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Sununu v. Philippine Airlines

July 31, 2009

JOHN H. SUNUNU AND VICTOR H. FRANK, JR., PLAINTIFFS,
v.
PHILIPPINE AIRLINES, INC. DEFENDANT.



The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge

MEMORANDUM OPINION AND ORDER

John H. Sununu and Victor H. Frank, Jr. (collectively, "plaintiffs") bring this action against Philippine Airlines, Inc. alleging breach of contract, unjust enrichment, and fraud. Before the Court is Philippine Airlines' motion to dismiss for failure to state a claim upon which relief may be granted [#14]. Upon consideration of the motion, the opposition thereto, and the record of this case, the Court concludes that the motion should be granted in part and denied in part.

I. BACKGROUND

In 1996, Philippine Airlines entered into an Aircraft Services Agreement with World Airways in which it agreed to lease four aircraft from World Airways from June 15, 1996 until November 15, 1997. The agreement committed Philippine Airlines to use the aircraft for a minimum number of block hours each month and to pay $6,000 per block hour. In the spring of 1997, Philippine Airlines sought to negotiate a reduction in the payments remaining due under this agreement, and engaged plaintiffs to help it do so. On or around June 27, 1997, Philippine Airlines and plaintiffs entered into a contract that provided that Philippine Airlines would pay plaintiffs $50,000 to meet with World Airways' Chairman. In addition, the contract specified that plaintiffs would be paid a "Success Fee" of four percent of Philippine Airlines' savings "if [plaintiffs] are able to reach a Settlement to reduce the remaining obligation of PAL [Philippine Airlines] to WA [World Airways] in accordance with either one of the following two offers [by July 11, 2007]." Compl. Ex. 1. The two offers were as follows:

i. WA to accept return of four aircrafts by July 1997 and PAL to pay USD$1,000 for every hour remaining of the minimum guaranteed utilization of the aircraft up to November 15, 1997; or

ii. WA to reduce the lease rate on the four aircraft to USD$4,000 per hour reckoned from June 01, 1997 to the end of the lease on November 15, 1997.

Id. The contract stated that the "Settlement should occur before . . . the 11th day of July, 1997," and that the "Settlement shall be deemed to occur on the signing by the President or CEO of WA or a written notation reflecting acceptance of Offer One or Two." The Success Fee was to be paid "upon, and only if there is a Closing in accordance with the Settlement." Id. The aforesaid is, in essence, the entirety of the contract, which did not explicitly restrict Philippine Airlines' ability to enter into a settlement with World Airlines based on other terms, nor guarantee plaintiffs exclusive negotiating rights.

After meeting with World Airways' Chairman, plaintiffs collected the $50,000 initial fee and began negotiating with World Airways. Shortly before the July 11, 1997 deadline, according to plaintiffs, World Airways showed plaintiffs documentation that World Airways had previously opposed Philippine Airlines suggestion of a November 15, 1997 termination date and had insisted on staggered lease termination dates. Plaintiffs continued to negotiate with World Airways and encouraged Philippine Airlines to negotiate directly as well. On July 11, 1997, "[a]cting in its sole discretion, and without advance notice to Sununu and Frank," Philippine Airlines entered into an Aircraft Services Agreement with World Airways. Compl. ¶ 13 & Ex. 2. The agreement contained staggered dates for the return of each of the four aircraft: November 15, 1997, November 28, 1997, February 19, 1998 and February 28, 1998. PAL Mot. Dismiss Ex. A.*fn1 It also reduced the cost per block hour under the lease to $5,600 from September 1, 1997 through December 31, 1997, and to $5,300 from January 1, 1998 through the end of the agreement. Id. The parties dispute whether the staggered termination dates were agreed to before plaintiffs entered into their agreement with Philippine Airlines, thus rendering performance of the specific contract terms more difficult, if not impossible.

Plaintiffs were never paid the four percent Success Fee because they did not persuade World Airways to accept either of the offers contained in their contract with Philippine Airlines. Plaintiffs allege, however, that the eventual agreement between Philippine Airlines and World Airways achieved "approximately the same [savings] as those that would have been achieved had November 15th been the termination date throughout the period and [had the eventual agreement between Philippine Airlines and World Airways] been structured to match one of the two alternatives set out in [the contract]." Compl. ¶ 14. Plaintiffs contend that the settlement saved Philippine Airlines approximately $12,830,000 assuming the staggered termination dates.

Plaintiffs filed their complaint in 1998. Soon afterwards Philippine Airlines sought reorganization assistance (similar to bankruptcy proceedings) in the Philippines. As a result, all then-pending U.S. litigation was stayed. The stay was recently lifted upon Philippine Airlines' emergence from the reorganization proceedings.

II. ANALYSIS

This case comes before the Court on Philippine Airlines' motion to dismiss plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) with regard to all three claims and pursuant to Rule 9(b) with regard to plaintiffs' fraud claim. Under Rule 12(b)(6), a court may dismiss a complaint or any portion of it for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). A court considering such a motion to dismiss must assume that all factual allegations are true, even if they are doubtful. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); Kowal v. MCI Commc'ns. Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (noting that a court must construe the complaint "liberally in the plaintiffs' favor" and "grant plaintiffs the benefit of all inferences that can be derived from the facts alleged"). "[A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief,'" however, "requires more than labels and conclusions . . . . Factual allegations must be enough to raise a right of relief above the speculative level." Twombly, 550 U.S. at 555 (internal citations omitted). The Court will address each of plaintiffs' three claims in turn.

A. Breach of Contract

Plaintiffs allege that Philippine Airlines breached the contract because it failed to pay plaintiffs a Success Fee of four percent of Philippine Airlines' savings based on the negotiated settlement with World Airways. A plaintiff states a claim for breach of contract by alleging "the existence of a valid and enforceable contract between the plaintiff and defendant, the obligation of the defendant thereunder, a violation by the defendant, ...


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