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Aero Tech Aviation Design, LLC v. Otto Aviation Group, LLC

United States District Court, D. Kansas

April 18, 2017

AERO TECH AVIATION DESIGN, LLC, and THOMAS MILLER, Plaintiffs,
v.
OTTO AVIATION GROUP, LLC, Defendant.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN, UNITED STATES DISTRICT JUDGE

         Yet you, my creator, detest and spurn me, thy creature, to whom thou art bound . . . .[1]

         Is a party legally bound by a contract it created, signed and obtained agreement to by the other party, or is it permitted to argue that an earlier form of the agreement is instead the governing obligation? Thomas Miller, on behalf of his company Aero Tech Aviation Design, LLC, drafted a proposed agreement to provide engineering services to Otto Aviation Group, LLC. He then signed that proposed agreement and sent it to Otto Aviation, who accepted it on May 14, 2013. Although initially prosperous, the relationship between Aero Tech and Otto Aviation ultimately deteriorated. Aero Tech eventually sued, alleging breach of contract and breach of the implied duty of good faith and fair dealing. But Aero Tech does not allege breach of the May 14 contract that it had drafted; rather, it ignores the latest contract and alleges breach of an earlier agreement. For various reasons, Aero Tech argues that it should not be bound by the May 14 contract that it created.

         Miller, in his individual capacity, also brings a claim against Otto Aviation under a theory of promissory estoppel. Otto Aviation now moves for summary judgment, seeking enforcement of the May 14 contract and dismissal of all of Aero Tech's claims (Doc. 73). Having reviewed the record, the Court concludes that the parties are bound by the May 14 contract, and therefore dismisses Aero Tech's claims arising from the earlier agreement. But because the May 14 contract does not supplant the earlier agreement that may have existed between Otto Aviation and Miller in his individual capacity, the Court will not dismiss his promissory estoppel claim on those grounds.

         I. Factual and Procedural Background[2]

         In early 2013, Plaintiff Thomas Miller served as Manager of Engineering Services for Cessna in Wichita. At the same time, Thomas Miller and his wife Leslie Miller owned and operated Plaintiff Aero Tech Aviation Design, LLC. Aero Tech is an engineering and design firm that markets itself as an aerospace engineering consulting company.

         Charles Lee-program leader for Defendant Otto Aviation Group, LLC-contacted the Millers on February 20, 2013. Otto Aviation is a small aviation company in Southern California that was working to develop a prototype business aircraft called the Celera 500L. In the February 20 email, Lee explained that Otto Aviation was interested in sourcing some work “to a small design house” like Aero Tech. Aero Tech signed a non-disclosure agreement in March 2013 in order to further discussions with Otto Aviation. Discussions ensued, culminating in a purchase order dated April 15, 2013. The purchase order provided that Aero Tech would provide designs for an engine mount and fuel system. Otto Aviation was to pay Aero Tech $85 per hour for a maximum of 160 hours of work.

         While completing the work set out in the purchase order, Miller continued to have conversations with Lee about additional work on the Celera 500L project.[3] In those conversations, Lee indicated that Otto Aviation would require the work of one to two engineers. Additionally, Lee represented that Miller would have to leave his job at Cessna in order to do the amount of work required by Otto Aviation. Although Miller was hesitant, Lee represented that if Miller left Cessna, Otto Aviation would employ Aero Tech throughout the completion of the Celera 500L project. Miller estimated that the project would take three to five years.

         On May 9, 2013, Miller spoke on the phone with Karen Kurtz of Otto Aviation. They discussed the potential for an agreement between Aero Tech and Otto Aviation that would supersede the April 15 purchase order. Shortly thereafter, Miller had a phone conversation with Lee. Lee again represented that Otto Aviation would require substantial work from Aero Tech, the scope of which would require Miller to leave Cessna and focus his energy entirely on Aero Tech. Once more, Miller was led to believe that Otto Aviation would require Aero Tech's support throughout the flight test of the Celera 500L and the obtaining of a Federal Aviation Administration certificate.

         The following day, on May 10, Miller emailed a “consulting services proposal” to Bill Otto Jr., Otto Aviation's chief financial officer. The proposal contemplated that Aero Tech would provide (1) group lead and propulsion system engineering services for design and installation, (2) group lead and mechanical system engineering services in the area of flight controls design and installation, and (3) additional mechanical system engineering services as required. The six-page proposal outlined Otto Aviation's efforts to develop the Celera 500L, and the performance objectives. The performance objectives section stated that Aero Tech would provide engineering services to support the development of the Celera 500L, and listed the specific services that the parties expected Aero Tech to provide. The proposal contemplated the subsequent execution of a written contract, noting that “the resource support level is expected to be between 1.5-2.0 heads from the point of acceptance of a contract based on this proposal, through flight testing of the prototype aircraft.”

         The proposal also contained a section titled “Price Proposal.” That section stated that “[t]he rate to Otto Aviation for all of the labor and items proposed in the proceeding pages is $100.00 per hour.” The proposal did not forecast how many hours the Millers expected to devote to the project. And the proposal concluded by stating that “[f]ull time work may begin 2 weeks after contract signing.” Absent from the proposal was language regarding either party's right to terminate their arrangement. The proposal was signed by Miller, but did not contain a signature line for anybody from Otto Aviation.

         On May 12, Otto Jr. sent Miller an email stating that Otto Aviation accepted his proposal. Miller responded, writing that “[n]ormally we draw up a contract to capture the proposal. Would you like us to put that together and get it you?” Otto Jr. responded “yes please.” That same day, Miller downloaded a contract form off of the internet and inputted terms relevant to the relationship between Aero Tech and Otto Aviation. Miller then sent Otto Jr. an email that read:

Please see the attached agreement, which is based on the proposal accepted yesterday. If you have any changes prior to accepting the agreement please let me know we will get it taken care of as quickly as possible.

         The attached document was titled “Otto Aviation, Inc - ATAD, LLC Consulting Agreement.” The four-page document described the services that Aero Tech would provide and the manner in which they would be performed. Comparable to the earlier proposal, the proposed agreement stated that Aero Tech would provide (1) group lead and propulsion system engineering, and (2) flight controls group lead and mechanical systems flight controls engineering. Under the proposed agreement, Otto Aviation would pay Thomas Miller $100 per hour and Leslie Miller $85 per hour. Aero Tech was to submit Otto Aviation a monthly invoice, and Otto Aviation was to pay Aero Tech within 30 days of that invoice. The proposed agreement stated that Aero Tech would determine the manner in which services would be performed, but expected that Thomas Miller would work about 200 hours per month, and Leslie Miller would work about 80 hours per month. Unlike the earlier proposal, the proposed agreement did not state that Otto Aviation would employ Aero Tech through flight testing of the prototype. Rather, it provided that the agreement “may be terminated by either party upon 90 days written notice to the other party.”

         Furthermore, towards the end of the proposed agreement, a section titled “Entire Agreement” read:

This Agreement contains the entire agreement of the parties and there are no other promises or conditions in any other agreement whether oral or written. This agreement supersedes any prior written or oral agreements between the parties.

         At the bottom of the proposed agreement were two signature lines: one for Otto Aviation, Inc., and one for Miller. Miller signed the attached document that he had drafted and emailed it to Otto Jr.

         Otto Jr. did not immediately respond to Miller's proposal, so Miller sent a follow-up email a few hours later. In that follow-up, Miller asked Otto Jr. to please sign and scan the agreement to that they could “wrap this part up” and the team could “get going.” Otto Jr. responded, commenting that Miller's proposal seemed “pretty straightforward” but asserting that termination of the agreement should only require 30 days written notice. Otto Jr. also asked for a modification of the proposed terms regarding confidentiality.

         The next morning, May 14, Miller sent Otto Jr. a revised proposed agreement. The revised agreement was almost identical to the original, but it provided that either party could terminate the agreement upon 60 days-instead of 90 days-written notice. The revised proposal still contained a description of the services, how they would be performed, and rates of payment. And the revised proposal still contained the “Entire Agreement” paragraph.

         As with his first proposal, Miller signed the revised proposal. Otto Jr. responded the same day stating, “[p]lease use this email as my acceptance of the attached contract. I will have a signed copy scanned and forward as soon as possible.” But neither Otto Jr. nor any representative of Otto Aviation ever signed the revised proposal. Aero Tech then started performing services for Otto Aviation.

         Aero Tech sent Otto Aviation a monthly invoice from May 2013 until March 2014. Each of those invoices reflected a rate of $100 per hour for Thomas Miller and $85 per hour for Leslie Miller. Otto Aviation asserts that Aero Tech's work from May to October 2013 was in line with its expectations. From May 2013 through mid-January 2014, Aero Tech billed Otto Aviation $312, 237.50 for consulting services-about $39, 029 per month. In that time frame, Thomas Miller billed as many as 292 to as few as 131.5 hours per month. He averaged about 220 hours per month during that period. Leslie Miller billed as many as 318.5 and as few as 67 hours per month during the same period, averaging about 200 hours per month.

         Sometime in 2013, Steven Forness replaced Charles Lee at Otto Aviation as the program leader for the Celera 500L project. In November 2013, Forness chided Miller for failing to copy him on work emails. Forness felt that Miller was trying to go around him, while Miller maintains that it was merely an oversight. Miller responded forcefully to Forness's admonition, expressing his disappointment in what he considered a “malcontented email.” In that response, Miller wrote

I will simply need to direct Bill [Otto] Jr. to our signed contract which clearly states the manner in which we perform our task(s) is our discretion. i.e. we will communicate as we see fit to accomplish the tasks we have already been asked to accomplish.

         Around January 2, 2014, Forness met with Bill Otto Jr. and Bill Otto Sr. about Otto Aviation's relationship with Aero Tech. Either during or shortly after that meeting, Otto Aviation decided to change course. Otto Sr. claims that a decision was made to “let [Aero Tech] go.” At the very least, the parties decided that Aero Tech's role would be reduced.

         On January 14, Forness sent out an email detailing Otto Aviation's plan to reorganize the area of responsibility assigned to its various contractors. The new plan reduced Aero Tech's role in the Celera 500L project. From January 19 through February 16, Aero Tech billed Otto Aviation $16, 572.50 for 180.5 hours of consulting. Thomas Miller worked 82 hours and Leslie Miller worked 98.5. From February 17 through March 24, Aero Tech only worked 8.5 hours for Otto Aviation. That invoice-for $775-was the last one that Aero Tech sent to Otto Aviation. Shortly thereafter, Aero Tech stopped doing work for Otto Aviation.

         On April 2, 2014, Aero Tech, through counsel, informed Otto Aviation that Aero Tech considered Otto Aviation in breach of contract. And so Aero Tech asserted that “the subject contract” was terminated as a consequence of Otto Aviation's breach. The letter asserted that the consulting proposal, accepted by Otto Jr. on May 12, was the contract governing the parties' relationship. The letter made no mention of the later contract that Miller drafted and signed, and Otto Jr. accepted.

         Aero Tech now brings this action against Otto Aviation, alleging breach of contract and breach of the implied duty of good faith and fair dealing. Aero Tech claims that Otto Aviation breached the May 12 proposal by refusing to assign it projects or work in support of the Celera 500L project. Aero Tech also alleged that Otto Aviation breached the implied duty of good faith and fair dealing by removing Aero Tech from Celera 500L projects without just cause. In addition, Miller, individually, contends that he is entitled to recover from Otto Aviation under a theory of promissory estoppel. Otto Aviation now moves for summary judgment on all three counts.

         II. Legal Standard

         Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.[4]A fact is “material” when it is essential to the claim, and issues of fact are “genuine” if the proffered evidenced permits a reasonable jury to decide the issue in either party's favor.[5] The moving party bears the initial burden of proof, and must show the lack of evidence on an essential element of the claim.[6] If the moving party carries this initial burden, the non-moving party that bears the burden of persuasion at trial may not simply rest on its pleading but must instead “set forth specific facts” from which a rational trier of fact could find for the non-moving party.[7] These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits-conclusory allegations alone cannot survive a motion for summary judgment.[8] To survive summary judgment, the non-moving party's evidence must be admissible.[9] The Court views all evidence and reasonable inferences in the light most favorable to the party opposing summary judgment.[10]

         III. Analysis

         A. The May 14 contract governs the parties' relationship.

         Aero Tech asserts that the consulting services proposal, accepted by Otto Jr. on May 12, governs its relationship with Otto Aviation. And Aero Tech argues that Otto Aviation breached the May 12 proposal. Otto Aviation, on the other hand, asserts that the May 12 proposal is merely an unenforceable agreement to agree in the future. Instead, Otto Aviation contends that the parties' relationship is governed by the May 14 contract that Miller drafted and signed, and Otto Jr. accepted via email. Otto Aviation contends that it complied with the terms of the May 14 contract.

         At its core, this case turns on the issue of which document governs the parties' relationship. For this reason, Aero Tech argues that summary judgment is inherently improper. Aero Tech states that “because, in essence, both parties argue that an entirely different contract controls these proceedings, there is significant ambiguity regarding the intent of the parties.” Accordingly, Aero Tech contends that the dispute should be put before a jury. The Court disagrees.

         The issue here is whether the parties formed a contract on May 12, May 14, neither, or both. To that end, the question is if and when the parties intended to form a contract. “Whether a binding contract was entered into depends on the intention of the parties and is a question of fact.”[11] And so when the evidence is conflicting or permits more than one inference, the existence of a contract is a question for a jury.[12] But where the facts surrounding a potential contract are undisputed, its validity is a question of law for the Court.[13] Here, the relevant facts surrounding the formation of both asserted contracts are undisputed. Therefore, the Court may look at the undisputed facts to determine whether the parties intended to be bound by either document. Having reviewed the facts, the Court concludes that the parties intended to be bound by the May 14 contract. Consequently, even assuming that the May 12 proposal was an enforceable agreement, it was supplanted by the May 14 contract under the doctrine of substituted contract.

         Kansas law recognizes the doctrine of substituted contract, which is set forth in the Restatement (Second) of Contracts § 279.[14] A substituted contract “is a contract that is itself accepted by the obligee in satisfaction of the obligor's existing duty.”[15] “The substituted contract discharges the original duty.”[16] In a comment, the Restatement states that “[a] common type of substituted contract is one that contains a term that is inconsistent with a term ...


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