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Continental Motors, Inc. v. Engine Components International, Inc.

Court of Appeals of Texas, Fourth District, San Antonio

July 17, 2019

CONTINENTAL MOTORS, INC., Appellant
v.
ENGINE COMPONENTS INTERNATIONAL, INC., Appellee

          From the 224th Judicial District Court, Bexar County, Texas Trial Court No. 2015-CI-11291 Honorable Karen H. Pozza, Judge Presiding

          Sitting: Patricia O. Alvarez, Justice Luz Elena D. Chapa, Justice Irene Rios, Justice

          MEMORANDUM OPINION

          Patricia O. Alvarez, Justice.

         Appellant Continental Motors, Inc. appeals the trial court's order denying Continental's motion for attorneys' fees and granting summary judgment denying those fees. Appellee Engine Components International, Inc. (ECI), in a cross-point, contends the appeal is frivolous and it is entitled to sanctions.

         We affirm the trial court's order denying Continental's motion for attorneys' fees and granting ECI's motion for summary judgment. We deny ECI's request for sanctions.

         Background

         ECI, a subsidiary of Danbury Aerospace, Inc., distributes aftermarket aircraft engine parts. ECI and AC Corporation discussed ECI's distribution of a line of aircraft engine components, and ECI issued several purchase orders to AC Corporation. The relationship between the parties subsequently deteriorated when ECI became dissatisfied with the results of internal tests conducted on the AC Corporation components.

         While ECI and AC Corporation were involved in the testing dispute, Danbury entered into an Asset Purchase Agreement with Continental. Under the Agreement, Continental agreed to purchase certain assets and assume certain liabilities from ECI. Prior to the final agreement, the parties engaged in a due diligence review of Danbury's assets, which included purchase orders from ECI to AC Corporation. As a result of this review, Danbury and Continental added an addendum to the Agreement. The addendum noted there were outstanding sales orders between ECI and AC Corporation. The orders were not yet fulfilled due to ongoing testing. Pursuant to the addendum, Continental agreed to assume the outstanding orders if testing was completed and the components met a particular standard by December 31, 2015. If testing and required performance were not completed by that date, ECI would cancel the orders.

         Danbury and Continental consummated the Agreement in July 2015. At that time, the orders between ECI and AC Corporation were still pending due to incomplete testing of the components. In September 2015, ECI notified AC Corporation that the orders would be cancelled if testing and performance measures were not completed by the December 31, 2015 deadline. AC Corporation failed to complete testing by the deadline.

         Around the time Danbury and Continental finalized the Agreement, ECI filed a declaratory judgment action against AC Corporation, seeking a declaration about the nature of the purchase order arrangement. In March 2016, AC Corporation counterclaimed against ECI, alleging numerous causes of action. ECI amended its petition to allege a breach of warranty claim against AC Corporation. Then, in January 2017, ECI again amended its petition to add a third-party claim against Continental, seeking to recover any amounts AC Corporation might recover against ECI based on AC Corporation's counterclaims.[1] The third-party claim was based on terms set out in the Agreement between Danbury and Continental.

         In response, Continental answered, and in subsequent amended answers, asserted a claim against ECI for attorneys' fees under section 15.2 of the Agreement. Section 15.2 is entitled "Governing Law; Arbitration," and provides as follows:

This Agreement shall be governed in all respects in conformity with the intent of the parties as expressed in the provisions of this Agreement. To the extent any issue between the parties is not controlled by this Agreement, then any dispute between the parties shall be governed and construed in accordance with the law of the State of Delaware, without regard to its choice of law principles. UNLESS THIS AGREEMENT OR ANY OTHER AGREEMENT CONTEMPLATED HEREBY SPECIFICALLY PROVIDES FOR ANOTHER TYPE OF DISPUTE RESOLUTION WITH RESPECT TO A PARTICULAR KIND OF DISPUTE, ANY AND ALL CONTROVERSIES AND CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH THEREOF, SHALL BE SETTLED BY FINAL AND BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. Any such arbitration proceeding shall be and remain confidential. The panel of arbitrators for any such arbitration shall consist of three members of the American Arbitration Association, one of whom shall be selected by Buyer, one of whom shall be selected by Seller, and the third who will be selected by the other two. The prevailing party before such panel shall be entitled to an additional award of reimbursement of its reasonable attorneys' fees and costs. Judgment upon the decision rendered by the arbitrators may be entered in any court having jurisdiction thereof. The parties specifically acknowledge that this Agreement evidences a transaction involving, affecting, affected by, and a part of, interstate commerce and that this agreement to arbitrate is governed by and enforceable under 9 U.S.C. §§ 1 et seq. The place of arbitration shall be Bexar County, Texas. Nothing herein shall prohibit any party from seeking specific performance of Sections 6.1, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 7.1, or 7.2 in a court of competent jurisdiction. (emphasis added).

         Continental moved for summary judgment on all claims asserted against it by AC Corporation and ECI, claiming that because testing of the components was not completed by December 31, 2015, it had not assumed liability relevant to the purchase orders. In response, ECI nonsuited its claims against Continental. Continental then filed a "Motion for Award of Attorneys' Fees," seeking to recover attorneys' fees from ECI. The motion, like the request in Continental's answer to ECI's third-party claim, was based on section 15.2 of the Agreement. ECI opposed the motion and moved for summary judgment against Continental's claim for attorneys' fees.

         After a hearing, the trial court rendered an order denying Continental's motion for attorneys' fees and granting ECI's motion for summary judgment challenging Continental's entitlement to the fees. All claims and disputes were ultimately disposed of, creating a final judgment. Thereafter, Continental filed this appeal in which it challenges the trial court's order denying its motion and granting summary judgment for ECI with regard to attorneys' fees.

         Attorneys' Fees, ...


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