Trans Pacific Leasing Corp. v. Aero Micronesia, Inc.

26 F.Supp.2d 698 (1998)

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Nature of the Case

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Facts

The Tan Group, was interested in flying Tan Group Tuna catches to various markets. D was formed by Tan and entered into an aircraft lease with P. The transaction was structured in a manner designed to give the government of the FSM an interest in the arrangement. D actually leased the aircraft from SBA, P's predecessor in interest, and subleased it to the National Fisheries Corporation ('NFC') of the FSM. NFC, in turn, subleased the aircraft to Ryan, which was to operate the plane. D secured the lease, and primary goal was to fly fresh tuna from the FSM, the Republic of Pelau and the Marshall Islands to Saipan and Guam. The deal included as well the sublease from D to NFC, the sub-sublease from NFC to Ryan, and an air services agreement between NFC and Ryan pursuant to which Ryan agreed to fly the aircraft on routes designated by NFC. At the time these documents were negotiated, neither D nor any other Tan entity was qualified to operate an aircraft of this nature. The final, executed version of the Head Lease contained the April 17, 1996 version of Section 7.1(c). None of the other provisions relied upon by D as suggesting the possibility of operation of the aircraft by the lessee were altered in any material respect from the first draft to the final version. The brunt of the documentary drafts shows that D wanted to keep the option open that it could operate the airplane if it became qualified to do so. There were also discussions between the parties as to what would happen if Ryan became unqualified to operate the plane. In mid-1997 after NFC authorized an engine overhaul of the Aircraft. D took the position that P, which had taken an assignment of the Head Lease from SBA and now stands in SBA's shoes, was obliged to pay for this work and pressed for payment, but P disputed the point. In November 1997, D told NFC that it would look into the possibility of taking over and operating the airplane itself. In early 1998, its sister company, APA, applied to the Department of Transportation ('DOT') for certificates to provide interstate air transportation of property and mail and to engage in foreign charter cargo transport. While those applications were pending, the Tan group prepared a sublease by which D purportedly subleased P's aircraft to APA. The sublease was dated April 10, 1998, executed, and sent to P without any explanation. P objected to the sublease. The Tan group merged APA into P in an effort to eliminate any need for a sublease and thus to remove P's objection as an obstacle to the Tan group's plan to operate the aircraft itself. Both P and Ryan filed papers with the DOT opposing the P's applications on the ground that the aircraft was subject to the Ryan sublease through May 16, 1999, and that P had failed accurately to disclose that fact. On October 5, 1998, DOT issued the interstate charter certificate sought by P. P, armed with the DOT certificate, moved promptly to terminate the NFC sublease, which in turn would terminate Ryan's sublease from NFC, and set itself up in the airline business. NFC was also behind on its lease payments which may have been a manufactured coincidence by Tan. P issued a notice of default to NFC, informed Ryan that it had terminated the P-NFC sublease, and seized the aircraft when it landed in Saipan. This, in turn, set off a round of litigation. D sued Ryan in the United States District Court for the District of Kansas to obtain possession of maintenance records and other documents relating to the plane. P sought leave to intervene. P's motion was denied and the judge required that Ryan turn the records over to D. P gave notice to D that its failure to continue Ryan in operation of the aircraft constituted a breach of Section 7.1(c) of the Head Lease and, if it continues for more than thirty days, would be an Event of Default permitting P to terminate the lease. P filed this action on October 22, 1998, the day before Ryan was required to turn the aircraft records over to D. The Court issued a temporary restraining order enjoining D from operating the aircraft, from prohibiting Ryan to take action to store the aircraft properly on Saipan, and from altering, amending, disturbing or destroying the aircraft records or transporting them out of the continental United States. It set the preliminary injunction motion down for hearing on November 18, 1998. D filed certain counterclaims. On November 17, 1998, the parties stipulated that, as to (1) all issues raised in the complaint and (2) so much of the counterclaims as present the issue whether D may operate the aircraft, (a) the trial on the merits would be consolidated with the preliminary injunction motion, (b) trial by jury would be waived, and (c) the Court would decide on the motion record as if a full trial had been held. They waived trial by jury on any remaining issues raised by the counterclaims as well but reserved the right to engage in subsequent proceedings thereon. The dispositive question in this contract dispute is whether the lease requires that the aircraft be operated by Ryan or permits D itself to fly the plane.