Opinion
No. COA15-564
06-07-2016
PHAETON AVIATION, INC., a North Carolina Corporation, Plaintiff, v. 360 AVIATION, LLC, a Nevada Limited Liability Company, and I.T. SOURCE CORPORATION, a Nevada Limited Liability Company, Defendant. 360 AVIATION, LLC, a Nevada Limited Liability Company, Counterclaim Plaintiff, v. JET LOGISTICS, INC., a North Carolina Corporation, Counterclaim Defendant.
Wyrick Robbins Yates & Ponton LLP, by Tobias S. Hampson and Kevin J. Stanfield, for plaintiff-appellee Phaeton Aviation, Inc. Morris, Manning & Martin, LLP, by Chad A. Sharkey, for defendant-appellants 360 Aviation, LLC and I.T. Source Corporation.
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure. Wake County, No. 13 CVS 16833 Appeal by defendants from order entered 8 December 2014 by Judge Lucy N. Inman in Wake County Superior Court. Heard in the Court of Appeals 5 November 2015. Wyrick Robbins Yates & Ponton LLP, by Tobias S. Hampson and Kevin J. Stanfield, for plaintiff-appellee Phaeton Aviation, Inc. Morris, Manning & Martin, LLP, by Chad A. Sharkey, for defendant-appellants 360 Aviation, LLC and I.T. Source Corporation. McCULLOUGH, Judge.
360 Aviation, LLC and I.T. Source Corporation appeal from an order entering summary judgment in favor of Phaeton Aviation, Inc. and dismissing 360 Aviation, LLC's counterclaim against Phaeton Aviation, Inc. and Jet Logistics, Inc. with prejudice. Based on the reasons stated herein, we affirm the order of the trial court.
I. Background
The Phaeton Litigation
On 23 December 2013, Phaeton Aviation, Inc. ("Phaeton" or "plaintiff") filed a complaint against 360 Aviation, LLC ("360 Aviation") and I.T. Source Corporation ("I.T.") (collectively "defendants") for the following claims: breach of contract/deficiency balance as to 360 Aviation; breach of guaranty as to I.T.; breach of lease as to I.T.; and, attorneys' fees as to defendants in case number 13 CVS 16833.
Plaintiff alleged as follows: Plaintiff owned a British Aerospace, BAE 125 Series 800A, Serial No. 258070, FAA Registration No. N798PA, together with all engines, parts, avionics, equipment, and accessories used in connection with the aircraft ("Aircraft"). In February 2012, plaintiff and I.T. entered into an "Aircraft Lease Agreement" dated 10 February 2012 ("Lease") wherein I.T. agreed to lease the Aircraft from plaintiff for a period of 12 months. Under the terms of the Lease, I.T. agreed, among other things, to pay plaintiff $300,000.00 as total rent for the Aircraft, payable in 12 monthly installments of $25,000.00 per month; pay a late charge equal to 5% of any monthly rent payment that is more than 5 days after the due date; and, maintain and service the engines for the Aircraft. In April 2013, I.T. failed to make the monthly payment in the amount of $25,000.00 and failed to perform certain maintenance and servicing of the Aircraft's engines.
Plaintiff's complaint further alleged that on 4 September 2012, plaintiff and 360 Aviation entered into an "Aircraft Purchase and Sale Agreement" ("Purchase Agreement"). 360 Aviation agreed to purchase the Aircraft from plaintiff for a purchase price of $1,926,000.00. On 4 September 2012, 360 Aviation executed and delivered to plaintiff a "Purchase Money Promissory Note" ("Note") in which 360 Aviation promised to pay plaintiff $1,926,000.00 in accordance with the terms set forth in the Note. As security for the Note, 360 Aviation also executed and delivered to plaintiff an "Aircraft Purchase Money Loan, Mortgage and Security Agreement" ("Security Agreement") in favor of plaintiff. The Security Agreement created a purchase money security interest in favor of plaintiff to secure the payment of $1,926,000.00. Plaintiff perfected its purchase money security interest in the Aircraft by recording a form AFS-750-23R together with the Security Agreement with the Federal Aviation Administration.
Also on 4 September 2012, I.T. entered into a guaranty agreement ("Guaranty Agreement") wherein I.T. guaranteed the full performance and payment of all of 360 Aviation's obligations under the Security Agreement. I.T. also agreed to be liable as primary obligor and agreed that plaintiff would not be required to proceed first against 360 Aviation or be required to exhaust any other remedy against 360 Aviation before enforcing the Guaranty Agreement against I.T.
Pursuant to the terms of the Note, 360 Aviation was required to make payments to plaintiff on the 15th day of each month, with the first payment due on 15 September 2012. Plaintiff alleged that 360 Aviation failed to make the monthly payments as required by the Note and that on or about 7 June 2013, plaintiff, through counsel, provided written notice to defendants of the default. Plaintiff gave defendants an opportunity to cure the default, however, they did not respond to the 7 June 2013 letter. Defendants have continued to fail to pay the amounts due to plaintiff and therefore, 360 Aviation is in default of the Note and Security Agreement and I.T. is in default of the Guaranty. On 18 July 2013, plaintiff, through counsel, sent defendants a letter informing them of plaintiff's acceleration of the remaining amounts due under the Note. Defendants did not respond to this letter.
On 28 August 2013, plaintiff's attorneys served defendants with a Notification of Disposition of Collateral that the Aircraft would be sold by foreclosure on 11 September 2013 at Wilson Air Center, 5400 Airport Drive in Charlotte, North Carolina. Defendants did not respond and the Aircraft was sold at public auction to plaintiff as the highest bidder for $1,625,000.00. The deficiency balance owed by defendants, after crediting the sales proceeds towards the outstanding balance due on the Note, was $603,296.70, plus the costs of the foreclosure and costs of collecting the deficiency balance.
On 4 March 2014, defendants filed an "Answer and Counterclaim." 360 Aviation asserted counterclaims for civil conspiracy against plaintiff and Jet Logistics, Inc. ("Jet") and tortious interference with contract against Jet. 360 Aviation alleged that in the spring of 2013, Jet, as manager of the Aircraft, communicated to 360 Aviation that it had procured a charter. In order to accept the charter, the Aircraft required certain engine repairs that cost approximately $50,000.00. At the same time, 360 Aviation was late on payments to plaintiff. Plaintiff assured 360 Aviation that the late payments would not be determined by plaintiff to be a default if 360 Aviation would cure the arrearage on the payments. 360 Aviation, knowing that the Aircraft needed to be airworthy, paid for the repair on the engines to allow the Aircraft to be used as a charter. 360 Aviation intended to use the charter fee to make payments to plaintiff. After the repairs were completed and before the date of the charter, plaintiff repossessed the Aircraft on 18 July 2013. Jet then used the recently repaired Aircraft to fly the charter. 360 Aviation alleged that Jet and plaintiff made an agreement to deprive 360 Aviation of the Aircraft just after the $50,000.00 repair to the engines in order to repossess the Aircraft once it had additional value. 360 Aviation also alleged that Jet and plaintiff made an agreement to use the recently repaired Aircraft before its sale at auction for revenue generating charters.
As to Jet only, 360 Aviation alleged that a charter customer had directly scheduled a charter with 360 Aviation prior to the repossession of the Aircraft. Charters that were directly scheduled with 360 Aviation instead of Jet resulted in significantly more money to be realized by 360 Aviation per hour of use of an aircraft than when Jet was acting as a broker. Jet had knowledge of the charter with 360 Aviation and intentionally induced the charter customer to not perform the charter with 360 Aviation. The charter customer cancelled with 360 Aviation and thereafter contracted with Jet. Jet acted without justification or privilege.
On 2 April 2014, plaintiff submitted its reply to 360 Aviation's counterclaim. On 28 April 2014, the trial court entered an "Order Allowing Issuance of Summons," designating Jet as a defendant counterclaim of the Phaeton Litigation. On 8 May 2014, Jet filed its reply to 360 Aviation's counterclaim.
On 12 August 2014, plaintiff and Jet filed a motion for summary judgment, or alternatively, for partial summary judgment, in favor of plaintiff in its 23 December 2013 complaint and in favor of plaintiff and Jet in 360 Aviation's counterclaim. The Jet Litigation
On 6 March 2014, Jet filed a complaint against 360 Aviation and I.T. for non-payment of a debt in case number 14 CVS 3110.
The Mediated Settlement
On 6 May 2014, the trial court entered a "Case Management Order" and ordered the parties to a mediated settlement conference in the Phaeton Litigation.
On 14 August 2014, a mediated settlement conference was conducted and representatives from Phaeton, 360 Aviation, I.T., and Jet attended the conference. On that same date, the parties reached a settlement agreement in both the Phaeton and Jet Litigation ("Settlement Agreement"). The terms of the Settlement Agreement were set out as follows, in pertinent part:
1. Payments by Defendants to Phaeton. 360 Aviation and IT Source, jointly and severally, agree to pay Phaeton Aviation the sum of $400,000.00, in the following amounts and manner:
a) $100,000.00 within 45 days of the date of this Settlement Agreement;
b) $100,000.00 within 12 months of the date of this Settlement Agreement;
c) $100,000.00 within 24 months of the date of this Settlement Agreement;
d) $100,000.00 within 30 months of the date of this Settlement Agreement. . . .
2. Payments by Defendants to Jet Logistics. 360 Aviation and IT Source, jointly and severally, agree to pay Jet Logistic[s] the sum of $15,000.00 within 45 days of the date of this Settlement Agreement. . . .
3. Stipulation of Dismissal. Phaeton shall execute and file with the Clerk of Court for Wake County a Stipulation
of Dismissal, with prejudice, of its Complaint against Defendants. 360 Aviation and IT Source shall execute and file with the Clerk of Court for Wake County a Stipulation of Dismissal, with prejudice, of its Counterclaim against Phaeton and Jet Logistics. Jet Logistics shall execute and file with the Clerk of Court for Wake County a Stipulation of Dismissal, with prejudice, of its Complaint against 360 Aviation and IT Source. The Stipulations of Dismissals shall be filed by the parties within 10 days of the date of this Settlement Agreement and receipt of the executed Confessions of Judgment referenced herein by counsel for Phaeton Aviation and Jet Logistics.On 27 August 2014, a "Report of Mediator in Superior Court Civil Action" was filed and provided that the parties reached an agreement on all issues.
4. Confession of Judgment by Defendants. 360 Aviation and IT Source shall each execute Confessions of Judgment, in a form acceptable to Phaeton and Jet Logistics to secure payment of amounts in Paragraphs 1 and 2 of this Settlement Agreement. . . .
5. Mutual Releases. The Parties on their behalf and on behalf of all of their creditors, related companies, predecessors, successors, heirs, assigns, agents, legal representatives and personal representatives, hereby fully and expressly, knowingly, voluntarily, and unconditionally releases, acquits and forever discharges the other, and all of its affiliates, divisions, subsidiaries, employees, owners, officers, directors, shareholders, partners, members, creditors, related companies, predecessors, successors, heirs, assigns, agents, legal representatives and personal representatives of any and all claims, obligations, liabilities, promises, agreements, controversies, damages, actions, causes of action, rights, demands, losses, debts, contracts, commitments or expenses of every kind and nature, that the Parties now have, or which they may have against the other from the beginning of time up to, through, and including the date of this Settlement Agreement, or any claim of attorneys' fees.
The 8 December 2014 "Order and Judgment"
Following a hearing held on 14 November 2014 on Phaeton and Jet's motion for summary judgment, the trial court entered an "Order and Judgment" on 8 December 2014, ordering as follows:
1. No genuine issue of material fact exists regarding Plaintiff's claims for relief in its complaint, and the motion for summary judgment in favor of Plaintiff is GRANTED;
2. No genuine issue of material fact exists regarding Defendant 360 Aviation's counterclaim against Plaintiff and Jet Logistics for civil conspiracy and tortious interference with contract, and the motion for summary judgment in favor of Plaintiff is GRANTED;
3. Plaintiff is entitled to a judgment against Defendants 360 Aviation, LLC, and I.T. Source Corporation, jointly and severally, in the total amount of nine hundred thirty one thousand two hundred thirteen dollars and 94/100 ($931,213.94), plus interest on this amount accruing at the legal rate of eight percent (8%) per annum from the date of entry of this judgment until it is paid in full; and
4. All matters and claims of Defendant 360 Aviation's counterclaim are DISMISSED WITH PREJUDICE.
Defendants entered notice of appeal on 7 January 2015.
II. Standard of Review
Rule 56 of the North Carolina Rules of Civil Procedure provide that summary judgment shall be granted "if 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 any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015). "When considering a motion for summary judgment, the trial judge must view the presented evidence in a light most favorable to the nonmoving party." Dalton v. Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001). "A party moving for summary judgment may prevail if it meets the burden (1) of proving an essential element of the opposing party's claim is nonexistent, or (2) of showing through discovery that the opposing party cannot produce evidence to support an essential element of his or her claim." Lowe v. Bradford, 305 N.C. 366, 369, 289 S.E.2d 363, 366 (1982) (citation omitted). "Our standard of review of an appeal from summary judgment is de novo[.]" In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (citation omitted).
III. Discussion
Defendants argue that the trial court erred by granting summary judgment in favor of plaintiff: (A) in light of the Settlement Agreement and release executed by the parties and (B) because plaintiff failed to meet its burden of proof. We address each argument in turn.
A. The Mediated Settlement Agreement
Defendants argue that the trial court erred by granting summary judgment in favor of plaintiff in light of the Settlement Agreement and Mutual Release executed by the parties. Defendants contend that the Settlement Agreement is a valid and binding contract between the parties and that there was no evidence that it was "either properly set aside or rescinded, or that any grounds to do so existed." Furthermore, defendants argue that plaintiff waived the claims asserted in its motion for summary judgment by the terms of the Mutual Release. We disagree.
"[C]ompromise settlement agreements, including mediated settlement agreements, are governed by general principles of contract law." Kee v. Caromont Health, Inc., 209 N.C. App. 193, 195, 706 S.E.2d 781, 783 (2011) (citation omitted). "If the contract is clearly expressed, it must be enforced as it is written, and the court may not disregard the plainly expressed meaning of its language." McClure Lumber Co. v. Helmsman Constr., Inc., 160 N.C. App. 190, 197, 585 S.E.2d 234, 238 (2003) (citation omitted).
[W]here there is a material breach of the contract going to the very heart of the instrument, the other party to the contract may elect to rescind and is not bound to seek relief at law by an award for damages. . . . [W]hat constitute[s] a material breach going to the heart of the contract [is a] breach of a covenant that is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted.Hardin v. KCS International, Inc., 199 N.C. App. 687, 705, 682 S.E.2d 726, 739 (2009) (citations and quotation marks omitted).
Rescission is not merely a termination of contractual obligation. It is abrogation or undoing of [the contract] from [its] beginning. It seeks to create a situation the same as if no contract ever had existed. . . . Rescission may [occur] by mutual agreement or . . . because of a substantial breach by [one party].Morris v. Scenera Research, LLC, 229 N.C. App. 31, 59, 747 S.E.2d 362, 379 (2013).
In the present case, the Settlement Agreement was entered into on 14 August 2014. Pursuant to the terms of the Settlement Agreement, in pertinent part, defendants were to pay plaintiff, jointly and severally, the sum of $400,000.00. This sum was to be paid within a set schedule with the first payment of $100,000.00 being due within 45 days of the date of the Settlement Agreement. Defendants were also to pay Jet, jointly and severally, the sum of $15,000.00 within 45 days of the date of the Settlement Agreement. Under the "Stipulation of Dismissal" section of the Settlement Agreement, plaintiff agreed to execute and file a stipulation of dismissal, with prejudice, of its complaint against defendants. Defendants agreed to execute and file a stipulation of dismissal, with prejudice, of its counterclaim against plaintiff and Jet. The stipulations were to be filed within 10 days of the executed confessions of judgment. Also pursuant to the Settlement Agreement, defendants agreed to execute confessions of judgment, in a form acceptable to plaintiff and Jet, to secure payment of the amounts contained in the schedule.
At the summary judgment hearing held on 14 November 2014, both plaintiff and defendants' counsel agreed that the parties had entered into a written settlement agreement on 14 August 2014. However, plaintiff's counsel informed the trial court that defendants had failed to make their first payment to plaintiff, failed to make their payment to Jet, failed to execute confessions of judgment, and failed to file a stipulation of dismissal of its counterclaim. Plaintiff's counsel argued that plaintiff had the option to rescind because defendants had materially breached the Settlement Agreement. Defendants urged the trial court to enforce the Settlement Agreement but did not provide the trial court with the Settlement Agreement at the hearing and did not dispute plaintiff's assertions that defendants had violated several provisions of the Settlement Agreement. The trial court stated as follows:
I don't hear you disputing that your clients have violated the provisions of the agreement requiring them to file a dismissal of their counterclaims, pay the first monies. Those are material -- those are material terms of any settlement agreement, and I -- I do think that -- that the -- this is a classic case of such material breach that the other party is not bound by the contract.The trial court offered defendants an opportunity to express whether they had conferred any benefit to plaintiff under the Settlement Agreement. At the conclusion of the hearing, the trial court took the matter under advisement.
As argued at the summary judgment hearing, the essence of defendants' argument on appeal is that the trial court should enforce the Settlement Agreement against plaintiff despite defendants' breach of multiple terms of the Settlement Agreement. After thoroughly reviewing the record, it is evident that the primary purpose of the Settlement Agreement was the resolution of the parties' litigation. In order to resolve the parties' litigation, defendants agreed to pay plaintiff and Jet a specified amount, defendants and plaintiff agreed to dismiss the counterclaim and complaint, defendants agreed to execute confessions of judgment, and the parties agreed to mutual releases. Defendants did not challenge plaintiff's contention that they breached the Settlement Agreement at the summary judgment hearing and do not argue now that they did not breach its terms. Defendants' failure to make the first scheduled payment to plaintiff, execute confessions of judgment, and file a stipulation of dismissal of its counterclaim amount to a material breach of the contract, going to the very heart of the instrument. Payment by defendants to plaintiff, executing confessions of judgment, and dismissing the counterclaim were essential parts of the Settlement Agreement that failure to fulfill these covenants are considered as actions destroying the entire contract. Based on defendants' material breach of the contract, plaintiff was entitled to rescission of the Settlement Agreement. Therefore, the Settlement Agreement was not a bar to the trial court's decision to proceed to summary judgment and we reject defendants' arguments.
B. Burden of Proof
In their next argument, defendants contend that the trial court erred in granting summary judgment in favor of plaintiff where plaintiff failed to meet its initial burden of proof. Defendants argue that plaintiff failed to meet their initial burden of proof by failing to serve supporting affidavits with their motion for summary judgment. We are not convinced.
Rule 56(c) of the North Carolina Rules of Civil Procedure provides that a motion for summary judgment "shall be served at least 10 days before the time fixed for the hearing." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015). Rule 6(d) of the North Carolina Rules of Civil Procedure provides that "[w]hen a motion is supported by affidavit, the affidavit shall be served with the motion; and except as otherwise provided in Rule 59(c), opposing affidavits shall be served at least two days before the hearing." N.C. Gen. Stat. § 1A-1, Rule 6(d) (2015).
Defendants rely on our holding in Nationwide v. Chantos, 21 N.C. App. 129, 203 S.E.2d 421 (1974), for their argument. In Chantos, the defendant filed a motion for summary judgment on 4 April 1973 and mailed the plaintiff's counsel a copy of the motion on the same date. The motion for summary judgment was heard on 28 May 1973. On the day of the hearing, the defendant offered affidavits in support of his motion for summary judgment and the plaintiff objected to the affidavits being filed for the first time on the date of the hearing. The trial court overruled the plaintiff's objection and summary judgment was entered in favor of the defendant. Id. at 129, 203 S.E.2d at 422. On appeal, our Court noted that although the moving party should serve supporting affidavits, if any, with his motion, Rule 6(b) "gives the trial court wide discretionary authority to enlarge the time within which an act may be done." Id. at 130, 203 S.E.2d 423. However, because there was no request for an enlargement of time within which to file and serve affidavits and no finding of excusable neglect in failing to serve the affidavits, our Court held that the defendant had failed "to proceed in a manner that would permit the trial court to exercise its discretion under Rule 6(b)." Id. at 131, 203 S.E.2d at 423. The trial court's ruling was reversed and remanded. Id. at 132, 203 S.E.2d at 424.
Upon thorough review, we find the current case to be distinguishable from the circumstances found in Chantos. Here, plaintiff filed its motion for summary judgment on 12 August 2014. No affidavits were served with the motion at this time. On 31 October 2014, plaintiff served the following affidavits in support of their motion for summary judgment: affidavit of W. Ashley Smith Jr.; affidavit of Durwood G. Martin; and the affidavit of Lee A. Henningsen. The hearing on plaintiff's motion for summary judgment was held on 14 November 2014.
While the defendant in Chantos offered his affidavit the day of the summary judgment hearing, defendants in the current case were served with the affidavits two weeks prior to the summary judgment hearing. Although plaintiff did not file the supporting affidavits with the motion for summary judgment as required pursuant to Rule 6(d), defendants do not demonstrate how they were prejudiced at the hearing by plaintiff's actions and do not argue that the trial court abused its discretion by considering the supporting affidavits. See Wachovia Bank & Trust Co., N.A. v. Carrington Dev. Assocs., 119 N.C. App. 480, 490, 459 S.E.2d 17, 23 (1995) (although the plaintiff filed supporting affidavits on 21 September 1993, separately from the motion for summary judgment which was filed 21 June 1993, our Court held that they were filed in sufficient time before the hearing on 4 October 1993 to prevent any prejudice and that the trial court did not err by denying a motion to continue the hearing). Furthermore, while the plaintiff in Chantos objected to the affidavits being filed for the first time on the day of the hearing, defendants here did not present an objection to the trial court. Based on the foregoing reasons, we find defendants' arguments without merit.
IV. Conclusion
The 8 December 2014 order of the trial court is affirmed.
AFFIRMED.
Judges DIETZ and TYSON concur.
Report per Rule 30(e).