TKC Aerospace, Inc. v. Muhs

Filing 296

ORDER granting 286 Motion for Summary Judgment; plf may file mot for atty fees & costs & file prop judg by 11/23/15; def's response due by 12/7/15; reply due w/i 7 days of response. Signed by Judge H. Russel Holland on 10/22/15. (PRR, COURT STAFF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

TKC AEROSPACE, INC.,

)
)
Plaintiff,
)
)
vs.
)
)
CHARLES TAYLOR MUHS,
)
)
Defendant.
)
__________________________________________)

No. 3:11-cv-0189-HRH

ORDER
Motion for Summary Judgment and Sanctions
Plaintiff moves for summary judgment or in the alternative for sanctions.1 This
motion is opposed.2 Oral argument has not been requested and is not deemed necessary.
Facts
Plaintiff is TKC Aerospace, Inc. (TKCA). Defendant is Charles Taylor Muhs.
TKCA, an Alaska Native Corporation 8(a) contractor, specializes in aircraft
procurement and leasing and aerospace logistics support and professional staffing for

1

Docket No. 286.

2

Docket No. 292.
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government and private concerns. Muhs was employed by TKCA as its Vice President of
Business Development. During Muhs’ employment, TKCA supplied six Dash 8 aircraft to
the Department of State (DoS). Muhs was significantly involved in all six Dash 8 sales.
In March 2011, Muhs resigned his employment with TKCA to begin working for
Knowledge International. Muhs later agreed to continue to work part-time for TKCA.
During this general time frame, Muhs learned that there might be another DoS Dash 8
solicitation. Muhs began working with Phoenix Heliparts, Inc. (PHP) to find aircraft and
develop a bid for this possible solicitation. After the DoS issued the solicitation, Muhs
continued to help PHP and PHP eventually was the successful bidder. TKCA was unable
to submit a bid because it did not have an aircraft to propose and because by the time the
bid was due, it knew Muhs was working with PHP.
On September 26, 2011, TKCA commenced this action. TKCA asserted seven claims
against Muhs in its complaint: 1) breach of contract, 2) breach of the implied covenant of
good faith and fair dealing, 3) breach of fiduciary duties, 4) unjust enrichment, 5)
interference with prospective business relationships, 6) fraud, and 7) misappropriation of
trade secrets. TKCA also moved for a preliminary injunction,3 which was granted on

3

Docket No. 7.
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October 14, 2011.4 The preliminary injunction generally enjoined Muhs from assisting PHP
with the Dash 8 solicitation.
On October 20, 2011, TKCA commenced an action against PHP in Arizona State
court. Although filed later, the Arizona Action progressed far more rapidly than this case.
On February 21, 2012, Muhs moved to stay this case pending resolution of the
Arizona Action.5 At this time, Muhs was represented in this matter by the same counsel
that was representing PHP in the Arizona Action.6
In the memorandum in support of his motion to stay, Muhs stated that the Arizona
Action “involve[d] the same plaintiff ... and [the] same factual and legal issues as those in
the Alaska Action” and that “[t]he underlying factual allegations in the respective Verified
Complaints in the two actions are virtually verbatim, the gravamen of the claims are
identical, and the relief requested is virtually identical.”7 Muhs further stated “this pending
action is so substantially similar to and significantly parallels the Arizona Action [as]

4

Docket No. 43.

5

Docket No. 61.

6

Muhs avers that he “was never fully advised of the conflict of interest, the risks of
joint representation and never signed a written waiver.” Declaration of Charles Taylor
Muhs at 4, ¶ 18, Exhibit 1, Defendant’s Response in Opposition to Plaintiff TKC Aerospace,
Inc.’s Motion for Summary Judgment, Docket No. 292.
7

Memorandum of Law in Support of Defendant’s Motion for a Temporary Stay at
2, Docket No. 62.
-3-

reflected in the overwhelming overlap of TKCA’s factual and legal arguments in the
Arizona Action Preliminary Injunction (‘PI’) Hearing Brief and its Summary Judgment (‘SJ’)
Motion Brief in this court – the fundamental linchpin of both being the alleged wrongdoing
of Muhs.”8 Muhs stated that it was “a distinction without a difference” that he was the
“sole defendant” because “TKCA’s claims of wrongdoing by PHP are entirely based on the
alleged wrongdoing of Muhs.”9 Muhs also pointed out that “all parties in the two cases
have entered into a stipulation and agreed that any discovery and trial testimony from the
Arizona Action can be used as evidence in this case,” which Muhs suggested was further
evidence of “the substantial similarity between the two cases....”10 In his reply brief, Muhs
stated that “[a] resolution of the Arizona Action in TKCA’s favor will dispose of any
remaining liability and damage questions in the Alaska Action (again, but for the $20,000
wage claim).”11 Muhs also stated “[i]f TKCA prevails in the Arizona Action, ... then Muhs
would be collaterally estopped from arguing differently in this Court.”12

8

Id. at 8 (internal citations omitted).

9

Id. at 9.

10

Id. at 10, n.4.

11

Reply Memorandum of Law in Support of Defendant’s Motion for a Temporary
Stay at 9-10, Docket No. 75.
12

Id. at 6, n.3.
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On March 8, 2012, the court denied Muhs’ motion for a stay.13 In doing so, however,
the court observed that “Muhs’ relationship to TKC[A] and his conduct as regards PHP is
the keystone to all of the claims of substance in both the Alaska federal suit and the
Arizona state suit.”14 The court also observed that
it is reasonably clear that the Arizona litigation will not
necessarily resolve the whole of this litigation. That said, the
Arizona litigation has the prospect of materially affecting this
litigation. Because Muhs’ conduct is at the heart of all the
claims in this court and in Arizona, there is the prospect for
substantial duplicative litigation even though the defendants
in the respective cases are different.[15]
On May 2, 2012, TKCA and Muhs filed simultaneous motions for summary
judgment.16 All of the evidence offered in support of the motions for summary judgment
had been developed in the Arizona Action as no discovery had yet taken place in this case.
On January 17, 2013, the court denied TKCA’s motion for summary judgment and granted
Muhs’ motion in part.17 Muhs was granted summary judgment on TKCA’s unjust

13

Docket No. 76.

14

Order re Motion for Stay at 2, Docket No. 76.

15

Id. at 4.

16

Docket Nos. 85 and 91.

17

SEALED Order re Motions for Summary Judgment at 53, Docket No. 195.
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enrichment claim and fraud claim and on portions of TKCA’s breach of contract and trade
secrets claims.18
The court thereafter deferred any further scheduling in this case until the Arizona
Action was completed. The proceedings in the Arizona Action were finally completed on
January 30, 2015. The Arizona court concluded
that PHP misappropriated TKCA’s bid proposal, [Statements
of Work] and labor rates in violation of the [Arizona Uniform
Trade Secrets Act]. PHP profited from its misappropriation to
TKCA’s detriment and is ordered to pay TKCA the sum of the
profits TKCA would have received under the DoS contract....
It is further ordered that PHP pay TKCA the calculated
research and development cost[s].... It is further ordered that
PHP pay exemplary damages pursuant to A.R.S. § 44-403(B) in
an amount double awarded to TKCA for its lost profit and
research and development costs. In addition, with respect to
the common law claims, TKCA is awarded its lost profits and
punitive damages.... It is also ordered that TKCA submit its
applications for the amount awarded in sanctions (reasonable
fees and expenses) and for reasonable attorney’s fees pursuant
to A.R.S. § 44-404 and A.R.S. § 12.349.[19]
The Arizona court’s conclusion was based on findings that Muhs worked with PHP to
compete for the DoS contract, that Muhs provided TKCA documents to PHP, and that

18

Id. at 53-54.

19

Under Advisement Ruling at 59, Attachment A, Authenticating Affidavit of Peter
Scully, Docket No. 288.
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Muhs worked on PHP’s DoS Dash 8 proposal.20 The Arizona court entered judgment
against PHP in the amount of $20,295,782.58.21
TKCA now moves for summary judgment on all of its remaining claims against
Muhs on the grounds that Muhs is collaterally estopped from relitigating TKCA’s claims
against him. In the alternative, TKCA moves for entry of a default judgment as a sanction.
TKCA also moves for an award of attorney fees and costs.
Discussion
Summary judgment is appropriate when there are no genuine issues of material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
“For an issue in a separate action to have preclusive effect under the doctrine of
collateral estoppel, the party against whom the issue is being asserted must have been a
party to the earlier action.” Stewart v. Elliott, 239 P.3d 1236, 1240 (Alaska 2010). “But if
one was not a party to the earlier action, that non-party may nonetheless be bound if in
privity with the party in the earlier action.” Id.
“In addition to the party/privity requirement, collateral estoppel requires that the
judgment be final and on the merits; that the precluded issue be identical in both actions;
and that the issue be essential to the final judgment in the first action.” Id. at 1241-42. “In

20

Id. at 4-11.

21

Id. at 60.
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addition, ... the issue to be collaterally estopped must have been ‘actually and fully litigated
in the first action.’ In other words, the precluded party must have had ‘a fair opportunity
procedurally, substantively, and evidentially to contest the issue.’” Chilton-Wren v. Olds,
1 P.3d 693, 697 (Alaska 2000) (quoting Murray v. Feight, 741 P.2d 1148, 1153 (Alaska 1987)).
There is no dispute that the Arizona judgment is final and on the merits. There is
also no dispute that the issues in this action are identical to those in the Arizona Action and
that these issues were essential to the final judgment in the Arizona Action. The dispute
here focuses on whether Muhs was in privity with PHP.
Under Alaska law, “[p]rivity exists where ‘the non-party (1) substantially
participated in the control of a party’s presentation in the adjudication or had an
opportunity to do so; (2) agreed to be bound by the adjudication between the parties; or (3)
was represented by a party in a capacity such as trustee, agent, or executor.’” Stewart, 239
P.3d at 1241 (quoting Powers v. United Servs. Auto. Ass’n, 6 P.3d 294, 297–98 (Alaska
2000)). “Privity ‘is a shorthand way of expressing assurance that the non-party has had
adequate notice and opportunity to be heard, and that its rights and interests have been
protected.” Id. (quoting Alaska Foods, Inc. v. Nichiro Gyogyo Kaisha, Ltd., 768 P.2d 117,
121 (Alaska 1989)). “In effect, privity assures that it is fair to legally bind the non-party to
the actions of the party in the earlier action.” Id.

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As set out above, Muhs represented to this court that the issues in this case and the
Arizona Action were almost identical, and he expressly stated that if TKCA were to prevail
in the Arizona Action, he would be collaterally estopped from arguing differently in this
court. In other words, Muhs represented that he was agreeing to be bound by what
happened in the Arizona Action. Muhs, however, argues that he was not aware of the
breadth and potential effect of his former counsel’s statements to this court. Muhs offers
his declaration in support of this argument. Muhs avers that he
was told and I believed that nothing that was done, agreed to,
or said in the Arizona Matter would damage my case in
Alaska. I was told and believed I would still be able to defend
myself in Alaska, including conducting discovery, but some
parts of the Arizona Matter might be used in Alaska as
evidence.[22]
Muhs further avers that he “recognize[s] that my former attorneys made statements
regarding the applicability of the Arizona Action to this matter, but I was unaware of the
scope, breadth and potential effect of those statements.”23 Muhs also avers that he
never knowingly agreed to be bound by the results in the
Arizona Action and thereby take away my ability to argue my
case in Alaska. Everything I agreed to and anything I signed,
was done because I was told it was necessary for the trial in
Arizona to move forward. I would not have agreed to or

22

Muhs Declaration at 3, ¶ 5, Exhibit 1, Defendant’s Response in Opposition to
Plaintiff TKC Aerospace, Inc.’s Motion for Summary Judgment, Docket No. 292.
23

Id. at 4, ¶ 9.
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signed anything that I knew would take my ability to defend
myself away.[24]
Muhs also avers that he “retained the legal services of Dickstein Shapiro ... to represent me
in my role as solely a witness in the Arizona Action.[25] Although for a time Dickstein
Shapiro was my counsel in this matter, it was always my understanding that I was being
represented as a witness.”26
Muhs argues that his declaration makes clear that he never intended to relinquish
his rights to a trial or to conduct discovery in this matter. Muhs points out that while
“courts look with favor on stipulations designed to simplify, shorten or settle litigation, or
to save costs, they “will not give such stipulations a forced construction” or “construe [a]
stipulation to waive rights not plainly intended to be relinquished.” DeNardo v. Calista
Corp., 111 P.3d 326, 332 (Alaska 2005) (citations omitted). Thus, Muhs argues that his
attorneys’ statements should not be construed to mean that he relinquished his rights to
a trial or to conduct discovery in this case.

24

Id. at 5, ¶ 15.

25

This averment is in direct conflict with the fact that three Dickstein Shapiro lawyers
applied for permission to appear and participate as co-counsel for Muhs in this case.
Docket Nos. 23-25.
26

Muhs Declaration at 2, ¶ 3, Exhibit 1, Defendant’s Response in Opposition to
Plaintiff TKC Aerospace, Inc.’s Motion for Summary Judgment, Docket No. 292.
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Muhs also argues that his counsel’s statements should give way to his due process
rights. Muhs contends that the Supreme Court has made clear that sometimes application
of collateral estoppel violates due process. He cites to Blonder Tongue Laboratories, Inc.
v. University of Illinois Foundation, 402 U.S. 313 (1971), in support of this contention.
There, the Court observed that
[s]ome litigants—those who never appeared in a prior
action—may not be collaterally estopped without litigating the
issue. They have never had a chance to present their evidence
and arguments on the claim. Due process prohibits estopping
them despite one or more existing adjudications of the identical
issue which stand squarely against their position.
Id. at 329. Muhs argues that this is a case in which due process should prevent resolving
this matter through collateral estoppel because TKCA is asking the court to enter judgment
against him in excess of twenty million dollars without allowing him the opportunity to
develop evidence. Muhs also argues that to bind him to the outcome of the Arizona Action
would violate his due process rights because while he had involvement in the Arizona
Action, it was only as a witness and not as a party. As a witness, he contends that he never
had the right to call his own witnesses, conduct discovery, or otherwise assert a defense.
Thus, he argues that he never received a fair hearing on the claims asserted against him by
TKCA and that he should be allowed such a hearing now. Muhs now argues that while the
discovery conducted by PHP in the Arizona Action might have been similar to discovery
Muhs would conduct in this matter, it was not identical. For example, Muhs avers that he
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will seek discovery from and call as witnesses “Mike Weems, Brian Blake, Ron Lee and
Robert Kessler[,]”27 who were presumably not witnesses in the Arizona Action. Muhs also
contends that he will retain experts in the area of government contracts in order to
demonstrate the effect of TKCA’s decision to not bid on the Dash 8 solicitation and that he
will also seek discovery of documents from the DoS to demonstrate that TKCA’s decision
not to bid had little to do with his actions. Muhs reminds this court that the Alaska
Supreme Court has “recognized that it is not always possible to resolve a case through
collateral estoppel, even if that case arises from the same underlying facts and theory as
prior litigation.” Powercorp Alaska, LLC v. Alaska Energy Auth., 290 P.3d 1173, 1182
(Alaska 2012). And he insists that this is one of those times.
This court disagrees. Muhs is equitably estopped from now asserting that he did not
understand that he was agreeing to be bound by whatever happened in the Arizona
Action.
Alaska recognizes two separate estoppel doctrines. The
elements of equitable estoppel are the assertion of a position by
conduct or word, reasonable reliance thereon by another party,
and resulting prejudice. Neither ignorance nor reliance,
however, are essential elements of quasi estoppel. Quasi
estoppel appeals to the conscience of the court and applies
where the existence of facts and circumstances mak[es] the
assertion of an inconsistent position unconscionable. This
court has instructed trial courts to consider the following
factors in determining whether the doctrine of quasi estoppel
27

Id. at 3, ¶ 10.
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is applicable: whether the party asserting the inconsistent
position has gained an advantage or produced some disadvantage through the first position; whether the inconsistency was
of such significance as to make the present assertion unconscionable; and, whether the first assertion was based on full
knowledge of the facts.
Wright v. State, 824 P.2d 718, 721 (Alaska 1992) (internal citations omitted). Either doctrine
applies here. Equitable estoppel applies because TKCA reasonably relied on Muhs’
numerous assertions that the Arizona decision would bind the parties in this case and
TKCA would be prejudiced if it were to have to retry this case now.
Quasi estoppel also applies because Muhs gained an advantage by representing that
he would be bound by the Arizona Action and allowing him to change course now would
be unconscionable. Muhs’ former counsel formally appeared for him and thus “was
authorized to speak and act for him.” Lane v. Ballot, 330 P.3d 338, 342 (Alaska 2014).
Muhs’ counsel represented to this court that Muhs agreed to be bound by whatever
happened in the Arizona Action. The court simply must be able to rely upon commitments
of counsel made on behalf of their clients in answers, motion papers, and procedural
matters such as the interrelationship between the Arizona Action and this case. If parties
are free to question or challenge decisions made by counsel in the course of litigation after
the court has received and relied upon representations of counsel, the court’s ability to
effectively manage litigation would be very substantially degraded. Indeed, there would

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need to be a wholesale revision of the way in which the court and counsel for parties
interact.
In short, Muhs agreed to be bound by the decision in the Arizona Action and thus
he was in privity with PHP. Because Muhs was in privity in with PHP, Muhs is collaterally
estopped from relitigating TKCA’s claims against him.28
If the court decides that collateral estoppel applies here, which it has, Muhs argues
that it should only apply to liability and that he should still have an opportunity to conduct
discovery as to whether TKCA’s damages were proximately caused by his conduct. Muhs
contends that given the enormity of the judgment that TKCA seeks to have entered against
him and the fact that TKCA already has a judgment in excess of $20 million against PHP,
he should be permitted to conduct discovery to ensure that damages are not assessed
against him for the actions of PHP or for conduct for which TKCA has already been
compensated.
Muhs, however, represented to this court that “the alleged damages [in the two
actions] are the same”;29 that “the liability and damage components of the two actions are

28

Because the court concludes that Muhs agreed to bound by the outcome of the
Arizona Action, the court need not consider TKCA’s argument that Muhs substantially
participated in the control of PHP’s defense. The court also need not consider TKCA’s
alternative motion for sanctions.
29

Memorandum of Law in Support of Defendant’s Motion for a Temporary Stay at
4, Docket No. 62.
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more than ‘sufficiently parallel’;30 that the “damages are essentially identical in both
cases;”31 and that “[a] resolution of the Arizona Action in TKCA’s favor will dispose of any
remaining liability and damage questions in the Alaska Action....”32

Thus, Muhs’

contention that the damages that were decided in the Arizona Action might not be
attributable to him is meritless. Muhs is collaterally estopped from relitigating both
liability and damages, and TKCA is entitled to summary judgment as to both liability and
damages.
TKCA also contends that it is entitled to its attorney fees and expenses. First, TKCA
argues that Muhs is liable for the attorney fees and expenses that it has incurred in this
case. The court will entertain TKCA’s motion for an award of attorney fees and expenses
incurred in connection with this case. Such motion shall be filed on or before November
23, 2015.
Second, TKCA argues that Muhs is liable under his employment agreement for its
attorney fees and expenses incurred in the Arizona Action. Muhs’ employment agreement
provides:

30

Id. at 12.

31

Reply Memorandum of Law in Support of Defendant’s Motion for a Temporary
Stay at 6, n.3, Docket No. 75.
32

Id. at 9-10.
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If Executive breaches any of the covenants set forth in Paragraph 6, 7 or 8 of this Agreement, Executive agrees to pay all
costs (including reasonable attorney’s fees) incurred by the
Company in establishing that breach and in otherwise enforcing any of the covenants or provisions of this Agreement.[33]
TKCA contends that this provision is broad enough to encompass its attorney fees and
costs in the Arizona Action and argues that had it not established that Muhs breached his
agreement in the Arizona Action, it would have had to do so here. Thus, TKCA insists that
Muhs is liable for the Arizona attorney fees ($4,596,865.06) and taxable costs ($113,321.37).
TKCA has offered no authority that suggests that Muhs’ employment contract
should be interpreted to include attorney fees directed at establishing Muhs’ liability but
incurred in litigation in which he was not a named party. The court had substantial doubt
that Muhs’ employment contract is broad enough to cover such fees. With what is
presently before it, the court denies TKCA’s request for fees incurred in the Arizona Action.
The court will, however, reconsider the matter if TKCA can offer any authority to support
its contention that it is entitled to the fees incurred in the Arizona Action.
Next, there is the matter of Muhs’ stay request. Muhs argues that if the court
decides that TKCA is entitled to summary judgment, it should stay the current matter until
the appeal filed by PHP in the Arizona Action is decided.34 If PHP’s appeal is successful,

33

Exhibit A at 10, ¶ 9, Verified Complaint, Docket No. 1.

34

PHP filed Chapter 11 bankruptcy on September 18, 2015, so any appeal is
(continued...)
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in whole or in part, the judgment on which TKCA is basing its current motion for summary
judgment will be vacated in whole or in part. If this were to happen, Muhs argues that an
incongruous result would occur: the judgment against PHP would be vacated and yet the
judgment against him would still exist.
The court is not inclined to leave this matter open until an Arizona appeal and
bankruptcy proceeding are concluded, but there are other ways for the parties to deal with
the problem which would arise if the Arizona judgment were to be reversed. For example,
a protective notice of appeal could be filed in this case and held in abeyance pending
resolution of the Arizona appellate proceedings. Or, the parties could agree that judgment
in this case be reopened if an Arizona appeal is successful, agree not to execute on this
court’s judgment, and this court could retain jurisdiction of this matter for purposes of
post-judgment proceedings in the event that the Arizona judgment were to be reversed.
The parties can and should consider an appropriate post-judgment agreement with respect
to the foregoing matters, which the court will take up at the same time it is finalizing a
judgment in this case.
Finally, there is the matter of the relief to which TKCA is entitled. What follows is
this court’s tentative view of what the final judgment in this case should be:

34

(...continued)
presumably now stayed.
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As to TKCA’s claims under Count I (breach of contract), Count II
(breach of implied covenant of good faith and fair dealing), Count III (breach
of fiduciary duty), and Count V (tortious interference with prospective
economic benefit), TKCA is entitled to judgment against Muhs for lost profits
in the amount of $2,883,055.86.35
As to TKCA’s Count IV (unjust enrichment) and Count VI (fraud), the
court has entered summary judgment in favor of Muhs,36 and these claims
are dismissed with prejudice.
As to TKCA’s Count VII (Alaska Trade Secret Acts), TKCA is entitled
to judgment against Muhs in the amount of:
a.

Lost Profits: $2,883,055.86

b.

Research and Development: $3,882,205.00

c.

Exemplary Damages: $13,530,521.7237

TKCA is entitled to taxable costs of $_____________ and attorney fees
and non-taxable costs in the amount of $_____________.

35

TKCA’s prayer for relief did not include a request for punitive damages.

36

Docket No. 195.

37

Per AS 45.50.915(b).
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The judgment shall bear interest at ________% per annum from the
date of this judgment until paid.
The court retains jurisdiction of this case for purposes of reviewing the
court’s order of _____________ and this judgment in the event that the
judgment in favor of TKCA in the Arizona Action is reversed on appeal.
Conclusion
TKCA’s motion for summary judgment is granted. TKCA is granted summary
judgment as to its remaining claims against Muhs. As set out above, TKCA may serve and
file a motion for attorney fees and costs incurred in this action. And, TKCA shall serve and
file a proposed judgment on or before November 23, 2015. Muhs shall respond on or
before December 7, 2015; and any reply by TKCA shall be served and filed within seven
days of Muhs’ response.
DATED at Anchorage, Alaska, this 22nd day of October, 2015.
/s/ H. Russel Holland
United States District Judge

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