Cessna Finance Corporation v. JS CJ3, LLC et al
Filing
123
MEMORANDUM AND ORDER granting in part and denying in part 53 Motion for Judgment on the Pleadings. Signed by District Judge Eric F. Melgren on 1/28/2020. (cm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
CESSNA FINANCE CORPORATION,
Plaintiff,
vs.
Case No. 18-1095-EFM-KGG
JETSUITE, INC. and JS CJ3, LLC,
Defendants.
JETSUITE, INC. and JS CJ3, LLC,
Counterclaim-Plaintiffs,
v.
CESSNA FINANCE CORPORATION, et al.,
Counterclaim-Defendants.
MEMORANDUM AND ORDER
JetSuite, Inc. (“JetSuite”) and JS CJ3, LLC (“JS”) purchased several aircraft from Cessna
Aircraft Company (“Cessna Aircraft”). JetSuite and JS financed that purchase through Cessna
Finance Corporation (“Cessna Finance”). Cessna Finance sued JetSuite and JS, alleging that they
defaulted on their payments. In turn, JetSuite and JS filed a counterclaim against Cessna Finance
(and others) alleging that JetSuite and JS were fraudulently induced into purchasing the aircraft.
JetSuite and JS seek monetary damages as well as rescission of the contracts arising from the
purchase of the aircraft. This matter comes before the Court on Cessna Finance’s Motion for
Judgment on the Pleadings on JetSuite and JS’s Counterclaims (Doc. 53.) For the reasons stated
below, the Motion is granted in part and denied in part.
I.
Factual and Procedural Background1
JetSuite is a California corporation that provides private jet charter services to its clients.
In 2012, JetSuite began discussions with Cessna Aircraft to purchase several Cessna CJ3 Citation
Jet Aircraft (“CJ3 Jets”). After months of negotiations—many of which took place in California—
JetSuite entered into a Letter Agreement with Cessna Aircraft to purchase 15 of Cessna Aircraft’s
CJ3 Jets; the Letter Agreement stipulated that a separate Purchase Agreement would be executed
for each aircraft. JetSuite formed JS, a limited liability company, to own the CJ3 Jets. Ultimately,
JetSuite and JS took possession of eight CJ3 Jets, and Cessna Aircraft eventually canceled the
remaining seven orders. JetSuite and JS borrowed money from Cessna Finance to finance the
purchase of the eight CJ3 Jets. For each jet, JS was required to sign a Promissory Note, a Security
Agreement, and a Cross-Default Agreement; JetSuite executed documents promising to be a
guarantor of JS’s financial obligations.
Unbeknownst to Jetsuite and JS at the time of the purchase, Cessna’s CJ3 Jets were prone
to leaking lavatory fluids, causing significant corrosion throughout the aircraft. In March 2017,
JetSuite discovered that the CJ3 Jets it purchased from Cessna Aircraft had extensive damage from
the leaky lavatories. JetSuite took one of the jets to Textron Aviation Service (“TAS”), and TAS
estimated that the repairs would take more than a year and cost $1,215,000. By the end of 2017,
four of Jetsuite’s eight CJ3 Jets were downed and out of service due to lavatory-related corrosion.
1
The facts are taken from JetSuite and JS’s Amended Counterclaim (Doc. 31) and are accepted as true for
the purposes of this ruling.
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Although the lavatory-related corrosion was the most severe issue with the CJ3 Jets, JetSuite and
JS allege other problems also plagued the aircraft.
Cessna Finance sued JetSuite and JS, alleging that they failed to make payments on their
loans. JetSuite and JS filed a counterclaim seeking, among other remedies, rescission of the Letter
Agreement and all of the Purchase Agreements, Promissory Notes, Guaranties, Security
Agreements, and Cross-Default Agreements. In their counterclaim, JetSuite and JS allege that
Cessna Aircraft and Cessna Finance knew about the CJ3 Jets’ propensity for corrosion and
concealed this fact during the parties’ negotiations. JetSuite and JS allege that Donald Beverlin—
a senior sales representative of Cessna Aircraft—was acting as both Cessna Aircraft and Cessna
Finance’s agent when he made multiple representations to JetSuite and JS about the CJ3 Jets’
exceptional performance, reliability, and operational availability. In the hundreds of written,
telephone, and in-person contacts between Beverlin and JetSuite, Beverlin never mentioned
lavatory-related corrosion as a potential issue in the CJ3 Jets.
JetSuite and JS filed their counterclaim against Cessna Aircraft, Textron Aviation, Inc.,2
Cessna Finance, and Beverlin (collectively “Counterclaim-Defendants”), alleging fraud by silence,
fraudulent inducement, a violation of the California Business and Professions Code, and
conspiracy. Although Cessna Aircraft and Cessna Finance are distinct legal corporations, JetSuite
and JS allege that “each Counterclaim-Defendant was the agent, servant, representative, alter ego,
and/or employee of each of the others” and that each was acting “with the permission, knowledge,
consent and ratification of each of the others” in concealing the CJ3 Jets’ defects. To support the
alleged relationship between Cessna Finance and Cessna Aircraft, JetSuite and JS highlight that
2
Textron is the successor in interest to Cessna Aircraft.
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Textron’s Vice President and Treasurer, Mary Lovejoy, also served as a director of Cessna
Finance. Additionally, although Beverlin was an employee of Cessna Aircraft, JetSuite and JS
allege that Beverlin was also acting as Cessna Finance’s agent in coordinating the financing of the
purchase.
Cessna Finance filed a Motion for a Judgment on the Pleadings on JetSuite and JS’s
counterclaims. Cessna Finance primarily relies on the language within the parties’ contracts to
negate JetSuite and JS’s fraud claims.3 Specifically, Cessna Finance points to the following
provisions in the parties’ contracts:
Borrower acknowledges and agrees that lender has not authorized any third party
including, without limitation, the manufacturer of the aircraft or the seller, their
affiliates, officers, agents or employees, to make any representations, warranties,
promises, guarantees, covenants or agreements, oral or written, concerning the
aircraft or the loan on lender’s behalf, and further acknowledges and agrees that no
such third party is lender’s agent and that lender shall not be bound by any such
purported representations, warranties, promises, guarantees, covenants or
agreements.
...
In Consideration of the loan, except where prohibited by applicable law, borrower
completely waives and surrenders the right to pursue, assert or interpose any claim
or defense against the lender, in law or in equity (including, without limitation, any
right to recoupment, setoff or counterclaim), based on the aircraft’s title,
airworthiness, merchantability, condition, description, durability, value, fitness or
suitability for any particular use or purpose, or upon allegations that lender is so
closely or intimately connected with the manufacturers or prior owner(s) of the
aircraft, or with any other third party whatsoever, including, without limitation, the
seller or their affiliates, that lender knew or had reason to know of facts about the
3
Cessna Finance attached the parties’ contracts as exhibits to its Amended Complaint. Because Cessna
Finance has moved for a judgment on the pleadings, and because the parties do not dispute the contract’s authenticity,
the Court will consider the contracts to rule on this motion. See Fed. R. Civ. P. 10 (c) (“A copy of a written instrument
that is an exhibit to a pleading is a part of the pleading for all purposes.”); Finley v. City of Colby, Kansas, 2018 WL
3472816, at *2–3 (D. Kan. 2018) (“When a complaint includes exhibits, the Court may consider not only the complaint
itself, but also attached exhibits. If the complaint refers to a document, but does not include it as an exhibit, the Court
may consider a copy of the document provided by the defendant if the plaintiff does not dispute the document’s
authenticity and the document is central to the plaintiff’s claims.” (internal citations and quotations omitted)).
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aircraft or its title (or the borrower’s dealings with such manufacturers, prior
owner(s) or third parties or about their general business practices) that would
support a claim, counterclaim or defense by borrower against such manufacturers,
prior owner(s) or third parties.
...
Borrower hereby acknowledges that it has selected the aircraft for purchase without
any assistance or inducement from lender or lender’s agents or employees and that
except for the advancement of funds pursuant to the note and this agreement, lender
has not been involved in the purchase decision or purchase transaction. Borrower
agrees that lender has made no warranties whatsoever concerning the aircraft
express or implied, whether of title, airworthiness, merchantability, condition,
description, durability, value, fitness or suitability for any particular use or purpose
or otherwise, and that lender, except where prohibited by applicable law, hereby
disclaims all such warranties.
Cessna Finance moves the Court to grant judgment on the pleadings on all four of JetSuite
and JS’s counterclaims. The Court now rules as follows.
II.
Legal Standard
Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the
pleadings after the pleadings are closed as long as the motion is made early enough not to delay
trial.4 The standard for dismissal under Rule 12(c) is the same as a dismissal under Rule 12(b)(6).5
To survive a motion for judgment on the pleadings, a complaint must present factual allegations,
assumed to be true, that “raise a right to relief above the speculative level,” and must contain
“enough facts to state a claim to relief that is plausible on its face.”6 All reasonable inferences
4
Fed. R. Civ. P. 12(c).
5
Myers v. Koopman, 738 F.3d 1190, 1193 (10th Cir. 2013).
6
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).
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from the pleadings are granted in favor of the non-moving party.7 Judgment on the pleadings is
appropriate when “the moving party has clearly established that no material issue of fact remains
to be resolved and the party is entitled to judgment as a matter of law.”8 Documents attached to
the pleadings are exhibits and may be considered in deciding a Rule 12(c) motion.9
III.
A.
Analysis
Fraud by Silence
JetSuite and JS allege that Cessna Finance committed fraud by remaining silent about
known defects with the CJ3 Jets. The elements of a fraud by silence claim are: “(1) The defendant
had knowledge of material facts that the plaintiff did not have and could not have discovered by
the exercise of reasonable diligence; (2) the defendant was under an obligation to communicate
the material facts to the plaintiff; (3) the defendant intentionally failed to communicate to the
plaintiff the material facts; (4) the plaintiff justifiably relied upon the defendant to communicate
the material facts to the plaintiff; and (5) the plaintiff sustained damages as a result of the
defendant’s failure to communicate the material facts to the plaintiff.”10 Here, Cessna Finance
disputes that JetSuite and JS adequately pleaded that Cessna Finance was under an obligation to
communicate the alleged defects or that JetSuite justifiably relied on Cessna Finance to make those
disclosures.
7
Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138, 1141 (10th Cir. 2012) (citation omitted).
8
Id. (quotations marks and citation omitted).
9
Park Univ. Enters., Inc. v. Am. Cas. Co., 442 F.3d 1239, 1244 (10th Cir. 2006), abrogated on other grounds
by Magnus, Inc. v. Diamond State Ins. Co., 545 F. App’x 750, 753 (10th Cir. 2013).
10
Stechschulte v. Jennings, 297 Kan. 2, 298 P.3d 1083, 1097 (2013) (citations omitted).
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Under the second prong, JetSuite and JS must adequately plead that Cessna Finance had a
duty to disclose the aircraft’s alleged defects with them. “Whether a duty to disclose exists is
determined by the facts and circumstances of each case.”11 “ ‘The question of what gives rise to a
legal or equitable obligation to communicate is not always an easy question to resolve, but
generally the duty must arise from a relationship existing between the parties when the suppression
or concealment is alleged to have occurred.’ ”12 “Kansas courts have recognized that a duty to
disclose may arise in two situations: (1) there is a disparity of bargaining power or of expertise
between two contracting parties; or (2) the parties are in a fiduciary relationship to one another.”13
Furthermore:
[A] party to a transaction also has a duty to disclose material facts if he or she
“knows that the other is about to enter into the transaction under a mistake as to
such facts, and that the other, because of the relationship between them, the customs
in the trade, or other objective circumstances, would reasonably expect a disclosure
of such facts.”14
With regard to the second prong, the Court concludes that JetSuite and JS have pleaded
sufficient facts to survive dismissal. A party’s obligation to disclose material information is highly
fact-specific. Such an obligation may arise based on the customs of the trade or other objective
circumstances, including a disparity in expertise between the parties. JetSuite and JS allege that
Cessna Finance possessed superior knowledge and expertise with the CJ3 Jets. Cessna Finance
disputes the truth of this allegation. But at this stage of the litigation, the Court is not interested in
11
Great Plains Christian Radio, Inc. v. Cent. Tower, Inc., 399 F. Supp. 2d 1185, 1195 (D. Kan. 2005) (citing
Ensminger v. Terminix Int’l Co., 102 F.3d 1571, 1574 (10th Cir. 1996)
12
Id. (emphasis added) (quoting DuShane v. Union Nat’l Bank, 223 Kan. 755, 576 P.2d 674, 674 (1978)).
13
Great Plains Christian Radio, 399 F. Supp. 2d at 1195 (citing DuShane, 576 P.2d at 678–79).
14
Meschke v. OrthAlliance, Inc., 2002 WL 1398635, at *1 (D. Kan. 2002) (quoting OMI Holdings v. Howell,
260 Kan. 305, 918 P.2d 1274 (1996)).
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whether JetSuite and JS will ultimately prevail on this issue. It is enough that JetSuite and JS have
alleged enough facts to make such a claim plausible.
Under the fourth prong, JetSuite and JS must have justifiably relied on Cessna Finance to
communicate the material facts with them. Cessna Finance argues that JetSuite and JS cannot
have reasonably relied on Cessna Finance to inform them about the alleged defects with the CJ3
Jets because the parties’ contracts include disclaimers that JetSuite and JS selected the aircraft
without any assistance, inducement, or promise of warranties from Cessna Finance. Cessna
Finance cites Boegel v. Colorado National Bank15 to support its contention that these broad
disclaimers bars JetSuite and JS’s claim as a matter of law.
In Boegel, the plaintiff purchased a 3,800-acre farm from a bank. The plaintiff later sued
the bank, alleging that the bank knew of serious problems with the farm’s irrigation system and
concealed those problems from the plaintiff. The case went to trial, and the jury returned a verdict
in the bank’s favor. The plaintiff filed an appeal in which he argued: (1) that the trial judge erred
in denying the plaintiff’s motion for directed verdict and (2) that the trial judge improperly
modified the fraud by silence pattern jury instructions. The Court of Appeals rejected both
arguments and affirmed the result. However, the court (in dicta) also addressed an argument the
bank raised as an alternative reason to affirm the defense verdict. The bank argued that the trial
judge erred in allowing the case to proceed to trial because the parties’ contracts placed the burden
to inspect the property on the plaintiff.16 The court gave some credence to this argument,
15
18 Kan. App. 2d 546, 857 P.2d 1362 (1993).
16
Specifically, the agreement stated: “BUYER acknowledges purchasing hereunder based on BUYER’S
inspection and not upon any express or implied warranty or representation made by SELLER or SELLER’S agents, it
being specifically agreed that the Premises and all irrigation equipment thereon, including, but not necessarily limited
to engines, pumps, gearheads and center pivot sprinklers being sold ‘as is where is.’ ” Id. at 1364 (emphasis added).
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explaining that because the bank bargained for limited liability and the plaintiff contractually
assumed a duty to inspect the property, allowing the plaintiff “to proceed to trial on his claim of
fraudulent concealment seems to nullify the limited liability for which the Bank bargained.”17 The
court, however, determined that it need not reach the issue.18
Cessna Finance puts forth Boegel’s dicta for the proposition that, based on the contracts’
disclaimers, it was unreasonable for JetSuite and JS to rely on Cessna Finance to communicate the
alleged defects with the CJ3 Jets. The Court agrees that the disclaimers are some evidence
(compelling evidence, even) that it was unreasonable for JetSuite and JS to rely on Cessna Finance
to disclose the alleged defects. The reasonableness of JetSuite and JS’s reliance, however, must
be based on the entirety of the circumstances. Boegel’s rationale does not foreclose the possibility
that—notwithstanding the contractual disclaimers—JetSuite and JS may nevertheless have
justifiably relied on Cessna Finance to provide that information. Although it is perhaps unlikely
that JetSuite and JS may prove justifiable reliance, that is not the question presently before the
Court. The question is whether JetSuite and JS’s claim should survive dismissal at this early stage
of the litigation, and the Court holds that Boegel does not preclude JetSuite and JS from stating a
claim. Therefore, Cessna Finance’s Rule 12(c) Motion on the fraud by silence claim is denied.
B.
Fraudulent Inducement
The elements of a fraudulent inducement claim are:
(1) The defendant made false representations as a statement of existing and material
fact, (2) the defendant knew the representations to be false or made them recklessly
without knowledge concerning them, (3) the defendant made the representations
intentionally for the purpose of inducing another party to act upon them; (4) the
17
Id. at 1368.
18
Id. (“Because we find that the trial court did not err in denying plaintiff's motion for directed verdict or in
modifying the PIK instruction, we need not reach this issue.”).
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other party reasonably relied and acted upon the representations; (5) the other party
sustained damages by relying upon the representations.19
Cessna Finance argues that JetSuite and JS cannot prevail on a fraudulent inducement claim
because it would require evidence that Cessna Finance made false representations about the quality
of the CJ3 Jets, and the parol evidence rule “prohibits the admission of evidence of prior oral
agreements or negotiations to vary the terms of a subsequent written agreement.”20 Although there
is a well-established exception to the parol evidence rule for fraud,21 Cessna Finance argues that
JetSuite and JS cannot rely on the fraud exception because “[w]here the written contract directly
contradicts the oral promises made during contract negotiations, the oral promise cannot be
construed as fraudulent.”22 To support this position, Cessna Finance relies chiefly on two cases
from the Kansas Supreme Court: Edwards v. Phillips Petroleum Company23 and Jack Richards
Aircraft Sales, Inc. v. Vaughn.24
In Edwards, the plaintiffs owned an interest in 40 acres of land on which the defendants
owned a valid oil and gas lease. The parties entered into a unitization agreement to combine the
plaintiffs’ land with a third party’s land. The plaintiffs alleged that they entered into this agreement
because the defendants made oral representations to them that no additional wells would be drilled
on the plaintiffs’ land. The unitization agreement, however, gave the defendants not just the right
19
Stechschulte, 298 P.3d at 1096.
20
Bailey v. Morgan Drive-Away, Inc., 647 F. Supp. 648, 650 (D. Kan. 1986).
21
Bailey v. Morgan Drive-Away, Inc., 647 F. Supp. 648, 650 (D. Kan. 1986) (“Exceptions to the [parol
evidence] rule exist which allow such evidence to show that there had been misrepresentations or concealments as to
what the contract contained or to show mutual mistake or fraud.”).
22
Flight Concepts Ltd. P’ship v. Boeing Co., 38 F.3d 1152, 1157 (10th Cir. 1994) (citations omitted).
23
187 Kan. 656, 360 P.2d 23 (1961).
24
203 Kan. 967, 457 P.2d 691 (1969).
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but also the obligation (for the benefit of the third party) to drill more wells on the plaintiffs’ land.25
In short: the plaintiffs alleged that the defendants orally agreed not to do the very thing they
promised to do in the written contract. Edwards concluded that it was the plaintiffs who were
attempting to perpetrate a fraud against the third party by reaching a side agreement with the
defendants that would allow the plaintiffs to share in the oil profits from the development on the
third party’s land without reciprocal development on the plaintiffs’ land.26 In upholding the trial
judge’s dismissal of the plaintiff’s claim, Edwards reasoned that the plaintiffs cannot bring a fraud
claim that capitalizes on their own fraudulent conduct, explaining:
If A, B and C enter into an express written contract, can A assert fraud against B in
procuring A’s execution of such contract for B’s deceit in making an oral promise
contemporaneously and directly at variance with the written contract, where the
overall effect of such oral promise, but for the deceit of B, was an independent
conspiracy of A and B to commit a fraud upon C? Clearly, the answer is in the
negative.27
In Cessna Finance’s other case, Jack Richards, the defendant agreed in writing to purchase
an airplane from the plaintiff. Shortly after signing the contract, the defendant informed the
plaintiff that he wanted to renege on the deal. The plaintiff eventually sued the defendant for
breach of contract; after a bench trial, the plaintiff prevailed. The defendant appealed, arguing in
part that the trial judge erred in excluding evidence that showed the defendant was fraudulently
induced into signing the contract by the plaintiff’s salesman. The defendant asserted that—based
on the plaintiff’s salesman’s representations—the parties had “an oral understanding that either
25
Edwards, 360 P.2d at 25.
26
Id. at 28.
27
Id.
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party could cancel the agreement if he desired to do so.”28 Jack Edwards held that the trial judge
properly excluded this evidence on the basis that the purported side agreement stated that the
parties were not bound by the terms of the written agreement.29 Essentially, “under [the]
defendant’s theory, the purchase order did not mean what it said and was a complete nullity.”30
This argument, according to the court, “is tantamount to saying [the] defendant was induced to
execute the instrument, which on its face was binding, with full knowledge that neither party
unequivocally and without reservation intended to perform in accordance with the terms of the
writing.”31 The Court rejected defendant’s fraud theory, stating that the defendant’s evidence is
only admissible under the fraud exception to the parol evidence rule if the evidence “tend[s] to
establish some independent fact or representation, some fraud in the procurement of the
instrument, or some breach of confidence concerning its use, and not a promise directly at variance
with the promise in the writing.”32
JetSuite and JS argue that Edwards and Jack Richards do not control this case, and the
Court should instead follow the reasoning in the Kansas Court of Appeals’ more recent decision
in Miles Excavating, Inc. v. Rutledge Backhoe & Septic Tank Services, Inc.33 In Miles, the plaintiff
and the defendant agreed to jointly provide services to a third-party client and share equally in the
profits from that endeavor. After the parties completed the project, the defendant submitted two
28
457 P.2d at 695.
29
Id. at 696.
30
Id.
31
Id.
32
Id. (citations omitted); see also Flight Concepts, 38 F.3d at 1157 (“Where the written contract directly
contradicts the oral promises made during contract negotiations, the oral promise cannot be construed as fraudulent.”).
33
23 Kan. App. 2d 82, 927 P.2d 517 (1996).
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invoices to the client. When the defendant received payment on the first invoice, the defendant
paid the plaintiff its share of the profits. The defendant did not, however, inform the plaintiff that
a second invoice had been submitted to the client. Additionally, the defendant procured from the
plaintiff a written acknowledgment that the plaintiff had been paid in full, which included a
provision that “this Release is not executed upon any statement or representation made by the party
or parties hereby released.”34
In Miles, the defendant argued (much like Cessna Finance here) that the parol evidence
rule precluded the plaintiff from presenting evidence of the alleged fraud because the plaintiff
signed a disclaimer stating that he signed the release without relying on any statements or
representations by the defendant. The court was unpersuaded by that argument. As an initial
matter, the court noted that no Kansas case had addressed specifically the effect of a disclaimer
that a party did not rely on any statement or representation of the other contracting party. The
court noted, however, that “the rule supported generally is that a provision in a written contract
expressly excluding from consideration representations not included in the written contract does
not prevent proof of parol representations which amount to fraud in the inducement of the
contract.”35 The court admonished that “the parol evidence rule should never be used to shield
fraud.”36 To that end, the court reasoned that while the parol evidence rule bars evidence seeking
to contradict or modify the terms in a contract, evidence of fraud is introduced for the purpose of
34
Id. at 518.
35
Id. (emphasis added) (citations omitted).
36
Id.
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showing “that no binding contract was ever made.”37 On this basis, Miles held “that parol evidence
is admissible to show fraud in the inducement of a contract even where the contract contains a
provision stating that the parties have not relied on any representations other than those contained
in the writing.”38
Here, the Court agrees with JetSuite and JS that Miles is the better authority to apply to the
facts in this case. The Edwards Court heavily emphasized that the plaintiffs’ fraud allegations, if
true, meant that the plaintiffs were defrauding an innocent third party. This fact was an important
part of Edwards’ rationale and holding. That fact is not present here, so Edwards is distinguished.
Likewise, Jack Richards is not controlling because the alleged fraudulent conduct—an oral
agreement that a written agreement was not actually binding—represents “a promise directly at
variance with the promise of the writing”39 that the Court finds lacking in this case.
The Court deems Miles to be the appropriate authority to apply here. The parol evidence
rule should not be used to shield fraudulent conduct. Like Miles, the Court holds that parol
evidence is admissible to show fraud in the inducement of the parties’ contracts, irrespective of
the provision in those contracts that JetSuite and JS did not rely on Cessna Finance’s
representations.40 JetSuite and JS are not attempting to modify the terms of the contract; rather,
they are attempting to prove that, due to the alleged fraud, “no binding contract was ever made.”41
The Court holds that they can introduce parol evidence for that purpose.
37
Id.
38
Id. (emphasis added).
39
See Edwards, 360 P.2d at 27.
40
See Miles, 927 P.2d at 518.
41
Id.
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The Court also agrees with JetSuite and JS that it is premature to decide on a Rule 12
motion whether Cessna Finance can be held liable for the actions of Beverlin and Cessna Aircraft.
JetSuite and JS broadly allege that Cessna Finance, Cessna Aircraft, and Beverlin are each “the
agent, servant, representative, alter ego, and/or employee of each of the others” and that each was
acting “with the permission, knowledge, consent and ratification of each of the others” in
concealing the CJ3 Jets’ defects. They also allege that Beverlin represented Cessna Finance as its
“point person” in arranging the financing for the aircraft, including Beverlin exchanging dozens
of emails with JetSuite regarding financing the purchase with Cessna Finance. As the Court has
already stated, whether JetSuite and JS can prove its allegations remains to be seen, but the Court
concludes that JetSuite and JS’s fraudulent inducement claim is entitled to survive dismissal.
C.
California Unfair Competition Law (“UCL”)
JetSuite and JS also bring a claim under California’s UCL, alleging that Cessna Finance
committed “unlawful, unfair, and fraudulent business acts or practices.” In connection with its
UCL claim, JetSuite and JS seek monetary damages, equitable relief, and attorneys’ fees. Cessna
Finance moves the Court to dismiss the UCL claim on the basis that the parties’ contracts contain
valid choice-of-law provisions stipulating that Kansas law applies in this case, thereby precluding
any claim arising from California law.42 JetSuite and JS argue that the choice-of-law provision is
not controlling in this case for two reasons. First, JetSuite and JS assert that the choice-of-law
42
Cessna Finance raises an additional argument in its Reply that California’s UCL does not protect
commercial parties in disputes involving a contractual business relationship; instead, the UCL only protects the general
public or individual consumers. See MH Pillars Ltd. v. Realini, 2017 WL 916414, at *10 (N.D. Cal. 2017) (citing
Linear Tech. Corp. v. Applied Materials, Ltd., 152 Cal. App. 4th 115, 135 (2007)). However, Cessna Finance failed
to make this argument in its Motion and instead improperly waited until its Reply to raise it, so the Court will not
consider this argument at this stage of the litigation. Rajala v. Gardner, 2012 WL 1606016, at *3, n. 18 (D. Kan.
2012) (declining to consider arguments raised for the first time in a Reply brief). Thus, the only issue for the Court
to consider is whether the choice-of-law provision bars JetSuite and JS’s UCL claim.
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provision is narrow and does not apply to tort claims arising from pre-contract conduct. Second,
JetSuite and JS’s counterclaim seeks to rescind the very contracts in which the choice-of-law
provision is contained; meaning, if Cessna Finance fraudulently induced JetSuite and JS to finance
the purchase, JetSuite and JS assert that the choice-of-law provision would be nullified along with
the rest of the parties’ agreements.
The Court first holds that the choice-of-law provision does apply to JetSuite and JS’s UCL
claim. Each security agreement includes a provision stating: “This agreement shall be construed
and interpreted in accordance with the laws of the state of Kansas (irrespective of such state’s
conflict of law principles) . . . .”43 JetSuite and JS argue that pursuing a claim under the UCL does
not require the security agreement to be “construed” or “interpreted” because the claim is based
on pre-contract representations, not the contract itself. In contrast, Cessna Finance relies on an
unpublished decision from the Kansas Court of Appeals, where the court concluded that “[a]
choice-of-law clauses establishing the law ‘governing’ or ‘construing’ the documents in which
they appear, nonetheless, encompass tort claims directly related to or affecting the rights and
obligations created or memorialized there.”44 One of the cases the Kansas Court of Appeals
favorably cited applied such a choice-of-law provision “to [a] fraud claim ‘seeking to avoid
enforcement of the contract itself.’ ”45
Based on this caselaw, and absent any compelling
contradictory authority, the Court concludes that JetSuite and JS’s UCL claim (despite sounding
in tort) falls within the scope of the parties’ choice-of-law provision.
43
Emphasis and capitalization omitted.
44
Enter. Bank & Tr. v. Barney Ashner Homes, Inc., 2013 WL 1876293, at *16 (Kan. Ct. App. 2013) (citations
omitted).
45
Id. (citing Moses v. Business Card Exp., Inc., 929 F.2d 1131, 1140 (6th Cir. 1991)).
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JetSuite and JS’s second argument is that if Cessna Finance fraudulently induced JetSuite
and JS into financing the purchase of the CJ3 Jets, the choice-of-law provision would be rescinded
along with the rest of the financial agreements. However, under Tenth Circuit precedent: “[a]
plaintiff seeking to avoid a choice provision on a fraud theory must, within the confines of Fed. R.
Civ. P. 9(b) and 11, plead fraud going to the specific provision.”46 At least two judges in this
district have relied on this rule to dismiss claims that were contrary to an agreed-upon choice
provision.47 JetSuite and JS argue that the Tenth Circuit’s discussion in Riley is dicta and therefore
not binding on the Court, and they urge the Court to follow the rationale in Aces Transportation,
Inc. v. Ryan Transportation Services., Inc.48
In Aces, the plaintiff challenged—much like JetSuite and JS here—the validity of the entire
agreement at issue (including the choice-of-law provision contained in that agreement). The court
in Aces determined that when a party seeks rescission of an entire contract, the merits of the
rescission claim must be resolved before the court can decide whether to enforce the choice-oflaw provision contained in that agreement.49 But Aces did not consider the Tenth Circuit’s Riley
decision, relying instead on caselaw from the Ninth Circuit (presumably because the case
originated in California and was transferred to the District of Kansas). As such, the Court rejects
JetSuite and JS’s contention that Aces is better authority than Riley and the District of Kansas
46
Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 960 (10th Cir. 1992).
47
Textron Aviation, Inc. v. Superior Air Charter, LLC, 2019 WL 6217912, at *3 (D. Kan. 2019) (applying
Riley to a choice-of-law provision); Hammond v. Alfaro Oil & Gas, LLC, 2011 WL 976711, at *2 (D. Kan. 2011)
(applying Riley to a choice-of-forum provision).
48
2006 WL 1487008, at *1 (D. Kan. 2006).
49
Id. at *5.
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decisions following Riley.50 Even if Riley’s discussion should be characterized as dicta and not
strictly binding on this Court,51 the Court concludes that Riley is more persuasive and will follow
its rationale in this case.
Here, JetSuite and JS allege generally that Cessna Finance defrauded them, but none of
JetSuite and JS’s allegations are specific to the inclusion of the choice-of-law provision.
Therefore, the Court will apply Kansas law to this dispute, meaning JetSuite and JS cannot proceed
on a cause of action based exclusively on California law. Accordingly, the Court dismisses
JetSuite and JS’s UCL claim. If during the course of this litigation, however, JetSuite demonstrates
that rescission of the entire agreement is the only proper remedy. The Court will entertain a motion
to reconsider its ruling on this matter. In practical terms, the parties may deem the Court’s ruling
dismissing the UCL claim to be without prejudice. Cessna’s Motion for Judgment on the Pleadings
on the UCL claim is hereby granted.
D.
Conspiracy
As a final matter, Cessna Finance seeks dismissal of JetSuite and JS’s civil conspiracy
claim. Similar to its arguments previously addressed by the Court, Cessna Finance argues that the
parol evidence rule bars any evidence that Cessna Finance had the requisite relationship with
Beverlin or Cessna Aircraft for a civil conspiracy claim. To the extent Cessna Finance argues that
JetSuite and JS cannot state a claim for a civil conspiracy because the parol evidence rule precludes
such a claim, the Court rejects that argument for the reasons stated above. Cessna Finance also
argues that if the underlying fraud claims are dismissed, the conspiracy claim should also be
50
See Textron Aviation, 2019 WL 6217912, at *3; Hammond, 2011 WL 976711, at *2.
51
The Court deems it unnecessary to rule on this issue but acknowledges that this very argument was recently
raised and rejected in this district. See Textron Aviation, 2019 WL 6217912, at *3.
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dismissed.52 This argument is irrelevant, of course, because the Court denied Cessna Finance’s
motion to dismiss JetSuite and JS’s fraud claims.
Cessna Finance also argues that JetSuite and JS failed to adequately state a claim for
conspiracy. “The elements of a civil conspiracy claim are: ‘(1) two or more persons; (2) an object
to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more
unlawful overt acts; and (5) damages as the proximate result thereof.’ ”53 Cessna Finance argues
that JetSuite and JS failed to allege a meeting of the minds between Cessna Finance and Beverlin.
The Court notes, however, that JetSuite and JS allege that Cessna Finance, in conjunction with
Cessna Aircraft, sent Beverlin to negotiate with JetSuite to negotiate both the sale and the financing
of the CJ3 Jets. They also allege that Cessna Finance, Cessna Aircraft, and Beverlin knew about
the defects with the CJ3 Jets and agreed with each other to conceal those defects from JetSuite
during negotiations. At this stage of the litigation, the Court holds that these allegations are
adequate to plead conspiracy.54
IT IS THEREFORE ORDERED that Plaintiff Cessna Finance Corporation’s Motion for
Judgment on the Pleadings (Doc. 53) is GRANTED IN PART AND DENIED IN PART.
Specifically, the Motion regarding the California Unfair Competition Law claim is granted; and
the Motion regarding fraud by silence, fraudulent inducement, and conspiracy claims is denied.
52
Hokanson v. Lichtor, 5 Kan. App. 2d 802, 626 P.2d 214, 217 (1981).
53
Kearns v. New York Cmty. Bank, 2017 WL 1148418, at *8 (Kan. Ct. App. 2017) (quoting Citizens State
Bank v. Gilmore, 226 Kan. 662, 603 P.2d 605, 613 (1979)).
54
Near v. Crivello, 673 F. Supp. 2d 1265, 1274–75 (D. Kan. 2009).
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IT IS SO ORDERED.
Dated this 28th day of January, 2020.
ERIC F. MELGREN
UNITED STATES DISTRICT JUDGE
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