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Swiss Skies AG v. Air Luxor

August 13, 2010

SWISS SKIES AG, PLAINTIFF,
v.
AIR LUXOR, S.A., DEFENDANT.



REPORT and RECOMMENDATION

KEVIN NATHANIEL FOX UNITED STATES MAGISTRATE JUDGE TO THE HONORABLE RICHARD J. SULLIVAN, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

On December 17, 2004, Swiss Skies AG ("Swiss Skies") commenced the instant action against the defendant, Air Luxor, S.A. ("Air Luxor"), seeking: (1) an order compelling Air Luxor to arbitrate claims asserted against it, by Swiss Skies, before the American Arbitration Association ("AAA") in New York City; (2) a preliminary injunction, in aid of arbitration; and (3) costs, including reasonable attorneys' fees.*fn1 On February 10, 2009, your Honor entered default against Air Luxor, pursuant to Fed. R. Civ. P. 55, and referred the action to the undersigned for an inquest.

II. BACKGROUND

Swiss Skies is a Swiss company, with its principal place of business in Zurich, Switzerland. Air Luxor is a Portuguese company, with its principal place of business in Lisbon, Portugal. Swiss Skies and Air Luxor entered a written Charter Services Agreement ("CSA" or "Agreement"), dated June 9, 2004. Pursuant to the CSA, Air Luxor agreed to provide commercial air passenger service between Paris, France, and Kabul, Afghanistan, for a period of six months, commencing December 10, 2004.*fn2 Swiss Skies agreed to market the service and sell tickets for the flights.

The parties' Agreement was conditioned on, inter alia, Air Luxor's "timely receipt of any required consents and approvals of all Governmental Entities and Aviation Authorities and landing facilities required to operate the Flights as a public charter carrier[.]" See CSA ¶ 5.2. Additionally, the Agreement contained a non-compete clause, whereby Air Luxor agreed not to provide air service, for itself or another airline, to Kabul, while the Agreement was operative and for two years after its termination or expiration. See CSA ¶ 8.7. In the event of a dispute between the parties, the CSA supplied a dispute resolution procedure, which provided, first, that the parties must attempt to resolve, among themselves, "any disputes which may arise under, out of, in connection with, or in relation to, [the] Agreement." CSA ¶ 8.6(i). However, if the parties were unable to reach resolution, "[a]ll disputes arising in connection with the Agreement . . . shall be finally settled by a panel of three arbitrators in accordance with the then current rules of conciliation and arbitration of the American Arbitration Association in New York City." CSA ¶ 8.6(ii).

According to Swiss Skies, Air Luxor breached the CSA by: (1) failing to obtain necessary approvals from the French government to commence flights to and from Paris; and (2) contracting with two other airlines -- Lufthansa and Ariana Afghan Airlines -- to provide direct passenger service from Frankfurt, Germany, to Kabul, commencing on or about December 1, 2004.

On December 15, 2004, Swiss Skies filed its Notice of Arbitration and Statement of Claim with the AAA, asserting its breach of contract claims, and a claim for tortious interference with prospective business relations. Thereafter, on December 17, 2004, Swiss Skies filed its complaint with this court. On February 9, 2005, the Honorable Michael B. Mukasey, District Judge, denied Swiss Skies' motion for a preliminary injunction and ordered the parties to proceed to arbitration. Thereafter, the parties negotiated a settlement agreement, but failed to consummate it. During a November 3, 2005 conference, Judge Mukasey permitted the defendant's counsel to withdraw as counsel-of-record. Owing to Air Luxor's failure to retain new counsel since then, your Honor entered default against the defendant.

Following your Honor's entry of default, Swiss Skies submitted, inter alia, an inquest memorandum in support of its claim for damages. Swiss Skies seeks damages for the underlying breach of contract claims it has asserted before the AAA. Specifically, Swiss Skies seeks $542,800, in damages, for the defendant's alleged breach of the non-compete clause of the CSA, in addition to $8,680,568, in lost profits, for the remaining breaches. Moreover, Swiss Skies seeks attorneys' fees and costs totaling $132,358.62, and prejudgment interest on its breach of contract claims, at a rate of nine percent per annum, from December 10, 2005.

III. DISCUSSION

1. Legal Standard

A party's default is deemed a concession of all well-pleaded-factual allegations, but "it is not considered an admission of damages." Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). When assessing the propriety of a damages award after a judgment by default is entered, a court "must be satisfied initially that the allegations of the complaint are 'well-pleaded.'" Levesque v. Kelly Commc'ns, Inc., No. 91 Civ. 7045, 1993 WL 22113, at *5 (S.D.N.Y. Jan. 25, 1993) (quoting Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 63 [2d Cir. 1971]). If the allegations are well-pleaded, or, in other words, establish liability for a claim, "the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible to mathematical computation." Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974).

2. Application

A. Petition to Compel Arbitration

In its complaint, the plaintiff requests that the court compel Air Luxor to arbitrate the claims Swiss Skies has asserted against it, before the AAA, in ...


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