; AAR Am. 56.1 Resp. ¶ 1.) With respect to AAR Allen's relationship with TFP, Cooper identifies two of the key players for AAR Allen as: Robert Bruinsma (General Manager) and Frank Boni (a sales executive). (Cooper Decl. dated 10/15/07 ¶ 7, Ex. A to TFP 56.1.)*fn2

TFP describes itself as "a trade finance firm," which provides "new business and asset recovery programs" for its clientele. (2d Am. Compl. ¶ 9.) Callen Cooper is TFP's President and managing member. (Cooper Decl. ¶ 1; TFP 56.1 ¶ 7.) TFP's business model is set forth in a document entitled: "Trade Finance Partners' Business Model." (AAR 56.1 ¶ 7.) There are two aspects to that business, described by TFP as "value restoration to impaired assets" and "new business opportunities for the purchase of idle production capacity." (Cooper Dep. 44:1-13, Ex. E to AAR 56.1.) Without suggesting that it has a thorough understanding of TFP's business, the court notes that, in its Business Model document, TFP asserts that it buys certain types of assets from clients at significantly higher than market value with what TFP refers to as a "cross purchase option" or "CPO"; according to TFP, clients can then use the CPO "to offset cash (as a cash savings) in the purchase of goods and services required in their operations." (TFP Business Model, Ex. 1 to Cooper Dep.) In other words, the CPO operates as a cash alternative that companies apply toward the purchase of products and services. (Id.)


TFP and AAR Allen signed the Strategic Trade Agreement. (STA, Ex. C to AAR 56.1.) Bruinsma signed the STA on behalf of AAR Allen on January 10, 2005; Cooper executed the STA on behalf of TFP on February 1, 2005. (Id.) In the agreement, AAR Allen retained TFP as its agent for securing Target Accounts, which are companies AAR Allen "has specifically identified to TFP on a completed TFP Target Account Request for Information ('RFI')." (Id. § 1.) Put another way, Target Accounts "shall mean entities which have been identified by [AAR Allen] and/or TFP and with which [AAR Allen] desires to enter a contractual relationship for the sale of specific Products and/or Services as a result of the efforts or involvement of TFP." (Id. § 2.5.) The STA further "accepted that a Target Account may be identified in other written or verbal communication between [AAR Allen] and TFP, subject to further confirmation in a written Target Account RFI." (Id. § 1.) The STA made clear that "no companies shall be deemed a Target Account until it has been agreed as such by both [AAR Allen] and TFP in a written Target Account RFI." (Id.) That RFI must be in substantially the same form and substance as the sample attached to the STA as Exhibit 1. (Id.) The parties dispute whether the STA precludes the parties from naming a Target Account without a formal RFI, but the court need not decide this issue to resolve the dispute and, accordingly, declines to do so.*fn3

Pursuant to the STA, AAR Allen agreed to pay TFP the first part of a retainer--$25,000--within ten days of execution of the contract, as well as a second installment--$35,000--within thirty days of execution of the first Supply Contract with a Target Account. (STA § 7.1.) AAR Allen did pay TFP the $25,000 retainer, although TFP alleges that it was paid "substantially late." (AAR 56.1 ¶ 19; TFP 56.1 Resp. ¶ 19.) In the event that TFP did secure business from a Target Account for AAR Allen, the STA also entitled TFP to a Business Development Fund ("BDF"), which would consist of a percentage of "incremental profits and overall manufacturing efficiencies generated through [AAR Allen's] sales of Products and/or Services to a Target Account(s)." (AAR 56.1 ¶ 21.) On October 26, 2005, an AAR Allen representative notified TFP that it intended to terminate the STA in thirty days; the STA was thereafter treated as terminated. (2d Am. Compl ¶ 24.)

III. NWA-AAR Contract

In 2004, NWA sent out a Request for Proposal ("RFP") seeking proposals to provide Maintenance, Repair, and Overhaul ("MRO") services related to avionic, pneumatic, and hydraulic components. (AAR 56.1 ¶ 50.) The parties variously refer to this as an "MRO RFP" and a "pneumatic and hydraulic component RFP." It was issued through Aeroxchange, a "business-to-business e-commerce platform" through whom NWA had previously solicited proposals. (Id. ¶¶ 47-48, 52.) As of January 2005, this was the only outstanding RFP that NWA had issued with respect to hydraulic and pneumatic controls. (Id. ¶ 51.) Aeroxchange and NWA generally followed the following procedure with regard to RFPs: NWA would format the RFP, Aeroxchange would distribute it to potential vendors, potential vendors would send proposals in response to the RFP, and Aeroxchange would forward those proposals to NWA. (Id. ¶ 49.)*fn4 In or about October 2004--approximately three months before the STA was signed--AAR Allen submitted an initial proposal in response to NWA's RFP. (Id. ¶ 53-54.) Despite ample opportunity during the summary judgment briefing, the parties have provided few details regarding how the relationship between AAR and NWA progressed from that point forward. All that is clear is that, in February 2005, AAR Allen received a "Phase 2" RFP from NWA. (TFP 56.1 ¶ 17.) That RFP bears the Aeroxchange logo and contact information, and is entitled "Northwest Airlines Hydraulic and Pneumatic Component Repair (Phase 2)." (RFP dated 2/1/05, Ex. C to TFP 56.1.) No information is available regarding what prompted this Phase 2 RFP.

In June 2005, AAR Allen and NWA entered into the NWA-AAR Contract, which related to pneumatic and hydraulic components. (NWA-AAR Contract, Ex. 33 to Ex. F to AAR 56.1; AAR 56.1 ¶ 56.) That contract obligates AAR Allen to provide certain repair services and/or articles for NWA, who, in turn, agrees to purchase certain of those repair services and/or articles exclusively from AAR Allen, and others non-exclusively. (Id. §§ 2.1-2.6.) The parties dispute what prompted NWA to award AAR Allen the NWA-AAR Contract, and, in particular, TFP's involvement in securing that contract. (See TFP 56.1 Resp. ¶ 55.) AAR Allen contends that it was awarded the contract in response to the October 2004 proposal it submitted in response to NWA's RFP; TFP counters that AAR Allen secured the contract through a supplementation of the proposal. (Id. ¶ 55.) The parties debate the import of TFP's communications with NWA in effectuating the NWA-AAR Contract.

The parties agree on the key players to the NWA-AAR Contract, from NWA's perspective. Timothy Johnson has been NWA's Director of Technical Commodity Management for NWA since mid-2004; before that, he was NWA's Manager for Project Materials for approximately three years. (AAR 56.1 ¶¶ 57-58.) Johnson was involved in NWA's decision to award the NWA-AAR Contract to AAR Allen. (Id. ¶ 70.) Johnson was also a decision-maker regarding whether NWA would engage in a relationship with TFP as a result of the communications TFP initiated in January 2005. (Id. ¶ 67; Cooper Decl. ¶ 35.) The other NWA employee who played a role in discussions with TFP is Craig Ronald Reidlinger, who has been NWA's Director of Procurement and Contracting since July 2006; before that, he was NWA's Mechanical Commodity Manager from 2002 to 2006. (AAR 56.1 ¶¶ 59-60.) In 2004 and 2005, Reidlinger's duties included purchasing spare parts and repair services for hydraulic and pneumatic components. (Id. ¶ 61.) Johnson was one of Reidlinger's superiors. (Id. ¶ 62.) There is no evidence that Reidlinger was a decision maker with respect to the NWA-AAR Contract.

Johnson's and Reidlinger's testimony demonstrates that TFP had no role in securing the NWA-AAR Contract for AAR Allen. Indeed, Johnson explicitly avowed that TFP played no role in the decision. (Johnson Dep. 95:1-8, Ex. G to TFP 56.1.) More generally, when asked whether NWA was, after January 11, 2005, open to a proposal from TFP that would have entailed NWA's accepting an outstanding AAR Allen proposal for providing MRO services under his department, Johnson replied that TFP's proposals were not of value or interest to NWA. (Id. at 89:10-92:4.)*fn5 In other words, Johnson testified that TFP's business model was of no value to NWA. Johnson and Reidlinger each testified that the proposal TFP made to them involving AAR related to landing gear--not hydraulic and pneumatic components. (AAR 56.1 ¶ 65.)*fn6 NWA, then, cannot confirm that TFP made any proposal whatsoever to NWA related to the NWA-AAR Contract.

Based largely on Johnson's and Reidlinger's testimony, the court concludes that TFP did not procure the NWA-AAR Contract. As a result, TFP was not entitled to any additional compensation--either in the form of retainer or Business Development Fund--from AAR Allen in connection with the STA. TFP therefore cannot demonstrate that it suffered any damages, a required element of any breach of contract or fraud claim. Thus, the AAR Defendants are entitled to summary judgment on all claims.


I. ...

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