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Air Italy S.P.A v. Aviation Technologies

January 11, 2011

AIR ITALY S.P.A., PLAINTIFF,
v.
AVIATION TECHNOLOGIES, INC. D/B/A PUBLICCHARTERS.COM, AND SCANDERBEG AIR, DEFENDANT.



The opinion of the court was delivered by: John Gleeson, United States District Judge

ONLINE PUBLICATION ONLY

MEMORANDUM AND ORDER

In this breach of contract action filed by plaintiff Air Italy S.p.A. ("Air Italy"), defendant Aviation Technologies, Inc. ("Aviation") moves to disqualify Air Italy's counsel Lester Bridgeman and his law firm, Alford, Clausen & McDonald, LLC ("the Alford law firm"). Oral argument on the motion was held on January 6, 2011. For the reasons stated below, the motion is granted to the extent that Bridgemen is disqualified from serving as trial counsel on behalf of Air Italy, and is otherwise denied.

BACKGROUND

A. Air Italy's Allegations*fn1

Air Italy brings this action against Aviation and Scanderbeg Air ("Scanderbeg"), stating claims for breach of contract, promissory estoppel, and fraud in the inducement. The dispute involves a series of charter flights operated by Air Italy in August and September 2009, for which Air Italy has not been fully paid. The charter flights at issue were originally planned without Air Italy's participation. In February and March 2009, Aviation and Sky King, Inc. ("Sky King")*fn2 sought and received approval from the United States Department of Transportation ("DOT") for the operation of a series of round-trip public charter flights between June 12, 2009 and September 13, 2009, from John F. Kennedy International Airport ("JFK Airport") to Tirana, Albania and Pristina, Kosovo. The prospectus filed with the DOT identified Sky King as the "direct air carrier" for the flights and Aviation as the "charterer."*fn3

The charter program's flights were at first operated using Sky King's aircraft. However, on August 19, 2009, Sky King became unable or unwilling to continue its operations. On August 20, 2009, Aviation and Scanderbeg decided to find a substitute air carrier to perform the services Sky King would no longer provide. The defendants agreed that Aviation would take control of all funds that had been received from the charter flights' customers and would use that money to make direct payments to the substitute air carrier.*fn4

Scanderbeg, which on July 6, 2010 notified the Court that it, too, had filed for voluntary bankruptcy, has not answered Air Italy's complaint or otherwise defended the action. Accordingly, the Clerk made an entry of default against Scanderbeg on June 29, 2010. On July 21, 2010, I denied a motion by Aviation to dismiss all claims against it for failure to state a claim. Air Italy S.p.A.v.Aviation Technologies, Inc., No. 10-CV-20 (JG) (JMA), 2010 WL 2925949 (E.D.N.Y. July 21, 2010).

That same day, Scanderbeg asked Air Italy to sub-charter one of its 757-200 aircraft to Sky King, so that the aircraft could be used to complete the charter flights the Sky King aircraft would no longer perform. Scanderbeg submitted to Air Italy an "ACMI (Aircraft, Crew, Maintenance Insurance) Contract" ("757 Contract"), which provided for the sub-charter to Sky King of an Air Italy 757-200 aircraft for operation of seven round-trip flights and one returning flight to JFK Airport between August 28, 2009 and September 9, 2009. The 757 Contract provided for payment to Air Italy in two installments: €355,000 was to be paid on August 24, 2009, and another €200,180 on August 28, 2009. The contract was executed by representatives of Air Italy, Sky King and Scanderbeg. On August 28, 2009, Air Italy, Sky King and Scanderbeg entered into a second ACMI contract ("767 Contract"), which substituted certain remaining flights provided for by the 757 Contract with provisions for operation of an Air Italy Boeing 767-300 aircraft on two ferry flights (without passengers) between Milan and Tirana, and JFK Airport and Milan, respectively, and one passenger flight from Tirana to JFK Airport via Shannon, Ireland. All flights were scheduled for September 9, 2009. Air Italy was to be paid €105,950 on August 31, 2009.

The contracts were structured as sub-charter agreements between Sky King and Air Italy at the instigation, and for the benefit, of Scanderbeg and Aviation. Defendants designed the transaction so that Sky King would appear to remain as the air carrier in compliance with the prospectus filed with the DOT, even though Sky King did not participate in or benefit from the charter arrangements after the 757 Contract was signed by Air Italy.

Air Italy fulfilled all requirements of the 757 Contract that were not terminated by the 767 Contract, and all requirements of the 767 Contract. Air Italy received seven partial payments for its services under the 757 Contract and no payments for its services under the 767 Contract. All payments to Air Italy were made by Aviation, not Sky King, although Aviation was not a signatory to either written contract. The payments were made from an account at PNC Bank, a Pennsylvania Bank, rather than the Michigan bank Aviation and Sky King had identified to the DOT as their escrow bank. Aviation repeatedly assured Air Italy of its willingness and ability to make all payments under the contracts and assured Air Italy that it had sufficient available funds, including $300,000 in non-passenger funds, to cover the amounts due to Air Italy under the contracts. However, Aviation as well as Scanderbeg knew at the time the contracts were entered into that insufficient funds were available to pay Air Italy pursuant to their terms. Air Italy claims that Aviation and Scanderbeg are jointly and severally liable for $268,783.14 remaining due under the 757 and 767 Contracts, plus interest from September 1, 2009, and the costs of this lawsuit.

B. Bridgeman's Involvement in Negotiations Between Air Italy and Aviation Aviation argues that Bridgeman and the Alford law firm should be disqualified from representing Air Italy in this action by virtue of the witness-advocate rule, because Bridgeman was a key participant, and the sole representative of Air Italy, in communications central to the dispute between Air Italy and Aviation. In particular, by sworn declaration, James Gallagher, president of Aviation, identifies at least three telephone conversations concerning the 757 Contract that took place in August 2009 in which he and Bridgeman were the sole participants. Decl. James Gallagher, Dec. 3, 2010, ECF. 46. In one call that took place on August 24, 2009, Gallagher told Bridgeman that Aviation held in escrow funds that were to be paid to Sky King for the charter flights Sky King was originally intended to operate. Id. ¶¶ 6-7. Gallagher informed Bridgeman that Sky King had directed Aviation to pay those funds directly to Air Italy on Sky King's behalf in order to fulfill Sky King's obligations under the 757 Contract. Id. Bridgeman requested that the money be paid directly into an Air Italy operating account prior to the completion of the flights, but Gallagher explained that DOT regulations required that the funds be held in escrow until after completion of the flights. Id. ¶¶ 7-8.

Gallagher asserts that during that same phone call, he suggested that Air Italy and Aviation enter into a contract replacing the 757 Contract, which would identify Air Italy as the carrier and Aviation as the charter operator and would allow Air Italy to receive money from Aviation both in escrow for the charter flights and outside of escrow as a security deposit to offset any potential future costs. Id. ¶ 9. In the last week of August 2009, Gallagher reiterated this offer on at least two more phone calls, which again involved only himself and Bridgeman. Id. ¶ 4.

In his own declaration, Bridgeman agrees that the August 24, 2009 telephone conversation with Gallagher took place, but he recalls the substance of the conversation differently. Decl. Lester M. Bridgeman ΒΆΒΆ 7, 9, Dec. 22, 2010, ECF No. 47. Specifically, he denies that Gallagher informed him that Sky King had directed Aviation to make payments on its behalf to Air Italy, and ...


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