Commercial Litigation Update: Eighth Circuit holds party entitled to cost-of-repair damages for breach of contract unless defendant affirmatively establishes the problem can’t reasonably be remedied

by Jay Pate

BLB is an aviation company that owns airplanes, some of which are leased for charter flights. Jet Linx operates an aircraft charter business. BLB and Jet Linx agreed that BLB would purchase an airplane and lease it to Jet Linx. In the lease, Jet Linx “guarantee[d][BLB] a minimum monthly lease payment of $47,100 per month, no matter the number of actual hours flown.” The parties agreed that that Jet Linx would be responsible for maintaining the airplane but BLB would be responsible for paying for the maintenance.

After BLB delivered the plane to Jet Linx, the plane did not make a charter flight for a couple months due to unexpected maintenance issues. The parties disagreed over rent payments for these months.

Then, several months later, the plane was damaged when Jet Linx pilots attempted to fly the plane without first checking and noticing the oil pressure was too low. The resulting repair costs totaled over $158,000.

The disagreements between the parties escalated. Eventually they filed claims and counterclaims against each other arising out of their various agreements. After a bench trial, the district court awarded $163,953.17 in damages to BLB (due primarily to Jet Linx failing to make all lease payments required) and $158,014.98 in damages to Jet Linx (due to BLB failing to reimburse Jet Link for the repairs following the oil-loss incident). Both parties appealed. The Eighth Circuit Court of Appeals has affirmed in part and reversed and remanded in part. BLB Aviation South Carolina, LLC v. Jet Linx Aviation, LLC, No: 12-3461 (8th Cir. 2014).

The court of appeals agreed with the district court that Jet Linx agreed to pay full rent “no matter the number of actual hours flown.” Thus, the court rejected Jet Linx’s argument that less rent was owed during months the plane was down for maintenance.

The court of appeals also affirmed an award of damages to BLB due to Jet Linx “marking up” the cost of maintenance to the airplane. Although BLB agreed to pay for the maintenance to the aircraft, BLB never agreed to pay any additional amount beyond the cost to Jet Linx to maintain the plane. Jet Linx argued the parties orally agreed to allow it to mark up maintenance costs. However, the courts found that written agreement between the parties was a fully integrated agreement that could not be contradicted by testimony of additional oral terms that would materially alter the terms of the written agreement. Applying the parol evidence rule, the courts refused to consider evidence of an oral agreement. “The parol evidence rule renders ineffective proof of a prior or contemporaneous oral agreement which alters, varies, or contradicts the terms of a written agreement.” Sack Bros. v. Tri–Valley Coop., Inc., 616 N.W.2d 786, 791 (Neb.2000).

The court of appeals also affirmed the district court’s finding that BLB breached the lease by failing to reimburse Jet Linx for the costs of repairs following the oil-loss incident. The lease provided that Jet Linx would only be responsible for damage to the plan that was caused by Jet Linx’s own negligence. Although BLB alleged that the incident was caused the negligence of Jet Linx’s pilot, BLB failed to present competent proof that Jet Linx was negligent and that such negligence was the proximate cause of the need for the repairs at issue.

The court of appeals did reverse the district court on one claim. On appeal, BLB challenged the district court’s conclusion that it did not prove its damages arising from Jet Linx’s failure to maintain documentation for the maintenance performed. The parties’ agreements required Jet Link to properly document maintenance. BLB presented expert testimony that, in order to rectify the lack of maintenance records and part tags, BLB would need to redo the maintenance that was not documented and would need to recertify the parts without part tags. The expert calculated that these repairs would cost $171,363.37.

Despite this evidence, the district court concluded that diminution in the value of the airplanes, rather than BLB’s cost of repairing the missing maintenance documentation and part tags, was the appropriate measure of BLB’s damages. Because BLB presented insufficient evidence of diminution of value, the district court entered judgment for Jet Linx on this claim.

The court of appeals agreed with BLB that it was entitled to damages measured by the cost of repair. Under Nebraska law, whenever a defect in the performance of a contract can be remedied, the ordinary measure of damages is the cost of repair. On the other hand, if the defect cannot be remedied, the usual measure of damages is the difference in value between the thing as represented and its actual value. The Nebraska Supreme Court has explained that the plaintiff is entitled to damages measured by the cost of repair unless the defendant proves that such efforts would involve an unreasonable economic waste. Thus, the court of appeals determined that cost-of-repair damages are proper unless the defendant establishes that the defect in his performance of the contract cannot be remedied in light of the considerations outlined above. Jet Linx did not established that the lack of maintenance documentation and part tags could not be remedied. Thus, it was error for the district court to choose diminution in value as the appropriate measure of BLB’s damages. Accordingly, the court of appeals reversed the district court’s decision to not award damages to BLB for this claim.

Commercial Litigation at Heygood, Orr & Pearson

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson are all Board Certified in Personal Injury Trial Law — Texas Board of Legal Specialization.

** Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.