Petition for Writ of Certiorari — Compagnie Euralair, S. A. v. General Electric Co.

Supreme Court, US

Ae ft

881179 JAN25

No.

ener CLERK

IN THE

Supreme Court of the Gnited

States

OCTOBER TERM, 1998

Oe eee

COMPAGNIE EURALAIR, S.A,

Petitioner,

-against-

GENERAL ELECTRIC COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

PETITION FOR WRIT OF CERTIORARI

ROLANDE CUTNER, ESQ.

Counsel of Record

575 Madison Ave., Suite 2507

New York, New York 10022

(212) 755-5551, exe.373

Counsel for Petitioner

Dated: January 21, 1999

QUESTIONS PRESENTED

Should the Petition be Granted to Exercise This

Court’s Supervisory Power and Correct the

Court of Appeals Departure From Accepted

Practice on Appeal by Refusing to Consider

Arguments on Appeal That Were Properly

Presented to the District Court?

Should the Petition be Granted to Exercise This

Court’s Supervisory Power by Correcting the

Court of Appeals’ Departure From the Normal

Course of Procedures Regarding Summary

Judgment in Refusing to Grant Euralair a

Meaningful Opportunity to Present Evidence

Barring Summary Judgment Based on Improper

Exclusion of Parol Evidence?

Should the Petition be Granted to Exercise This

Court’s Supervisory Power by Correcting the

Court of Appeals’ Departure From the Normal

Course of Procedures Regarding Summary

Judgment in Refusing Refusal to Allow Euralair

a Meaningful Opportunity to Present Evidence

Barring Summary Judgment Establishing GE’s

Agreement to Take Assignment of the Boeing

Contract in Satisfaction of the Advance?

Should the Petition be Granted to Exercise This

Court’s Supervisory Power Over the Lower

Courts and the Federal Rules of Civil Procedure

By Correcting the Court of Appeals’ Erroneous

Sanctioning of the District Court’s Dismissal of

Te

the Counterclaim Contrary to Federal Rule of

Civil Procedure 8?

LIST OF PARENT COMPANIES AND SUBSIDIARIES

Pursuant to Supreme Court Rule 29.6,

Petitioner, Compagnie Euralair, $.A., provides the following

information: Euralair S.A. is a company organized under the

laws of the Republic of France. Euralair $.A. has an ownership

interest in the following entities: Construction Aeronautique,

Mooney Aircraft (USA), Transport Aerien, Euralair Affaires,

Aviation D’Affaires, Euralair International, Flotte Boeing

Charter et Cargo, Euralair Industries, Maintenance D’ Avions,

Euroline Maintenance, Assistance Technique Orly et Rossy,

CFLA, Air Littoral, Lignes Regulieres Regionales, Air Liberte,

and Lignes Regulieres.

QUESTIONS PRESENTED

OPINIONS BELOW

TABLE OF CONTENTS

LIST OF PARENT COMPANIES AND SUBSIDIARIES

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GE Competes to Equip Euralair’s New

Aircraft With its Jet Engines ............

Euralair Chooses GE Engines After GE

Gives $25 Million Incentive Package .....

GE Structures the Rebate/Advance Deal

as ifit Were a Loanto Euralair..........

Euralair Loses Contract With Air France

and Seeks a Delay in Delivery of the

i a

GE Claims Euralair is in Default on its

“Loan” and Refuses to Accept

Assignment of the Boeing Contract as

ee PO i vac cen cs

F. GE Promptly Sues Euralair............. 6

G. Prior to Any Discovery, the District

Court Grants Summary Judgment to GE

and Dismisses Euralair’s Counterclaim .... 7

H. The Court of Appeals Affirms the Entry

of Summary Judgment in an

Unpublished Summary Order ........... 8

REASONS FOR GRANTING THE PETITION ........ 9

POINTI-- The Petition Should be Granted to Exercise This

Court’s Supervisory Power and Correct the

Court of Appeals Departure From Accepted

Practice on Appeal by Refusing to Consider

Arguments on Appeal That Were Properly

Presented to the District Court ......... 10

A. The Court of Appeals Denied Euralair a

Meaningful Appeal by Incorrectly

Concluding That Nearly All of Euralair’s

Arguments Were Unpreserved and

Could not be Advanced on Appeal ...... 11

B. Under This Court’s Standards for

Preservation of Error, Euwralair’s

Arguments Were Preserved and Should

Have Been Considered by the Court of

PE cc a a ee Oe eee ese ent 12

iV

POINT I -

The District Court’s Opinion Establishes

That the Arguments Were Properly

WN. Shae, he ek Ss 14

Consideration of Euralair’s Arguments

Would not Constitute Surprise for GE or

the District Court, Nor Would it

hs arate eee 15

The Petition Should be Granted to Exercise This

Court’s Supervisory Power by Correcting the

Court of Appeals’ Departure From the Normal

Course of Procedures Regarding, Summary

Judgment in Refusing to Grant Euralair a

Meaningful Opportunity to Present Evidence

Barring Summary Judgment ........... 16

Summary Judgment Should Not be

Granted Where Genuine Issues of

WENN Wee ee 6 eR. hk. cee 17

The District Court Incorrectly

Interpreted the Parol Evidence Rule in

Denying Euralair a Meaningful

Opportunity to Establish the Existence

of Genuine Issues of Material Fact ...... 18

Evidence Proffered by Euralair

Establishes the Existence of Genuine

Issues of Material Fact ............... 20

POINT III —

POINT IV -

The Petition Should be Granted to Exercise This

Court’s Supervisory Power to Correct the Court

of Appeals’s Refusal to Allow Euralair to

Present Parol Evidence Regarding GE’s

Agreement to Take Assignment of the Boeing

Contract in Satisfaction of the Advance... 22

The Parol Evidence Rule Does Not Bar

Evidence Where the Written Agreement

ap INNER 8a ei 23

The Agreements Relied on the District

Court Were Incomplete, and the District

Court Erred in Excluding Parol Evidence

The Petition Should be Granted to Exercise This

Court’s Supervisory Power Over the Lower

Courts and the Federal Rules of Civil Procedure

By Correcting the Court of Appeals’ Erroneous

Sanctioning of the District Court’s Dismissal of

the Counterclaim Contrary to Federal Rule of

Brae rd ee 27

CON AAISEOS 0365 is SOR a es 29

TABLE OF AUTHORITIES

FEDERAL CASES

Albany Savings Bank v. Halpin,

EET © OO CONG, 1099) fo os A os viv vc en 13,14

Alexander v. Unification Church of America,

OSS F ae 0s Cee, BN as Fo ica 15

Amcast Industrial Corp. v. Detrex Corp.,

oe i 5s as es. Cs 15

Anderson v. Liberty Lobby, Inc.,

WES Aim OO 6s 8S Rich Gs 18, 22

Burger King Corp. v. Rudzewicz,

AEA Te ee Ce a ss BE cid ee i zk a 18

Carvel Corp. v. Diversified Management Group, Inc.,

TIO Fae mee AOC. AGN) 5 oi ss seg bg a 28

Celotex Corp. v. Catrett,

ihe bin pce ifthe ge CEE CE aE 18, 22

Cruzan v. Director,

In se 18

Detenber v. American Universal Insurance Co. ‘

SOF Es SOTO 55S BEN Sino 8 8 21

Dewey v. Des Moines,

sie iis ec ee ce a I EO EEO 13

Farmer v. Arabian American Oil Co.,

217 F.2e Rs SEE 24

Fidelity & Deposit Co. v. United States,

S715. FS Oe 6 A a 21

Hellenic Lines Ltd. v. Gulf Oil Corp.,

340 F264 SOS CE Ge; FOOD) oo ik i a ee 25

Lebron v. National R.R. Passenger Corp.,

SES Be ik oo a ha os RS ees 13, 15

Lockwood v. Wolf Corp.,

G29 FF eC I os eek. 28

Logan v. Zimmerman Brush Co.,

BEST Oh eS RETO RS 22

Matsushita Electric Industrial Co. v. Zenith Radio Corp.,

STIS US; FPA: EIA ASS 22

In re McLean Industrial, Inc..,

FOF oe ee Ce So ik oc oe ee ees 12

Phelps v. McClellan,

Se 0k re BF 5 5 Nae Ca ea eee 28

Singleton v. Wulff,

ey Ce ED os aio ews aon eens 13

The Sixty-Five Security Plan v. Blue Cross and Blue

Shieid of Greater New York,

$83 F. Supp. 380 (S._D.N.Y. 1984)... .. 250.0 0... 26

Vili

United States Lines Reorganization Trust v. United States,

Phe SU SO ee 12

United States v. Alvarez-Sanchez,

iin shas cngy ests scan, Se te renee 12

Whitaker v. Coleman,

:i7 Eee eet NO). 17

STATE CASES

Adirondack Bank v. Simmons,

210 A.D.2d 651, 619 N.Y.S.2d 383 (3d Dep't 1994) .... 20

Ball v. Grady,

267 N.Y. 470, 196 N.E. 402 (1935) ................ 19

Belknap v. Dean Witter & Co.,

92 A.D.2d 515, 460 N.Y.S.2d 1005 (1st Dep't 1983).... 24

Bernstein v. Kritzer,

253 N.Y. 410, 171 NE. 690 CR A iss ee 20

Chapin v. Dobson,

FE POU EOII 6 os 2IRE ee HE & 24

Components Direct, Inc. v. European American Bank and

Trust Co.,

175 A.D.2d 227, 572 N.Y.S.2d 359 (2d Dep't 1991) ... 28

Dayan v. Yurkowski,

238 A.D.2d 541, 656 N.Y.S.2d 689 (2d Dep't 1997) .... 20

Greenleaf v. Lachman,

EL

216 A.D.2d 65, 628 N.Y.S.2d 268 (1st Dep't 1995) ..... 20

Hallmark Synthetics Corp. v. Sumitomo Shoji New York, Inc.,

26 A.D.2d 481, 275 N.Y.S.2d 587 (1st Dep't 1966) ..... 24

Jamestown Business College Associates, Lid. v. Allen,

c3.8 eo gi, ee ree 24

Laskey v. Rubel Corp., ;

303 N.Y. 69, 100 N.E.2d 140(1951)................ 25

Marinelli v. Unisa Holdings, inc., -

238 A.D.2d 118, 655 N.Y.S.2d 495 (1st Dep't 1997) .... 19

Mitchell v. Lath,

DOT AT BT, The tee. GR RSS) on ee ee eee eX 19

Paolangeli v. Cowles,

208 A.D.2d 1174, 617 N.Y.S.2d 936 (3d Dep't 1994) ... 20

Policastro v. Town of LaGrange,

193 A.D.2d 950, 597 N.Y.S.2d 794 (3d Dep't 1993)... . 25

Thomas v. Scutt,

E27 OLY: Boe, of ee. 961 (ISI)... 19, 23

Val-Ford Realty Corp. v. J.Z.'s Toy World, Inc.,

231 A.D.2d 434, 647 N.Y.S.2d 488 (1st Dep't 1996) .... 19

FEDERAL STATUTES AND RULES

UAE SON 5 I ae 1

Mtiee £0. sk eee ae 1

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witha ytcncats Poincs COLES EOE Cet Te l

a a Os ©. MD 3554 05 Ca ueet ek fick 28

Mitetitends cniinines, , LEME RT Te 27

FOR COE OO ior ee ew 9, 17, 18, 21

MISCELLANEOUS

N.Y.Jur.2d, Evidence and Witnesses ........_ cee

Wright & Miller, Federal Practice and

ina aire weber nck eT Eee . £9,224,27,33

OPINIONS BELOW

The opinion of the court of appeals (App. infra,

A41) is unreported. The opinion of the district court (App.

infra, A1) is reported in the official federal case reporter at 945

F. Supp. 527.

JURISDICTION

The United States District Court for the

Southern District of New York exercised diversity jurisdiction

in this case under 28 U.S.C. § 1332. The United States Court

of Appeals for the Second Circuit had jurisdiction to hear the

appeal from the District Court’s final judgment pursuant to 28

U.S.C. § 1291. The court of appeals entered an order denying

the Petition for Rehearing and Suggestion for Rehearing En

Banc on October 30, 1998 (App. infra A44). The jurisdiction

of this Court is invoked under 28 U.S.C. § 1254(1).

STATEMENT

Petitioner Compagnie Euralair, S.A. (“Euralair”)

is a French corporation engaged in the commercial airline

business. (App. infra Al). Respondent General Electric

Company (“GE”) is, among other things, a manufacturer of jet

aircraft engines. This dispute arose from GE’s efforts to

persuade Euralair to use its jet engines on aircraft Euralair

proposed to purchase from Boeing. GE offered significant

incentives, ostensibly intended to benefit Euralair, in seeking

Euralair’s business, but those incentives resulted in this litigation

and the entry of a multimillion dollar judgment against Euralair

without a trial or the taking of any discovery.

A. GE Competes to Equip Euralair’s

New Aircraft With its Jet Engines.

At the beginning of the decade, Boeing prepared

to introduce a new jet airplane to the aviation market -- the

Boeing 777. Euralair became a “launch customer,” that is, one

of the first commercial purchasers, of the new plane when it

contracted to purchase two new Boeing 777 aircraft in

December of 1990. (App. infra A3-4).

As the aircraft were not to be delivered to

Euralair until 1997, Euralair had time to choose among three

manufacturers of jet engines to be fitted on the planes. The

three manufacturers, Respondent General Electric Company

(“GE”), Rolls Royce, and Pratt & Whitney, engaged in a spirited

competition to persuade Euralair to select their particular jet

engine for the two aircraft. (App. infra A3-4). GE in particular

wanted Euralair to become one of the first companies to risk

buying a 777 equipped with GE’s new engine, thereby

demonstrating to other airlines and potential purchasers faith in

the engine’s manufacturer. (App. infra A3-5, 20-24)

B. Euralair Chooses GE Engines After

GE Gives $25 Million Incentive

Package.

Euralair eventually chose GE’s engines for the

two launch planes, agreeing to select four of the new GE90-B4

engines for the two Boeing 777s it intended to purchase, and

Euralair also agreed to purchase a spare GE90-B4 engine. (App.

infra A3-4). To secure this choice, GE gave Euralair an

incentive package which included a $20 million rebate payable

upon delivery of the planes, with a $10 million interest-free

advance on that amount given to Euralair in December of 1992.

(App. infra A4-5).

to chose its engines over those of other manufacturers. (App.

infra A4 n.2, 20-24).

od GE Structures the Rebate/Advance

Deal as if it Were a Loan to Euralair.

Having agreed to the rebate/advance deal with

Euralair, GE proceeded to structure the deal. Euralair claims

that, due to the public relations concerns, GE set up the deal to

make it appear the rebate was a loan from another company,

Automated Cash Management Trust (“ACMT”), with GE

the interest and was to pay the principal upon delivery of the

planes. (App. infra A4-14).

The documentation relied on by the District

Court does not embody the entire incentive arrangement, but

only purports to deal with the $10 million advance (App. infra

(1)

(2)

(3)

(4)

the “Note Purchase Agreement”

between ACMT and Euralair, under

which ACMT agreed to pay Euralair $10

million in return for ten $1 million notes,

which Euralair agreed to repay by May

31, 1997, with no obligation to pay any

interest unless it defaulted (App. infra

A5-6);

the “Notes,” guaranteed $1 million notes

owed by Euralair to be held by ACMT

and guaranteed by GE (App. infra A6);

the “Guaranty Agreement” between

ACMT and GE, whereby GE agreed to

pay the noteholder fees (prematurity

interest), and upon any default of the

notes, GE guaranteed the principal and

postmaturity interest, with an option

upon default to either purchase the notes

of pay the principal and interest; (App.

infra A6);

the “Reimbursement Agreement”

between GE and Euralair, under which

Euralair was to reimburse GE for paid

principal and other costs, wherein GE

had the discretion to issue “prepayment

instruction” under certain events,

including the failure to order the spare

engine by April 30, 1995, that would

trigger a default under the Note

Purchase Agreement (App. infra A6),

and

|

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—Stt—“‘_S

(5) a“Security Agreement” between GE and

Euralair, under which GE accepted the

assignment of the purchase contract with

Boeing as collateral for its obligations as

guarantor of the notes (App. infra A6)

The parties also entered into a number of letter agreements

(App. infra A6-7).

Under the Security Agreement, GE agreed that,

in the event Euralair could not for any reason purchase the

Boeing aircraft, it would accept assignment of Euralair’s right

to do so. Euralair contends that this assignment, by which GE

would benefit greatly in receiving early delivery of the aircraft,

was an election by GE that taking the assignment would be the

only remedy it would pursue in the event Euralair could not

purchase the aircraft. (App. infra A17-20).

D. Euralair Loses Contract With Air

France and Seeks a Delay in Delivery

of the New Jets.

Upon discovering that its contract with the

government-operated airline Air France was not going to be

renewed, Euralair was forced to seek a delay of the delivery of

the Boeing 777s. (App. infra Al2). Euralair also had no

available funds with which to purchase the spare GE90-B4

engine (App. infra A23-24). Boeing, in an attempt to find a

solution that would avoid a default by Euralair on the contract

for the planes, agreed to move the delivery date of the jets from

April and May of 1997 to October and November of 1998.

(App. infra A12). Euralair contends that because the Boeing

deadline was pushed back, any obligation that it had to purchase

the spare GE engine was also moved, as provided in Letter

5

Agreement No. 2 between GE and Euralair. (App. infra

A12-13). GE contends that the spare engine deadline was fixed

by the Reimbursement Agreement and disputed the applicability

and admissibility of the letter agreement. (App. infra A13).

E. GE Claims Euralair is in Default on

its “Loan” and Refuses to Accept

Assignment of the Boeing Contract as

Previously Agreed.

While Euralair did not buy the spare engine by

the April 30, 1995 deadline, Euralair was willing to assign its

Boeing contract to GE, as it had promised to doin the event it

was unable to purchase the engine or the planes. However, GE

would not accept the assignment, and after refusing to accept

the assignment as agreed, GE issued a “prepayment instruction”

under the Reimbursement Agreemeat on August 21, 1995.

(App. infra A9). On January 29, 1996, GE sent notice to

ACMT that the prepayment instruction triggered a defauit under

the Note Purchase Agreement and the Guaranty Agreement.

(App. infra A10). In this notice, GE also informed ACMT that

GE would exercise its rights under the Guaranty Agreement to

purchase the ten notes from ACMT. (App. Al0). After the

alleged transfer of the notes to GE, GE sent a letter to Euralair

on January 30, 1996 informing Euralair of an acceleration of the

notes and demanding that Enralair pay GE, the alleged new

noteholder, the principal, interest, and costs and expenses it

claimed were now due. (App. infra A10).

F. GE Promptly Sues Euralair.

A week after sending that demand, GE

commenced this action in the United States District Court for

the Southern District of New York on February 6, 1996. GE

6

did not dispute that the arrangements between it and Euralair

were an incentive to persuade Euralair to purchase the spare

engine and order its engines for the 777s. Referring to the

various financing agreements only, GE then claimed that

Euralair breached the Reimbursement Agreement by failing to

order the spare engine by April 30, 1995, an event triggering

GE’s right to purchase the notes under the Guaranty

Agreement, in turn triggering its new right as alleged noteholder

to demand payment of the accelerated notes. (App. infra A8-

26).

Euralair answered and asserted that the financing

agreements did not reflect the intended agreement between the

parties. (App. infra A8-26). Euralair also raised the defense of

estoppel and counterclaimed for a breach of the implied

covenant of good faith under New York law. (App. infra A25-

31). It is undisputed that GE did not file a reply to the

counterclaim within 20 days.

G. Prior to Any Discovery, the District

Court Grants Summary Judgment to

GE and Dismisses FEuralair’s

Counterclaim.

‘Prior to any discovery taking place, GE filed a

motion for summary judgment and motion to dismiss the

counterclaim. The summary judgment motion was supported by

the financing agreements and some letters, with no factual

affidavit or deposition testimony. Euralair responded by

submitting factual affidavits from persons with knowledge of the

arrangements with GE, explaining how the financing agreements

did not reflect the actual intention of the parties but only

represented GE’s efforts to disguise the rebate as a loan. (App.

infra A1-32).

The District Court granted GE’s motion for

summary judgment and dismissed Euralair’s counterclaim and

ultimately awarded interest, costs, and attorneys fees. (App.

infra A34-37). In granting the summary judgment motion, the

District Court construed Letter Agreement No. 2 and the

Reimbursement Agreement “as one agreement” and found that

the agreement “must be interpreted in favor of the specific

provision (that the order deadline was April 30, 1995) rather

than the more general provision (that the order deadline was 24

months before delivery of the first Boeing plane).” (App. infra

A14-15). The District Court refused to consider factual

evidence proffered by Euralair that it determined was barred by

the parol evidence rule. The District Court then concluded that

Euralair had failed to raise any issue of material fact as to

whether it had defaulted. (App. infra A20-27).

The District Court also rejected Euralair’s

argument that the assignment of the Boeing contract to GE

replaced Euralair’s obligation to repay the advance, finding that

this assignment was only one of a number of remedies GE could

choose, apparently at its discretion. (App. infra A17-20).

Similarly, the District Court did not accept Euralair’s contention

that the GE advance did not have to be repaid, finding that the

documents referenced by Euralair describing the rebate system

did not raise an issue of material fact and could not be used as

evidence because they constituted parol evidence that was

inadmissible to construe an integrated agreement. (App. infra

A20-22).

H. The Court of Appeals Affirms the

Entry of Summary Judgment in an

Unpublished Summary Order.

Euralair appealed the decision to the United

States Court of Appeals for the Second Circuit which, in an

unpublished two paragraph summary order, affirmed the District

Court’s decision. The Court of Appeals, without specifying

which arguments it was referring to, stated “several of plaintiffs’

contentions are not properly raised on appeal as they were not

argued to the district court. As for the remaining claims, we

affirm substantially for the reasons stated by the district court.”

(App. infra A41-42).

REASONS FOR GRANTING THE PETITION

In affirming the District Court’s decision, the

Court of Appeals, without explanation, has so far departed from

the accepted and normal course of proceedings under the

Federal Rules of Civil Procedure that this Court should invoke

In addition, the Court of Appeals failed to follow

clear precedent from this Court in sanctioning the District

Court’s misapplication of Federal Rule of Civil Procedure 56,

granting summary judgment without allowing Euralair a

legitimate opportunity to establish by evidence the existence of

genuine issues of material fact. The District Court strayed from

the strictures of the Federal Rules of Civil Procedure in entering

summary judgment in this case based on an erroneous and

unsupported interpretation of the parol evidence rule. Euralair,

denied a chance to fight summary judgment, found itself subject

9

to a multi-million dollar judgment based on a sham transaction.

The petition should be granted to overturn this improper

precedent and afford Euralair an opportunity to raise genuine

issues of fact.

Finally, the Petition should be granted to reaffirm

the primacy of the Federal Rules of Civil Procedure and correct

the District Court’s clear disregard for the rules in dismissing

Euralair’s counterclaim. GE failed to reply to that counterclaim

as provided by the rules and thereby admitted the allegations

therein, allegations that established the transaction as

characterized by GE was a sham. Completely ignoring these

admissions and relying only on a minimal fact record, the

District Court improperly dismissed the counterclaim, and the

Court of Appeals sanctioned this action, disregarding direct

precedent from this Court and the clear procedures laid out in

the Federal Rules. This marked departure from the Federal

Rules must be corrected by granting this Petition.

POINTI— The Petition Should be Granted to Exercise

This Court’s Supervisory Power and Correct

the Court of Appeals Departure From

Accepted Practice on Appeal by Refusing to

Consider Arguments on Appeal That Were

Properly Presented to the District Court.

The Petition should be granted to correct the

Court of Appeals refusal to give Euralair any meaningful

opportunity to make its case on appeal. The Court of Appeals

apparent rejection of Euralair’s arguments on preservation

grounds is inconsistent with this Court’s jurisprudence

establishing Euralair’s arguments were preserved and should

have been considered. The District Court’s own opinion

establishes that the arguments were properly made and

10

preserved. Euralair’s arguments would not have constituted

surprise for GE or the District Court or been prejudicial to GE

and should have been considered under the applicable

precedents. By refusing to consider arguments, the Court of

Appeals strayed from the accepted and normal course of

to correct the erroneous and damaging precedent. Supreme

Court Rule 10.

A. The Court of Appeals Denied

Euralair a Meaningful Appeal by

Incorrectly Concluding That Nearly

All of Euralair’s Arguments Were

Unpreserved and Could not be

Advanced on Appeal.

On appeal, Euralair’s principal brief raised five

main points, which were presented to the Court of Appeals as

follows: 1) That GE had failed to produce sufficient evidence

in its motion for summary judgment that it was the holder of the

Notes at the time the lawsuit was commenced; 2) parol evidence

is admissible to prove that what purported to be a loan

agreement was in fact not a loan but a rebate advance that

Euralair was not obligated to repay: 3) parol evidence was

admissible to raise issues relating to the entire rebate

arrangement between GE and Euralair; 4) GE should be

estopped from electing any remedy other than accepting the

assignment of the Boeing contract; and 5) the District Court

erred in dismissing Euralair’s affirmative defense and

counterclaim for breach of the implied duty of good faith and

fair dealing. In responding to Euralair’s brief, GE asserted that

only the last argument had been raised before the District Court,

despite the clear discussion of the issues in the District Court’s

1]

opinion. The Court of Appeals apparently accepted this

argument (App. infra 442), although it never actually identified

which issues it claimed were unpreserved and it never explained

why any issue was not properly preserved. In so doing, the

Court of Appeals defied settled precedent from this Court and

failed to follow the clear directions of this Court and the rules.

B. Under This Court’s Standards for

Preservation of Error, Euralair’s

Arguments Were Preserved and

Should Have Been Considered by the

Court of i

Ten Geeubel heninle teplatiade tie cane

denying Euralair any opportunity to even raise clearly-preserved

issues on appeal. As a general rule, an issue that was not raised

before a district court cannot be raised for the first time on

appeal. United States v. Alvarez-Sanchez, 511 U.S. 350, 360

n.5 (1994). However, as this Court has recognized, the very

process of litigation often redefines and recharacterizes issues as

they develop and ripen during the course of proceedings. For

example, recognizing the need for some flexibility in assessing

preservation issues, appellate courts generally do not require

that an appellant’s statement of issues on appeal be in all things

identical to those raised in the district court. See Jn re McLean

Indus., Inc., 30 F.3d 385, 387 (2d Cir. 1994), cert. denied sub

nom. United States Lines Reorganization Trust v. United States,

513 U.S. 1126 (1995).

In this case, the Court of Appeals did not

demonstrate any flexibility and, in doing so, departed from the

normal and accepted course of proceedings with respect to

preservation of error. While in Singleton v. Wulff, 428 U.S.106

(1976), this Court stated that the question of what a court may

12

National R.R. Passenger Corp., 513 U.S. 374 (1995), the

traditional rule is that "once a federal claim is properly

‘ vpeals abused what discretion it had when it completely

excluded Euralair’s arguments, denying Euralair any Opportunity

to have its legitimate issues considered on appeal.

In particular, the Court of Appeals erred to the

oxent that it excluded Euralair’s arguments on the basis that the

parol evidence was offered under this exception. Albany

Savings, 117 F.3d at 671. The Court of Appeals rejected this

13

argument, holding that the plaintiff did sufficiently raise the

ambiguity issue, although it was “no model of clarity.” Jd. In

reaching thas conclusion, the Court of Appeals discussed the fact

that, while the plaintiff did not cite cases or articulate the exact

argument with respect to an exception to the parol evidence

tule, the plaintiff did urge the district court to admit the parol

evidence and did highlight the pertinent facts and suggest that

the language was ambiguous. The Court of Appeals therefore

held that the parol evidence argument had been preserved for

appeal. Jd Similar reasoning can be applied in this case, as

Euralair clearly raised the issues in the District Court, and the

Court of Appeals’ inexplicably and improperly refused to

consider them.

c. The District Court’s Opinion

Establishes That the Arguments Were

Properly Preserved.

Euralair’s argument in the District Court focused

primarily on the issues of using parol evidence, including the

evidence in the factual affidavits submitted in its response, to

explain the entire sale/rebate transaction, thereby correctly

interpreting what on its surface might appear to be a loan

transaction in the context of the full rebate/advaace arrangement

among the parties. The District Court’s opinion is replete with

references to the parol evidence introduced by Euralair and

Euralair’s efforts to use that evidence to establish issues of

material fact and thereby avoid summary judgment. (App. infra

Al-32).

14

int ae gS

D. Consideration of Euralair’ s

Arguments Would not Constitute

Surprise for GE or the District Court,

Nor Would it Prejudice GE.

court actually considered the argument. Lebron v. National

Promissory instead of equitable estoppel, to argue that the

argument, clearly decided by the District Court in ruling that GE

had a choice of remedies, was somehow not presented. (App.

infra A23-26). Substance, and not labels, controls, in keeping

with the liberal pleading standards established by the Federal

Rules of Civil Procedure. See A lexander v. Unification Church

of America, 634 F.2d 673, 678 (2d Cir. 1980). Substantively,

the basic issue is unchanged — because of its promises and

commutments to Euralair, was GE estopped from choosing any

15

remedy in the event of default other than accepting assignment

of the Boeing contract? The issue was clearly presented to the

District Court and clearly preserved.

The Court of Appeals should have at least

exercised its discretion to review the issues on the merits in

consideration of the grave consequences to Euralair stemming

from the imposition of this multi-million dollar liability on this

small company, subjecting it to potential financial ruination by

entering summary judgment in contravention of established

rules. In refusing to even identify what issues it would not

consider and refusing to explain why it would not consider

issues, all in direct contradiction to established procedure and

precedent, the Court of Appeals put itself outside the norm and

set dangerous precedent affecting the protections afforded by

the appeal process. Only intervention by this Court will give

Euralair its day in court and protect future litigants from similar

arbitrary and unwarranted acts by a federal appellate court.

POINT II— The Petition Should be Granted to Exercise

This Court’s Supervisory Power by

Correcting the Court of Appeals’ Departure

From the Normal Course of Procedures

Regarding Summary Judgment in Refusing

to Grant Euralair a Meaningful Opportunity

to Present Evidence Barring Summary

Judgment.

This Court should exercise its supervisory power

to correct the Court of Appeals’ departure from accepted

practice in affirming the entry of summary judgment in this

matter. The District Court denied Euralair the protections

required to be afforded a party responding to a motion for

summary judgment under Federal Rule of Civil Procedure 56, by

16

improperly invoking the parol evidence rule to forbid Euralair

from presenting evidence establishing the existence of genuine

issues of material fact. In improperly interpreting and applying

the rule, the District Court foreordained the result in this case --

a multi-million dollar judgment imposed on Euralair without a

trial and in contravention of the spirit and letter of the Federal

Rules.

A. Summary Judgment Should Not be

Granted Where Genuine Issues of

Material Fact Exist.

Summary judgment is not be “used to deprive a

litigant of a full trial of genuine fact issues.” 10A Wright &

Miller, Federal Practice and Procedure 2d § 2712 (1998). In

an early decision interpreting the summary judgment rule, the

Fifth Circuit opined that

summary judgment procedure is not a catch

penny contrivance to take unwary litigants into

its toils and deprive them of a trial, it is a liberal

measure, liberally designed for arriving at the

truth. Its purpose is not to cut litigants off from

their right of trial by jury if they really have

evidence which they will offer on a trial, it is to

carefully test this out, in advance of trial by

inquiring and determining whether such evidence

exists.

Whitaker v. Coleman, 115 F.2d 305, 307 (Sth Cir. 1940). This

Court, in its more recent decisions interpreting the rule, has

explained that summary judgment is not a substitute for trial.

“Credibility determinations, the weighing of evidence, and the

drawing of legitimate inferences from the facts are jury

17

functions, not those of a judge, whether he is ruling on a motion

for summary judgment or a motion for directed verdict.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A

party responding to a motion for summary judgment must be

given a meaningful opportunity to respond and combat the

motion. See Celotex Corp. v. Catrett, 477 U.S. 317, 327

(1986) (Rule 56 must be construed with due regard for party

bring motion and for the rights of persons asserting defenses

“adequately based in fact to have those claims and defenses tried

to a jury’).

In this case, it is undisputed that evidence

establishing the existence of material fact issue was presented.

The District Court refused to consider that evidence, in

contravention of clear precedent and to the marked detriment of

Euralair.

B. The District Court Incorrectly

Interpreted the Parol Evidence Rule

in Denying Euralair a Meaningful

Opportunity to Establish the

Existence of Genuine Issues of

Material Fact.

The District Court’s interpretation and

application of the parol evidence rule was improper and

unsupported. A basic common law principle, the parol evidence

tule generally bars the introduction of evidence extraneous to a

written agreement for the purpose of contradicting the terms of

that agreement. See Cruzan v. Director, 497 U.S. 261, 284

(1989); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 467

(1985). Under New York law, which governs the agreements

between the parties in this case (App. infra A6 n.4), there are a

18

number of exceptions to the parol evidence rule applicable here.

Exceptions to the parol evidence rule are

generally grouped into two categories. As the New York Court

agreement, does not contradict written agreement, and concerns

something that parties would not ordinarily be expected to

embody in written agreement), citing Mitchell v. Lath, 247 N.Y.

377, 381-82, 196 NE. 402 (1928): see generally Ball v. Grady,

267 N.Y. 470, 196 NE. 402 (1935). See discussion infra Point

evidence to prove that the written agreement was not intended

by the parties to create any enforceable obligations. See Dayan

v. Yurkowski, 238 A.D.2d 541, 541, 656 N.Y.S.2d 689, 690 (2d

Dep’t 1997) (parol evidence admissible to show that a writing

purporting to be a contract is no contract at all), citing Val-Ford

Realty, 231 A.D.2d at 435; Greenleaf v. Lachman, 216 A.D.2d

65, 66, 628 N.Y.S.2d 268, 269 (1st Dep’t 1995) (applying

exception to parol evidence rule to nullify contract); Adirondack

Bank v. Simmons, 210 A.D.2d 651, 653, 619 N.Y.S.2d 383 (3d

Dep’t 1994) (parol evidence admissible to “destroy the written

instrument”), citing 58 N.Y Jur.2d, Evidence and Witnesses,

§ 609, at 239; Paolangeli v. Cowles, 208 A.D.2d 1174, 1175,

617 N.Y.S.2d 936, 937-38 (3d Dep’t 1994) (parol evidence rule

does not bar admission of evidence showing purported

agreement was never intended to be binding obligation), citing

Richardson, Evidence § 607, at 602 (Prince 10th ed.), Bernstein

v. Kritzer, 253 NY 410, 416, 171 N_E. 690 (1930).

‘. Evidence Proffered by FEuralair

Establishes the Existence of Genuine

Issues of Material Fact.

The evidence submitted by Euralair to the

District Court, including the various pieces of correspondence,

should have been considered to determine whether they created

an issue of material fact with respect to whether the written

agreements were actually intended to create any enforceable

obligations at all. The documents demonstrate that the parties

never intended for Euralair to obtain a $10 million loan,

guaranteed by GE, but in fact the GE was giving Euralair a $25

million incentive package to lure Euralair into using GE engines

on the Boeing jets it had ordered. Euralair proffered evidence

that GE understood that Euralair had no funds with which to

repay any purported loan, that the “loan” was in fact an advance

20

aR nach See deaigadapeetyy ool SOC stint Vicks Salgh var sos big

RIE ABE Liptiaen

el a a er ee

to use its engines by giving that company, Euralair, more than

$20 million in incentives,

by jury); cf Logan v. Zimmerman Brush Co. 455 U.S. 422

(1982) (party has property interest to be protected by due

process in right to use procedures set up by government to

adjudicated disputes);

This Court’s intervention in its supervisory role

is crucial. As commentators have noted, “summary judgment

must be used with a due regard for its purposes and should be

cautiously invoked so that no person will be improperly

deprived of a trial of disputed factual issues.” 10OA Wright &

Miller, Federal Practice and Procedure 2d § 2712 (1998). This

Court’s carefully crafted summary judgment jurisprudence, as

set out in Celotex Corp. v. Catrett, 477 U.S. 317 (1986),

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), and

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574 (1986) is adversely affected impacted by this improper use

of a state parol evidence rule to bar a party, Euralair, from

proffering evidence defeating summary judgment. To protect

the integrity of summary judgment jurisprudence and allow

Euralair its rightful day in court, the Petition should be granted.

POINT IiI— The Petition Should be Granted to Exercise

This Court’s Supervisory Power to Correct

the Court of Appeals’s Refusal to Allow

Euralair to Present Parol Evidence

Regarding GE’s Agreement to Take

Assignment of the Boeing Contract in

Satisfaction of the Advance.

The Petition should also be granted to invoke

this Court’s supervisory power to correct the sharp departure

from the norm of the Court of Appeals decision to bar evidence

establishing that GE, in the event of a default, agreed to accept

assignment of the Boeing contract in full satisfaction ox the

22

lieemeemeeennenemenenetiiiainaieeinessnitiiiiiiaiiaistiiiaiiaiaal

advance. Under applicable New York law, the parol evidence

tule does not bar parol evidence where the written agreements

at issue are incomplete. Here, it is undisputed that the

have been barred. By again erroneously invoking the parol

evidence rule, the District Court, as sanctioned by the Court of

Appeals, denied Euralair any meaningful Opportunity under

Opportunity to raise issue of fact or present a case to a trier of

fact.

A. The Parol Evidence Rule Does Not

Bar Evidence Where the Written

Agreement is Incomplete.

The District Court, and the Court of Appeals that

affirmed its opinion, improperly interpreted New York law to

deny Euralair the chance to establish that GE elected the

assignment remedy to the exclusion of other remedies, including

this lawsuit. Under New York law, parol evidence may be

admitted even where a written agreement exists when the

agreement is incomplete and the parol evidence would

complete the entire agreement of which the writing was only a

part.” Thomas v. Scutt, 127 NY. 133, 27 N.E. 961, 962-63

(1891). Clear precedent establishes that extrinsic materials can

23

be used where the parties intended those materials, and the

agreements they evidence, to be part of the overall agreement.

Hallmark Synthetics Corp. v. Sumitomo Shoji New York, Inc.,

26 A.D.2d 481, 484, 275 N.Y.S.2d 587, 590 (1st Dep’t 1966)

(extrinsic materials relevant where “it appears they were

intended to be part of the contract”) (citations omitted).

To fall within this exception to the parol evidence

rule, the contract between the parties must not appear to

embrace all of the details of the agreement so as to “express the

whole arrangement between the parties.” Jamestown Business

College Associates, Ltd. v. Allen, 172 N.Y. 291, 64 N.E. 952,

953 (1902). In addition, any extrinsic material proffered must

not expressly contradict the terms of the written instrument. Id.

Under this exception, often called the collateral promise

exception, parol evidence has long been held admissible to

establish the existence of collateral or side agreements. See, e.g.

Chapin v. Dobson, 78 N.Y. 74, 81-82 (1879) (oral guarantee,

which did not expressly contradict written contract, was

admissible).

Whether or not an agreement is complete for

purposes of this exception may be established by looking to the

incompleteness of the writings and the negotiations that led up

to the preparation of the writings. See Farmer v. Arabian

American Oil Co., 277 F.2d 46, 40 (2d Cir.), cert. denied, 364

U.S. 824 (1960). For example, an agreement may not be

considered complete where it is silent as to a fundamental

obligation of one of the parties. See Belknap v. Dean Witter &

Co., 92 A.D.2d 515, 460 N.Y.S.2d 1005, 1007 (Ist Dep’t

1983), aff'd, 61 N.Y.2d 802, 462 N.E.2d 125 (1984). With

such a partially integrated agreement, parol evidence, while it

still may not be used to contradict written terms, may be used

supplement the written terms and add additional elements to the

24

SES oe * S =

agreement. See Laskey v. Rubel Corp., 303 N.Y. 69, 100

N.E.2d 140, 14] (1951).

B. The Agreements Relied on the District

Court Were Incomplete, and the

District Court Erred in Excluding

Parol Evidence.

The financing agreements that form the basis of

GE’s claim were clearly incomplete, as the $10 million advance

was only part of a larger incentive deal involving more than $20

million. (App. infra A3-9). In effect, more than half of what

the parties had agreed to was not even mentioned in the papers

presented to the District Court and the Court of Appeals by GE.

The parties negotiated a package worth more than $20 million,

not the truncated $10 million “loan” upon which GE makes its

claims. The District Court did not follow clear New York

precedent when it refused to consider evidence of an additional

agreement, beyond the only partially integrated specific written

documents, that GE had agreed to accept the assignment.

The District Court and the Court of Appeals also

erred to the extent that they relied on the integration clause in

the Reimbursement Agreement to bar parol evidence. (App.

infra A21-22). In interpreting New York law, the Court of

Appeals itself has held that such a clause is not controlling.

Hellenic Lines Ltd. v. Gulf Oil Corp., 340 F.2d 398, 401 (2d

Cir. 1964) (parol evidence not barred where written contract

“Was not a complete statement of the agreement by the parties,

in spite of the integration clause.”); see also Policastro v. Town

of LaGrange, 193 A.D.2d 950, 597 N.Y.§.2d 794, 796 (3d

Dep’t 1993) (merger and integration clause may be disregarded

where parties manifested intent to have agreement provisions

survive memorialization). Even where an integration clause is

25

present, under New York law, the issue of the intent of the

parties, as evidenced both by the writing and the parol evidence

of additional agreements, is best left to the trier of fact and

should not be cavalierly decided on summary judgment. See

The Sixty-Five Security Plan v. Blue Cross and Blue Shield of

Greater New York, 583 F. Supp. 380, 390 (S.D.N.Y. 1984)

(evidence of party’s reliance on collateral oral agreement should

be considered even where there is an integration clause, and

parties’ understanding of the contract should be left to the trier

of fact). :

The agreements presented to the District Court

and the Court of Appeals were clearly not the complete

memorialization of the incentive deal. In addition, GE made

judicial admissions by failing to reply to Euralair’s counterclaim

that confirm the transaction actually involved much more than

the information committed to paper and presented in Court.

GE’s agreement to accept assignment of the Boeing contract in

the event of default does not in any way contradict the express

terms of the written documentation, and GE has admitted that

the documents do not memorialize the entire deal between the

parties. The petition should be granted to establish that proper

procedures must be followed in evaluating summary judgment

motions and parties responding to motions must be afforded a

meaningful opportunity to establish the existence of fact issues

sufficient to defeat summary judgment.

26

ee

POINTIV- The Petition Should be Granted to Exercise

This Court’s Supervisory Power Over the

Lower Courts and the Federal Rules of Civil

Procedure By Correcting the Court of

Appeals’ Erroneous Sanctioning of the

District Court’s Dismissal of the

Counterclaim Contrary to Federal Rule of

Civil Procedure 8.

claims even though GE did not answer or otherwise respond to

the counterclaim within the time frame established by the

Federal Rules of Civil - This Court should exercise its

supervisory power over the lower courts and over the Federal

Rules of Civil Procedure and grant the petition to correct the

The Federal Rules of Civil Procedure make it

Clear that a party served with a counterclaim “denominated as

such” must file a responsive pleading, and failure to do so will

result in a default. Fed. R. Civ. P. 55(d). “Since a counterclaim

is basically a defendant’s complaint, it is perfectly logical to

oblige a plaintiff to respond to it.” 5 Wright & Miller, Federal

Practice and Procedure 2d § 1184 (1990). Generally, a reply

to a counterclaim or other proper response (e.g. motion to

dismiss) must be filed within twenty days after service of the

counterclaim.

27

The consequences of failing to respond to a

counterclaim are meant to be harsh. Failure to reply to a

counterclaim “acts as an admission of its allegations under Rule

8(d).” 5 Wright & Miller, Federal Practice and Procedure 2d

§ 1184 (1990); see also Fed. R. Civ. P. 8(d); Phelps v.

McClellan, 30 F.3d 658, 663 (6th Cir. 1994); Lockwood v. Wolf

Corp., 629 F.2d 603, 611 (9th Cir. 1980). Indeed, as

commentators have pointed out, “to avoid the effect of the first

sentence of Rule 8(d), a pleader must do more than make a

passing reference to the allegations in the preceding pleading or

interpose an ambiguous response to them . . . a denial must meet

the substance of the averments denied; otherwise it will be

treated as an admission under Rule 8(d).” 5 Wright & Miller,

Federal Practice and Procedure 2d § 1279 (1990).

Ii is undisputed that Euralair filed a counterclaim

clearly identified as such alleging that the transaction involved

much more than the purported “loan” GE had represented to the

Court and that GE violated the implied covenant of good faith

and fair dealing attendant to the agreements between the parties.

(App. infra A27-31). Under New York law, implicit in all

contracts subject to that state’s law is an implied covenant of

fair dealing and good faith. Components Direct, Inc. v.

European American Bank and Trust Co., 175 A.D.2d 227, 572

N._Y.S.2d 359, 361 (2d Dep’t 1991). As the Court of Appeals

itself stated in another case, “this covenant includes ‘an implied

undertaking on the part of each party that he will not

intentionally and purposefully do anything to prevent the other

party from carrying out the agreement on his part.” Carvel

Corp. v. Diversified Management Group, Inc., 930 F.2d 228,

230 (2d Cir. 1991). GE did not answer or otherwise respond to

this claim within the time period set out in the Federal Rules of

Civil Procedure.

28

ee

GE’s untimely motion to dismiss. The Court of Appeals

sanctioned this violation of due Process and departure from the

dismissed, GE’s judicial admissions should have been used

against it, and this departure from Procedure presents an

important issue of federal law justifying invocation of this

Court’s supervisory power over the lower courts and over the

tules themselves by granting this Petition.

CONCLUSION

The questions presented in this Petition are

important questions of law involving this Court’s supervisory

Power over the lower courts and the federal rules. The Petition

for a Writ of Certiorari should be granted.

Res y submitt

(okay

Rolande Cutner, Esq. (RC 1412)

Attorney for Petitioner

575 Madison Ave., Suite 2507

New York, NY 10022

(212) 755-5551, ext. 373

29

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

X

GENERAL ELECTRIC COMPANY,

Plaintiff.

v. > OPINION & ORDER

- 96 Civ. 884(SAS)

COMPAGNIE EURALAIR, S.A.,

Defendant,

X

SHIRA A. SCHEINDLIN, U.S.D.J.:

Introduction

This is a contract dispute arising os of agreements between

Plamtiff General Electric Company (“GE”) and Defendant Compagnie

Euralair, S.A. (“Euralair”). GE is a New York corporation whose

business includes the manufacture of aircraft engines. Affidavit of

Aaron Marcu, Attomey for Plaintiff (“Marcu Aff.”), Ex. 2 (Complaint)

4 6. Euralair, a French corporation, is engaged in the commercial

airline business. Marcu Aff., Ex. 4 (Answer) § 1. GE’s complaint

states two causes of action, each alleging a breach by Euralair of one of

the agreements structuring the sale to Euralair of GE jet engines.

Euralair answered the complaint, asserted an affirmative defense of

promissory estoppel, and counterclaimed for breach of the covenant of

Al

good faith and fair dealing. GE has moved for summary judgment and

for dismissal of the counterclaim.

Ml. Standard for Summary Judgment

A party is entitled to summary judgment when there is “no

genuine issue of material fact” and the undisputed facts warrant

judgment for the moving party as a matter of law. See Fed. R. Civ. P.

56(c); Celotex v. Catrett, 477 U.S. 4317 (1986); Anderson v. Liberty

Lobby, Inc,, 477 U.S. 242 (1986). The burden of demonstrating the

absence of a material factual dispute rests on the moving party. See

Gallo v, Prudential Residential Services, Ltd,, 22 F. 3d 1219, 1223 (2d

Cir. 1994). However, the non-moving party must present “significant

probative supporting evidence” that a factual dispute exists. Fed. R.

Civ. P. 56(e); Anderson, 477 U.S. at 249. The opposing party may not

rely on unsupported denials or allegations. Anderson, 477 U.S. at 256.

For purposes of summary judgment, the court’s role is to

determine whether issues exist to be tried, not to try issues of fact. See

Balderman v, United States Veterans Admin., 879 F.2d 57, 60 (2d Cir.

1989); Donahue v, Windsor Locks Bd, Of Fire Comm'rs, 834 F.2d 54,

58 (2d Cir. 1987). All ambiguities must be resolved and all inferences

A2

drawn in favor of the non-moving party on a material issue of fact,

Summary judgment is improper. Chambers v. TRM Copy Centers

Corp., 43 F.3d 29, 37 (2d Cir 1994).

Furthermore, in contract actions, “summary Judgment is

appropriate where the language of the contract is unambiguous, and

reasonable persons could not differ as to its meaning.” United States

y..0.35 of an Acre of Land 706 F Supp. 1064, 1070 (SDNY. 1988).

A court may not draw any inference or give any Construction to the

terms of a written contract that “may be in conflict with the clearly

expressed language of the written agreement.” Jd.

Tl. Facts

In December 1990, Euralair agreed to buy from Boeing two

Boeing 777 airplanes, each equipped with two jet engines. Defendant’s

Statement Pursuant to Local Civil Rule 3(g) (“Def. 3(g)”) 71.’ After

A3

a competition among three manufacturers, Euralair selected GE to

manufacture the engines that would be placed in the two Boeing planes.

Defendant’s Memorandum in Opposition to Summary Judgment and

Dismissal of Defendant’s Counterclaim (“Def. Mem.”) at 4; Def. 3(g)

4 l(a). Further, Euralair agreed to place an order with GE for a spare

engine by a certain date. Pl. 3(g) 41; Def. 3(g) 41(a).

A. Structure of Purchase/Advance

Euralair’s purchase of the engines was effected through a

series of financing agreements. GE agreed to give Euralair a $20

million rebate on the price of the engines and to arrange for Euralair to

receive a payment of $10 million of the rebate (also called an

Introductory Allowance).*

2. According to GE, the $10 million Introductory Allowance was

to Local Civil Rule 3(g) (“PI. 3(g)”) J 1. The Court assumes that GE

meant to say that while the Euralair/Boeing agreement was made in 1990,

the Euralai-’~= agreements dated from 1992. See Affidavit of Rolande

Cutner, Attorney for Euralair (“Cutner Aff.”), Ex.1.

“The parties disagree over whether GE agreed to give Euralair

the rebate “in connection with” the agreements for Euralair to buy planes

from Boeing and for Euralair to order a spare engine form GE. See PI.

3(g) 4 2; Def. 3(g) { 2. Euralair contends that GE agreed to provide a

rebate because GE was determined to have Euralair select GE’s engine

over that of its competitors. Def. 3(g) 4 2

A4

EE" tt

structured in the following manner: (1) Euralair issued notes in the

. amount of $10 million (the “Notes”) and sold the Notes to Automated

Cash Management Trust (ACMT), an institutional investor; (2) GE

guaranteed Euralair’s repayment of the Notes: and (3) Euralair

indemnified GE’s guarantee obligations. Pl. 3(g)44. On December

22, 1992, GE, Euralair and ACMT executed the financing agreements,

which GE attached as exhibits to the complaint. P. 3 (g) 4 5.° Euralair

does not directly dispute this characterization of the transaction, but

states that the financing agreements attached to the complaint “do not

reflect the actual nature of the discussion entertained between GE and

Euralair during the year 1992.” Def 3(g) J 4.

B. Relevant Financing Agreements

The financing agreements attached to the complaint consist of

the following: Note Purchase Agreement (Cplt. Ex. A), made between

*Euralair purports to dispute this allegation (see Def. 3(g) 4 5).

However, Euralair does not deny that the agreements exist. Euralair

sumply disputes the relevance of the agreements. Because the agreements

are attached to the complaint, the Court can see for itself that the

agreements exist, and that they were signed by certain parties (including

Euralair, which signed the Note Purchase Agreement (Ex. A), the Notes

(Ex. B), and the Reimbursement Agreement (Ex. D.)). The relevance of

a document is not a fact which can be disputed.

AS

Euralair and ACMT; Notes (Cpit. Ex. B), made between Euralair and

the Noteholder (ACMT at time of making); Guaranty Agreement (Cplt.

Ex. C), made between GE and’ ACMT; Reimbursement Agreement

(Cpit. Ex. D), made between GE and Euralair; and the Administrative

Agreement (Cpit. Ex. E), made among GE, ACMT, and Pittsburgh

National Bank. All of the agreements are dated December 22, 1992.*

Several other agreements are relevant to the dispute between

GE and Euralair. First, a Security Agreement was also executed by GE

and Euralair on December 22, 1992 (see Second Marcu Aff., dated May

8, 1996, Ex. 1). According to GE, this agreement represents GE’s

acceptance, as collateral and in “connection with guaranteeing the $10

miilica wan to Suruai, ” cf 3 security interest ia 2arslar 6 comaraet

with Boeing for the two 777 jet airplanes. Pl. Reply Mem. at 4.

Second, GE and Euralair entered into Letter Agreement No, 2, dated

December 16, 1992 (see Second Marcu Aff, Ex. 2; Cutner Aff., Ex. 3).

This letter agreement consists of a three-page commitment letter and

two attachments. GE contends that this letter agreement was entered

*Each of these agreements contains a “governing law” provision

designating New York law as controlling.

A6

LN le PRE CR Se eT re

into in anticipation of the detailed financing agreements that followed

six days later. P. Reply Mem. at 5.

C. Key Provisions of the Agreements

Under the Reimbursement Agreement, “[e]ach of the following

acts, occurrences or conditions before the Final Maturity Date shall

constitute an ‘Event of Prepayment’: (b) The failure by {Euralair] to

place a firm and unconditional order with [GE] not later than April 30,

1995 for one new GE90-B4 spare aircraft engine ...”* Cplt. Ex. D, §

6.1 (b). Further, “[i}f an Event of Prepayment has occurred, [GE] may,

in its sole discretion, instruct {Euralair] to exercise its night to prepay

all or any portion of the outstanding principal of the Notes...” Id. §

6.2. If Euralair “shall fail to perform or observe any of its agreements,

covenants or obligations arising under this” agreement, such failure

shall “constitute an ‘Event of Default” under the Reimbursement

Agreement. Id. § 7.1(b)(1).

"Despite Euralair’s signature (through Alex Couvelaire. its

President) on the Reimbursement Agreement, Euralair now disputes that

it was required to order a spare GE engine by April 30, 1995. Rather,

because the date of delivery of the two Boeing 777 planes was changed

contends that the deadline for ordering a spare engine changed

accordingly. This contention is addressed in Part IV. A, infra.

A7

Pursuant to the Note Purchase Agreement, “ACMT agreed to

pay Euralair $10 million for the Notes, and Euralair agreed to repay

that amount by May 31, 1997.” Def. Mem. at 13 (citing Cplt. Ex. A,

{ 1.1; Cplt. Ex. B, § 1); Pl. Reply Mem. at 2. One of the events

constituting an “Event of Default” under the Note Purchase Agreement

is that the “Noteholder shall have received written notice from [GE]

that an Event of Default has occurred and is continuing under the

Reimbursement Agreement.” Cplt. Ex. A, § 9.1(f).

Under the Guaranty Agreement, GE guaranteed Euralair’s

obligation to pay the principal and post-maturity interest on the Notes,

plus certain taxes. Cplt. Ex. C, §§ 1, 2(a); Pl. Mem. at 4. The

Guaranty Agreement also provides that GE may fulfill its obligations

as guarantor by purchasing the Notes from ACMT upon an Event of

Default under the Note Purchase Agreement: “[u}pon the occurrence

and during the continuance of any Event of Default [under the Note

Purchase Agreement], [GE] shall have the right, but shall not obligated

to: (ii) purchase the then outstanding principal amount of the

Guaranteed Notes from the Noteholder. .. .” Cplt. Ex. C, § 3(b)(ii).

Finally, the Reimbursement Agreement provides that “[i]n the

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event that [GE] makes any payment under the Guaranty Agreement in

respect of principal of the notes, [Euralair] shall, immediately upon

demand by [GE], reimburse [GE] for such payment, together with

interest thereon .. .” Cplt. Ex. D, 92.1.

D. Events after 1992

According to GE, the following events occurred after GE and

Euralair entered into the above-described financing agreements. In its

3(g) Statement, Euralair Purports to deny these allegations by GE.

However, Euralair, does not really dispute that the events occurred.

Rather, Euralair either disagrees with the relevance of the events or

Seeks to explain why the events Were justified or do not constitute an

act of default. Accordingly, I will first describe the events as related

(and evidenced) by GE, and will then address whether the actions

constitute an act of default.

Euralair did not order a spare GE engine, either before or since

April 30, 1995. P. 3(g) 415. By letter dated August 21, 1995, GE

issued a Prepayment Instruction to Euralair, pursuant to § 6.2 of the

Reimbursement Agreement. Id ¥ 16. This letter informed Euralair that

“unless Euralair agreed to a restructuring of the financing arrangement,

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Euralair was required to prepay the entire outstanding principal of the

Notes by” September 8, 1995. Id.; see also Cpit. Ex. F. Euralair did

not follow the Prepayment Instruction or otherwise agree to a

restructuring. Pl. 3(g) 4 21; Cplt. Ex. G.

According to GE, this written notice to ACMT triggered “both

automatic acceleration of the Notes under the Note Purchase

Agreement and GE’s obligations under the Guaranty Agreement to pay

the outstanding principal of the Notes or to purchase the Notes from

ACMT.” PL 3(g) 4 22 (citing Cplt. Ex. A. §§ 9.1 (f), 9.2 (a); Cplt. Ex.

B at 2; Cplt. Ex. C §§ 2(a), 3(b)). GE purchased the Notes from

ACMT on January 29, 1996. Pl. 3(g) 4 23; Cplt. Ex. H. GE then

demanded, by letter dated January 30, 1996, that Euralair “immediately

reimburse GE for the principal amount of the Notes and interest

accrued thereon as well as for all costs, fees, liabilities, losses and

expenses incurred by GE in connection with Euralair’s defaults.” Pl.

3(g) 425; Cplt. Ex. | Euralair admits that it did not comply with GE’s

payment demands. Def. 3(g) { 26; Pl. 3(g) { 26.

GE now seeks repayment of the $10 million advance, plus

interest (at the rates specified in the financing agreements), expenses

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and attorneys’ fees. In its counterclaim, Euralair seeks dismissal of the

complaint and judgment in the amount of $20 million plus interest,

costs and disbursements.

IV. Discussion

Euralair presents three arguments against granting summary

judgment in favor of GE.

A. Euralair is Not in Defaul

1. Arguments

First, Euralair argues that it is not in default of the Note

Purchase Agreement or the Reimbursement Agreement. Euralair admits

that it did not order a spare GE engine by Apnil 30, 1995. Answer "9

17-18. GE alleges that this failure to order is an Event of Prepayment

under the Rembursement Agreement, and Euralair acknowledges that

the Reimbursement Agreement “specifies certain circumstances under

which GE may instruct Euralair to prepay the Notes.” Def. Mem. at 14

(citing Cplt. Ex. D, ¥ 6). However, Euralair contends that the failure

to order a spare engine by that date is not an Event of Prepayment.

Euralair points to the purchase agreement between Boeing and

Euralair, which provided that the two Boeing 777 airplanes would be

All

delivered to Euralair in April and May, 1997. See Cutner Aff., Ex. 1

§ 2.1. Next, Euralair points to Letter Agreement No. 2 between GE

and Euralair, which states that “Euralair agrees to place a firm and

unconditional purchase order with GE, at least twenty-four (24) months

pmior to delivery of the first of the above two (2) 777-B aircraft, for a

minimum quantity of one (1) spare new GE90-B4 Engine in support of

such two aircraft...” Cutner Aff., Ex. 3; Second Marcu Aff., Ex. 2

(emphasis added). Finally, Euralair states that it could not proceed with

the spare engine order because its contract with the “large French

government-owned commercial airline” was not renewed in April 1995.

Def. Mem. at 14. Consequently, Boeing agreed to delay until October

and November 1998 the delivery of the two airplanes Euralair had

agreed to buy. Cutner Aff.. Exs. 11, 21.

_Euralair argues that the provision of Letter Agreement No. 2

requiring it to order a spare engine at least 24 months before delivery

of the first Boeing airplane signifies that the order deadline was

floating. Under this theory, when the expected delivery date of the

airplanes was moved back, Euralair’s deadline for ordering a spare GE

engine moved back as well. See Def. 3(g) 4 15; Def. Mem. at 14-15.

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outlined in Attachment A to this Letter Agreement No. 2.” Second

Marcu Aff, Ex. 2 at 2. Attachment A States, in part, that:

GE intends to provide the funds for any advance of that

Introductory Allowance by unconditionally guaranteeing,

to financial institutions selected by GE, the Principal and

accrued interest of notes issued by Euralair in accordance

with the terms of this agreement. GE’s obligation to

furnish its guarantee is conditioned upon the preparation,

negotiation, execution and delivery of definitive

documentation pertaining thereto containing such

Provisions as GE and its legal counsel deem appropriate

in their sole discretion.

Second Marcu Aff, Ex. 2, Attachment A at |. According to GE, this

reference to “definitive documentation” contemplates the financing

agreements entered into six days later, incheding the Reimbursement

Agreement, under which Euralair was required “to place a firm an

unconditional order with [GE] not later than Apmil 30, 1995 for one

new GE90-B4 spare aircraft engine...” Pl Reply Mem. at 7; Cplt. Ex.

D, § 6.1(b).

2. Analysis

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Euralair’s argument suggests that the Court must determine

whether the two agreements are in conflict. “Generally, the rule is that

separate contracts relating to the same subject matter and executed

simultaneously by the same parties may be construed as one

anes’ Williams v. Mobil Oil Corp,, 83 A.D. 2d 434, 439 (2d

Dep't 1981) ( citing Rudman v, Cowles Communications, Inc,, 30 N.Y.

2d 1, 13 (1972)). Therefore, I shall construe Letter Agreement No. 2

and the Reimbursement Agreement as one agreement. According to

other general rules of contract construction, the preferred

“interpretation of an instrument . . . avoids inconsistencies and gives

meaning to all of its terms.” Bed “N” Bath of Spring Valley, Inc. v.

Spring Valley Partnership, 185 A.D. 2d 584, 587 (3d Dep’t 1992); see

also Rentways, Inc, vy. O”Neili Milk & Cream Co,, 308 N.Y. 342, 247

(1955) (‘“‘[t}hat interpretation is favored which will make every part of

a contract effective”) (citing Fleischman v. Fergueson, 223 N.Y. 235,

239 (1918)). “[W]here there is an apparent repugnancy between two

clauses of a contract, the court has the duty to reconcile them, if

possible.” People v. Stokes, 165 Misc. 2d 934, 937 (Sup. Ct. Monroe

Co. 1995) (citing Hudson-Port Ewen Assoc., L.P. v. Chien Kuo, 165

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RE meee sn ee

A.D. 2d 301, 303-304 (3d Dep’t), aff'd, 78 N.Y. 2d (1991)). Further,

“where there are general and specific provision relating to the same

matter, the special provisions control, even if there is an inconsistency.”

Id. At 938 (citing Lewiston-Porter Central School District v. Sobol,

154 A.D. 2d 777, 779 (3d Dep’t 1989), appeal dismissed, 75 N.Y. 2d

978 (1990)). According to these Principles, the contract in the instant

case must be interpreted in favor of the specific provision (that the

order deadline was April 30, 1995) rather than the more general

Provision (that the order deadline was 24 months before delivery of the |

first Boeing plane).*

In sum, the financing agreements provide that, unless Euralair

placed a firm order for a spare GE engine by April 30, 1995, GE could

issue a Prepayment Instruction to Euralair, instructing Euralair to repay

the $10 million advance from GE. The term in Letter Agreement No.

“In any event, I need not decide whether the Reimbursement

Agreement conflicts with Letter Agreement No.2. The letter agreement

Agreement (see Answer ] 7; Def. 3(g) J 3), and does not dispute that it

ignored GE’s Prepayment Instruction (see Def. Mem. at 15). Therefore,

the undisputed facts show that Euralair has breached the Reimbursemeni

Agreement.

: Als

2 requiring an order 24 months prior to delivery does not negate the

more specific term in the Reimbursement Agreement. Euralair

admittedly failed to order the spare engine by the April 30, 1995

deadline. Euralair does not contend that any modification was made to

the Reimbursement Agreement, which was executed six days after

Letter Agreement No. 2. Therefore, as alleged by GE, Euralair was in

default of the Reimbursement Agreement as of September 8, 1995,

when the deadline for complying with GE’s August 21, 1995

Prepayment Instruction passed. See Pl. 3 (g) {7 17-20; Cpit. Ex. D, §

7.1 (b)(). Further, Euralair was in default of the Note Purchase

Agreement as of January 29, 1996, when GE provided written notice

to ACMT that an Event of Default had occurred and was continuing

under the Reimbursement Agreement. See Pl. 3(g) {] 21-22; Cplt. Ex.

A §9.1(f). Euralair has failed to raise a genuine issue of material fact

as to whether it defaulted on these Agreements.’

7Euralair also suggests that GE issued the Prepayment

Instruction in bad faith by “direct[ly] contradicting] . . . the terms of

[GE’s] General Agreement with Euralair.” Def. Mem. at 15. However,

Euralair cites no portion of the “General Agreement” (which is distinct

from all of the above-mentioned agreements) in support of this

contention. Euralair also argues that Sections 6.2 and 6.3 of the

Reimbursement Agreement, which vest in GE sole discretion to issue a

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B. Euralair’s Assignment of Boeing Contract to GE Replaced

Euralair’s next argument focuses on GE’s acquisition of a

security interest in Euralair’s contract with Boeing for the two 777 jet

airplanes. Euralair suggests that this assignment took the place of any

obligation by Euralair to reimburse GE for the Introductory Allowance.

That is, Euralair would not have to reimburse the money paid by GE to

Euralair, “because in taking the place of Euralair, GE would be

handsomely compensated by Boeing.” Def. Mem. at 10. “(Of Euralair

. . . failed to order the GE engine 90-B4, GE would assume the

responsibilities of Euralair and take over the contract with Boeing...

GE would receive early delivery of the two 777 aircraft.” Id.

Sitar sscentialy o-p-es that the “uteracve moots GE has

under a Security Agreement between the parties somehow deprived GE

of its primary rights under the Reimbursement and Note Purchase

Agreements.” Pl. Reply Mem. at 3. However, an examination of the

Security Agreement reveals otherwise. As stated earlier, through the

Prepayment Instruction, represent bad faith by GE. Def. Mem. At 15.

Euralair’s claim that the existence of certain provisions in an agreement

represent bad faith by one of the signatories is difficult to sustain given

that Euralair itself signed the agreement.

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BEST AVAILABLE COPY

Security Agreement, GE accepted as collateral a security interest in

Euralair’s contract with Boeing. The agreement was negotiated on

Euralair’s behalf by United States and French counsel (see Marcu Aff.,

Ex. 1), and Euralair does not allege that either counsel was

incompetent. Section 5.5 of the Security Agreement, entitled

“Remedies Cumulative,” states that

Each and every night, power and remedy hereby

specifically given to [GE] shall be in addition to every

other right, power and remedy specifically given

under this Security Agreement or under the other

Financing Documents . . . and each and every right. . .

may be exercised from time to time or simultaneously

and as often and in such order as may be deemed

expedient by [GE].

The term “Financing Documents” includes the Reimbursement

Agreement, the Notes, the Note Purchase Agreement, the Guaranty

Agreement, and the Secusiey Agreement. See Cpit. Ex. D, § 1. Thus

by terms of the Security Agreement, the fact that the Security

Agreement granted GE a certain remedy did not preclude GE from

exercising remedies granted under the Reimbursement and Note

Purchase Agreements.

In support of its argument, Euralair cites a note from GE to -

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ii

Euralair dated September 17, 1992. In this note, John Berten (the

General Manager of GE’s International Sales Department) wrote:

I AM PLEASED TO REPORT THAT OUR LEGAL AND

GROUNDWORK ALREADY COMPLETED WITH OUR

INVESTMENT BANKER{_] INDICATES THAT THEY

WILL BE ABLE TO PROVIDE A FIRST DRAFT LOAN

LENGTH OF TIME. OUR DRAFT GENERAL TERMS

AGREEMENT IS ALREADY PREPARED... !

Cutner Aff Ex. 13. Euralair contends that through this note, “GE

agreed to Euralair’s pledging its contract with Boeing as security

Euralair agrees “with this plan,” Euralair should indicate its agreement by

return fax, “which will serve as an extension of our [GE’s] Proposal

agreement dated August 10, 1992.” Cuter Aff. Ex. 13.

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Euralair, granting GE the right to assume Euralair’s responsibilities if

Euralair failed to fulfill its obligation of placing a firm order for the

Spare Engine.” Id. at 11-12. Even if this note could signify GE’s

acceptance of a security agreement proposed by Euralair, the security

agreement signed by GE and Euralair allowed GE to pursue alternate

remedies. Euralair’s invocation of the Security Agreement fails to raise

an issue of material fact regarding whether Euralair is in default of the

Reimbursement Agreement and the Note Repurchase Agreement.

C. The Advance Did Not Have to be Repaid

Finally, Euralair contends that GE “assur{ed] [Euralair] that

the Introductory Allowance need not be reimbursed by Euralair.” Def.

Mem. at 3. However, Euralair cites only a single piece of evidence to

support its claim that GE made such assuranes. That “evidence” is a

single page excerpted from a longer document, dated February 10,

1992. See Cutner Aff Ex. 4. (The page shown is Page 6 and contains

no signatures.) The page contains a section entitled “Introductory

Allowance” and refers to a $10 million introductory allowance from GE

which “will be earned by Euralair, on a pro rata basis, upon delivery of

four (4) GE90-B4 engines to TBC for installation on Euralair’s two (2)

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firm 777 aircraft.” Id. The context in which Euralair cites this

document suggests that the page may be a portion of a proposal from

GE from the General Agreement between GE and Euralair regarding

the sale of the jet engines. See Def. Mem. at 5-6. Euralair suggests in

its brief that GE and Euralair were still negotiating at that point, and

that GE was competing with other engine manufacturers for the sale to

Euralair. In addition, the next paragraph of the page refers to” [t]this

Proposal and any contract resulting therefrom . . .” Cutner Aff. Ex. 4;

see also Def. Mem. at 6 (stating that “on March 10, 1992, GE came

back with a new Proposal .. .”’).

Assuming that the cited document is a proposal from GE to

Euralair, it does not raise a genuine issue of material fact as to whether

Euralair breached its agreements with GE. Both the Note Purchase

Agreement and the Reimbursement Agreement contain integration

clauses. See Cplt. Ex. A, § 13.6 (“Subject to [certain warranties], this

Agreement embodies the entire agreement and understanding between

the Noteholder and the Paying Agent and [Euralair] and supersedes all

prior agreements and understandings relating to the subject matter

hereof”); Cpit. Ex. D, § 9.11 (“Other than the terms and provisions

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contained in the Security Agreement, this Agreement embodies the

entire agreement and understanding between [Euralair] and [GE] and

supersedes all prior agreements and understandings relating to the

subject matter hereof’). However, extrinsic evidence is inadmissibie

for the purpose of construing integrated agreements. See W.W.W.

Assocs., Inc. v. Giancontieri, 77 N.Y. 2d 160, 163 (1990) (“when

parties set down their agreement in a clear, complete document. . .

[e]vidence outside the four corners of the document .. . is generally

inadmissible to add to or vary the writing”) (citations omitted).’

*Euralair’s remaining arguments are easily disposed of.

Euralair’s President, Alex Couvelaire, states that:

I was told that this $10,000,000 payment on the

total $20,000,000 Allowance need not be reimbursed

since this amount would be deducted from the

Introductory Allowance earned, pro-rata, on Euralair’s

two GE90-B4 engines upon delivery of four GE90-B4

engines for installation in Euralair’s two 777 Boeing

aircraft.

Affidavit of Alexandre Couvelaire, annexed as Def. Ex. 19, 7; see also

Def. Mem. at 7 (contending that Couvelaire remembers that the $10

million “would not be a real loan, because Euralair would not have to

reimburse it”). However, where, as here, the terms of a contract are

unambiguous, “parol evidence is inadmissible to create an ambiguity.”

Readco, Inc. v. Marine Midland Bank, $1 F. 3d 295, 299 (2d Cir. 1996)

(citing W.W.W. Assocs., 77 N.Y. 2d at 162-163). Thus Couvelaire may

not create a triable issue of fact by contradicting the unambiguous terms

of a written contract.

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V. Affirmative Defense

Euralair asserts the doctrine of promissory estoppel as an

affirmative defense. According to Euralair, GE said it would give

Euralair “price rebates, financing and credit terms if Euralair purchased

two Boeing 777 airplanes, both equipped with two GE jet engines, and

placed an order with GE for a spare engine.” Answer $2. Further, GE

“relentlessly pursued nego[tliations” with Euralair, “despite the fact

that GE knew Euralair had absolut[e]ly no funds with which to

purchase those engines.” Id { 4. Euralair refers repeatedly to

“statements” made by GE, and alleges that Euralair relied on those

Statements in accepting the contract and financing agreements with GE.

Id. ¥ 6; see also id. T7 7-8. However, the only statement alleged by

Euralair also contends that the evidence demonstrates the

existence of a genuine issue of material fact “because” (1) if Couvelaire

unable to order a spare GE engine, “he would never have caused Euralair

to enter into [a] contract with GE, “ and (2) GE would have not have

to demand prepayment if Euralair failed to order to a spare GE engine by

April 30, 1995.

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Euralair that addresses the repayment of the $10 million advance is the

following: “GE told Euralair that. . . Euralair could repay the advance

itself, [ ] amounting to $10 million in principal with the funds earned,

pursuant to the contract Euralair had with a large French government-

owned commercial airline, since plaintiff GE was well aware the

defendant, Euralair, had no funds.” Id. 4 2.

Beyond that, Euralair alleges only that “Euralair was under the

impression that GE could take back its two engines through its affiliate

GECA, a leasing corporation, 100% owned by GE, if the payment of

those engines fell into default.” Id 45. Euralair also alleges that “at

that time it made those statements, [GE] knew they were false in that

GE had inserted a clause in. . . the Reimbursement Agreement .. .

whereby [GE] may, in_its sole discretion, issue a prepayment

instruction...” Jd. 4 7 (emphasis in original). Finally, Euralair

contends that “[i]n December 1992, GE had led Euralair to believe that

GE would never accelerate the payment of the notes because of the

longstanding relationship between the two companies.” Id. § 10.

The elements of a defense of promissory estoppel are: a clear

and unambiguous promise, reasonable and foreseeable reliance on that

A24

promise, and unconscionable injury as a result of that reliance. See

City of Yonkers v. Otis Elevator Co. 844 F. 2d 42, 48 (2d Cir. 1988)

(applying New York Law) (citing Ripple’s of Clearview, Inc. v. Le

Havre Assoc,, 88 A.D. 2d 120, 121-23 (2d Dep't), appeal denied, 57

N.Y. 2d 609 ( 1982)). Euralair’s allegations fail to state a clear and

unambiguous promise. Allegations that Euralair was “under the

impression” that it would not have to pay back the advance are

insufficient. Similarly, a claim that GE told Euralair it could pay back

the advance out of its Proceeds from Euralair’s contract with the

Sovernment airline does not allege a clear promise by GE that it would

not issue a prepayment instruction. While Euralair argues that an

way be construed as promises by GE not to issue a prepayment

instruction. Also, as stated earlier, Euralair has not alleged any

modifications to any of the financing agreements. ”

made in writing and signed by all parties to the agreement See Cpit. Ex.

A, § 13.3; Cplt. Ex. C, § 11(d); Cpit. Ex. D, § 9.6; Cpit. Ex. E, § 9.13.

A25

Absent an allegation of a clear and unambiguous promise,

Euralair’s affirmative defense is unavailing. However, the affirmative

defense fails on the second element as well: while Euralair has alleged

that it “entered into the . . . financing agreements” in “reliance on [the]

words of GE” (Answer { 8), this reliance is not reasonable. The clear

language of the Reimbursement Agreement vested in GE the sole

discretion to decide whether to issue a prepayment instruction. See

Danann Realty Corp, v. Hams, 5 N.Y. 2d 317, 320-321 (1959)

(specific term of contract “destroy[ed] the allegations” that “agreement

was executed in reliance upon . . . contrary oral representations’’)

(citations omitted). Therefore, Euralair may not invoke the defense of

promissory estoppel. See R.G, Group, Inc. v, Horm & Hardart Co., 751

F. 2d 69, 78-79 (2d Cir. 1984) (summary judgment appropriate in

contract case absent allegation of clear promise or reliance).

Because Euralair has failed to raise any genuine issue of

material fact regarding its obligations under the financing agreements,

GE’s motion for summary judgment is granted. Euralair must repay

GE the $10 million advance, along with interest, expenses and

attorneys’ fees to be determined by the Court upon application by GE.

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in evaluating a motion to dismiss, a court must accept

as true the factual allegations contained in the complaint. See Cohen

v. Koenig, 25 F. 3d 1168, 1171 (2d Cir. 1994). All reasonable

inferences must be drawn in favor of the non-moving party on such a

motion. See Allen v, West Point-Pepperell. Inc. 945 F 2d 40, 44 (2d

Cir. 1991). Moreover, “a complaint should not be dismissed for failure

to state a claim unless it appears beyond doubt that the [claimant] can

Prove no set of facts in support of [its] claim which would entitle [it]

to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

B. Substance of Counterclaim

In its counterclaim, Euralair alleges that “GE breached

(a) by suddenly issuing [a] Prepayment Instruction without

affording Euralair a reasonable Opportunity to find an

assignment of the contract or to obtain substitute financing:

(b) by arbitrarily refusing to cooperate with Euralair in

any attempt to restructure Euralair{’s} financing in a manner

which would reduce GE[’s] exposure while at the same time

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assuring Euralair’s ability to continue operations;

(c) by issuing Plaintiff's Prepayment Instruction under the

Reimbursement Agreement creating an Event of Default

under that Agreement and a Default under the Note Purchase

Agreement.

Answer § 20. Euralair asserts that GE’s “culpable conduct” in issuing

a prepayment instruction when “it would have chosen not to do so” was

the sole cause of GE’s financial losses. Id ¢ 21. Finally, Euralair

claims that GE’s “irresponsible action” led to Euralair’s exposure “to

multiple liabilities under the various financing agreements.” Id. { 22."!

‘lfp its brief, Euralair appears to recharacterize its counterclaim

as a counterclaim for fraudulent inducement. Def. Mem. at 24. Even if

Defendant were granted leave to amend to plead such a claim, it would be

dismissed. A claim of fraudulent inducement fails when the alleged

misrepresentations conflict with unambiguous terms of the contract at

issue. See Danann Realty Corp., 5 N.Y. 2d at 320-321 (affirming

dismissal of fraudulent inducement claim because specific terms of

contract preclude parol evidence of reliance on alleged

misrepresentations); Citibank, N.A. v. Plapinger, 66 N.Y. 2d 90, 94-95

(1985) (guarantee to bank that was expressly “absolute and

unconditional” could not be avoided by claim that guarantee was

fraudulently induced through bank’s alleged oral promise to supply

additional line of credit). According to Euralair, GE induced it to enter

into the financing agreements by promising to pursue remedies only

under the Security Agreement in the event of Euralair’s default.

However, as described in Part IV. B., supra, the Security Agreement and

the Reimbursement Agreement expressly and unambiguously conflict

with this alleged promise by providing that GE’s remedies are cumulative

and non-exclusive. See Cplt. Ex. D, § 7.3; Second Marcu Aff. Ex. 1, §

5.5. Thus a counterclaim by Euralair for fraudulent inducement must fail.

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C. Application of Standard

In order to state a claim for breach of the implied covenant of

good faith and fair dealing, Euralair must allege that GE affirmatively

sought to prevent Euralair’s performance under or to withhold the

benefits of the financing agreements. See, ¢.g., Collard v. Incorporated

Village of Flower Hill, 75 A.D. 2d 631, 632 (2d Dep’t 1980)

(dismissing claim for breach of implied covenant of good faith and fair

dealing because allegation that defendant acted arbitrarily is not

equivalent to allegation that defendant deprived plaintiffs of any

benefits to which they were entitled, aff'd, 52 N.Y. 2d 594 (1981);

Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 526 (2d Cir. 1994)

(covenant “only precludes each party from engaging in conduct that

wul deprive the other Party of the benefits of their agreement”) (internal

quotation and citation omitted).

Furthermore, one party may “‘act on its Own interests in a way

that may incidentally lessen’ the other party’s anticipated fruits from

the contract” without breaching the implied covenant. M/A-COM Sec.

Corp. v. Galesi, 904 F. 2d 134, 136 (2d Cir. 1990) (quoting Van

Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co. 30

A29

N.Y. 2d 34, 46, cert, denied, 409 U.S. 875 (1972)). The fact that a

party seeks to restructure a financing arrangement when default

appears immunent but later elects to enforce its rights under the contract

does ni constitute a breach of the covenant. See Rexnord Holdings,

21 F. 3d 226 (plaintiff did not break covenant by agreeing to extend the

time for payment (at defendant’s request) in return for release of other

unrelated obligations, but subsequently seeking to collect money owed).

Euralair has not alleged that GE did anything to prevent it from

performing under their agreements. Nor has Euralair alleged that GE

acted to deprive Euralair of the benefits of the agreements. Euralair’s

contention that GE’s decision to issue a prepayment instruction was

“irresponsible,” “sudden,” and “arbitrary” is not equivalent to an

allegation that GE prevented Euralair from performing. Rather,

Euralair admits that it entered into agreements giving GE the nght to

issue a prepayment instruction if Euralair did not order a spare engine

by April 30, 1995, and requiring Euralair to comply with such a

prepayment instruction or be in default of the agreements.

Consequently, Euralair has failed to state a claim for breach of the

implied covenant of good faith and fair dealing, and its counterclaim

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Finally, in its memorandum of law, Euralair requests

Permission to join the President of Euralair, Alex Couvelaire, as a

Plaintiff in this action in order to “recover against GE for defamation

Couvelaire by spreading rumors “throughout the aviation community”

and that a “charge of stealing has been publicly disclosed. naming

President Couvelaire as [a] thief.” Def. Mem. at 29.

Euralair has not followed the correct procedure for requesting

joinder of a party. If Euralair wishes to join Couvelaire as a Party, it

must make a formal motion to do so. But even if Euralair were to so

move, the motion would be denied.

In support of its request, Euralair has cited Rule 18, which

g0verms the joinder of claims by parties to the action. Because

Couvelaire is not a party to this action, he must look to Rule 20(a),

woich governs the Permissive joinder of Parties. Under that rule,

Permissive joinder is appropniate if a proposed party “assert[s] any

A31

right to relief. . . arising out of the same transaction, occurrence, or

series of transactions or occurrences” underlying the original action.

Even if the contentions in Defendant’s memorandum were formal

allegations, they would not support a finding that Couvelaire’s

wiliaid defamation claim arises out ofthe same transaction or

occurrence as GE’s breach of contract claims against Euralair. There

is no suggestion that the alleged defamation is in any way connected to

the alleged breach by Euralair of agreements it made with GE.'*

Vil. Conclusion

For the reasons stated above, Plaintiff's motion for summary

judgment is granted. Euralair must repay GE the $10 million advance,

along with the interest, expenses and attomeys’ fees to be determined

by the Court upon application by GE. Further, Defendant’s request for

joinder is denied, and Plainuff’s motion to dismiss Euralair’s

counterclaim is granted.

SO ORDERED:

‘25 ven if Euralair meant to allege that GE defamed Couvelaire

in its complaint, such a claim would fail because allegations in a

complaint are subject to an absolute privilege. See Vevaina v. Paccione,

125 A.D. 2d 392,393 (2d Dep’t 1986), appeal denied, 69 N.Y. 2d 607

(1987).

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Dated: New York, New York

July 26, 1996

Appearances

- Lfor Plaintiff

Aaron R. Marcu, Esq.

Howard, Darby & Levin

1330 Avenue of The Americas

New York, New York 10019

(212) 841-1000

Counsel for Defendant

Rolande Cutner, Esq.

Attomey-At-Law

“LaTour”

1, rue de | 'Hospitalet

12340 Bozouls

France

SHIRA A. SCHEINDLIN, U.S.D.J.

A33

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

Xx

GENERAL ELECTRIC COMPANY, - JUN 11,1997

Plaintiff 7

-against- - ORDER AND

) AMENDED

COMPAGNIE EURALAIR, S.A. 7 FINAL

- JUDGEMENT

Defendant. :

X

WHEREAS, a motion by plaintiff General Electric Company

pursuant to Rules 12(b)(6) and 56 of the United States Federal Rules

of Civil Procedure for summary judgment in its favor and for a

judgment dismissing the counterclaim of defendant Compagnie

Euralair, $.A., was duly briefed and brought on to be heard by

competent counsel for each party, L¢., Howard, Darby & Levin for

Plaintiff General Electric Company and Rolande Cutner, Esq., for

Compagnie Euralair, $.A.; and

WHEREAS, the United States District Court for the Southern

District of New York, has personal and subject matter jurisdiction over

both parties by virtue of the diverse citizenship of the parties and

written contracts, dated December 22, 1992, in which both parties

A34

irrevocably submitted to the jurisdiction of that court and to have the

dispute between them governed by the law of the State of New York;

and

WHEREAS, on July 26, 1996, this Court, issued an Opinion

and Order granting the plaintiff's motion and directing that judgment

be entered upon consideration of plaintiff's Application for interest,

fees and expenses as provided in the contracts sued upon, on the

ground that, under the laws of the State of New York, Compagnie

Euralair was in breach of the terms of the agreements between the

Parties and failed to establish affirmative defenses of promissory

estoppel or fraud or a counterclaim for breach of implied covenant of

good faith and fair dealing: and

WHEREAS, the order of the Court is immediately enforceable:

and

WHEREAS, due consideration jaas been given to the foregoing

Application and to any responses thereto;

NOW THEREFORE, IT IS HEREBY ORDERED,

ADJUDGED and DECREED that, for the reasons stated in the Court’s

Opinion and Order of July 26, 1996, plaintiff General Electric

A35

Company’s motion for summary judgment is granted; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED AND

DECREED that plaintiff General Electric Company’s motion to

dismiss defendant Compagnie Eweisir, S.A.’s counterclaim for breach

of implied covenant of good faith and fair dealing is granted; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED that defendant Compagnie Euralair, S.A.’s request for

joinder is denied; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair, S.A. in the amount of

$10 million free and clear of any taxes, deductions or withholdings as

provided in the contracts sued upon; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED, that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair, S.A., for contractual

pre-judgment interest for the period from September 8, 1995, to and

including May 1, 1997, in the amount of $1,432,889; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

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DECREED, that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair, $.A., for contractual

pre-judgment interest for the period from May 2, 1997, to and

including the date hereof in an amount equal to the product of

$2,416.67 multiplied by 68 days (the number of days from May 2,

1997, to and including the date hereof), for a total of $164,333, 56: and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED, that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair S.A., for contractual

post-judgment interest from the date hereof until Euralair has paid the

foregoing $10 million in an amount to be calculated according to the

terms of the Note Purchase Agreement; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED, that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair, S.A., for fees and

expenses incurred by General Electric Company in connection with the

exercise and enforcement of its rights under the contracts sued upon,

in the amount of $83,423; and

IT IS FURTHER HEREBY ORDERED, ADJUDGED AND

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DECREED that plaintiff General Electric Company shall have

judgment against defendant Compagnie Euralair, S.A., for fees and

expenses incurred hereafter by General Electric Company in connection

with the enforcement of this judgment upon submission to an approval

by this court by a supplemental application for such costs, fees and

expenses; and accordingly

IT IS FURTHER HEREBY ORDERED, ADJUDGED and

DECREED, that the Complaint is dismissed and the case is removed

from the court's active calendar.

Dated: July 8, 1997

SHIRA A. SCHEINDLIN

UNITED STATES DISTRICT JUDGE

A38

UNITED STATES DISTRICT COURT FILED U.S.D.C.

SOUTHERN DISTRICT OF NEW YORK JUL 30 1997

X S.D.OFNY.

GENERAL ELECTRIC COMPANY ;

Plaintiff-Appellee,

. Civil Action Docket No.

96-Civ. 0884(SAS)

-against-

COMPAGNIE EURALAIR, S.A.,

NOTICE OF APPEAL

Defendant-Appellant.

X

Please take notice that COMPAGNIE EURALAIR, S.A.

hereby appeals to the United States Court of Appeals for the Second

Circuit, 40 Foley Square, New York, New York from the amended final

judgment entered by the United States District Court, Southem District

of New York (Hon. Shira Sheindlin, Judge), dated July 8, 1997. This

appeal is taken from each and every part of said order as well as the

whole thereof and will also seek review of the order dated July 26, 1996

upon which the amended the judgment is based.

| Dated: July 18, 1997

Respectfully submitted,

ROLANDE CUTNER, ESQ. (RC 1412)

A39

TO:

Attorney for Defendant-Appellant

575 Madison Ave., Suite 2507

New York, New York 10022

(212) 755-5551, ext. 315

HOWARD, DARBY & LEVIN

Attorney for plaintiff-appellee

1330 Avenue of the Americas

New York, New York 10019

(212) 841-1000

Clerk, United States District Court

SDNY/NYNY

96-CV-884

SCHEINDLIN

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

FILED

SUMMARY ORDER SEP 30 1998

THIS SUMMARY ORDER WILL NOT BE PUBLISHED IN THE

FEDERAL REPORTER AND MAY NOT BE CITED AS

PRECEDENTIAL AUTHORITY TO THIS OR ANY OTHER

COURT, BUY MAY BE CALLED TO THE ATTENTION OF THIS

OR ANY OTHER COURT INA SUBSEQUENT STAGE OF THIS

CASE, IN A RELATED CASE, OR IN ANY CASE FOR PURPOSES

OF COLLATERAL ESTOPPEL OR RES JUDICATA.

At a stated term of the United States Court of Appeals for the

Second Circuit, held at the United States Courthouse, Foley Square, in

the City of New York, on the 30 day of Sept., one thousand nine

hundred and ninety-eight.

PRESENT:

Honorable Pierre N. Leval,

Honorable Jose A. Cabranes,

Honorable Rosemary S. Pooler,

Circuit Judges.

General Electric Company,

Vv. 97-7946

Compagnie Euralair, $.A.,

Defendant-Appellant.

A4l

APPEARING FOR APPELLANT: Rolande Cutner,

New York, N.Y.

ANSWERING FOR APPELLEE: Aaron R. Marcu, Howard,

Smith & Levin, New York,

N.Y.

Appeal from the United States District Court for the Southern

District of New York (Shira A. Scheindlin, Judge).

ON CONSIDERATION WHEREOF, IT IS HEREBY

ORDERED, ADJUDGED AND DECREED that the order of the

District Court be and it hereby is AFFIRMED.

Euralair appeals from the district court’s order granting

summary judgment to General Electrit (“GE”) and dismissing

Euralair’s counterclaim. Euralair contends that GE failed to submit

sufficient evidence that it properly acquired the noteholder’s nghts or

that GE complied with the applicable securities laws; that parol

evidence is admissible to show the Financing Documents constituted

a sham transaction that did not create an enforceable obligation for

Euralair to repay the $10 million advance; that parol evidence should

be admitted to prove the existence of GE’s oral promise that it would

take the assignment of Euralair’s rights under the Euralair-Boeing

contract as satisfaction of the $10 million advance; that GE should be

equitably estopped from exercising any remedy other than taking

possession of the security; and that the court erred in dismissing

Euralair’s affirmative defense and counterclaim for breach of the

implied covenant of good faith and fair dealing.

Several of plaintiffs’ contentions are not properly raised on

appeal as they were not argued to the district court. As for the

remaining claims, we affirm substantially for the reasons stated by the

district court.

AFFIRMED

A42

FOR THE COURT:

CAROLYN CLARK CAMPBELL, CLERK

By: Lucille Carr, Deputy Clerk

A43

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

UNITED STATES COURT HOUSE

40 FOLEY SQUARE

NEW YORK 10007

CAROLYN CLARK CAMPBELL

CLERK

At a stated term of the United States Court of Appeals for the

Second Circuit, held at the United States Courthouse, Foley Square, in

the City of New York, on the twenty-ninth day of October one

thousand nine hundred and ninety-eight.

General Electric Company, USCA

Filed Oct 30 1998

Plaintiff-Appellee, Second Circuit

v. Dkt. No. 97-7946

Compagnie Euralair, S.A.,

Defendant-A ppellant.

A petition for rehearing containing a suggestion that the action be

reheard in banc having been filed herein by the appellant Compagnie

Euralair, S.A.

Upon consideration by the panel that decided the appeal, it is

Ordered that said petition for rehearing is DENIED.

It is further noted that the suggestion for rehearing in banc has been

transmitted to the judges for the court in regular active service and to

any other judge that heard the appeal and that no such judge has

requested that vote be taken thereon.

A44

FOR THE COURT

CAROLYN CLARK CAMPBELL, Clerk

By:

Beth J. Meader,

Administrative Attorney

A45