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Eurotec Vertical Flight Solutions, LLC v. Safran Helicopter Engines

United States District Court, N.D. Texas, Dallas Division

August 1, 2019




         Plaintiff EuroTec Vertical Flight Solutions, LLC ("Plaintiff) brings this action against Safran Helicopter Engines USA, Inc. ("SafranHE USA"), and against Safran Helicopter Engines S.A.S, ("SafranHE France") and Safran Helicopter Engines Canada, Inc. ("SafranHE Canada") (together, "International Defendants," and collectively with SafranHE USA, "Defendants"). In the Third Amended Complaint (the "Complaint")-which is the fourth complaint in this case- Plaintiff alleges violations of the Sherman Act, 15 U.S.C. §§ 1, 2, California Cartwright Act, Cal. Bus. &Prof. Code § 16720 et seq., Kansas Restraint of Trade Act, Kan. Stat. Ann. § 50-101 et seq., § 35 of the Lanham Act, 15 U.S.C. § 1117, Texas Deceptive Trade Practices Consumer Protection Act ("DTPA"), Tex. Bus. & Com. Code Ann. §§ 17.46, 17.50, as well as common law claims for breach of contract, wrongful detention, conversion, negligence, tortious interference, civil conspiracy, unfair competition, misrepresentation, and concealment.

         Pending before the Court is Safran HE USA's and the International Defendants' Motions to Dismiss [ECF Nos. 103, 104]. For the foregoing reasons, the Court grants in part and denies in part the Motions.

         I. BACKGROUND

         Pursuant to Special Order 3-318, this case was transferred from the docket of Judge Jane J, Boyle to the docket of this Court on March 8, 2018.

         Plaintiff filed its original complaint on October 23, 2015, and amended the complaint to join new defendants on March 28, 2016. On June 1, 2016, Defendants filed a Motion to Compel Arbitration and a Motion to Dismiss, which the Court granted, staying the case pending arbitration. Following arbitration, the Court reopened the case on September 18, 2017, Plaintiff filed its Second Amended Complaint on October 9, 2017, and Defendants filed a new set of motions to dismiss. The Court held a hearing on the second set of motions to dismiss on November 18, 2018. The Court dismissed the Second Amended Complaint in its entirety but granted Plaintiffs motion for leave to amend. Although the Court expressed hope that affording Plaintiff an opportunity to replead would result in "some of the weaker of [the] 14 claims . .. [getting] taken out," ECF No. 92, at 65:21-23, Plaintiffs fourth attempt includes thirty causes of actions over the course of 130 pages, and includes many of the same weaker claims as its prior attempt. See Third Am. Compl. Defendants filed a third set of motions to dismiss on January 25, 2019, which is the subject of this Memorandum Opinion and Order.

         A. Parties

         Plaintiff is a Kansas limited liability company that owns helicopters and helicopter engines, is a certified repair station, and is in the business of buying, selling, and leasing helicopters, engines, and engine parts. See Third Am, Compl. ¶¶ 1-4. Plaintiff also provides consumers with various services, including engine maintenance, repair, and overhaul services ("MRO Services"). Id. ¶ 5. Defendants are manufacturers, marketers, sellers, and lessors of helicopter engines and of modules, components, parts, and accessories for those engines. Id. ¶¶ 9, 12-15, 18. Defendants also market and provide MRO Services for their engines, Id.

         With the exception of SafranHE USA, which is a Delaware corporation with its principal place of business in Dallas County, Texas, the Defendants are foreign companies. Id. ¶ 11. SafranHE France, formerly Turbomeca, S.A. and Turbomeca S.A.S., is a French company and domiciliary. Id. ¶7. SafranHE Canada is a Canadian corporation and domiciliary. Id. ¶ 17. Plaintiff contends, however, that there is a significant unity of interest in ownership and control between the three Defendants, such that they are alter egos of one another, Id. ¶ 20. Plaintiff alleges that either SafranHE France is able to exert a great degree of control over the other Defendants, that Defendants are agents of one another, or that they acted in concert, pursuant to agreements, or as a joint venture, such that they should be considered a single business enterprise. Id. ¶¶ 21-24.

         B. Market Allegations

         Civilian and military helicopters are designed and manufactured by Airbus Helicopters ("Airbus"), Bell Helicopter, Leonardo Helicopters, Sikorsky Aircraft Corporation and other companies. Id. ¶ 70. According to Plaintiff, approximately 45% of all civil and parapublic helicopters worldwide are manufactured by Airbus. Id. ¶ 73. Airbus does not manufacture the engines used in its helicopters, instead relying on companies in the business of designing and manufacturing engines. Id. ¶ 75. Defendants are the largest manufacturers dedicated solely to the manufacturing of helicopter engines, and compete with "General Electric, Rolls-Royce, and Pratt & Whitney Canada." Id.

         Plaintiff alleges that there is one geographic market and two relevant product markets.[1] Id. ¶ 244. The geographic is allegedly the United States, while the product markets are: (1) market for Defendants' engines and parts; and (2) market for MRO Services for Defendants' engines.

         (1) Geographic Market

         Plaintiff asserts that the relevant geographic market is the United States. Id. ¶ 244. Nonetheless, Plaintiff contends that (1) Defendants deal in the United States and Canada; (2) Defendants' customers are located in the United States and Canada, and turn to sellers in both countries for engines and parts; and (3) sellers of Safran engines and parts, as well as providers of MRO Services, view as competition sellers and service providers in both the United States and Canada. Id., ¶¶ 245-49.

         (2) Market for Engines and Parts

         The first relevant product market is allegedly the market for Defendants' engines and parts. Id. ¶ 252, Plaintiff states that SafranHE France is the largest supplier of helicopter engines to Airbus, manufacturing all of the engines for the ten Airbus models sold in the United States. Id. ¶ 79. According to the Complaint, there are approximately 1, 632 helicopters in existence with Defendants' engines. Id. ¶ 74. Airbus's other supplier, Pratt & Whitney Canada, is the exclusive supplier for only one Airbus model. Id. Plaintiff alleges that a consumer would not find it cost-effective either to replace an entire engine or to seek FAA recertification of a helicopter for use with another engine to avoid paying Defendants' higher prices. Id. ¶¶ 258-60.

         Moreover, engines and parts manufactured by Defendants are allegedly neither interchangeable nor compatible with engines and parts manufactured by other manufacturers. Id. ¶¶ 253-55. Thus, a part manufactured by General Electric, for example, cannot be used in Defendants' engines.[2] Id. ¶ 257. According to Plaintiffs, the demand for Defendants' engines and parts is thus independent of the demand for other manufacturers' engines and parts. Id. ¶ 256.

         Plaintiff has not alleged, however, the total number of Airbus helicopters or other facts from which the Court could deduce Defendants' market share with Airbus. Similarly, Plaintiff alleged that there are more than 2, 300 helicopters with Defendants' engines, id. ¶ 81, but has not alleged Defendants' market share of all engines or parts in the United States or worldwide, aside from the conclusory statement that Defendants have "a market share of over 50 percent." Id. ¶ 668.

         Plaintiff further claims that while some manufacturers use distributors to sell engine parts, some sell refurbished or used parts, and others sell new replacement parts, id. ¶¶ 83-86, Defendants are the sole distributors of their own parts. Id. ¶¶ 670-71. Plaintiff thus contends that Defendants have monopoly power in the market for their own parts. Id. ¶¶ 668-73.

         (3) Market for MRO Services

         Plaintiff alleges that there is a market for MRO Services. Id., ¶ 93. Plaintiff asserts that "[s]ervices provided to helicopter manufacturers are not within [this] relevant [product] market." Id. ¶262. Some manufacturers provide MRO Services themselves, while others authorize independent service providers to perform MRO Services, Id. ¶¶ 93-94. Purportedly, there is no cross-elasticity[3] between the MRO Services for Defendants' engines and MRO Services for other manufacturers' engines. Id. ¶ 263.

         Defendants provide MRO Services and have also authorized other companies to perform MRO Services subject to limitations-for example, one company is authorized to perform only "Level 4" engine repair and overhaul on a limited number of models, Id. ¶¶ 93-100, Defendants allegedly choose whom to authorize to perform repair services, restrain access to technical information, and withhold the supply of parts necessary to perform certain repairs. Id. ¶ 264. Plaintiff also states, with no factual support, that Defendants have a market share of at least 50% in the MRO Services for their engines and parts, mirroring its conclusory allegations regarding Defendants' share of the engines and parts market. Compare Id. ¶ 674, with Id. ¶ 668. Plaintiff thus contends that Defendants have monopoly power in the MRO Services for their engines and parts. Id. ¶¶ 674-83.

         C. The Dispute over Parts

         For more than a decade, Plaintiff would request MRO Services or engine parts from SafranHE USA or SafranHE Canada, and these Defendants would honor Plaintiffs requests. Id. ¶¶ 101-03. Moreover, Plaintiff allegedly had a business arrangement in which SafranHE USA provided it with access to technical information, allowing Plaintiff to perform MRO Services on Defendants' engines and parts. Id. ¶ 104.

         According to the Complaint, Plaintiff would routinely send parts to SafranHE USA or SafranHE Canada, requesting a quote of an estimated cost for the inspection and service. Id. ¶ 109. SafranHE USA and SafranHE Canada would review the documentation, disassemble the parts, and develop a quote for Plaintiffs review, Id. ¶¶ 110-11. The parties would then negotiate the nature of the service and any remaining or unused parts would be promptly returned to Plaintiff certified as airworthy or marked "as is."[4] Id. ¶¶ 112-18. Between 2001 and 2010, SafranHE USA and SafranHE Canada allowed their customers to request "scrap parts" to be returned in their "as is" condition without SafranHE USA or SafranHE Canada certifying the pails as airworthy, repairable, or unserviceable. Id. ¶¶ 119-20. SafranHE USA and SafranHE Canada would also offer to compensate Plaintiff if its part was lost in their course of dealing. Id. ¶¶ 122-23.

         SafranHE USA and SafranHE Canada did not, however, return to Plaintiff all of the parts it sent them for MRO Services. Id. ¶¶ 125-28 & Exs. A-C. They allegedly lost some of the parts after assigning them work order numbers. Id. ¶¶ 127-31. SafranHE USA and SafranHE Canada marked some other parts as "scrap" but sent them to SafranHE France to be made serviceable again. Id. ¶¶ 136-38, According to Plaintiff, SafranHE USA and SafranHE Canada agreed to compensate Plaintiff for some of these parts, and the parties continued discussing compensation for the remaining lost parts. Id. ¶¶ 132-35, 139-47.

         Plaintiff further alleges that SafranHE USA and SafranHE Canada instituted a policy of "defacing" parts by scratching through the part or serial number, engraving a triangle into the part, or otherwise physically damaging the part (the "Defacing Policy"). Id. ¶ 148. A part that has been defaced allegedly cannot be repaired or serviced pursuant to Federal Aviation Administration ("FAA") regulations. Id. ¶ 149. Even if a part was "scrap," it was still valuable to Plaintiff, Defendants, and their customers, because it could become approved for use in engines if, among other things, the manufacturer increased the usage or service life, or the manufacturer or the FAA approved a new repair method. Id. ¶¶ 150-51, Moreover, Plaintiff alleges that the defacing of its parts was contrary to the parties' course of dealing, FAA regulations, and SafranHE USA's and SafranHE Canada's terms and conditions. Id., ¶¶ 152-58, On prior occasions, SafranHE USA and SafranHE Canada allegedly offered to compensate Plaintiff for the defaced parts. Id. ¶¶ 156-57.

         In late 2008 or early 2009, however, SafranHE USA began holding Plaintiffs unserviceable parts pending policy review and gave Plaintiff an option of either allowing SafranHE USA to hold Plaintiffs parts, or allowing it to return the parts defaced. Id. ¶¶ 159-60. Plaintiff claims that SafranHE USA did not inform it of any decision to change the original course of dealing, but also alleges that SafranHE USA began including language in their quotes authorizing SafranHE USA to deface the parts. Id. ¶¶ 162-63. SafranHE USA emailed Plaintiff about the new Defacing Policy on April 25, 2011, and sought to impose the policy on any part already stored. Id. ¶¶ 164, 290-92. Subsequent attempts to resolve the dispute were unfruitful, with SafranHE France requiring SafranHE USA to implement the policy, and Plaintiff objecting to it and refusing to allow its parts to be defaced. Id. ¶¶ 165-69, 171-76. Plaintiff claims that by this time, SafranHE Canada had already defaced some of Plaintiff s parts. Id. ¶ 170.

         After Plaintiff filed the present action, Defendants announced that they would not deface parts before returning "unsalvageable parts" to customers, so long as the customers would sign an indemnification agreement holding Defendants harmless and commit not to equip Defendants' engines with unserviceable parts. Id. ¶¶ 176-77. Defendants' authorized service providers adopted similar requirements for returning unserviceable parts. Id. ¶¶ 178-82.

         In addition to its allegations regarding the Defacing Policy, Plaintiff complains about Defendants' policy regarding engines and parts involved in an accident (the "Accident Policy") and SafranHE USA and SafranHE Canada's refusal to certify or return parts serviced by Plaintiff. Id. ¶ 185. Pursuant to the Accident Policy, Defendants allegedly restricted the scope of available repair services unless certain conditions are met, id. ¶ 184, and SafranHE USA refused to return Plaintiffs parts certified "as is." Id. ¶¶ 190, 193, 290-92. Plaintiff, however, alleges that it never agreed to be bound by this policy, that the policy is contrary to the parties' course of dealing, and that the policy is not required by FAA regulations. Id. ¶¶ 186-88, 191-92. Additionally, Defendants allegedly refused to repair or certify parts that Plaintiff serviced because Plaintiff was not "approved" to perform Level 3 and 4 services. Id. ¶¶ 194-95. As a result, Plaintiff contends that its parts are not as marketable or profitable. Id. ¶ 198.

         D. The Dispute over Plaintiff's Role as a Service Provider

         In 2007 and 2008, Plaintiff and SafranHE USA discussed allowing Plaintiff to be an authorized provider of "Level 3" MRO Services. Id. ¶ 383. To meet SafranHE USA's requirements, Plaintiff trained personnel and made other investments. Id. ¶ 385. Nonetheless, SafranHE France, through SafranHE USA, denied Plaintiffs request to become an authorized service provider in 2008 and again in 2009. Id. ¶¶ 386-88.

         In 2010, however, SafranHE USA offered Plaintiff a Maintenance Authorization Agreement ("MAA"), which allowed Plaintiff to perform Level 3 maintenance. Id. ¶ 389. Plaintiff maintains that it could not negotiate any change to this agreement because of its significant investment, and so agreed. Id. The MAA obligated Defendants to provide Plaintiff with various documentation including technical information. Id. ¶¶ 389-92. Either party could terminate the MAA for any reason, provided it gave ninety days' written notice. Id. ¶ 393. A breaching party had thirty days to cure a breach of the MAA. Id. ¶ 394.

         In May 2012, SafranHE USA and SafranHE France terminated Plaintiffs access to certain technical information. Id. ¶¶ 395-402. Moreover, SafranHE USA allegedly breached the MAA by refusing to train Plaintiffs technicians. Id. ¶ 411. Mike Gaines[5] admitted to SafranHE USA's president that the MAA was still in effect, but suggested that it be terminated. Id. ¶ 403. According to Plaintiff, SafranHE USA attempted to formally terminate the MAA in August 2014, when it sent Plaintiff a notice of termination due to Plaintiffs breach of the MAA. Id. ¶ 404, Plaintiff alleges, however, that the termination letter was not effective to terminate the agreement because Plaintiff did not receive notice that it was in breach of the MAA, [6] Id. ¶405. Plaintiff further alleges that it had a right to continued access to Defendants' technical information because of its substantial investment. Id. ¶ 406.

         E. Alleged Anticompetitive Conduct

         According to Plaintiff, Defendants engaged in various anticompetitive conduct. Plaintiffs allegations can be grouped into the following categories: (1) MAAs; (2) the Defacing Policy and the Accident Policy; (3) the Fleet Service Agreements; (4) alleged price fixing; (5) alleged group boycott; (6) alleged exclusive supply agreements; (7) other restraints on MRO Services; and (8) monopolization allegations, (1) Maintenance Authorization Agreements

         Plaintiff alleges that the MAAs SafranHE USA signed with Plaintiff and Helicopter Services of Nevada LLC ("HSN") restrain competition in the engines and parts market and the MRO Services market. Id. ¶¶ 421 -58. The MAAs purportedly insulate Defendants from rivals offering less expensive engine parts and services. Id. ¶¶ 433-34, 451-52. Plaintiff alleges to have been harmed by its own MAA and by SafranHE USA's MAA with HSN. Id. ¶¶ 438, 457.

         (2) Defacing and Accident Policies

         Plaintiff also complains that Defendants conspired together and with other MRO Service Providers to implement the "Defacing Policy" and the Accident Policy. Id. ¶¶ 270-76. SafranHE France specifically required authorized service providers to abide by the Defacing Policy, and Defendants required service providers to observe the Accident Policy through a series of service letters. Id. ¶¶ 275-77. For example, SafranHE USA and SafranHE France purportedly entered into contracts with service providers Heli-One Colorado, Inc., Heli-One Canada, Inc., and Heli-One American Support LLC (collectively "Heli-One"), Advanced Helicopter Services of Woodland, CA ("Advanced"), and Vector Aerospace Helicopter Services, Inc. ("Vector"), requiring the service providers to observe Defendants' policies. Id. ¶ 278. Thus, Heli-One, Advanced, and Vector have Defacing Policies. Id. ¶¶ 279-83. Additionally, Defendants and other service providers return unserviceable parts only after a customer agrees to indemnify and hold them harmless, and agrees not to use unserviceable parts in Defendants' engines or other helicopters. Id., ¶¶ 285-87. Similarly, Plaintiff claims that SafranHE USA and SafranHE Canada contracted with Heli-One, Vector, and Advanced to enforce the Accident Policy, meaning that Plaintiff has no available provider to make parts involved in an accident serviceable again. Id. ¶288.

         According to Plaintiff, the alleged contracts adopting, and the purported conspiracy to adopt, the Defacing Policy and Accident Policy suppresses intrabrand competition in both the engine and parts market and the MRO Services market. Id. ¶ 294. The contracts and conspiracy allegedly allow Defendants to entrench their position in the markets for their own parts and services. Id. ¶ 299. In other words, the alleged conduct is meant to prevent the emergence of a market for second-hand parts and for unauthorized repair centers. Id. ¶¶ 300-02.

         (3) Fleet Parts and Service Agreements

         SafranHE USA and SafranHE Canada allegedly entered into Fleet Service Agreements or Fleet Parts Agreements with owners of helicopter fleets. Under a Fleet Service Agreement, a fleet owner is granted access to technical information solely for the purpose of performing services on Defendants' parts that the owners owned, leased, or operated. Id. ¶ 461. SafranHE USA purportedly has such agreements with HSN and Papillon Airways, Inc. ("Papillon"). Id. ¶¶ 452-65. A Fleet Parts Agreement, in turn, provides that SafranHE USA's or SafranHE Canada's certification of any part they service for a fleet owner is nontransferable. Id. ¶ 479. According to Plaintiff, these agreements suppress intrabrand competition for Defendants' parts and have harmed Plaintiff. Id., ¶¶ 466, 471-75, 484, 489-94.

         (4) Price Fixing

         Plaintiff claims that Defendants conspired to fix the price of MRO Services. Id. ¶ 497-502. Specifically, SafranHE USA allegedly entered into agreements with Heli-One, Advanced, Arrow Aviation Company LLC ("Arrow"), and Precision Aviation Services ("Precision"), whereby these service providers agreed not to "undercut" SafranHE USA's MRO Services pricing. Id. ¶¶ 497-500, Advanced, in turn, entered into similar agreements with Rorotech Services, Inc. ("Rorotech") and Helicopter Specialties, Inc. ("Helicopter Specialties"). Id. ¶ 501. Plaintiff contends that this scheme harms intrabrand competition and has caused Plaintiff to pay higher prices for MRO Services. Id. ¶¶ 508-12.

         (5) Group Boycott

         According to the Complaint, Defendants were also concerned with whether Plaintiff was a true end user of its parts, or whether it was secretly reselling them. Id. ¶¶ 555-56. Defendants asked Plaintiff about the real end user and were allegedly not convinced by the information Plaintiff provided. Id. ¶¶ 557-59. Beginning in February 2015, SafranHE USA allegedly instructed its network of authorized service providers not to do business with Plaintiff. Id. ¶¶ 561-65. This alleged group boycott was aimed at eliminating the market for second-hand parts, and harmed competition and Plaintiff. Id. ¶¶ 560-77.

         (6) Exclusive Supply Agreements

         Plaintiff claims that Defendants entered into exclusive supply agreements with Zodiac Aerospace ("Zodiac") and other vendors, such that the vendors agreed to supply engine parts and accessories only to Defendants. Id. ¶¶ 615-18. Defendants allegedly entered into such agreements to ensure control over pricing, quality, and reliability. Id. ¶¶ 617, 624. Plaintiff asserts that customers complain that these supply agreements increase time and cost. Id. ¶¶ 618-22. Plaintiff argues that this vertical restraint harmed Plaintiff, increased costs for consumers, and was unreasonable, unjustified, and anticompetitive. Id. ¶¶ 626-40.

         (7) Other Restraints on MRO Services

         Plaintiff alleges that Defendants imposed other unreasonable restraints on MRO Services. Defendants allegedly: (1) required the use of Defendants' parts and prohibited the installation of a customer's own parts or parts from other repair stations not authorized by Defendants; (2) conditioned the sale of some services on the purchase of modifications a customer has not requested; and (3) conditioned the return of parts used in a level of service a customer is not allowed to perform on the return of the part to an authorized service center. Id. ¶¶ 644-53. These restraints harmed Plaintiff and are allegedly unreasonable, unjustified, and anticompetitive. Id. ¶¶ 653-65.

         (8) Monopolization Allegations

         Finally, Plaintiff alleges that Defendants monopolized or attempted to monopolize the markets for Defendants' engines and parts and MRO Services by: (1) preventing competition from manufacturers of substitute parts by directing repair centers to throw away any substitute part found in Defendants' engines and by informing its customers of this fact; and (2) preventing unauthorized repair centers from accessing Defendants' technical information. Id. ¶¶ 689-92, 701. By taking these actions, Defendants were purportedly able to obtain or maintain monopoly power in the relevant markets. Id. ¶¶ 693-96, 700.

         F. Summary of the Claims

         Plaintiff alleges thirty separate state and federal law claims against Defendants. For the sake of clarity, the Court will group these claims into four categories: (1) breach of contract claims; (2) antitrust claims; (3) tort claims; and (4) deceptive practices claims.

         (1) Breach of Contract Claims

         In Count I, Plaintiff alleges that SafranHE USA and SafranHE Canada breached an express or implied contract by losing, misappropriating, defacing, withholding, or refusing to certify Plaintiffs parts. In Count VIII, Plaintiff alleges that SafranHE USA and SafranHE France breached the MAA.

         (2) Antitrust Claims

         In Counts V and VI, brought under Sherman Act § 1 and California's Cartwright Act, respectively, Plaintiff alleges that Defendants are liable for conspiring and entering into the Defacing Policy and Accident Policy together and with other service providers. In Count VII, Plaintiff alleges that Defendants imposed the Defacing Policy on its unwilling customers in violation of Sherman Act § 1. In Counts IX and X, Plaintiff alleges that the MAAs Defendants signed with Plaintiff and HSN unreasonably restrain trade in violation of Sherman Act § 1. In Counts XI and XII, Plaintiff claims that the Fleet Service Agreements and the Fleet Parts Agreements violate Sherman Act § 1. In Counts XIII and XIV, Plaintiff seeks to recover under Sherman Act § 1 and the Cartwright Act, respectively, for the alleged price fixing. Counts XVII and XVIII purport to state claims under Sherman Act § 1 and the Cartwright Act, respectively, for the alleged group boycott. In Count XX, Plaintiff claims that the alleged exclusive supply agreements violate Sherman Act § 1, Count XXI states a Sherman Act § 1 claim premised on the various other restraints Defendants impose on the MRO ...

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