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John H. Sununu and Victor H. Frank, Jr v. Philippine Airlines

June 20, 2011

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



The opinion of the court was delivered by: Signed by Royce C. Lamberth, Chief Judge,

MEMORANDUM OPINION

I.INTRODUCTION

This case arises out of a contract dispute between the national airline of the Philippines and a former White House Chief of Staff. Facing turbulence during the Asian Financial Crisis of the 1990s, Philippine Airlines ("PAL") sought to renegotiate its aircraft lease agreement with World Airways ("WA"). To facilitate discussions, PAL retained John H. Sununu, the former Governor of New Hampshire and Chief of Staff to President George H.W. Bush, and his partner, Victor H. Frank, Jr., a former U.S. Director of the Asian Development Bank.

In a brief business arrangement characterized by vague promises and poor communication, PAL and the Sununu-Frank tandem found themselves facing a half-million dollar disagreement about payment for services. Sununu and Frank filed suit in May 1998, alleging breach of contract, unjust enrichment, and fraud. The litigation went into a nine-year holding pattern while PAL endured financial reorganization proceedings in the Philippines. After re-emerging from bankruptcy, PAL moved to dismiss the complaint. This Court granted PAL's motion on the breach of contract claim but allowed discovery to proceed on unjust enrichment and fraud. PAL now moves for summary judgment on those two counts.

II.BACKGROUND

A. Factual History

This case revolves around two contracts. The first is the Aircraft Services Agreement ("ASA") concluded by PAL and WA on April 30, 1996. Def.'s Mot. Summ. J. Ex. 1, ECF No. 49-4 ["ASA"]. This contract includes, among other provisions, PAL's agreement to lease two aircraft from WA for an eighteen-month term between June 15, 1996 and November 15, 1997. Id. ¶ 2.1. PAL agreed to pay $6,000 per hour for one aircraft and $4,650 per hour for the other, subject to minimum usage requirements. Id. ¶ 4.1. The two airlines agreed that the ASA "constitutes the entire contract" between them and "shall not be varied, contradicted, explained or supplemented by any oral agreement or representation." Id. ¶ 27.2.

PAL and WA amended the agreement formally several times. The change most relevant to these proceedings was WA's agreement to make two more aircraft available to PAL for lease "during the third and fourth quarter of 1996." Def.'s Mot. Summ. J. Ex. 3, ECF No. 49-6, ¶ 1.4. Neither this amendment nor any other written supplement altered the lease termination date for the first two aircraft or specified a termination date for the two additional aircraft. Id.; see also Def.'s Mot. Summ. J. Exs. 2 & 4, ECF Nos. 49-5 & 49-7.

PAL exercised its option to lease the two additional aircraft and took delivery of two MD-11 jetliners on September 19, 1996, and September 26, 1996, respectively. Def.'s Mot. Summ. J. Ex. 6, ECF No. 49-9, at 2, 5. The termination date of these leases became a source of disagreement between PAL and WA. WA believed that the leases should extend eighteen months from the date of delivery. Def.'s Mot. Summ. J. Ex. 7, ECF No. 49-10, at 2; Pl.'s Opp'n. I, ECF No. 57-11, at 2. In August 1996, WA executive Ahmad Khatib wrote PAL Chief Financial Officer Jaime Bautista a letter suggesting that the two airlines had reached a verbal understanding to this effect. Id. Replying in January 1997, Bautista denied the existence of any such oral agreement and insisted that all four leases should terminate on November 15, 1997. Def.'s Mot. Summ. J. Ex. 5, ECF No. 49-8; Pl.'s Opp'n Ex. J, ECF No. 57-12, at 2 ["Bautista Letter"].

The dispute escalated from there. Khatib responded that he was "personally dismayed" by PAL's contention and that "PAL's logic seems more reflective of PAL's current financial state than with the agreement and established practice of our two companies over the past 5 months." Def.'s Mot. Summ. J. Ex. 8, ECF No. 49-11, at 3, 4; Pl.'s Opp'n Ex. K, ECF No. 57-12, at 3, 4. He cited numerous prior oral amendments to the ASA and reiterated WA's view that the lease terminations should be based on the aircraft delivery dates.*fn1 Id. at 3--5. WA reported its dispute with PAL over the lease termination dates in public Securities and Exchange Commission ("SEC") filings on March 31, 1997 and May 14, 1997. Def.'s Mot. Summ. J. Ex. 9, ECF No. 49-12, at 8 ["WA's 10-K"]; Notice of Errata in Def.'s Stmnt. of Mat. Facts, Ex. A, ECF No. 52, at 19 ["WA's 10-Q"]. The dispute coincided with PAL's worsening financial condition. On March 11, 1997, PAL explained to WA that it had suffered "huge losses," expressed its desire to restructure its financial relationship with WA, and implored WA not to declare it in default. Pl.'s Opp'n Ex. M, ECF No. 57-15, at 2.

PAL's desire to renegotiate the lease agreement gave rise to the second key contract in this case-the agreement between PAL and Sununu-Frank. PAL approached Sununu and Frank about facilitating negotiations with WA in the spring of 1997, and the two men met with PAL Chairman Lucio Tan in late May or early June. Decl. of John H. Sununu, ECF No. 57-1, ¶¶ 3, 4 ["Sununu Decl."]. Tan explained that Philippine President Joseph Estrada had asked him to invest more money in PAL and that renegotiating the ASA was an urgent priority. Id. ¶ 4. He also told Sununu and Frank that the leases would terminate on November 15, 1997. Id. ¶ 5.

Sununu and Frank sent a contract proposal to PAL on June 10, 1997. Pl.'s Opp'n, ECF No. 57-2 ["Sununu-Frank Draft Contract"]. Under their terms, they would be paid $50,000 upon signing and a "success fee" of $600,000 if they persuaded WA to accept an ASA modification acceptable to PAL by June 30. Id. ¶ 3. Sununu's proposal did not make this success fee contingent on preserving the November 15, 1997 lease termination date. Id.

While awaiting a response from PAL, Sununu tested the waters with WA. He called WA Chairman Coleman Andrews, who agreed to meet with him if he was retained by PAL. Def.'s Mot. Summ. J. Ex. 14, ECF No. 49-17 (Dep. of John Sununu, Feb. 3, 2010), 30:6--17 ["Sununu Dep."]. Frank obtained financial information about WA from a private firm, Tucker Anthony, Inc. Pl.'s Opp'n Ex. A, ECF No. 57-2 ["WA Financial Info."]. This information did not include the portions of WA's publicly filed 10-K or 10-Q forms that disclosed the dispute over the lease termination date. Id. Sununu and Frank did not review any other SEC filings, Sununu Dep. 76:16--20, or request any documents from PAL. Id. 65:13--20; 66:17--67:2.

On June 23, 1997, PAL gave Sununu and Frank a verbal go-ahead to undertake the project, Sununu Decl. ¶ 11, but did not sign Sununu and Frank's draft contract. Knowing PAL's short timetable, Sununu quickly arranged a face-to-face meeting with WA Chairman Andrews in Herndon, Virginia. Sununu Decl. ¶ 12. Andrews informed Sununu about the airlines' "historic disagreement" over the lease termination date, Sununu Dep. 47:17, explaining that "basically the reason [WA] wasn't sitting down with Philippine airways is that Philippine airways couldn't read the contract and understand that it was a 17-month lease . . . on all the aircraft" and that if PAL didn't modify its position, WA "didn't want to negotiate with them." Id. 32:19--33:4.

Andrews warned Sununu that "if that's what they're going to want to talk about"-preserving the November 15 termination date-"then you shouldn't come in." Id. 47:20--21.

Shortly after receiving this information, Sununu and Frank received a formal written contract from PAL. Id. 32:12--15. It included two provisions. First, PAL agreed to pay a $50,000 fee for Sununu's meeting with WA Chairman Andrews. Pl.'s Opp'n Ex. E, ECF No. 57-6, ¶ 2 ["Final Contract"]. Second, PAL promised "a Success Fee of four percent [4%] of PAL savings if they are able to reach a Settlement to reduce the remaining obligation of PAL to WA in accordance with either of" two offers. Id. ¶ 3. The two offers were:

i. WA to accept the return of four aircraft 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 November 15, 1997.

Id. For Sununu and Frank to receive the success fee, "the Settlement should occur before the close of business on the 11th day of July, 1997." Id. ¶ 4.

This contract differed from Sununu and Frank's earlier proposal in several ways, notably in that it made the success fee contingent on WA's willingness to recognize November 15, 1997 as the termination date for all of the leases. Sununu and Frank were aware, based on Sununu's recent discussions with Andrews, that the November 15 date was a subject of dispute between their prospective client and WA. Sununu Dep. 32:15--18. Nevertheless, Sununu and Frank signed the contract. Id. 90:7--13.

Now under an official retainer with PAL, Sununu continued his dialogue with Andrews. In a meeting on June 30, 1997, Andrews again emphasized the dispute over the termination date. He told Sununu that "World refused to negotiate the ASA with PAL if PAL insisted upon the November 15, 1997 termination date for all four aircraft." Sununu Decl. ¶ 15. While Sununu had previously been aware of the dispute, it was only after this conversation-when Sununu got "fed heavy" by Andrews, to use Sununu's evocative phrase, Sununu Dep. 42:2-that he says he grasped the severity of the airlines' dispute over the termination date. Sununu Decl. ¶ 15.

Sununu and Frank took this information back to PAL executives, who assured them that the termination date of November 15 was correct. Sununu Dep. 100:11--12. Nevertheless, Sununu and Frank offered to modify their contract because they felt it was unfair to PAL. Id. 111:18--112:6. They reasoned that, under WA's staggered termination date theory, PAL would save substantially more money by renegotiating the ASA than they had initially estimated, thus producing an unexpectedly large success fee for Sununu and Frank. Id. PAL executives declined this offer, id. 112:13--20, and asked Sununu and Frank to "keep working." Id. 42:21-- 43:2; 111:14--15. The parties dispute whether this constituted an oral revision of the contract, as will be discussed below, but all agree that the signed written contract between PAL and Sununu-Frank was never modified in writing. Id. 103:10--22.

In the ensuing weeks, Sununu and Frank "made numerous phone calls to both World and PAL and had a [series] of meetings with World in Virginia." Sununu Decl. ¶ 17. Sununu devoted "almost all of [his] time" for two to three weeks "to facilitating the renegotiation of the ASA." Id. ¶ 20. On July 11, 1997-the deadline provided in the contract between PAL and Sununu-Frank-PAL and WA completed an amendment to the ASA. Def.'s Mot. Summ. J. Ex. 16, ECF No. 49-19. The revised agreement did not comply with either of the two contingencies spelled out in PAL's contract with Sununu and Frank, because it did not provide for the return of all the aircraft on November 15. Id. Also, while the revised ASA reduced rates for PAL, it did not cut them to the levels specified in PAL's contract with Sununu and Frank. Compare id. ¶¶ 3--5 (reducing hourly rates to $5,300 at their lowest point) with Final Contract, ¶ 3 (requiring an hourly rate of $4,000 for Sununu and Frank to earn a success fee).

When Sununu learned that the airlines had reached an agreement-from WA, not his client-he submitted an invoice to PAL. Sununu Decl. ¶ 15; Def.'s Mot. Summ. J. Ex. 17, ECF No. 49-20, at 2 ["Invoice"]. He billed the airline for $570,000: $50,000 for his meeting with WA Chairman Andrews and $520,000 for the success fee, which he calculated as four percent of PAL's estimated $13 million savings. Invoice, at 2. Within a week, PAL paid the $50,000. Def.'s Mot. Summ. J. Ex. 15, ECF No. 49-18, at 2 ["PAL Payment"]. But the airline disputed Sununu's claim that he was entitled to a success fee.

PAL first argued that it did not owe a success fee because the ASA amendment had not saved the airline money, but rather had cost it nearly $3.3 million. Pl.'s Opp'n Ex. F, ECF No. 57-7, at 3. Frank described it as "a joke" that PAL would agree to a modification that cost it money, id. at 2, and Sununu replied to PAL with a letter detailing his computations. Pl.'s Opp'n Ex. G, ECF No. 57-8, at 3--5. PAL acknowledged a minor mathematical error but maintained that the revised agreement would cost it more than $2.8 million. Pl.'s Opp'n Ex. H, ECF No. 57-9, at 2--3. Later, however, PAL recognized that the amended ASA had saved it nearly $12.8 million, Pl.'s Opp'n Ex. R, ECF No. 57-20, at 8, and explained that it had denied the $520,000 to ...


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