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Valley Air Service v. Southaire

April 16, 2009

VALLEY AIR SERVICE, PLAINTIFF,
v.
SOUTHAIRE, INC., ET AL., DEFENDANTS,



The opinion of the court was delivered by: Blanche M. Manning United States District Judge

MEMORANDUM AND ORDER

Valley Air Service contracted with Southaire to purchase an airplane which was to be repaired, refurbished, and customized by Central Flying Service pursuant to a contract between Central Flying and Southaire. Contending that the plane was a lemon and that it was defrauded into making fruitless repairs, Valley Air Service sued Southaire, Edward Brunner (Southaire's President), Central Flying Service and William Englert (Central Flying's Director of Light Jet Maintenance). Southaire and Brunner as well as Central Flying and Englert have each filed motions for summary judgment. For the following reasons, the following counts will be tried: Count I (breach of contract against Southaire), Count II (common law fraud against Southaire and Brunner), and Count VI (common law fraud against Central Flying and Englert).

I. Background

The following facts*fn1 are drawn from the parties' Local Rule 56.1 statements.*fn2 Because the defendants elected not to respond to Valley Air's statement of additional facts, except to say that they believe that all of these facts are irrelevant to the issues presently before the court, those facts are deemed admitted for purposes of the motions for summary judgment. See Local Rule 56.1(b)(3)(C).

A. Jurisdiction and Venue

Plaintiff Valley Air Service is an Illinois corporation with its principal place of business in Illinois.*fn3 Defendant Southaire, Inc. is a Tennessee corporation with its principal place of business in Tennessee. Defendant Central Flying Service, Inc. is an Arkansas corporation with its principal place of business in Arkansas. Central Flying is not registered to do business in Illinois. Edward Brunner (Southaire's President) is a Tennessee citizen, and William Englert (Central Flying's Director of Light Jet Maintenance) is an Arkansas citizen. It is undisputed that Valley Air Service seeks well over $75,000 in damages in connection with the plane, which cost approximately $2M.

The court previously denied motions to dismiss filed by the defendants based on the alleged lack of personal jurisdiction. It also found that venue was proper in Illinois and invited both Central Flying and Englert to file proper motions to transfer venue, but they never did so. See Docket No. 65 at 6 (December 15, 2006, Memorandum and Order denying Central Flying's motion to transfer venue without prejudice because the issue was raised for the first time in a reply memorandum); Docket No. 133 at 10 (January 3, 2008, Memorandum and Order finding that venue was proper in Illinois and noting that Englert should file a motion to transfer venue if he believed that Arkansas was a more appropriate venue). Thus, although Central Flying attempts to challenge venue in the defendants' joint statement of facts, its challenge is untimely. See Defendants' Joint Statement of Facts at ¶ 3.

B. The Decision to Purchase the Aircraft

Stephen and Maureen Cosyns are the husband-wife operators of Valley Air, a small company in Illinois that is in the business of operating charter flights. In 2005, the Cosyns decided to purchase a small jet to improve the flight experience of their current clients and attract new clients. They ultimately became interested in a 1983 Cessna Citation 500, serial no. 550-0478, registration no. N17WC, offered by Southaire.

Southaire and Valley Air signed a letter of intent to purchase the aircraft on August 12, 2005. Central Flying's Exhibit A/Valley Air's Ex. 8 (Letter of Intent to Purchase). The letter stated that it "is a non-binding letter of intent and shall not be construed as an offer, an agreement, or a memorandum of agreement." Id. at 3, ¶ 18. Nevertheless, the letter specified that Southaire would pay for the aircraft to undergo Phase I-V Inspections and preparedness inspections per the Cessna Citation manual at Central Flying in Little Rock, Arkansas. Id. at ¶ 3.

It also stated that the aircraft would undergo refurbishment of the paint and interior at Central Flying's location and that Central Flying would review all of the log books. See id. at ¶¶ 5, 7.*fn4

C. Repairs to the Aircraft/Valley Air's Decision to Purchase the Plane

In the summer of 2005, Southaire delivered the plane to Central Flying so Central Flying could inspect it. See Central Flying's Ex. C (Central Flying Proposal). As a result of that inspection, on August 2, 2005, Central Flying sent Southaire a proposal to perform certain work on the plane. Id. Examples of the kind of repairs in the proposal are replacing a defective strobe light, correcting the pressure in the anti-skid nitrogen bottle, and fixing a chipped windshield. Id. at C3-C4. The proposal and attached "standard terms and conditions" do not mention Valley Air and refer to Southaire as the customer. Id. Central Flying performed work on the plane pursuant to work orders between Southaire and Central Flying, although the record does not specify precisely what work was ultimately performed. See id.

Later that month, Ed Brunner (the President of Southaire) and Stephen Cosyns (the President of Valley Air) signed an Aircraft Sale and Purchase Agreement. See Central Flying's Exhibit B/Valley Air's Ex. 9 (Aircraft Sale and Purchase Agreement, signed by Brunner on August 16, 2005, and Cosyns on August 21, 2005). Southaire and Valley Air were the only parties to this contract. Id. The contract between Southaire and Valley Air contained a forum selection clause that provided that Illinois law would control. Id.

Section 6.2 of the Aircraft Sale and Purchase Agreement is entitled "Pre-Purchase Inspection" and provides in pertinent part that:

(a) The Aircraft and the Aircraft documents have already been delivered to Central Flying Services, Little Rock, Arkansas ("the Inspection Facility") for the purpose of enabling the Inspection Facility to conduct (at Seller's expense) an inspection ("Pre-Purchase Inspection") of the Aircraft.

(b) The parties acknowledge that the Pre-Purchase Inspection will consist of, at Seller's cost, The Phase I-V inspections, which must be signed off in accordance with the Cessna Citation Model 550 Maintenance Manual. Buyer will perform an acceptance flight after the aircraft has both completed the Phase I-V Inspections and completion of the refurbishment consisting of the new paint and interior. This flight is not to exceed one hour (60 minutes) with Buyer's representative onboard for this flight. All associated costs with the flight are to be borne by the Seller. Seller agrees to allow $25,000 (Twenty-Five Thousand Dollars) to remain in Escrow until the aircraft has completed all the Part 91 required inspections and refurbishment process and the Buyer has successfully made an Acceptance/Test Flight. This money is for rectification of any discrepancies noted on the flight. After which the fill amount or balance of sum shall be returned to SouthAire.

(c) If the Pre-Purchase Inspection reveals that the Aircraft is not airworthy (as such term is customarily used and defined in the industry) or otherwise has material FAA Part 91 deficiencies, then unless this Agreement is terminated by Buyer as provided in subparagraph (d) below, the cost of correction of all airworthiness deficiencies and Part 91 deficiencies shall (i) be performed by the Inspection Facility and (ii) paid by the Seller. Seller hereby agrees to correct and to pay for the correction of all airworthy and Part 91 deficiencies. The Parties agree to negotiate reasonably regarding the setting of a timetable for the correction of any airworthiness deficiencies. If, after three business days, the Parties are unable to mutually agree to a timetable for correction of the airworthiness deficiencies in less than 30 days, then the transaction shall be terminated as provided in this Agreement.

(d) If the Pre-Purchase Inspection reveals that the Aircraft is in a condition not acceptable to Buyer in its sole and absolute discretion, then (i) Buyer may terminate this Agreement by written notice to Seller, (ii) the Deposit shall be refunded to Buyer, (iii) the fees of the Escrow Agent shall be paid equally by the parties, and (iv) thereafter neither party shall have any further obligation to the other hereunder.

(e) If the Pre-Purchase Inspection reveals that the Aircraft is in a condition that is acceptable to Buyer in its sole and absolute discretion, then Buyer shall execute and deliver to Seller a written certificate (an "Airfare Acceptance Certificate"), whereupon Seller shall make no further use of the Aircraft and the Closing Date shall be scheduled for seven (7) business days following receipt of the Airfare Acceptance Certificate by Seller....

Id. at 4, ¶ 6.2(a).

Central Flying originally worked exclusively with Southaire to determine what work to perform on the plane, and entered into a contract with Southaire to perform work. However, at some point after Valley Air signed the Aircraft Sale and Purchase Agreement, Central Flying became aware that Valley Air would be the plane's ultimate owner. As such, Central Flying attempted to satisfy both the actual owner of the plane (Southaire) and the future owner of the plane (Valley Air) when performing work on the plane. See Valley Air Ex. 15 (John Shirley Dep.) at 40-43, 67-68.

Central Flying also sent Valley Air proposals to perform additional work on the plane. See Valley Air Ex. 14. The proposals included upgraded finishes inside the plane (e.g., replating all the interior hardware, changing the existing countertop to a solid surface material, and modifying the existing seating to emulate Cessna Bravo seat styling), removing the existing communications system and installing new equipment, installing an XM weather link and flight date display monitors, and removing the left engine starter/generator (with 200 hours remaining) and installing a new unit. Id. Valley Air was responsible for paying for some of this work. See Valley Air Ex. 15 (John Shirley Dep.) at 67-68; Valley Air Ex. 4 (emails between Central Flying and Valley Air).

One of the subcontractors used by Central Flying performed work (correcting a fuel leak) that was not reflected in the relevant work order, which was dated October 12, 2005. Valley Air Ex. 6 (Englert Dep.) at 23, 36.

D. Inspection and Delivery of Possession of the Plane

1. Pre-Purchase Inspections

Central Flying conducted the Phase I-V Inspection of the plane at Central Flying's facility in Arkansas. See Valley Air's Ex. 20 (Central Flying invoice dated October 12, 2005).

In addition, before Valley Air decided to finalize the purchase of the plane in October of 2005, it asked its then chief pilot, Michael Patrick, to become involved with the plane's preflight inspection. Valley Air Ex. 19/Central Flying's Ex. E (Patrick Dep.) at 7-8.*fn5 Patrick and Stephen Cosyns thus went to Central Flying's facility in Arkansas and Patrick "look[ed] over the airplane." Id. at 8. When doing so, he "followed the checklist, preflighted the airplane." Id. at 9. He found an inoperative landing light and low brake fluid but did not find any other discrepancies. Id.

Cosyns also testified that he inspected the plane when he arrived in Arkansas. According to Cosyns, in addition to the issues identified by Patrick, he found "many other discrepancies that I just don't recall." Valley Air Ex. 11 (S. Cosyns Dep.) at 73. He told Englert about these deficiencies, and was not aware that any of the deficiencies still existed as of a few days later on October 11, 2005, when he flew the plane from Arkansas to Illinois. Id. at 73-74.

Patrick testified that the plane was serviced to his satisfaction prior to departure. Valley Air Ex. 19/Central Flying's Ex. E (Patrick Dep.) at7-8. As chief pilot, Patrick was not responsible for writing up discrepancies. Id. at 12. However, Patrick would not have flown the plane if there were any discrepancies. Id. at 14. Similarly, Stephen Cosyns testified that a preflight inspection is necessary and that "[a]n airplane cannot fly" if there are any discrepancies. Valley Air Ex. 11 (S. Cosyns Dep.) at 74.

2. Delivery

On October 11, 2005, Southaire delivered possession of the aircraft to Valley Air and Stephen Cosyns, on behalf of Valley Air, signed an "Aircraft Delivery Receipt" and "Aircraft Acceptance Receipt." Southaire Exhibit A (Aircraft Delivery Receipt); Southaire Exhibit B (Aircraft Acceptance Certificate). The Aircraft Delivery Receipt stated that "Buyer hereby accepts delivery of the Aircraft" and specified that "[t]he aircraft is accepted on the terms and subject to the Aircraft Purchase Agreement." Southaire Exhibit A. In turn, the Aircraft Delivery Receipt stated:

Pursuant to the Aircraft Sale and Purchase Agreement ("Agreement") effective the 11th day of October, 2005, by and between: Ed Brunner, Southaire, Inc. ("Seller") and Stephen M. Cosyns, Valley Air Service, Inc. ("Buyer") Buyer has conducted a Pre-Purchase Inspection of the following aircraft:

Aircraft Make and Model: 1983 CESSNA CITATION 550

Manufacturer Serial Number: 550-0478

Registration Number: N17WC together with the engines installed thereon, and together with any and all existing avionics, equipment and accessories (loose or installed), as listed in Exhibit A of the Purchase Agreement (collectively, the "Aircraft").

Based on the results of the Pre-Purchase Inspection, Buyer has determined that: ___ The condition of the Aircraft is not satisfactory to Buyer. The Agreement shall be terminated, and any amounts paid by Buyer shall be immediately refunded as provided in the Agreement. ___ The condition of the Aircraft is satisfactory to Buyer.

X The condition of the Aircraft is satisfactory to Buyer subject to Seller's timely correction of the deficiencies listed in the attachment hereto. Note that sidepanel materials, countertop, laminate and seat leather was not ...


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