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Wells Fargo Bank Northwest v. Taca International Airlines

September 26, 2002


The opinion of the court was delivered by: Lynch, District Judge.


This dispute involves five aircraft leased to TACA International Airlines ("TACA"), a Salvadoran airline company, by Wells Fargo Bank Northwest ("Wells Fargo"), a United States bank acting solely as owner-trustee under the lease agreements ("Leases"). Third-Party Defendant C-S Aviation Services ("C-S Aviation"), a "lease management provider" of commercial aircraft, established the trusts with Wells Fargo to lease the aircraft, negotiated and managed the Leases, and was the ultimate beneficiary of the trusts. Defendant JHM Cargo Express ("JHM Cargo"), an air cargo business and TACA subsidiary, was the original signatory on three of the Leases, and later assigned those Leases to its parent company, TACA, while expressly agreeing to remain fully liable for its obligations under the Leases.

Wells Fargo brings this lawsuit for payment of rent allegedly due under the Leases. TACA resists by asserting that it was fraudulently induced to enter the Leases, and counterclaims for (and brings a third-party action against C-S Aviation) for damages from the alleged fraud. Wells Fargo moves for partial summary judgment on its claims, and (joined by C-S Aviation) for dismissal of TACA's claims against it and C-S Aviation. The motions will be granted.


TACA does not dispute that it is party to five Leases-three that it assumed from defendant JHM Cargo for the use of three Airbus A300B4-200F aircraft and two that TACA itself executed for two additional Airbus A300B4-200F aircraft.*fn2 Each Lease contains a clause, commonly known as a "hell or high water clause."*fn3 that states:

The Lessee's obligation to pay all rent and all other amounts due hereunder and to perform all the terms hereof shall be absolute and unconditional and shall not be affected or reduced by any circumstances, including (1) any set-off, counterclaim, recoupment, defense or other right which the lessee may have against the lessor ....

(Seery Aff., Exs. 1-3, 10, 11 at § 7.5.)*fn4

The Leases also contain an express disclaimer of representations and warranties, which states in relevant part:

The aircraft is to be leased hereunder "as is, where is." Except as expressly provided in this agreement, the lessor ... specifically disclaims any representation or warranty, express or implied, as to the airworthiness, load carrying capability, value, durability, compliance with specifications, condition, design, operation, merchantability, freedom from claims of infringement or the like, or fitness for use for a particular purpose of the aircraft or as to the quality of the material or workmanship of the aircraft, the absence therefrom of latent or other defects, whether or not discoverable, or as to any other representation or warranty whatsoever, express or implied ... with respect to the aircraft ....

(Seery Aff., Ex. 1-3, 10, 11 at § 14.)

Finally, each Lease Agreements also contains an integration clause which reads:

This Lease is intended to be a complete and exclusive statement of the terms of the agreement of the parties hereto and this Lease supersedes any prior or contemporaneous agreements, whether oral or in writing in relation to the leasing of the Aircraft to the Lessee. Neither this Lease nor any term of this Lease may be modified or waived except in writing signed by the parties.

(Seery Aff., Ex. 1-3, 10, 11 at § 29.7.)

Defendants claim that at some point after assuming the Leases,*fn5 they realized that the true operating costs of the aircraft exceeded $2000 per block hour*fn6 while the maintenance estimates represented by C-S Aviation were between $1160 and $1355 per block hour (Countercl. at ¶¶ 10, 13, 36), Defendants allege that at a meeting on December 11, 2000, C-S Aviation revealed for the first time that its maintenance cost figures were based on engine overhauls done by Air India in India. (Bloch Aff. at ¶¶ 29, 31.) Shortly after this meeting, TACA informed C-S Aviation that it wanted to terminate all five of the Leases, but instead of doing so, it agreed to C-S Aviation's proposal that they "work together" to terminate the Leases by finding other airlines to take over the aircraft. (Bloch Aff. at ¶¶ 31-34; Exs. H, L.) These discussions eventually resulted in the signing of a letter agreement ("Letter Agreement"), which modified TACA's rent payment obligations.

The Letter Agreement, signed on June 21, 2001, by TACA and C-S Aviation as Wells Fargo's "appointed aircraft manager," amends the payment plan under the Leases reducing the Defendants' near-term obligations for four of the five aircraft. (Seery Aff. ¶¶ 19-20, Ex. 15, Ex 15; Answer ¶ 21.) The Letter Agreement sets a revised monthly rent for each aircraft, requires that TACA will make up for the shortfall between the revised 2001 payment schedule and the original payment schedule by increased monthly rental payments to begin in January 2002, provides that "each of the lease agreements in respect of the Aircraft ... remain in full force and effect without modification or amendment," and states that all reasonable documented legal fees resulting from the default of timely payment of outstanding rents shall be paid by TACA. (Seery Aff. Ex. 15 at ¶ 1(c), ¶ 6.) The Letter Agreement also contains a clause "reserv[ing] the right to continue working towards a solution which would allow TACA to terminate the leases ... in a manner and pursuant to conditions acceptable to C-S Aviation Services and its lenders." ( Id.)

After attempts to find a substitute lessee failed, TACA ceased operating the aircraft in October 2001, and stopped paying the monthly rent on four of the aircraft as of October 2001 and on the fifth aircraft as of November 2001. (Compl.¶ 31, Answer, ¶ 31.) TACA returned four of the five planes in January 2002, and made the fifth aircraft, which was not authorized to fly due to a structural flaw, available to the Lessors in El Salvador. (Bloch Aff. at ¶¶ 62-63.)*fn7


I. The Parties' Contentions

Wells Fargo alleges that Defendants breached their obligations under the Leases by failing to pay the rent due, and moves for partial summary judgment on its breach of contract claims, for presently ascertainable damages of $2,996,972.29 on the Leases and $76,211.49 in attorney's fees plus applicable interest,*fn8 as of the date of filing this action. Wells Fargo claims that the express terms of the Leases make TACA's obligation to pay unconditional, and the defenses and counterclaims raised by Defendants neither justify nonpayment nor raise genuine issues of material fact. (Pl.'s Mem. for Partial Summ. J. at 2.)

TACA and JHM Cargo respond with four counterclaims, which they maintain also operate as defenses to and set-offs against their alleged obligations to pay rent. Specifically, they claim the Leases should be rescinded under theories of (1) fraudulent inducement (2) fraudulent misrepresentation (3) negligent misrepresentation and (4) violation of New York's consumer protection law, New York General Business Law § 349.*fn9 (Nagin Aff. Ex. 2 ¶¶ 65-96.) Defendants allege the same claims against C-S Aviation, in their Third-Party Complaint, except that the fraudulent inducement claim is replaced by a civil RICO claim.

The gravamen of the first three defenses/counterclaims is that C-S Aviation, acting as an agent for Wells Fargo,*fn10 misrepresented the historical maintenance costs for the aircraft to be significantly lower than they actually were-a matter that Defendants claim is critical to the profitability of operating the aircraft and, further, was known by C-S to be critical to Defendants' decision to enter the Leases-thus luring TACA, which relied on these representations, into the Leases. They also claim that whether or not the Leases contain hell or high water provisions is immaterial, as the Leases were modified by the Letter Agreement, which obliged Lessors to "work with Lessees and consider in good faith proposals for terminating the leases." (Defs.' Mem. Opp. Partial Summ. J. at 13.) In the alternative, Defendants argue that "the 'hell or high water' provisions and general disclaimers are rife with ambiguities" and, as such, summary judgment should not be granted. ( Id. at 23-24.)*fn11 Hence, Defendants claim, not only can the Leases not be enforced against them, notwithstanding the disclaimer provision or the hell and high water clause, but they, in fact, are entitled to damages of $65,000,000 from Wells Fargo and/or C-S Aviation, because of the costs resulting from the misrepresentations made to them by C-S Aviation.

Wells Fargo and C-S Aviation move to dismiss these claims, maintaining that the Leases were specifically designed to defeat exactly these kinds of allegations, in at least two respects. First, the hell or high water clause in the Leases requires Defendants to pay rent regardless of any defenses or set-offs. Under this clause, even if Defendants were ultimately able to establish at trial that they are entitled to some recovery against Wells Fargo and/or C-S Aviation, that would not defeat Defendants' obligation to pay rent pending any such adjudication. Second, the Leases specifically disclaim any and all representations, promises and warranties of the sort that Defendants now say they relied on, and thus, as a matter of law, reasonable reliance (an essential element of Defendants' fraudulent inducement, misrepresentation, and civil RICO claims) is precluded.*fn12 In addition, Wells Fargo and C-S Aviation argue that Defendants' fraud claims fail to satisfy the requirement of Fed.R.Civ.P. 9(b) that fraud be plead with particularity, and that Defendants' claim for violation of Section 349 of the New York General Business Law fails to state a claim.

For the reasons that follow, Wells Fargo's motion for partial summary judgment, its motion to dismiss Defendants' counterclaims, and C-S Aviation's motion to dismiss the Third-Party Complaint will be granted.

II. Motion for Partial Summary Judgment

A. Summary Judgment Standard

When adjudicating a motion for summary judgment, a court must resolve all ambiguities in favor of the nonmoving party, although "the nonmoving party may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.1998). The court "is not to weigh the evidence but is instead required to view the evidence in the light most favorable to the party opposing summary judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments." Weyant v. Okst, 101 F.3d 845, 854 (2d Cir.1996). Summary judgment is then appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

To establish a genuine issue of material fact, the opposing party " 'must produce specific facts indicating' that a genuine factual issue exists." Scotto, 143 F.3d at 114 (quoting Wright v. Coughlin, 132 F.3d 133, 137 (2d Cir.1998)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "If the evidence [produced by the nonmoving party] is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (internal citations omitted). "The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be ...

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