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GE v. COMPAGNIE EURALAIR

July 26, 1996

GENERAL ELECTRIC COMPANY, Plaintiff,
v.
COMPAGNIE EURALAIR, S.A., Defendant.



The opinion of the court was delivered by: SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 I. Introduction

 This is a contract dispute arising out of agreements between Plaintiff General Electric Company ("GE") and Defendant Compagnie Euralair, S.A. ("Euralair"). GE is a New York corporation whose business includes the manufacture of aircraft engines. Affidavit of Aaron Marcu, Attorney for Plaintiff ("Marcu Aff."), Ex. 2 (Complaint) P 6. Euralair, a French corporation, is engaged in the commercial airline business. Marcu Aff., Ex. 4 (Answer) P 1. GE's complaint states two causes of action, each alleging a breach by Euralair of one of the agreements structuring the sale to Euralair of GE jet engines. Euralair answered the complaint, asserted an affirmative defense of promissory estoppel, and counterclaimed for breach of the covenant of good faith and fair dealing. GE has moved for summary judgment and for dismissal of the counterclaim.

 II. Standard for Summary Judgment

 A party is entitled to summary judgment when there is "no genuine issue of material fact" and the undisputed facts warrant judgment for the moving party as a matter of law. See Fed. R. Civ. P. 56(c); Celotex v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The burden of demonstrating the absence of a material factual dispute rests on the moving party. See Gallo v. Prudential Residential Services, Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994). However, the non-moving party must present "significant probative supporting evidence" that a factual dispute exists. Fed. R. Civ. P. 56(e); Anderson, 477 U.S. at 249. The opposing party may not rely on unsupported denials or allegations. Anderson, 477 U.S. at 256.

 For purposes of summary judgment, the court's role is to determine whether issues exist to be tried, not to try issues of fact. See Balderman v. United States Veterans Admin., 870 F.2d 57, 60 (2d Cir. 1989); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987). All ambiguities must be resolved and all inferences drawn in favor of the party against whom summary judgment is sought. See Anderson, 477 U.S. at 255; Donahue, 834 F.2d at 57, 60. If there is any evidence in the record from which a reasonable inference could be drawn in favor of the non-moving party on a material issue of fact, summary judgment is improper. Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 37 (2d Cir. 1994).

 Furthermore, in contract actions, "summary judgment is appropriate where the language of the contract is unambiguous, and reasonable persons could not differ as to its meaning." United States v. 0.35 of an Acre of Land, 706 F. Supp. 1064, 1070 (S.D.N.Y. 1988). A court may not draw any inference or give any construction to the terms of a written contract that "may be in conflict with the clearly expressed language of the written agreement." Id.

 III. Facts

 In December 1990, Euralair agreed to buy from Boeing two Boeing 777 airplanes, each equipped with two jet engines. Defendant's Statement Pursuant to Local Civil Rule 3(g) ("Def. 3(g)") P 1. *fn1" After a competition among three manufacturers, Euralair selected GE to manufacture the engines that would be placed in the two Boeing planes. Defendant's Memorandum in Opposition to Summary Judgment and Dismissal of Defendant's Counterclaim ("Def. Mem.") at 4; Def. 3(g) P 1(a). Further, Euralair agreed to place an order with GE for a spare engine by a certain date. Pl. 3(g) P 1; Def. 3(g) P 1(a).

 A. Structure of Purchase/Advance

 Euralair's purchase of the engines was effected through a series of financing agreements. GE agreed to give Euralair a $ 20 million rebate on the price of the engines and to arrange for Euralair to receive a payment of $ 10 million of the rebate (also called an Introductory Allowance). *fn2" Pl. 3(g) P 2; Def. 3(g) P 2. According to GE, the $ 10 million Introductory Allowance was structured in the following manner: (1) Euralair issued notes in the amount of $ 10 million (the "Notes") and sold the Notes to Automated Cash Management Trust (ACMT), an institutional investor; (2) GE guaranteed Euralair's repayment of the Notes; and (3) Euralair indemnified GE's guarantee obligations. Pl. 3(g) P 4. On December 22, 1992, GE, Euralair and ACMT executed the financing agreements, which GE attached as exhibits to the complaint. Pl. 3(g) P 5. *fn3" Euralair does not directly dispute this characterization of the transaction, but states that the financing agreements attached to the complaint "do not reflect the actual nature of the discussion entertained between GE and Euralair during the year 1992." Def. 3(g) P 4.

 B. Relevant Financing Agreements

 The financing agreements attached to the complaint consist of the following: Note Purchase Agreement (Cplt. Ex. A), made between Euralair and ACMT; Notes (Cplt. Ex. B), made between Euralair and the Noteholder (ACMT at time of making); Guaranty Agreement (Cplt. Ex. C), made between GE and ACMT; Reimbursement Agreement (Cplt. Ex. D), made between GE and Euralair; and the Administrative Agreement (Cplt. Ex. E), made among GE, ACMT, and Pittsburgh National Bank. All of the agreements are dated December 22, 1992. *fn4"

 Several other agreements are relevant to the dispute between GE and Euralair. First, a Security Agreement was also executed by GE and Euralair on December 22, 1992 (see Second Marcu Aff., dated May 8, 1996, Ex. 1). According to GE, this agreement represents GE's acceptance, as collateral and in "connection with guaranteeing the $ 10 million loan to Euralair," of a security interest in Euralair's contract with Boeing for the two 777 jet airplanes. Pl. Reply Mem. at 4. Second, GE and Euralair entered into Letter Agreement No. 2, dated December 16, 1992 (see Second Marcu Aff., Ex. 2; Cutner Aff., Ex. 3). This letter agreement consists of a three-page commitment letter and two attachments. GE contends that this letter agreement was entered into in anticipation of the detailed financing agreements that followed six days later. Pl. Reply Mem. at 5.

 C. Key Provisions of the Agreements

 Under the Reimbursement Agreement, "each of the following acts, occurrences or conditions before the Final Maturity Date shall constitute an 'Event of Prepayment': (b) The failure by [Euralair] to place a firm and unconditional order with [GE] not later than April 30, 1995 for one new GE90-B4 spare aircraft engine . . ." *fn5" Cplt. Ex. D, § 6.1(b). Further, "if an Event of Prepayment has occurred, [GE] may, in its sole discretion, instruct [Euralair] to exercise its right to prepay all or any portion of the outstanding principal of the Notes . . . ." Id. § 6.2. If Euralair "shall fail to perform or observe any of its agreements, covenants or obligations arising under this" agreement, such failure shall "constitute an 'Event of Default'" under the Reimbursement Agreement. Id. § 7.1(b)(i).

 Pursuant to the Note Purchase Agreement, "ACMT agreed to pay Euralair $ 10 million for the Notes, and Euralair agreed to repay that amount by May 31, 1997." Def. Mem. at 13 (citing Cplt. Ex. A, P 1.1; Cplt. Ex. B, P 1); Pl. Reply Mem. at 2. One of the events constituting an "Event of Default" under the Note Purchase Agreement is that the "Noteholder shall have received written notice from [GE] that an Event of Default has occurred and is continuing under the Reimbursement Agreement." Cplt. Ex. A, § 9.1(f).

 Under the Guaranty Agreement, GE guaranteed Euralair's obligation to pay the principal and post-maturity interest on the Notes, plus certain taxes. Cplt. Ex. C, §§ 1, 2(a); Pl. Mem. at 4. The Guaranty Agreement also provides that GE may fulfill its obligations as guarantor by purchasing the Notes from ACMT upon an Event of Default under the Note Purchase Agreement: "upon the occurrence and during the continuance of any Event of Default [under the Note Purchase Agreement], [GE] shall have the right, but shall not be obligated to: (ii) purchase the then outstanding principal amount of the Guaranteed Notes from the Noteholder . . . ." Cplt. Ex. C, § 3(b)(ii).

 Finally, the Reimbursement Agreement provides that "in the event that [GE] makes any payment under the Guaranty Agreement in respect of principal of the notes, [Euralair] shall, immediately upon demand by [GE], reimburse [GE] for such payment, together with interest thereon . . . ." Cplt. Ex. D, § 2.1.

 D. Events after 1992

 According to GE, the following events occurred after GE and Euralair entered into the above-described financing agreements. In its 3(g) Statement, Euralair purports to deny these allegations by GE. However, Euralair does not really dispute that the events occurred. Rather, Euralair either disagrees with the relevance of the events or seeks to explain why the events were justified or do not constitute an act of default. Accordingly, I will first describe the events as related (and evidenced) by GE, and will then address whether the actions constitute an act of default.

 Euralair did not order a spare GE engine, either before or since April 30, 1995. Pl. 3(g) P 15. By letter dated August 21, 1995, GE issued a Prepayment Instruction to Euralair, pursuant to § 6.2 of the Reimbursement Agreement. Id. P 16. This letter informed Euralair that "unless Euralair agreed to a restructuring of the financing arrangement, Euralair was required to prepay the entire outstanding principal of the Notes by" September 8, 1995. Id. ; see also Cplt. Ex. F. Euralair did not follow the Prepayment Instruction or otherwise agree to a restructuring. Pl. 3(g) P 17. Believing that Events of Default had occurred under both the Reimbursement Agreement and the Note Purchase Agreement, GE provided written notice to this effect to ACMT on January 29, 1996. GE sent a copy of this notice to Euralair. Pl. 3(g) P 21; Cplt. Ex. G.

 According to GE, this written notice to ACMT triggered "both automatic acceleration of the Notes under the Note Purchase Agreement and GE's obligations under the Guaranty Agreement to pay the outstanding principal of the Notes or to purchase the Notes from ACMT." Pl. 3(g) P 22 (citing Cplt. Ex. A §§ 9.1(f), 9.2(a); Cplt. Ex. B at 2; Cplt. Ex. C §§ 2(a), 3(b)). GE purchased the Notes from ACMT on January 29, 1996. Pl. 3(g) P 23; Cplt. Ex. H. GE then demanded, by letter dated January 30, 1996, that Euralair "immediately reimburse GE for the principal amount of the Notes and interest accrued thereon as well as for all costs, fees, liabilities, losses and expenses incurred by GE in connection with Euralair's defaults." Pl. 3(g) P 25; Cplt. Ex. I. Euralair admits that it did not comply with GE's payment demands. Def. 3(g) P 26; Pl. 3(g) P 26.

 GE now seeks repayment of the $ 10 million advance, plus interest (at the rates specified in the financing agreements), expenses and attorneys' fees. In its counterclaim, Euralair seeks dismissal of the complaint and judgment in the ...


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