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Air Atlanta Aero Engineering Limited v. SP Aircraft Owner I

July 23, 2009

AIR ATLANTA AERO ENGINEERING LIMITED, PLAINTIFF,
v.
SP AIRCRAFT OWNER I, LLC ET AL., DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

DECISION AND ORDER

Plaintiff Air Atlanta Aero Engineering Limited ("AAAE") brought this action against defendants SP Aircraft Owner I, LLC ("SPI"), SP Aircraft Owner II, LLC ("SPII"), SP Aircraft Owner III, LLC ("SPIII"), and Ambac Assurance Corporation ("Ambac") (collectively, "Defendants"), asserting claims of breach of contract, account stated, unjust enrichment, quantum meruit, and promissory estoppel in connection with services AAAE rendered to non-party Air Horizons. Defendants now move to dismiss AAAE's claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)"). For the reasons discussed below, Defendants' motion to dismiss is GRANTED in its entirety, and the Court grants AAAE leave to file an amended complaint.

I. BACKGROUND*fn1

A. PARTIES

AAAE is an Irish corporation that, among other things, provides aircraft technical support and maintenance services for leased aircraft. SPI, SPII, and SPIII (the "Lessors") are Delaware limited liability companies, and are wholly owned subsidiaries of Ambac, a Wisconsin corporation. At all times relevant to this action, each Lessor's principal, if not sole, asset was one Boeing 757 aircraft. Defendants have their principal places of business in New York.

B. FACTUAL ALLEGATIONS

In or about April 2005, Air Horizons, a French charter airline, entered into three largely identical written agreements (the "Leases") to lease three Boeing 757 aircraft -- one from each Lessor.*fn2 The Leases provided, among other things, that Air Horizon was to immediately arrange for "Transition Maintenance,"*fn3 performed by an "Agreed Maintenance Performer,"*fn4 to be conducted on each aircraft before it could be put into service. Each Lease required the Lessor's approval of the Agreed Maintenance Performer selected by Air Horizons, and, according to the Complaint, the Lessors agreed under the terms of the Leases to pay the Agreed Maintenance Performer for the cost of the Transition Maintenance up to a $1 million cap per Lease.

In or about April 2005, Air Horizons entered into a contract (the "Maintenance Agreement") with AAAE, under which AAAE, as the Agreed Maintenance Performer, was to provide the Transition Maintenance services required under the Leases. In May 2005, the aircraft were delivered to AAAE, and AAAE began performing the Transition Maintenance under the supervision of Aviation Capital Group ("ACG"), a technical agent selected by Ambac to oversee the Transition Maintenance and assure that the work was performed correctly and billed properly. At the same time, Ambac made an initial payment directly to AAAE for the Transition Maintenance in the amount of €381,316.

By July 2005, the Transition Maintenance on the three aircraft was complete. After reviewing AAAE's work and billing statements, ACG informed AAAE that it would advise Ambac to pay the balance due to AAAE, an amount exceeding $1,200,000.*fn5 In reliance on ACG's assurances as Ambac's agent, AAAE released the aircraft to Air Horizons. Subsequent to AAAE's release of the aircraft, there were "communications" among Ambac, AAAE, and Air Horizons regarding payment for AAAE's services. (Complaint ¶ 15.) Ambac "confirmed its intention to pay AAAE" the remaining balance due for the Transition Maintenance. (Id.) AAAE, however, was never paid.

In late 2005, AAAE learned that Air Horizons faced financial difficulties and had been placed into administration -- similar to bankruptcy -- by a French commercial court. AAAE placed liens on the three aircraft to assure payment under the Maintenance Agreement, but the French court lifted the liens when Defendants deposited with the court funds sufficient to pay AAAE. Defendants took possession of the three aircraft, and in or about February 2006 sold them to U.S. Airways. AAAE alleges that the sales proceeds derived by Defendants included the value added by AAAE's Transition Maintenance for which it was not compensated. AAAE has since attempted to obtain payment from Defendants through the French court administrative proceeding, but Defendants have successfully resisted AAAE's efforts, claiming that that tribunal lacks jurisdiction.

AAAE now argues in this proceeding that because the Leases provide for the Agreed Maintenance Performer to be compensated by the Lessors, because the Lessors approved AAAE as the Agreed Maintenance Performer, and because the Lessors' alleged alter ego directly paid AAAE in part for AAAE's services, AAAE was intended to be and was in fact a third-party beneficiary under the Leases. As a result, AAAE seeks recovery for damages from the Lessors' failure to pay for AAAE's services rendered to Air Horizons. AAAE also brings claims for account stated, unjust enrichment, quantum meruit, and promissory estoppel premised on the facts described above.

AAAE further argues that Ambac is the alter ego of the Lessors. Specifically, AAAE alleges that: (1) Ambac approved the selection of AAAE as the Agreed Maintenance Performer; (2) Ambac selected ACG as its technical agent to oversee the Transition Maintenance work and billing performed by AAAE; (3) Ambac made the initial €381,316 payment to AAAE when the aircraft were first delivered; (4) in all communications with AAAE, ACG indicated that it represented and was communicating with Ambac, not the Lessors; (5) Ambac, through its agent, advised AAAE that the work had been completed satisfactorily; (6) Ambac communicated with AAAE and/or Air Horizons regarding payment for the Transition Maintenance, during which Ambac confirmed its intention to pay AAAE the balance due; and (7) Ambac received the proceeds of the sales of the three aircraft to U.S. Airways. Further, AAAE alleges that Ambac has ignored corporate formalities as they apply to the Lessors, that the Lessors' officers were also officers of Ambac, and that Ambac caused the sale of the Lessors' sole assets -- the three aircraft -- to U.S. Airways and Ambac received the proceeds. AAAE thus concludes that Ambac is the alter ego of the Lessors and asks the Court to pierce the corporate veil, holding Ambac liable for AAAE's claims brought against the Lessors.

II. DISCUSSION

A. LEGAL STANDARD

In assessing a motion to dismiss under Rule 12(b)(6), dismissal of a complaint is appropriate if the plaintiff has failed to offer factual allegations sufficient to render the asserted claim plausible on its face. See Ashcroft v. Iqbal, 556 U.S. ---, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To state a facially plausible claim, a plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. However, a court should not dismiss a complaint for failure to state a claim if the factual allegations sufficiently "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The task of a court in ruling on a motion to dismiss is to "assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." In re Initial Publ. Offering Secs. Litig., 383 F. Supp. 2d 566, 574 (S.D.N.Y. 2005) (internal quotation marks and citation omitted).

For the purposes of deciding a motion to dismiss, the Court accepts the factual allegations in a complaint as true, and draws all reasonable inferences in the plaintiff's favor. See Iqbal, 129 S.Ct. at 1950 ("When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief."); Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (all reasonable inferences shall be drawn in plaintiff's favor). However, allegations that are no more than legal conclusions "are not entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1950.

B. BREACH OF CONTRACT

Defendants contend that AAAE's breach of contract claim should be dismissed because AAAE is not a party to the Leases -- the contracts that were allegedly breached -- nor is AAAE a third-party beneficiary to the Leases because the Leases were not intended for AAAE's benefit, nor do they clearly evidence an intent to permit enforcement by AAAE. As support, Defendants argue that the Leases required the Lessors to render payment directly to AAAE only when certain conditions were met, and the Complaint does not allege that those circumstances occurred; thus, AAAE was not an intended third-party beneficiary of the Leases. AAAE responds that it has sufficiently pleaded that, based on the language in the Leases and the surrounding circumstances, the Transition Maintenance provisions of the Leases were intended to benefit AAAE.

"It is ancient law in New York that to succeed on a third party beneficiary theory, a non-party must be the intended beneficiary of the contract, not an incidental beneficiary to whom no duty is owed." County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 63 (2d Cir. 1984) (citing Lawrence v. Fox, 20 N.Y. 268 (1859)).*fn6 "A non-party is an intended third-party beneficiary if (inter alia) 'recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties.'" Consolidated Edison, Inc. v. Northeast Utils., 426 F.3d 524, 527 (2d Cir. 2005) (quoting Restatement (Second) of Contracts § 302 (1981)). Under New York law, A party asserting rights as a third-party beneficiary must establish (1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost. Madeira v. Affordable Housing Found., Inc., 469 F.3d 219, 251-52 (2d Cir. 2006) (quotation marks and citations omitted); see also State of Cal. Pub. Employees' Ret. Sys. v. Shearman & Sterling, 741 N.E.2d 101, 104 (N.Y. 2000).

"In determining whether there is an intended third party beneficiary, courts should look first at the contractual language itself ... and where appropriate 'the surrounding circumstances.'" Muhlrad v. Mitchell, No. 96 Civ. 3568, 1997 WL 182614, at *6 (S.D.N.Y. Apr. 14, 1997) (quoting Trans- Orient Marine Corp. v. Star Trading & Marine, Inc., 925 F.2d 566, 573 (2d Cir. 1991)). "Among the circumstances to be considered is whether manifestation of the intention of the promisor and promisee is sufficient, in a contractual setting, to make reliance by the beneficiary both reasonable and probable." Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 485 N.E.2d 208, 212 (N.Y. 1985) (quotation marks omitted).

"While the third-party beneficiary does not have to establish that it is explicitly mentioned in the contract, New York law requires that the parties' intent to benefit a third-party be shown on the face of the contract." Synovus Bank of Tampa Bay v. Valley Nat'l Bank, 487 F. Supp. 2d 360, 368 (S.D.N.Y. 2007); see also LaSalle Nat'l Bank v. Ernst & Young LLP, 729 N.Y.S.2d 671, 676 (App. Div. 1st Dep't 2001) ("[T]he parties' intent to benefit the third party must be apparent from the face of the contract. Absent clear contractual language evincing such intent, New York courts have demonstrated a reluctance to construe such an intent." (citations omitted)). Indeed, "surrounding circumstances" cannot give rise to third-party beneficiary status "absent some indication in the actual agreement of the parties' intent." Olin Corp. v. E.I. DuPont Nemours & Co., No. 05-CV-100S), 2007 WL 610625, at *4 (W.D.N.Y. Feb. 23, 2007). "To create a third party right to enforce a contract, 'the language of the contract' must 'clearly evidence[] an intent to permit enforcement by the third party[.]'" Consolidated Edison, 426 F.3d at 528 (emphasis in original) (quoting Fourth Ocean Putnam, 485 N.E.2d at 212).

Applying these principles to the case at hand, the Court finds that the Complaint does not sufficiently allege facts establishing that AAAE is an intended third-party beneficiary of the Leases. AAAE concedes that it is not explicitly named in the Leases. While such a reference is not required for AAAE to be considered a third-party beneficiary, AAAE nonetheless must establish that the parties' intent to benefit AAAE can be found on the face of the Leases. See Synovus Bank of Tampa Bay, 487 F. Supp. 2d at 368. Although the Leases unquestionably anticipate Air Horizon's retention of an Approved Maintenance Provider, the language of the Leases does not "clearly evidence[] an intent to permit enforcement by" AAAE. Fourth Ocean Putnam, 485 N.E.2d at 212.

AAAE argues that the language of the Leases evidences the signatories' intent to benefit AAAE because: (1) "the Leases themselves envision a direct relationship between the Defendants and AAAE as the 'Approved Maintenance Provider'"; and (2) "the Leases anticipated direct payment to the Approved Maintenance Provider by Defendants." (Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Dismiss, dated January 12, 2009 ("AAAE Opp."), at 7.) For support, AAAE relies upon a section of the Leases titled "Lessor's Maintenance ...


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