COMMERCIAL (AND LAWYER’S ETHICS) / Chicago Bulls great Scottie Pippen and his special purpose corporation sued the law firm that represented them in purchase and financing of ownership interest of a Gulfstream II. Held: Plaintiffs based on (1) major mistakes at closing, (2) arguable fraud in not addressing document terms changed without notice to plaintiffs, and conflict of interest by plaintiff’s lawyers, plaintiffs had cause of action either in tort (verdict below was based on negligence) or in contract & agency (claim of breach of fiduciary duty dismissed below) – but not both.

“Operative facts” found by court: (1) Law firm made material mistakes in closing process that harmed plaintiffs, (2) ownership documents materially changed without notice to plaintiffs, and (3) law firm whose partner represented plaintiffs included partner who economically “on other side” of deal from plaintiffs.

Pippen v. Pedersen & Houpt, 2013 WL 702507 (Illinois Court of Appeals, February 26, 2013). Free copy available here.

COMMERCIAL (SET-OFF TO LOAN DAMAGES) / In lawsuit by lender GE Capital to recover moneys lent to acquire aircraft, magistrate rejected borrower / aircraft owner argument for “set-off” against damages otherwise due comprised of the sums borrower would have received from a lessee had plaintiff GE Capital not unreasonably withheld its consent to a lease of the collateralized aircraft thereby impeding defendants’ repayment of the subject loan.

Context here is an inquest on damages where borrower does not contest contractual obligation as borrower on loan secured by Boeing 737. Magistrate’s ruling based on two rationales: 

1. Loan documentation does not include a requirement that lender’s response to a request to proposed lease be “reasonable”. 

2. Loan Guarantee Agreement expressly provided that defendants waived any right to assert a set-off in the event of a default. 

3. In any event the lender’s refusal to consent to lease of the collateralized lease was in fact “reasonable” as documented by the writing plaintiff lender prepared to explain its reasoning at the time of refusal. 

General Electric Capital Corp. v. Gary, Slip copy, 2013 WL 390959 (U.S. District Court for the Southern District of New York, January 31, 2013)(Magistrate Judge opinion to the U.S. District Court Judge). No free copy available at time of posting.  Continue reading

COMMERCIAL & AVIATION / Where fixed base operator performed inspection of aircraft and in the course of maintenance sold and installed on that aircraft specified components, the contract was a “mixed” one. If predominantly a sale of goods it would be governed by Article 2 of the Uniform Commercial Code. If provision of services it would be governed by the common law of contract. Apply “predominant purpose test” to determine which prevails and which body of law governs.

There is a lot of maintenance and overhaul in transport equipment in which skilled labor and outright sale of components are provided simultaneously. Where a new bolster PKT plate is installed on a rail car, or avionics in a cockpit are switched out, or a truck engine is overhauled – both skilled “services” and components that are “goods” have been provided.

What form of state law applies to a lawsuit for breach of such a contract that includes both performance of services (maintenance labor) and sale of goods (the components and assemblies installed)?

An unmixed sale of goods is governed by Article Two of the Uniform Commercial Code (as enacted by the legislature of whichever state’s law applies to determination of the case). An unmixed provision of services is governed by the common law of contract (again, of whichever state’s law applies to determination of the case). Continue reading

CASE STUDY: COMMERCIAL / Aircraft lessor and maintenance facility dispute complex overhaul (“C” Check) on Boeing 737’s – Problems of contract drafting for complex operations; dangers of introducing allegations of civil fraud into a commercial dispute; and speculation about dangers of a “home town” jury.

GE Capital Aviation Services, Inc. v. Pemco World Air Services, Inc., — So. 3d —-, 2012 WL 1071500, 2012 Ala. LEXIS 36, Supreme Court of Alabama, March 30, 2012. Free copy available here.

Who is affected? Businesses contracting for a complex maintenance or overhaul whose exact operational and cost extent cannot be defined before the contract is performed. As an example, a periodic “C” or “D” check of an airliner.

Comment:  

What Happened: Continue reading

REMARKS: COMMERCIAL (TORT) / Plaintiff aircraft purchaser made out a case of negligent misrepresentation under Missouri law against defendant overhaul provider “for failing to log or disclose previous fuel tank repairs” – despite absence of direct dealings between them. Rationale: Overhaul provider “had a public duty created by federal aviation regulations to disclose the repairs”.

From New Rules & Decisions week of December 3, 2012. 

Dannix Painting, LLC v. Sherwin-Williams Co., 2012 WL 6013217 (U.S. District Court, E.D. Mo., December 3, 2012. Free copy available here.

Cited to B.L. Jet Sales, Inc. v. Alton Packaging Corp., 724 S.W.2d 669 (Missouri Court of Appeals, January 6, 1987). Free copy available here.

Comment:

This holding that a failure to keep records about aeronautical equipment pursuant to the Federal Aviation Regulations (FARs) was a basis for a claim of “negligent misrepresentation” raises two important points: One for use “on offense” and another for use “on defense”: Continue reading

COMMERCIAL (BUSINESS TORT) / Plaintiff aircraft purchaser made out a case of negligent misrepresentation under Missouri law against defendant overhaul provider “for failing to log or disclose previous fuel tank repairs”. This was despite absence of any direct dealings between plaintiff aircraft purchaser and defendant overhaul provider. Rationale: Overhaul provider “had a public duty created by federal aviation regulations to disclose the repairs”.

Dannix Painting, LLC v. Sherwin-Williams Co., 2012 WL 6013217 (U.S. District Court, E.D. Mo., December 3, 2012. Free copy available here.

Cited to B.L. Jet Sales, Inc. v. Alton Packaging Corp., 724 S.W.2d 669 (Missouri Court of Appeals, January 6, 1987). Free copy available here.

Who is affected? Purchasers of aeronautical goods that are subject to the Federal Aviation Regulations (14 Code of Federal Regulations); service providers obligated to make records of service on such goods under Federal Aviation Regulations. Continue reading

REMARKS: MARITIME / “Coast Guard announces revised procedures governing permission to build new waterfront facilities handling liquefied natural gas (LNG) or liquefied hazardous gas (LHG) – or who plan to expand marine terminal operations in such a way as to increase traffic in LNG or LHG” .

From New Rules & Decisions week of November 26, 2012.

Notice of proposed rule making.

Recent LNG & LHG Risk Management from Two Directions 

DIRECTION #1: Risk management of LNG and LHG water transport by various public agencies:

By this week’s final rule reported in “New Rules & Decisions” the U.S. Coast Guard places new burdens on owners and operators of waterfront facilities that handle LNG or LHG. They have to disclose specified information about their future intent to the Captain of the Port at which they operate. The Captain of the Port uses this to issue a letter of recommendation to federal, state and local agencies “having jurisdiction for siting, construction, and operation of the facility” to be involved in transport of LNG or LHG at or near the port.

Here the onus is on government to manage the risk. The private entity simply provides information.

DIRECTION #2: Risk management of LNG and LHG water transport by private firms:

Private firms face liability for harm from LNG or LHG accidents. That liability is exacerbated by a 150-year-old law called the “Limitation of Vessel Owner’s Liability Act. 46 U.S.C. §§ 181 et seq. 

As Monica Hwang, Esq. of King & Spaulding LLP explains:

“This statute limits a vessel owner’s liability in a marine event to the value of his vessel and cargo determined upon termination of the voyage on which the casualty occurred. Thus, the extent of the vessel owner’s liability depends on the extent of the damage suffered. In a truly disastrous situation, the Act can give rise to perverse outcomes. For instance, if a vessel and its cargo are totally destroyed in a situation that causes large damages to third parties, the vessel owner may be able to limit his liability to zero. On the other hand, if the vessel suffered minimal damage (i.e., the vessel and/or cargo still has significant value), the vessel owner’s liability would be significantly higher.”

Ms. Hwang’s write-up concisely outlines the drafting and implementation considerations relating to these agreements. Her observations provide a helpful introduction to the risk management issues facing both terminal owners and operators – and the vessel owners and other third parties who may be liable for harms caused by LNG or LHG accidents.

FREIGHT LOSS (CARMACK & COGSA) / Where (1) shipper hired ocean carrier to transport freight from Kentucky to Brazil; (2) ocean carrier acting through its freight forwarder issued “through” bill of lading; and (3) train wreck destroyed freight en route to U.S. seaport, held: (a) Carmack did not govern railroad’s liability because bill of lading was maritime in character, (b) railroad was not “receiving carrier”, and (c) shipper’s freight forwarder had opted against accepting railroad’s offer of assuming Carmack liability before shipment began.

Norfolk Southern Railway Co. v. Sun Chemical Corp., 2012 WL 5951501 (Georgia Court of Appeals, November 29, 2012). Free copy available here.

Who is affected? Multi-modal shippers by ocean and land. Railroads. Freight forwarders arranging such freight moves.

This blogger begins each transportation course at The John Marshall Law School with the cases featured here: Norfolk Southern R. Co. v. Kirby, 543 U.S. 14; and Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp., 130 S.Ct. 2433.

The Georgia Court of Appeals opinion here is a marvelous review in a setting where the freight move begins in the U.S. and is destined for abroad – rather than the other way around as is the case with the preceding two cases.

TORTS & AVIATION / Where (1) defendant overhaul provider made multiple mistakes in installing a magneto component manufactured by plaintiff into an aircraft; (2) aircraft subsequently crashed, causing injuries to third parties; but (3) no judgment entered against plaintiff manufacturer by any third party, held: Common law indemnity cause of action would not lie against defendant overhaul provider.

Continental Motors, Inc. v. Jewell Aircraft, Inc., 2012 WL 5950374 (S.D. Ala. November 28, 2012). Free copy available here.

Who is affected? Any party pleading common law indemnity under Kentucky law.

“On November 21, 2006, a Piper Lance Cherokee aircraft (the ‘Aircraft’) went down near Bardstown, Kentucky, resulting in serious injuries to its occupants, Larry Dale Crouch and Teddy Lee Hudson. Defendant, Jewell Aircraft, Inc., and others had overhauled the Aircraft’s engine in spring 2005. During that overhaul process, Jewell Aircraft installed a magneto manufactured by plaintiff, Continental Motors, Inc. (‘Continental’), in the Aircraft’s engine. Jewell Aircraft performed this task incorrectly in several respects, Continue reading

COMMERCIAL & MOTOR CARRIER / Where previous load carried in truck trailers caused freight to become contaminated, it was carrier alone who bore duty to insure that trailers were free of contaminants – shipper had no duty to inspect carrier’s vehicles against this risk.

Jorgensen Farms, Inc. v. Country Pride Co-op, Inc., 2012 WL 5870585 (Supreme Court of South Dakota, November 20, 2012). Free copy available here.

Who is affected? Carriers, shippers.

In 2006 agricultural co-op sold fertilizer to farm for use in growing wheat. 2007 wheat crop damaged because (theory of defendant agricultural co-op’s case) fertilizer had been contaminated by coming into contact with rye in truck trailers transporting the fertilizer in 2006. This case before the Supreme Court of South Dakota addressed agricultural co-op’s Continue reading