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Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC

Court of Appeals of Texas, Fifth District, Dallas

June 22, 2017

BOMBARDIER AEROSPACE CORPORATION, Appellant
v.
SPEP AIRCRAFT HOLDINGS, LLC; PE 300 LEASING, LLC; SARACEN PURE ENERGY PARTNERS, LP; CRANE CAPITAL GROUP, INC.; JAMES R. CRANE; FLORIDIAN GOLF RESORT, LLC; CHAMPION ENERGY MARKETING, LLC; AND CRANE WORLDWIDE LOGISTICS, LLC, Appellees

         On Appeal from the 44th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-12-14739

          Before Justices Bridges, Myers, and Brown Opinion by Justice Bridges.

          MEMORANDUM OPINION

          DAVID L. BRIDGES JUSTICE.

         Appellees SPEP Aircraft Holdings, LLC (SPEP), PE 300 Leasing, LLC (PE 300), Saracen Pure Energy Partners, LP (Saracen), Crane Capital Group, Inc. (Crane Capital), James R. Crane (Crane), Floridian Golf Resort, LLC (Floridian Golf Resort), Champion Energy Marketing LLC (Champion Energy), and Crane Worldwide Logistics, LLC (Crane Worldwide) sued appellant Bombardier Aerospace Corporation (Bombardier) for, among other things, breach of contract and fraud by nondisclosure. The jury returned a verdict in appellees' favor on both claims and awarded $2, 694, 160 in actual damages and $5, 388, 320 in exemplary damages. On appeal, Bombardier argues the trial court erred by rendering judgment on appellees' fraud claim because it did not owe a duty as a matter of law, the evidence is legally insufficient to support the fraud finding, and there is no evidence it committed fraud against all eight appellees. Bombardier further challenges the sufficiency of the evidence to support the award of actual damages and argues the exemplary damages award must be vacated, or alternatively, reduced. We affirm the trial court's judgment.

         Background

         The facts giving rise to this lawsuit are extensive and were presented during a multi-week jury trial. The record includes approximately two thousand pages of exhibits, which included contracts and aircraft maintenance logs. We initially recite some of the facts underlying the parties' dispute and provide further details below in the analysis of each issue raised on appeal.

         Jim Crane and Neil Kelley were both successful businessmen with experience purchasing aircrafts. The men determined purchasing a plane together would be a wise business decision. Kelley had an excellent relationship with Flexjet and Bombardier[1] and decided to discuss the potential purchase with them. Both Crane and Kelley made it clear they wanted to purchase a new aircraft.

         After some negotiations, SPEP Aircraft Holdings LLC (Kelley's company) and PE 300 Leasing, LLC (Crane's company) entered into the Purchase Agreement with Bombardier on December 23, 2010, for a new Challenger 300 (the Aircraft). The purchase price for the Aircraft totaled $19, 850, 000. Appellees also paid approximately $70, 000 a month for Flexjet to manage the Aircraft. The management included providing maintenance, keeping logbooks, and employing pilots.

         As part of the Purchase Agreement, Bombardier became the limited power of attorney for acceptance and registration of the Aircraft on behalf of appellees. This gave Bombardier the power to inspect the plane, which included reviewing aircraft documents/logbooks and making sure the Aircraft was airworthy. It also provided Bombardier with the authority to accept the Aircraft. Although Crane could have hired another company or someone else to inspect the Aircraft, he trusted Bombardier and Flexjet. Because of his trust, he never asked to inspect the logbooks prior to purchase. Further, because he thought he was buying a new aircraft, "you wouldn't think it would require an inspection."

         Wayne Banker, the quality assurance programs administrator with Flexjet, inspected the Aircraft's logbooks prior to acceptance and delivery of the Aircraft. Despite the logbooks showing the left engine had been repaired for interstage turbine temperature split (ITT) and used on another aircraft before being placed on appellees' Aircraft, Banker did not disclose this information to either Crane or Kelley.

         After Banker finished his inspection, Ryan Shifflet and Tom Cantabene, pilots with Flexjet, flew the Aircraft from Hartford, Connecticut to Houston and delivered it to Crane and Kelley. During the initial flight, Shifflet noticed the left engine had a higher ITT than the right engine on start-up and cruise. Shifflet mentioned the ITT split to the Flexjet maintenance department, and they said they knew about it and had it under control. Shifflet later learned more about the engine's history, which included previous jet fuel contamination and damage during its initial shipping in 2008. The damage required the left engine to be torn down and refurbished.[2]

         Shifflet was surprised by the information because a new aircraft should have a new engine. He admitted he would not have been concerned if the engine was part of the Flexjet fleet because he knew Flexjet often took parts and swapped them between planes. But because the Aircraft was not part of the fleet but individually owned by Crane and Kelley, he was concerned and called Jill Vierling, his supervisor.

         Vierling worked for Bombardier as a corporate aircraft logistics manager, meaning she managed certain aircrafts, one of which was appellees' Aircraft. She reported Shifflet's concerns to her supervisors, including Mr. Kneble, the vice president of sales. According to Vierling, no one seemed particularly surprised by the information, and she felt someone was hiding something. Knebel first indicated he would perform due diligence and try to add a disclosure to the Purchase Agreement. However, he later told her Crane and Kelley did not need to know about the engine's history and it was not her concern. Vierling and Shifflet were warned not to talk to Crane or Kelley.

         On February 1, 2012, appellees cancelled Flexjet's management services because they were not satisfied with its performance. Fred Farid, the director of maintenance for Crane Worldwide, took over the Aircraft's maintenance, reviewed the logbooks, and discovered the mechanical damage history of the left engine. This history included: (1) the left engine suffering significant damage during shipment in 2008 that required its return to Honeywell for repairs; (2) the engine then being installed on an aircraft referred to as 241; (3) an ITT split in January 2009 requiring the engine's removal; (4) after repair, the engine being reinstalled on 241 for a period of time but removed again in April 2009 for oil contamination; (5) the engine being installed on aircraft 294 in January 2010; and (6) finally, in June 2010, the left engine, which a Honeywell employee described as a "two-time loser, " was installed on Crane and Kelley's Aircraft.

         Appellees sued Bombardier for breach of contract, breach of express warranty, and fraud based on Bombardier's failure to disclose the engine's history. Appellees nonsuited their breach of warranty claim, but the remaining claims went to trial. A jury found in favor of appellees on both the breach of contract and fraud by nondisclosure claims. It awarded $2, 694, 160 in actual damages and $5, 388, 320 in exemplary damages. The trial court denied Bombardier's motion for judgment notwithstanding the verdict and to disregard jury findings and rendered judgment on the verdict. This appeal followed.

         Sufficiency of the Evidence to Support Fraud-By-Nondisclosure

         In its second issue, Bombardier challenges the jury's fraud-by-nondisclosure finding because (1) as a matter of law, Bombardier did not owe a duty to disclose; (2) the evidence is legally insufficient to support the jury's finding that appellees did not have an equal opportunity to discover the truth; and (3) there is no evidence Bombardier committed fraud against all "Plaintiffs" as defined in the jury charge. We address each argument in turn.

         A. Bombardier's Duty to Disclose

         Fraud by nondisclosure is a subcategory of fraud. Wise v. SR Dallas, LLC, 436 S.W.3d 402, 409 (Tex. App.-Dallas 2014, no pet.). The elements require (1) a deliberate failure to disclose a material fact, (2) by one who had a duty to disclose such facts, (3) to another who was ignorant of the facts and did not have an equal opportunity to discover them, (4) with the intent the listener act or refrain from acting, and (5) the listener relies on the nondisclosure resulting in injury. Id.

         As a general rule, a failure to disclose information does not constitute fraud unless there is a duty to disclose the information. Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001). Thus, silence may be equivalent to a false representation only when the particular circumstances impose a duty on the party to speak and he deliberately remains silent. Id. A duty to disclose may arise in certain situations involving partial disclosure or when the parties have a confidential or fiduciary relationship. Myre v. Meletio, 307 S.W.3d 839, 843 (Tex. App.-Dallas 2010, pet. denied). The duty arises in four circumstances: (1) a fiduciary or other special relationship between the parties gives rise to a duty to disclose; (2) new information makes a defendant's earlier representation misleading or untrue; (3) a defendant conveys a false impression by making a partial disclosure; and (4) a defendant who voluntarily discloses information has a duty to disclose the whole truth. Patrusky v. Bloomberg, No. 05-14-00175-CV, 2015 WL 3896097, at *10 (Tex. App.-Dallas June 24, 2015, no pet.) (mem. op.); Holland v. Thompson, 338 S.W.3d 586, 598 (Tex. App.-El Paso 2010, pet. denied); Citizens Nat'l Bank v. Allen Rae Invs., Inc., 142 S.W.3d 459, 477 (Tex. App.-Fort Worth 2004, no pet.). Whether such a duty exists is a question of law. Bradford, 48 S.W.3d at 755.

         "Based upon the conversations off the record, " the trial court found as a matter of law that a fiduciary relationship existed between appellees and Bombardier based upon the limited power of attorney (LPOA) provision in the Purchase Agreement. In addition to the LPOA, appellees present additional reasons supporting Bombardier's duty to disclose, including Bombardier's duty to disclose the whole truth and prevent conveying a false impression. Bombardier argues we are bound by the trial court's reasoning, and appellees failed to present its "false impression" argument to the trial court. We disagree with Bombardier. An appellate court reviews the trial court's legal conclusions de novo, independently evaluating them for correctness in drawing from the facts, and upholds them under any correct theory of law. Solares v. Solares, 232 S.W.3d 873, 880 (Tex. App.-Dallas 2007, no pet.). Moreover, appellees raised their alternative arguments supporting a duty to disclose in its response to Bombardier's motion for judgment notwithstanding the verdict and to disregard jury findings. Accordingly, we may consider these arguments.

         We begin by addressing the trial court's stated ground for concluding a duty to disclose existed-that the LPOA created the duty. The Purchase Agreement required appellees to sign and return the "Limited Powers of Attorney, " in addition to other documents, prior to the closing date. The LPOA authorized Bombardier to act as the "true and lawful Attorney-in-Fact . . .solely for the following purposes of inspecting and accepting delivery, on behalf of Principal, of [Aircraft], as described on the Aircraft Acceptance Form . . . ." The Aircraft Acceptance Form acknowledged that "The Aircraft has been delivered to Customer duly assembled and in good working order and condition."

         Bombardier does not contend that it had no fiduciary duty to appellees under the LPOA but rather claims its LPOA did not impose a broad fiduciary duty to disclose to appellees a detailed history of the engine or any other component of the Aircraft. We agree the LPOA did not impose a limitless duty, but Bombardier's duty was defined by the scope of the LPOA, which specifically referenced the Aircraft Acceptance Form. See Nat'l Plan Adm'rs, Inc. v. Nat'l Health Ins. Co., 235 S.W.3d 695, 702 (Tex. 2007) ("An agent has a duty to act in accordance with the express and implied terms of any contract between the agent and the principal.") (quoting Restatement (Third) of Agency § 8.07 (2006)); see also Bright v. Addison, 171 S.W.3d 588, 597 (Tex. App.-Dallas 2005, pet. denied) (noting an attorney owes a duty of full disclosure). Although neither the Aircraft Acceptance Form, nor any other document, specifically stated appellees were purchasing a "new" aircraft, it was understood that appellees believed they were buying a new aircraft and Bombardier agreed to deliver the Aircraft "duly assembled and in good working order and condition." The Aircraft Acceptance Form described the Aircraft as follows:

Model: One Bombardier Inc. BD 100-1A10
Manufacturer's Serial Number: 20297
FAA Registration Number: N612JN
Engine Type: Two Honeywell AS907-1-1A engines
Left Engine: P-118611
Right Engine: P-118619

         Bombardier claims there was no evidence the Aircraft was not "duly assembled, " citing to the Fourth edition of Black's Law Dictionary. See Duly & Assemble, Black's Law Dictionary (4th ed. 1964) (defining "duly" as "in due or proper form or manner" and "assemble" as "collect or gather together the parts and place them in their proper relation to each other to constitute a machine"). Bombardier omitted the second part of the "duly" definition which included, among other things, "regularly; properly; suitable." Id. The most recent edition of Black's Law Dictionary defines "duly" as "in a proper manner; in accordance with legal requirements" and does not include any definition for "assemble." See Duly, Black's Law Dictionary (10th ed. 2014). Webster's Third New International Dictionary defines "duly" as "right and fitting: properly, regularly, sufficiently." Duly, Webster's Third New Int'l Dictionary (1981); see also Jones v. Jones, 301 S.W.2d 310, 317 (Tex. App.-Texarkana 1957, writ ref'd n.r.e.) (noting "duly" is not synonymous with "legally" but means "regularly" and "in due time or proper manner; in accordance with what is right, required, or suitable; fittingly, becomingly, regular").

         Here, the record indicates Bombardier had knowledge of the Aircraft's troubled history prior to December 23, 2010 and therefore knew the Aircraft had not been assembled in a regular or proper manner. Wayne Banker testified he understood his responsibility to inspect the engine logbooks on behalf of appellees. He inspected the logbooks a week prior to the parties signing the Purchase Agreement and informed William Mussared, the director of technical operations for Flexjet, about the engine's prior repairs and removals from prior aircrafts. Mussared testified that although exchanging engines from one airplane to another had occurred in the past, "the fact that the motors were on other airplanes prior to this one [was] not normal." A senior contract negotiator with Flexjet testified she had never been involved in negotiating a contract for sale of a new airplane where the engines were used or repaired. Edward Chitren, the Flexjet manager of maintenance, testified jet fuel running through an engine resulting in contamination was "a very abnormal thing to happen."

         Bombardier believed the history of the Aircraft was troublesome enough that when it negotiated to purchase the Aircraft for its own fleet in June 2010, it insisted on an extended Maintenance Service Plan (MSP) program in exchange for accepting the Aircraft. Thus, evidence supported the trial court's conclusion that, as a matter of law, the LPOA and Aircraft Acceptance Form created a duty requiring Bombardier to inspect and fully disclose whether the Aircraft was "duly assembled"-meaning was it proper, right, and/or regular to install a used or repaired engine on a "new" aircraft. The testimony revealed it was not.

         Moreover, apart from a fiduciary duty to disclose because Bombardier acted as appellees' attorney-in-fact, Bombardier made representations that conveyed a false impression by making a partial disclosure and, therefore, it had a duty to disclose the whole truth. Patrusky, 2015 WL 3896097, at *10 (discussing when duty to disclose may arise in certain situations involving partial disclosure).

         Crane and Kelly testified Bombardier knew they were interested in a new aircraft. The senior contract negotiator for Bombardier admitted she understood appellees wanted to buy a new aircraft. Flexjet indicated to appellees that the Aircraft would have a November 2010 manufacture date, which was consistent with appellees' understanding of negotiating for a new aircraft. A November 8, 2010 email from Stephanie Chung, a Flexjet regional vice president, stated, in relevant part, "Flexjet will sell you the December 2010 Challenger . . ., " and she looked "forward to working together as we transition you into your new 2010 Challenger 300!" [Emphasis added.]

         Accordingly, Bombardier represented it was selling appellees a new aircraft but only partially disclosed the truth. In reality, the left engine had been on two other aircrafts and designated as "repaired" before Bombardier installed it on appellees' Aircraft. The engine's history was not unknown because Bombardier told Mussared the engine had potential jet fuel contamination, rotor blade damage, and an ITT split when they discussed putting the engine on a Flexjet aircraft.

         Shifflet testified he informed Flexjet about the ITT split after the Aircraft's initial flight, and they said they already knew about it. When he told Jill Vierling, his supervisor, she told Knebel, the vice president of sales. Knebel was furious to learn this information because he believed that per the Purchase Agreement, the engine's history should have been disclosed. Later, Vierling and Shifflet were told the engine's history "isn't your concern" and not to talk to Crane or Kelley. This further indicated Bombardier knew about the engine's troubled history but wanted to keep it a secret from appellees. This evidence is sufficient to support the trial court's determination that Bombardier, by providing partial disclosures that created a false impression, had a duty to disclose the engine's full history.

         In reaching this conclusion, we are unpersuaded by Bombardier's repeated argument that the undisputed evidence showed the Aircraft was "great" and not a safety concern. The Aircraft's safety was not an issue at trial and despite Bombardier's repeated emphasis to the jury that nothing was wrong with the Aircraft, appellees' complainant against Bombardier was its failure to be completely honest about the Aircraft and selling them a "new" aircraft with repaired engines. Moreover, Bombardier's argument that it complied with the "Representations and Warranties" in the Purchase Agreement did not negate its obligations to deliver a "duly assembled" aircraft under the Aircraft Acceptance Form or to disclose the whole truth based on a partial disclosure.

         Finally, to the extent Bombardier tries to rely on the "as is" provision in the Purchase Agreement and the economic loss rule, both arguments fail. A buyer is not bound by an agreement to purchase something "as is" when he is induced to enter the agreement because of a fraudulent representation or concealment of information by the seller. Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 162 (Tex. 1995). The economic loss rule does not bar recovery of tort damages in fraud cases. Bishop Abbey Homes, Ltd. v. Hale, No. 05-14-01137-CV, 2015 WL 9167799, at *15 (Tex. App.-Dallas Dec. 16, 2015, no pet.) (mem. op.); see Peterson Grp., Inc. v. PLTQ Lotus Grp., L.P., 417 S.W.3d 46, 63 (Tex. App.-Houston [1st Dist.] 2013, pet. denied) ("a party's actions may breach duties simultaneously in contract and in tort").

         Because we conclude Bombardier had a duty to disclose as a matter of law for two distinct reasons, we need not consider Bombardier's remaining arguments challenging its duty. See Tex. R. App. P. 47.1.

         B. Sufficiency of the Evidence Supporting Appellees' Opportunity to Discovery Engine History

         To establish fraud as defined in the charge, appellees had to prove, among other things, that they did not have an equal opportunity to discover the truth concerning an undisclosed fact. See Bradford, 48 S.W.3d at 754 (discussing elements of fraud); Joseph Hosp. v. Wolff, 94 S.W.3d 513, 530 (Tex. 2003) (stating appellate courts in civil cases review sufficiency of the evidence based on the definitions contained in the charge, unless a party objects to the charge). In their petition, appellees alleged "Defendant had a duty to disclose that the engines were used, had previous mechanical failure, and had been repaired . . . Defendants intentionally withheld this information from Plaintiffs in an effort to induce Plaintiffs into buying the Aircraft."

         Bombardier argues the evidence is legally insufficient to support the jury's fraud finding because the evidence conclusively establishes that before, during, and after the sale of the Aircraft, appellees had an equal opportunity to discover the engine's history because they had access to the logbooks. It supports its argument by relying on terms in the Management Agreement, which provided that "Each customer may, upon reasonable notice and at its own expense, inspect and copy the aircraft's records, logs, and other materials during Flexjet's normal business hours so long as it does not interfere with Flexjet's daily operations." Bombardier also relies on Crane's admission that he knew he had a right to inspect the logbooks prior to purchase, and he could have hired someone other than Flexjet to inspect the logbooks. Bombardier then concludes "the very evidence by which Plaintiffs uncovered Bombardier's alleged fraud was always available to them."

         When an appellant challenges the legal sufficiency of the evidence on a matter for which it did not have the burden of proof, he must demonstrate on appeal that there is no evidence to support the adverse findings. McCullough v. Scarbrough, Medlin & Assoc., Inc., 435 S.W.3d 871, 892 (Tex. App.-Dallas 2014, pet. denied). Under a no-evidence point, we consider the evidence in the light most favorable to the verdict, indulging every reasonable inference in support of the verdict. City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). A legal sufficiency challenge fails if there is more than a scintilla of evidence to support the judgment. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002). "The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." City of Keller, 168 S.W.3d at 827. Evidence that does no more than create a surmise or suspicion is insufficient to rise to the level of a scintilla and, in legal effect, is no evidence. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004). We must not substitute our judgment for that of the jury and should remain cognizant that the jury is the sole judge of witness credibility and the weight to be given their testimony. City of Keller, 168 S.W.3d at 819. With this standard in mind, the record shows the following.

         As part of the Purchase Agreement, Bombardier became the limited power of attorney for acceptance and registration of the Aircraft. This gave Bombardier the power to inspect the Aircraft and authority to accept it. It also authorized Bombardier to review the logbooks and inform appellees of any irregularities, which it failed to do. Although Crane agreed he could have hired another company or someone else he trusted to conduct the inspection and inform him of any irregularities, he believed he was buying a new airplane so, "you wouldn't think it would require an inspection." He further emphasized that because he thought the Aircraft was new, he would have expected the logbooks to contain very little information.

         Kelley believed that based on the Management Agreement, he did not have the right to inspect the books because that right belonged to Flexjet through the LPOA. He knew of no other way, except from Flexjet, that he could have learned about the engine's history. The first time Crane and Kelley had physical possession of the logbooks and the opportunity to see them was February 2012, when they took over management of the Aircraft from Flexjet.

         More importantly, when appellees received the logbooks in 2012, the records were incomplete. Although the logbooks confirmed some of the engine's past mechanical issues, they omitted some significant information.

         For example, Farid explained the logbook entries documented the date and type of maintenance service. However, if someone wanted to see a detailed record of a repair, he would have to contact the company that performed the maintenance (in this case Consolidated Turbine Support) and request the paperwork for a specific work order. Farid testified he should not have to ask for this information. Once he "received this page, it should have a book with it, with all the parts, with all the serial numbers, with all the - - everything. I don't have to ask for it. It's a requirement by the FAA to be provided." He described the record keeping for the Aircraft as "poor, " "vague, " and "a little sloppy."

         Thomas Mitchell, Bombardier's aircraft service expert, admitted he had to look at Honeywell documents outside the logbooks to determine the "real" repair of the engine for the ITT split. Mitchell further testified the logbooks failed to document any jet fuel contamination.

         Mussared assumed in his review of the logbooks that no oil contamination occurred because, although an entry noted the engine was disassembled and all oil wet cavities were inspected, the logbook did not note any contamination or replacement of any parts. However, other Honeywell documents indicated oil contamination occurred. Moreover, despite claiming that "Flexjet believes in full transparency, " Chitren admitted seeing emails, which were outside the ...


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