MALONE, Chief Justice.
The opinion issued on December 2, 2011, is withdrawn, and the following is substituted therefor.
GE Capital Aviation Services, Inc., now known as GE Capital Aviation Services, LLC ("GE Capital"), and Pemco World Air Services, Inc., and Alabama Aircraft Industries, Inc.(hereinafter collectively referred to as "Pemco"),
GE Capital is an international leader in commercial-aircraft leasing and financing. Pemco operates an aircraft-maintenance and repair business used by several major national and international airlines and is authorized by the Federal Aviation Administration ("FAA") to perform all types of aircraft maintenance and repairs. This case deals with a commercial dispute between these corporate entities involving the administration of a detailed multi-million-dollar contract negotiated and drafted over a period of months and executed by principals of GE Capital and Pemco.
Maintenance inspections on commercial aircraft are governed by the manufacturer of the aircraft. The purpose of a routine maintenance inspection is to make the aircraft airworthy and safe until the next maintenance inspection required by the FAA. An inspection known in the aircraft industry as an "8C check" is one of the most comprehensive maintenance inspections an aircraft can undergo. The tasks necessary to perform an 8C check are dictated by a manual issued by the manufacturer of the aircraft, which contains what the industry refers to as "routine
In the early 2000s, Pemco developed a proprietary process it uses to convert Boeing 737 passenger aircraft into cargo-freighter aircraft (a "P-to-F conversion"). Pemco obtained the FAA's approval and authorization of its P-to-F conversion process and secured from the FAA a supplemental type certificate ("STC") allowing it to perform that conversion work. A P-to-F conversion requires gutting the interior of the aircraft and removing the seats, galley, lavatories, and overhead bins, cutting a hole in the side of the aircraft and installing a cargo door, installing a cargo-handling system, and adding structural embellishments such as strengthening the floor of the aircraft, among other tasks. Pemco spent approximately two years and $4-5 million to obtain its P-to-F conversion STC. By late 2002, Pemco had performed 35 P-to-F conversions on Boeing 737s.
During 2002, Frank Tucci, the president of Pemco's Dothan operation, and Jim Lindberg, a senior vice president of GE Capital, negotiated a contract under which Pemco would perform maintenance and conversions on several Boeing 737s owned by GE Capital that GE Capital had leased to passenger airlines. When an airline's lease of an aircraft expired, it generally leased newer aircraft and returned the older models to GE Capital. GE Capital planned to have the older aircraft modified so they could be leased to other companies as cargo freighters. At the time, Pemco operated the only facility in the world with an STC for P-to-F conversions on Boeing 737s. GE Capital was an attractive customer to Pemco because GE Capital owned a large fleet of 737s and Pemco hoped it would be able to secure repeat business with GE Capital.
During the contract negotiations, Lindberg informed Tucci that GE Capital had contracted to lease two aircraft to TNT, a Belgian freight-delivery company, each with a specified date of delivery. For that reason, GE Capital wanted the conversion and maintenance work on those two aircraft performed simultaneously and completed as soon as possible.(Those two aircraft will hereinafter be referred to as "TNT-1" and "TNT-2," or collectively as "the TNT aircraft.") As to the TNT aircraft, GE Capital was interested in having Pemco perform 8C and ISIP checks, together with the P-to-F conversions. As to four other aircraft GE Capital planned to lease to Chinese companies ("the China aircraft"), it was interested in having Pemco perform a different kind of conversion known as a "quick-change" or "QC" conversion. In a QC conversion, the aircraft is modified so it can be used either as a passenger aircraft or a cargo freighter, depending on the configuration of modular units the owner or lessee of the aircraft can install or remove depending on the owner's or the lessee's particular needs. In addition, GE Capital had an option to send four more aircraft to Pemco for work. The TNT aircraft are the subject of the dispute before this Court.
As the negotiations concluded, Pemco prepared its bid for the maintenance work and the P-to-F conversion to be performed on TNT-1. Pemco determined the
Tucci and Lindberg, on behalf of Pemco and GE Capital, respectively, executed the Aircraft Modification Agreement ("the agreement") on January 15, 2003, in which Pemco agreed to perform maintenance and P-to-F conversions on as many as 10 GE Capital aircraft. On the same day, Tucci signed an amendment to the agreement containing Pemco's bid for the work to be done on TNT-1. That amendment was made a part of Exhibit A to the agreement.
Section 1 of the agreement specified the work to be performed:
Section 6 of the agreement dealt with nonroutine items. It stated: "[Pemco] shall promptly notify the Designated Representative of the discovery of all Discrepancies which are Non-routine Items."
The claims in Pemco's complaint and GE Capital's counterclaims principally revolve around (1) nonroutine items not included in any fixed-price items set forth in Exhibit A to the agreement and (2) additional services requested by GE Capital. Section 7 of the agreement provided for these items as follows:
Section 16 of the agreement provided for the on-site GE Capital employees who would represent GE Capital at the Pemco facility:
GE Capital sent six planes to Pemco under the agreement — the TNT aircraft and the China aircraft. GE Capital assigned oversight of the work on the China aircraft to Hector Castellanos and Bret Lenius, who served as the designated representatives for the China aircraft. Their counterparts on the TNT aircraft were Kevin Foltz and James Ortiz, who served as the designated representatives for the TNT aircraft. Although the same Pemco personnel worked with both teams of designated representatives, the work proceeded smoothly on the China aircraft, and the parties were able to resolve all issues that arose. However, the work on the TNT aircraft did not proceed as well and gave rise to the legal disputes presented in this case.
TNT-1 arrived at Pemco's Dothan facility on January 16, 2003. The tone for the working relationship between Ortiz and the Pemco employees was set at the first meeting between them. Various Pemco employees testified that Ortiz made the statement at the initial meeting that every company with which he had been involved on behalf of GE Capital had tried to "rip him off" and that he expected Pemco would try to do the same. Ortiz testified that he did not make the statement and that the Pemco employees must have been mistaken. Predictably, disagreements between Ortiz and Pemco's employees arose immediately. GE Capital alleges that Ortiz became concerned about the quality of the workmanship of Pemco's employees and that the work on TNT-1 quickly fell behind schedule. Pemco alleges that Ortiz was overly demanding and that working with him was frustrating and difficult. According to various Pemco employees, Ortiz cursed them, called them derogatory names, and made belittling comments. In addition, those same Pemco employees testified that Ortiz, contrary to Section 16.C. of the agreement, ordered them to redo completed work, directed them to do unnecessary work, and demanded that work be stopped for days at a time. The Pemco employees testified that Ortiz went so far as to go behind their inspectors and mark areas where there were, in his opinion, discrepancies, thus generating many more nonroutine cards and many more hours of work than Pemco had estimated when it calculated its bids for the work on the TNT aircraft.
Pemco completed the maintenance and conversion on TNT-1 and delivered it to GE Capital on June 28, 2003, which was 56 days past the promised delivery date. Meanwhile, TNT-2 arrived at Pemco's Dothan facility in April 2003. On June 3, 2003, Tucci signed an amendment to the agreement containing Pemco's bid for the work on TNT-2. That amendment was made a part of Exhibit A to the agreement. Pemco based its bid for TNT-2 on its experience with TNT-1, taking into account all the difficulties it had experienced while working on TNT-1. Pemco adjusted its bid by raising the fixed price for routine maintenance, increasing the nonroutine
Exhibit B to the agreement sets out the payment and pricing terms. Paragraph 2(a) of the payment terms, a part of Exhibit B, states: "[Pemco] will submit monthly invoices to [GE Capital] for completed [GE Capital] Requested Items and Non-Routine Items and for substantiated material and vendor services." However, Pemco submitted its first invoice on TNT-1 on April 16, 2003. Thereafter, the parties disagreed about every invoice Pemco submitted. GE Capital initially complained that Pemco's invoices included charges for unapproved work. Later in the project, GE Capital complained that Pemco's invoices included labor costs regardless of whether the agreement permitted the charge, whether GE Capital had requested or approved the work, and whether the increased labor costs were caused by Pemco error or inefficiency.
GE Capital maintained that the invoices for the P-to-F conversions included what Pemco called "over-and-above" and "out-of-sequence" charges and that the maintenance invoices included additional routine hours and unapproved nonroutine overruns. Pemco responded that GE Capital had caused delays or interference that justified additional charges under the agreement. Pemco complained that GE Capital sought to avoid its payment obligation in various ways, contended that a lack of supporting documentation was the basis for its nonpayment, and relied on extracontractual requirements that were never part of the agreement for its nonpayment. The parties also dispute whether Ortiz received the daily reports of man-hours worked the previous day. Various Pemco employees testified at trial that Ortiz received the reports daily; Ortiz testified at trial that he hardly ever received them.
Another point of contention between the parties concerned whether Pemco was required to obtain Ortiz's approval for all hours of labor worked on items beyond the 25-hour cap provided in the fixed price for maintenance. For each of the TNT aircraft, GE Capital sent Pemco a document of approximately 28-30 pages titled "Delivery Workscope" that describes the work necessary to prepare the aircraft for delivery to TNT. The document addressing the requirements for TNT-1 is dated December 13, 2002; the document addressing the requirements for TNT-2 is dated April 30, 2003. Both documents contain a page of numerous GE Capital "requirements." Those requirements include:
Although GE Capital's requirements were not included as exhibits to the agreement, it contends that those requirements control. Pemco contends that the agreement controls, specifically Section 7.C., which provides that any labor hours provided to the designated representative that the designated representative does not question within five work days "as being inaccurate or requiring information or clarification" are deemed approved.
The differences between Pemco's initial bids on the TNT aircraft and its final invoices demonstrate how far apart the parties' positions are in regard to invoicing. On January 15, 2003, Pemco submitted its bid on TNT-1 for $2,587,440. On June 11, 2003, Pemco submitted a redelivery invoice for TNT-1 to GE Capital for $4,919,964.75. Pemco required that GE Capital pay half of the redelivery invoice before it would deliver TNT-1. As to TNT-2, on June 3, 2003, Pemco submitted its bid for $3,181,629. Pemco submitted a final invoice for TNT-2 to GE Capital for $5,293,129.21 and refused to allow TNT-2 to leave its facility until GE Capital had paid all outstanding invoices on TNT-2. Even though GE Capital disputed many of the charges, it contends that it paid the remaining invoices under protest in order to meet its delivery obligation for TNT-2. A letter from a corporate representative for TNT to Pemco introduced at trial stated that TNT characterized the TNT aircraft delivered to it as having the "highest reliability" in its fleet.
In January 2004, GE Capital sued Pemco in New York, alleging that Pemco had breached the agreement and had fraudulently misrepresented or suppressed facts as to its ability to complete the work for which GE Capital had contracted and as to its billing practices. GE Capital sought both compensatory and punitive damages. Shortly thereafter, Pemco filed a complaint against GE Capital in the Dale Circuit Court alleging breach of contract. Paragraph 10 of Pemco's complaint alleges:
Pemco sought only compensatory damages.
GE Capital filed motions in Alabama and New York seeking to have the Alabama action dismissed, but both courts concluded that the litigation should proceed in Alabama. In October 2004, Pemco filed an amended complaint in the Alabama action alleging fraudulent suppression and misrepresentation in addition to breach of contract. Pemco contended that GE Capital had suppressed the predelivery condition of the TNT aircraft, had demanded more than the industry-standard
Both parties actively pursued all their claims and engaged in extensive discovery. In September 2006, Pemco moved for a summary judgment as to GE Capital's fraud counterclaims, arguing that GE Capital could not satisfy the element of reliance. GE Capital did not file a summary-judgment motion, but it opposed Pemco's motion, arguing that all the parties' claims involved factual disputes that should be submitted to a jury. Both parties contended in the trial court that it was possible for them to assert both breach-of-contract and fraud claims arising from the same facts.
The case proceeded to a jury trial beginning on March 30, 2009. GE Capital moved for a judgment as a matter of law ("JML") as to Pemco's claims at the close of Pemco's evidence, and both parties moved for a JML at the close of GE Capital's evidence and again at the close of all the evidence. Both parties argued that they were entitled to compensatory damages and punitive damages. Pemco argued for compensatory damages of $2,147,129 and punitive damages of two to three times the compensatory damages; GE Capital argued for compensatory damages of $1,991,225 and punitive damages of $1,900,000. The verdict forms, prepared by GE Capital and agreed to by Pemco, allowed the jury to return a verdict for either party. The verdict form for Pemco's claims required the jury to make a separate determination of liability as to each of Pemco's claims — breach of contract, fraudulent suppression, and fraudulent misrepresentation. It permitted the jury to return a single compensatory-damages award for Pemco and to award punitive damages to Pemco if it found such damages appropriate. The verdict form for GE Capital's counterclaims was similar, requiring the jury to make a separate determination of liability as to each of GE Capital's counterclaims — alleging breach of contract, negligent and wanton misconduct, fraud, fraudulent and/or negligent inducement to enter into the agreement, conversion, and seeking a declaratory judgment. It permitted the jury to return a single compensatory-damages award for GE Capital and to award punitive damages to GE Capital if it concluded that such damages were appropriate.
The jury returned a verdict in favor of Pemco on its breach-of-contract, fraudulent-suppression, and fraudulent-misrepresentation claims, awarding compensatory damages of $2,147,129 and punitive damages of $6,500,000. The jury also returned a verdict in favor of Pemco on GE Capital's counterclaims. The trial court entered a judgment on the verdict. GE Capital filed a postjudgment motion for a JML, a new trial, and/or a remittitur. The trial court denied the motion, and GE Capital appealed.
Waddell & Reed, Inc. v. United Investors Life Ins. Co., 875 So.2d 1143, 1152 (Ala. 2003).
Petty-Fitzmaurice v. Steen, 871 So.2d 771, 773 (Ala.2003).
We first address whether the trial court should have granted GE Capital's motion for a JML as to Pemco's fraud and breach-of-contract claims.
In order to prove a claim of fraudulent misrepresentation, Pemco needed to establish "(1) that [GE Capital] made a false representation, (2) that the misrepresentation involved a material fact, (3) that [Pemco] relied on the misrepresentation, and (4) that the misrepresentation damaged [Pemco]." AmerUs Life Ins. Co. v. Smith, 5 So.3d 1200, 1207 (Ala.2008). This Court has held that "for a plaintiff to state a fraud claim, he must show that a misrepresentation induced him to act in a way that he would not otherwise have acted, that is, that he took a different course of action because of the misrepresentation." Hunt Petroleum Corp. v. State, 901 So.2d 1, 5 (Ala.2004).
The dispositive question as to this issue is whether Pemco proved the first element — that GE Capital made a false representation.
The standard, however, was not misrepresented in the agreement. The agreement clearly provided that all work to be performed pursuant to it was to be "in accordance with the standards of the airline industry and applicable FAA ... regulations and in a good and workmanlike manner." When Tucci, president of Pemco's operations in Dothan who negotiated the agreement on behalf of Pemco, testified at trial, Pemco's counsel asked him:
Tucci testified that the term "basic industry check" referred to the 8C and ISIP checks provided for in the agreement. Ronald Aramini, president of Pemco's operations in Birmingham, also testified at trial, but he did not testify as to any conversation he had had with a representative of GE Capital about the standard of work to be performed.
GE Capital contends that in using the term "standards of the airline industry" in the agreement, neither Lindberg nor Tucci was referring to a standard Pemco had to meet in performing the work; rather, it contends, the term referred to the scope of the work agreed upon. If GE Capital demanded something more from Pemco than work performed "in accordance with the standards of the airline industry," GE Capital argues, it may have breached the agreement, but it did not make any misrepresentation.
Pemco argues that it presented sufficient evidence to support its fraudulent-misrepresentation claim, including evidence indicating that it was induced to execute the agreement because of GE Capital's alleged fraudulent misrepresentation. As to pre-contract discussions about the need for the P-to-F conversion and the maintenance work to be performed quickly, Tucci testified in his direct examination in response to questions from Pemco's counsel:
Before Pemco's bid was submitted and the agreement executed, Tucci and Lindberg discussed the scope of the maintenance work to be done because the nonroutine-ratio calculation for Pemco's bid would depend on that scope. GE Capital was aware, Pemco contends, that the ratio of routine items to nonroutine items was significant. Tucci testified at trial in response to questions from Pemco's counsel that he expressed his concern about the scope of the work because of the provision in the agreement for simultaneous performance of the maintenance work and the P-to-F conversion, but he said Lindberg responded only that the work must be done simultaneously to meet the promised delivery dates of the TNT aircraft to TNT.
Numerous witnesses for Pemco testified that Ortiz constantly demanded that Pemco perform work beyond that contemplated under normal 8C and ISIP checks. The scope of the work Pemco agreed to perform on the TNT aircraft was governed by the routine task cards applicable to the TNT aircraft, but, Pemco alleges, because Ortiz imposed his own standards, he increased the scope of the nonroutine work that was generated. Bill Wood, Pemco's quality-control manager, testified about specific examples of Ortiz's demands for more work than was required under the routine task cards, including instances where, even though inspections had been performed according to the cards, Ortiz ordered additional inspections. Other witnesses testified about Ortiz's practice of marking additional discrepancies in the TNT aircraft that generated additional nonroutine repairs.
Pemco and GE Capital, two large national and international corporations, negotiated the agreement on equal footing. From our review of the record, it is clear that they can be viewed as equals in fact and in the eyes of the law. In addition, other corporate representatives and legal counsel for each corporation were involved preparing the agreement. The extensive negotiation and preparation culminated in Tucci's and Lindberg's executing the agreement on behalf of Pemco and GE Capital, respectively. The agreement is clear and unambiguous. It sets out the scope of the work to be performed by Pemco, the standard GE Capital expected for the work to be performed, a procedure for resolving service requests not spelled out in the agreement, and procedures for
In order to prove a claim of fraudulent suppression, Pemco needed to establish "(1) that [GE Capital] had a duty to disclose an existing material fact; (2) that [GE Capital] suppressed that existing material fact; (3) that [GE Capital] had actual knowledge of the fact; (4) that [GE Capital's] suppression of the fact induced [Pemco] to act or to refrain from acting; and (5) that [Pemco] suffered actual damage as a proximate result." State Farm Fire & Cas. Co. v. Slade, 747 So.2d 293, 323-24 (Ala.1999).
The dispositive question as to this issue is whether Pemco proved the second element — that GE Capital suppressed a material existing fact. Pemco alleged in its amended complaint:
Pemco's fraudulent-suppression claim is based on its allegation that GE Capital suppressed two material facts: (1) the predelivery condition of the TNT aircraft and (2) the standard of work it would require. GE Capital maintains that Pemco did not present any evidence at trial indicating that the condition of the TNT aircraft or the standard of work was material to Pemco's decision to execute the agreement or that GE Capital suppressed either fact.
As to the predelivery condition of the TNT aircraft, GE Capital points out that Pemco apparently did not address the condition of the aircraft while negotiating the agreement. If the predelivery condition of the aircraft had been material, GE Capital alleges, Pemco could have negotiated provisions addressing it and/or sought to inspect the TNT aircraft before executing
As to the standard of work to be performed by Pemco, GE Capital contends that the agreement clearly specifies the requisite standard and that it is only conjecture on Pemco's part that GE Capital knew Ortiz would attempt to impose his own standards or that it suppressed from Pemco any deviation from the standard of work stated in the agreement.
As previously stated, the agreement formalized a multi-million-dollar transaction between two corporations on equal footing. The agreement clearly spells out the expectations and obligations of each party. Pemco's claims as to the standard of work GE Capital expected from Pemco and what it knew about Ortiz's work methods is mere speculation, not evidence. We see no evidence presented to the jury indicating that GE Capital suppressed from Pemco any material fact. Consequently, we conclude that, as a matter of law, Pemco's fraudulent-suppression claim should not have been submitted to the jury.
In order to establish that a breach of contract occurred, Pemco needed to prove: "`(1) the existence of a valid contract binding the parties in the action, (2) [Pemco's] own performance under the contract, (3) [GE Capital's] nonperformance, and (4) damages.'" Employees' Benefit Ass'n v. Grissett, 732 So.2d 968, 975 (Ala. 1998) (quoting Southern Med. Health Sys., Inc. v. Vaughn, 669 So.2d 98, 99 (Ala.1995) (citations omitted)). Accord, e.g., JP Morgan Chase v. J.H. Elec. of New York, Inc., 69 A.D.3d 802, 803, 893 N.Y.S.2d 237, 239 (2010).
As to the first element, it is undisputed that a valid contract existed. As to the second and third elements, Pemco produced evidence from which the jury could have concluded that Pemco proved its performance under the agreement, GE Capital's nonperformance, and damage to Pemco as a result of the breach. Therefore, the trial court properly submitted Pemco's breach-of-contract claim, based on an alleged breach of the agreement, to the jury.
Pemco also argued to the jury that GE Capital was liable under a theory of implied contract. Pemco requested the following jury instructions on the theory of implied contract, which the trial court gave over GE Capital's objections:
GE Capital argues on appeal that Pemco's reliance on an implied-contract theory to override the express terms of the agreement is contrary to law. This Court has held:
Kennedy v. Polar-BEK & Baker Wildwood P'ship, 682 So.2d 443, 447 (Ala.1996). Accord, e.g., Katz v. American Mayflower Life Ins. Co. of New York, 14 A.D.3d 195, 202, 788 N.Y.S.2d 15, 20 (2004).
Pemco argues that even though the agreement provided a sound basis for the jury verdict in its favor, the evidence also revealed that the parties entered into agreements that were independent of the agreement. In light of "this evidence," Pemco argues, the trial court did not exceed its discretion in instructing the jury on the theory of implied contract. The evidence to which Pemco refers, however, is evidence of express oral contracts, not implied contracts. Pemco contends that the instructions it requested were proper and that the jury, consistent with those instructions, correctly returned a verdict in its favor for breach of an implied contract.
In reviewing the record in this case, this Court cannot find any evidence that would support an implied-contract theory. Moreover, the existence of the agreement makes recovery on a theory of implied contract improper; therefore, we conclude that the trial court erred in giving the jury Pemco's requested charge regarding an implied contract and in submitting that claim to the jury.
We conclude that Pemco failed to offer substantial evidence showing that GE Capital made a false representation, that it suppressed any material existing fact, or that would support a breach-of-an-implied-contract theory. Because, as a matter of law, the evidence does not support a finding of fraudulent misrepresentation, fraudulent suppression, or the breach of an implied contract, the trial court erred in denying GE Capital's motion for a JML on both of Pemco's fraud claims and its breach-of-an-implied-contract claim. Therefore, those claims should not have
As to Pemco's breach-of-an-express-contract claim, however, we conclude that Pemco offered substantial evidence that GE Capital breached the agreement; therefore, the trial court did not err in denying GE Capital's motion for a JML as to Pemco's breach-of-an-express-contract claim, and that claim was properly submitted to the jury.
We next address whether the trial court should have granted GE Capital's motion for a new trial as to Pemco's breach-of-contract claim.
The jury returned a verdict in this case finding for Pemco on all of Pemco's claims against GE Capital. Because the breach-of-an-implied-contract claim was improperly submitted to the jury, we have in this appeal — as to the verdict on the breach-of-contract claim — a "good count-bad count" situation analogous to that in Aspinwall v. Gowens, 405 So.2d 134 (Ala. 1981). Waddell & Reed, 875 So.2d at 1165-66. See also Life Ins. Co. of Georgia v. Smith, 719 So.2d 797 (Ala.1998). We cannot assume that the verdict finding GE Capital liable was based only on Pemco's breach-of-contract claim that was properly submitted to the jury. Accordingly, the judgment based on the jury verdict for Pemco on Pemco's breach-of-contract claim must be reversed; we remand this case for a new trial on Pemco's breach-of-an-express-contract claim.
We reverse the trial court's order denying GE Capital's motion for a JML as to Pemco's fraud claims and its breach-of-an-implied-contract claim. We also reverse the trial court's order denying GE Capital's motion for a new trial. We remand the cause and direct the trial court to enter a JML in favor of GE Capital as to Pemco's fraudulent-misrepresentation claim, its fraudulent-suppression claim, and its implied-contract claim and to enter an order granting GE Capital's motion for a new trial as to Pemco's breach-of-contract claim alleging a breach of the agreement. Because we conclude that the trial court should have granted a JML as to Pemco's fraud and implied-contract claims and a new trial as to Pemco's breach-of-contract claim, we pretermit consideration of the other arguments made by the parties.
APPLICATION OVERRULED; OPINION OF DECEMBER 2, 2011, WITHDRAWN; OPINION SUBSTITUTED; REVERSED AND REMANDED WITH DIRECTIONS.
WOODALL, STUART, BOLIN, PARKER, SHAW, and WISE, JJ., concur.
MURDOCK, J., concurs in the result.
