Opinion
Case No. 1:00-CV-128
August 21, 2001
ORDER
IT IS HEREBY ORDERED that Defendants' Motion for Summary Judgment (Dkt. No. 148) is DENIED.
IT IS FURTHER ORDERED that Plaintiff's Motion for Partial Summary Judgment (Dkt. No. 149) is
GRANTED in part and DENIED in part. It is granted to the extent that the Court finds Plaintiff has standing to sue
Defendant Raytheon Aircraft Services for breach of contract.
OPINION
This matter is before the Court on Defendants', Raytheon Company ("RC"), Raytheon Aircraft Company ("RAC"), and Raytheon Aircraft Services, Inc. ("RAS") (collectively "Raytheon Defendants") Motion for Summary Judgment. Also before the Court is Plaintiff's Motion for Partial Summary Judgment Against Defendant RAS. The Court denies Defendants' Motion and grants in part and denies in part Plaintiff's Motion.
Raytheon Company and Raytheon Aircraft Company were dismissed without prejudice by Order dated June 18, 2001.
BACKGROUND
The facts of this case are somewhat complicated but also necessary to understand both Motions.
Plaintiff met with Greg Vogel and Lloyd Huth, two members of Travel Consultants Aviation ("TCA") because both parties were interested in purchasing an airplane. Plaintiff was exploring investment opportunities, and TCA was seeking to expand its aircraft fleet. Allegedly, Plaintiff relied on their representation that they were experts in buying, managing, and operating airplanes. The parties eventually signed an agreement in which Plaintiff was to buy the aircraft for personal use, and TCA would charter the airplane to third parties. The parties settled on purchasing a Hawker airplane.
TCA sent to Aero Toy Store an offer to purchase a Hawker airplane Aero owned. During this transaction, Aero indicated that the airplane should conform to Part 135 requirements of the Federal Aviation Regulations and also suggested that TCA make a Part 135 review part of TCA's records examination. Compliance with Part 135 was necessary for TCA to charter the plane. Plaintiff and TCA settled on a purchase price, and the parties agreed that "Raytheon" would conduct a Part 135 compliance review of records and the aircraft. Plaintiff alleges that RAS' Ft. Lauderdale facility was not an authorized Hawker Service Center, and RAS failed to communicate this to Plaintiff or TCA.
14 C.F.R. § 135
At TCA's direction, Aero delivered the airplane to RAS for a Part 135 compliance review of the records and the aircraft. When the aircraft arrived as RAS in Ft. Lauderdale, Florida, a RAS Work Order Authorization was written and indicated that RAS was to "Research Logbooks and Evaluate Aircraft."
RAS claims that TCA never disclosed that TCA had limited experience with Hawkers and was relying on RAS to decide whether to purchase the aircraft. RAS reported that the airplane was not compliant with Part 135. Although Plaintiff acknowledges seeing this report, he did not read it. After receiving the report, TCA stopped the RAS records review and took the airplane back. TCA stated that it did not review the RAS invoice to determine whether RAS had completed the inspection TCA had ordered.
At this point, two other entities conducted further records review prior to purchase of the aircraft.
On August 12, 1997, TCA accepted the aircraft from Aero "as is, where is" without any warranties. Over a year later, after the aircraft was put into service, corrosion was found during a required 24-month inspection. Plaintiff and TCA then sold the plane "as is" to Cypress Aviation. TCA also told Plaintiff that Defendant Outboard Marine Company covered up a defect and falsified logbooks, and RAS should have found it during their inspection.
RAS now seek dismissal of Count IV, Breach of Express and/or Implied Contract Against Raytheon, Raytheon Aircraft and/or Raytheon Aircraft Services, and Count V, Negligent Inspection Against Raytheon, Raytheon Aircraft and/or Raytheon Aircraft Services as found in Plaintiff's First Amended Complaint.
LEGAL STANDARDS
RAS moves for a judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, and alternatively seek summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Fed.R.Civ.P. 12(c) and 56.
A motion for judgment on the pleadings under Rule 12(c) is subject to the same standards as a motion to dismiss under Rule 12(b)(6). See Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir. 1998). Dismissal under Rule 12(c), however, is appropriate only when the Court is convinced beyond a doubt that the plaintiff can prove not set of facts in support of the claims that would entitle plaintiff relief. See Mixon v. Ohio, 193 F.3d 389, 399-400 (6th Cir. 1999).
In the instant case, both RAS' Motion and Plaintiff's Response include documents not included in their pleadings. As such, the Court will dispose of the Motion as provided in Federal Rule of Civil Procedure 56.
In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are "genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A motion for summary judgment requires that the Court view the `inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion.' Matsushita Electric Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). The opponent, however, has the burden of showing that a "rational trier of fact [could] find for the non-moving party [or] that there is a `genuine issue for trial.'" Matsushita, 475 U.S. at 587. "The mere existence of a scintilla of evidence in support of plaintiff's position,[however,] will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986).
ANALYSIS I. Choice of Law
A federal court exercising diversity jurisdiction, as this Court is, applies the choice-of-law rules of the forum state, in this case, Michigan. See Kipin Indust., Inc. v. Van Deilen Intern., Inc., 182 F.3d 490, 493 (6th Cir. 1999), Cole v. Mileti, 133 F.3d 433, 437 (6th Cir. 1998).
In a contracts case, such as the one here, Michigan has generally adopted an approach that utilizes §§ 187 and 188 of the Second Restatement of Conflicts of Laws. See Chrysler Corp. v. Skyline Indust. Servs., Inc., 528 N.W.2d 698, 703 (1995). Section 187 addresses the situation wherein the parties have chosen a particular law to govern their contractual right, and is not relevant here. Restatement (Second) Conflict of Laws § 187. Restatement § 188(1) provides that in the absence of an effective choice by the parties a contract issue shall be governed by the law of the state that, "with respect to that issue, has the most significant relationship to the transaction and the parties." Section 188 also provides the following factors for courts to use to determine which state's laws apply: (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties. See id. at § 188(1).
Both parties agree that Florida law controls the contract claim. The Court agrees, particularly when considering section 196 of the Second Restatement. Section 196 states that when the contract is for services, the law of the state of performance shall apply unless another state has a more significant relationship to the contract. Id. at § 196; Kipin, 182 F.3d at 493. In this case, it appears that the contract was entered into in Florida, as well as performed there. Although the subject matter is in Michigan, and Plaintiff lives in Michigan, this is not enough to overcome Florida's interest in the suit. Plaintiff sought out a Florida seller and directed that seller to deliver the air craft to RAS in Florida because it was close to the aircraft. In addition, the purchase agreement between Plaintiff and Aero chose Florida law to govern the sale contract, thus indicating Plaintiff's agreement to be bound by Florida law.
When dealing with tort actions, Michigan Courts use the Sutherland test. Michigan courts apply this test to determine which state's law governs in a tort case where one or more state's law may be involved. See Sutherland v. Kennington Truck Serv., Ltd., 562 N.W.2d 466, 471 (Mich. 1997). Under this test, court are attempting to determine whether choosing a foreign jurisdiction's law is fundamentally unfair. See id. Courts look at where (1) the injury occurred, (2) the conduct causing the injury occurred, (3) the parties are incorporated and do business, and (4) the relationship between the parties is centered. Id.; see also Restatement (Second) of Conflicts, § 145(2).
In this case, the conduct causing the injury occurred in Florida. In addition, the injury itself arguably occurred in Florida and Michigan. Although the parties are incorporated and do business in different states, this is not enough to characterize applying Florida's law as fundamentally unfair.
II. Breach of Contract Claim
RAS argues that Count IV should be dismissed because Plaintiff's First Amended Complaint fails to specifically allege that Plaintiff has standing to sue RAS as TCA's principal. In Count IV, Plaintiff asserts that it relied upon an evaluation of the aircraft, and that a reasonable pre-purchase inspection would have revealed the corrosion. Plaintiff concludes that RAS' failure to detect or report the corrosion was a breach of contract. The contract in question is an invoice from RAS from services performed for and allegedly paid by TCA.
Plaintiff is asserting a claim for breach of contract resulting in economic loss. To successfully to so, privity must exist between Plaintiff and RAS. See Adee v. Great Southeast Carpet Gallery, Inc., 562 So.2d 409 (Fla.Dist.Ct.App. 1990). RAS claims Plaintiff cannot base a right to recover on a contract where Plaintiff had an agent and the relationship from which the right to sue on the contract is not pled. Plaintiff claims to be entitled to relief under the contract as a principal of TCA but did not plead or reference the agency. Because of this, RAS claims that Plaintiff's First Amended Complaint fails to state a claim upon which relief may be granted. See Goldschmidt v. Holman, 571 So.2d 422 (Fla. 1990).
1. Plaintiff's Proposed Second Amended Complaint
Plaintiff responds by making two arguments. First, Plaintiff argues that its Second Amended Complaint expressly alleges an agency between Plaintiff and TCA. Plaintiff currently has pending before the Court a Motion to file a Seconded Amended Complaint. Magistrate Judge Carmody has scheduled a hearing on this Motion. Until the Court decides that Motion, Plaintiffs Seconded Amended Complaint is not properly before the Court.
2. Plaintiff's Motion for Partial Summary Judgment
Second, Plaintiff argues that it has standing to sue as a matter of law based on its agency relationship with TCA and directs the Court to its Motion for Partial Summary Judgment.
Under Florida law, an express agency requires an agreement that an agency shall exist, and the agent and principal must have a meeting of the minds. See Esso Int'l, Inc. v. SS Captain John, 443 F.2d 1144, 1146-48 (5th Cir. 1971) (applying Florida law). Florida law also recognizes an implied agency based on the parties' words and conduct and the circumstances of a particular case. See id. To find an implied agency, the Court must determine that the agent was acting on behalf of the principal and with the principal's knowledge or consent. See id.
In the case at bar, Plaintiff and TCA entered into two written agreements. One such agreement, the Aircraft Acquisition Agreement, expressly states that Plaintiff appoints TCA as its exclusive agent to assist Plaintiff in acquiring an aircraft. The other agreement, an Aircraft Management Agreement, states that Plaintiff hired TCA as its agent to provide management for the aircraft. This is evidence of an express agreement.
In addition, the Vice President of Operations of TCA stated during deposition that TCA acted as Plaintiff's agent. Plaintiff's Managing Member stated in deposition that Plaintiff hired TCA to act as its agent. Plaintiff's Managing Member further stated that Plaintiff hired TCA to contract with a third-party to conduct a pre-purchase inspection of the Hawker. According to Plaintiff's Managing Member, Plaintiff reimbursed TCA for the price of the pre-purchase inspection. In addition, TCA's Vice President of Operations stated that he told RAS that the pre-purchase inspection was being conducted for Plaintiff and not TCA.
RAS argues that Plaintiff's and TCA's use of the term agent is not determinative of an actual agency relationship between them. See Nazworth v. Swire Fa., Inc., 486 So.2d 637, 638 (Fla.Dist.Ct.App. 1986) (citations omitted). Rather, RAS urges the Court to determine whether TCA is an agent or an independent contractor. See id. RAS argues that TCA had a vested interest in the purchase of the aircraft, and Plaintiff did not exercise control as whether or how the aircraft was evaluated. RAS further asserts that TCA needed the aircraft to be Part 135 approved so it could charter the plane. RAS also argues that the costs of purchase and inspection were shared by TCA and Plaintiff.
The Court is not persuaded by RAS' argument. A tenet of agency law is the right of control and not actual control. See Nazworth, 486 So.2d at 638. The evidence shows that Plaintiff had the right to control TCA's actions. For example, TCA would have been unable to purchase the airplane without Plaintiff's money, and Plaintiff was only obligated to reasonably cooperate in purchasing an airplane. Plaintiff was not under any obligation to purchase any particular airplane TCA suggested it buy. Other evidence of an agency relationship is the fact that TCA did not claim title or interest in the airplane or inspection. In addition, the Court finds that the evidence shows that Plaintiff paid for the airplane and RAS's pre-purchase inspection and Part 135 records review. Plaintiff also paid for TCA's services with the exception of $5,000 Plaintiff deducted after disagreeing over TCA's expenses for food, lodging and travel. All of these factors lead the Court to find that an agency relationship did exist between Plaintiff and TCA.
Because of this, Plaintiff has standing to sue RAS for breach of contract. Florida recognizes the general rule that a principal is entitled to the benefit of the agent's acts done on the principal's behalf. See Oceanus Mut. Underwriting Assoc., Ltd. v. Fuentes, 456 So.2d 1230, 1232-33 (Fla.Dist.Ct.App. 1984). This entitlement applies regardless of whether principals are fully disclosed, partially disclosed, or undisclosed. See id. ("[A]n agent can act for an undisclosed principal who, in turn, can sue to enforce the benefits of the contract . . . ."). Based on this law, Plaintiff has standing to sue RAS for breach of contract. The question remains, however, whether RAS is entitled to summary judgment on Plaintiff's Breach of Contract Claim.
Although Plaintiff labels its Motion as one for Partial Summary Judgment, the Court is not clear as to Plaintiff's actual request. Plaintiff states that it is seeking a motion for partial summary judgment against RAS because no genuine issue of material fact exists that Plaintiff has standing to sue RAS for breach of contract based on its agency relationship with RAS. Although this is true, the agency relationship does not necessarily entitle Plaintiff to relief on its Breach of Contract Claim. Thus, the Court is granting in part Plaintiff's Motion for Partial Summary Judgment to the extent that Plaintiff has standing to sue RAS for breach of contract.
3. Did RAS Breach the Contract?
RAS argues that TCA did not ask for a pre-purchase inspection but merely asked RAS to conduct a Part 135 evaluation. RAS further argues that Part 135 evaluations do not specifically target corrosion. In addition, RAS argues that RAS and Plaintiff did not have a meeting of the minds, which is necessary to prove breach of an alleged oral contract. See Browning v. Peyton, 918 F.2d 1516 (11th Cir. 1990) (citing Neill v. Corp. Trustees, Inc., 376 F.2d 818, 820 (5th Cir. 1967) (construing Florida law)). To support this argument, RAS points to statements by TCA's representative that he cannot remember exactly what he discussed with RAS. This same representative also stated that he expected a pre-purchase inspection to reveal corrosion, but he did not discuss corrosion with RAS.
The record, however, reveals that RAS understood TCA to be seeking a Part 135 evaluation, and TCA thought it clearly asked for a Part 135 evaluation and a pre-purchase evaluation. This fact is critical to the terms of the contract between RAS and TCA and cannot be determined by the record. Rather, it is a genuine issue of material fact that must be determined by the fact-finder. Thus, RAS is not entitled to summary judgment on Plaintiff's Count IV, Breach of Contract Claim.
III. Negligence Claim
To prove its negligence claim, Plaintiff must show (1) a duty requiring RAS to conform to a certain standard of care for Plaintiff's protection, (2) a breach by RAS in performing that duty, and (3) Plaintiff suffered damages as a direct and proximate cause of RAS' breach. See Threaf Props. v. Title Ins. Co., 875 F.2d 831, 838 (11th Cir. 1989). In Count V, Plaintiff alleges negligent inspection against RAS and claims that RAS was under a duty to conduct a reasonable pre-purchase inspection of the airplane. Plaintiff claims that RAS' failure to investigate and/or uncover the corrosion of the airplane constitutes negligence.
To summarize, Defendant argues that Plaintiff cannot factually support this Claim. Defendant asserts that it owed no duty to educate TCA with respect to corrosion because the possibility of corrosion in a 30-year-old plane is common knowledge. Defendant also argues that it followed the instructions given it by TCA, namely to conduct a Part 135 evaluation, which does not include specifically looking for corrosion.
Whether corrosion is common knowledge is best decided by the fact finder. In addition, whether RAS' duty included looking for corrosion largely depends on whether RAS was hired to only do a Part 135 evaluation or to also do a pre-purchase inspection. As noted by the Court before, this particular issue cannot be resolved by the record and must be resolved by the fact-finder. Therefore, the Court cannot, at this time, determine RAS' duty to Plaintiff, and RAS is not entitled to summary judgment on Plaintiff's Negligence Claim.
IV. The Economic Loss Doctrine
RAS claims that the economic loss doctrine bars Plaintiff's negligence claim. The economic loss doctrine provides that where a purchaser's expectations in a sale are frustrated, the purchaser's remedy lies in contract alone. See Florida Bldg. Inspection Servs., Inc. v. Arnold Corp., 660 SO. 2d 730 (Fla.Dist.Ct.App. 1995).
RAS cites to Palau Int'l v. Narcam Aircraft, Inc., 653 So.2d 412 (Fla.Dist.Ct.App. 1995), where the issue was whether a purchaser of a used airplane could recover purely economic losses from an airplane mechanic with whom it had no privity. The Palau Court granted the defendant's summary judgment motion and found that the purchaser's failure to receive the benefit of his bargain was a contract concern and not a tort concern. Id. RAS also cites to cases wherein Florida courts have held that contract principles must govern claims for economic loss without accompanying physical injury or property damage. See e.g., Florida Power Light Co. v. Westinghouse Elec. Corp., 510 So.2d 899, 902 (Fla. 1987).
Plaintiff argues that its Negligent Misrepresentation Claim falls under an exception to the economic loss doctrine, which is based on section 552 of the Restatement (Second) of Torts. Section 552 of the Restatement (Second) of Torts states that a person who in the course of business supplies false information for the guidance of others in their business transactions is subject to liability for pecuniary loss caused to the others by their justifiable reliance upon the information supplied if the person fails to exercise reasonable care. Restatement (Second) of Torts § 552.
The Florida District of Appeals addressed this issue in Russell v. Sherwin-Williams Co., 767 So.2d 592, 594 (Fla.Dist.Ct.App. 2000). In Russell, the court applied section 552 to the defendant-paint manufacturer who had been hired by the plaintiff to inspect buildings and prepare inspection reports that would guide others in making business decisions. Id. That court found that the defendant supplied false information for the guidance of the plaintiff in the performance of the plaintiffs contract. The Russell court interpreted section 552 to apply when a contract requires investigation and found that the supplier of information must exercise reasonable care and competence to determine the facts on which he bases his statement. In addition, the supplier of information must exercise competence in drawing inferences from facts not state in the supplied information. See Id. at 594-95.
The Court finds Palau distinguishable. In Palau, the court found no privity existed between the plaintiff and the defendant. Palau, 653 So.2d at 418. In this case, the Court has found privity between Plaintiff and RAS. Furthermore, in Palau, the mechanic did not give a report to the buyer, 653 So.2d at 420, but here, RAS gave Plaintiff a report. In addition the Florida Supreme Court has apparently diminished the effect of Palau Moransais v. Heathman, 744 So.2d 973, 981 (Fla. 1999). In Moransais, a homeowner brought a negligence claim against the engineering firm and individual engineers who inspected his house and failed to detect and disclose certain defects in the home inspection. Id. at 974-75. The Moransais court held that the plaintiff homeowner's negligence claim was not barred by the economic loss doctrine. Id. at 983. Rather, the Moransais court explained its holding in Palau by stating that it never intended to bar well-established common law causes of action. Instead, the court intended to limit actions in the products liability context. See id.
In its First Amended Complaint, Plaintiff alleges that (1) it hired RAS to advise Plaintiff on whether the airplane could be Part 135 compliant and to conduct a pre-purchase inspection; (2) RAS advised Plaintiff on both of these matters; (3) Plaintiff paid RAS for its advice, which it supplied to Plaintiff in the ordinary course of its business; (4) RAS' advice was wrong and misleading in that it did not reveal corrosion; and (5) RAS failed to investigate and/or uncover the corrosion. This is not similar to a product liability case, and thus, not the type of action the Florida Supreme Court intended to limit. Rather, Plaintiff bases its claim against RAS on RAS' alleged neglect in providing its professional service of airplane inspection. Thus, this claim survives RAS' challenge based on the economic law doctrine.
CONCLUSION
For the foregoing reasons, the Court denies Defendants' Motion for Summary Judgment and grants in part and denies in part Plaintiff's Motion for Partial Summary Judgment. An Order consistent with this Opinion is forthcoming.