Opinion
1 CA-CV 22-0210
04-06-2023
PROPULSION AERO INTERNATIONAL, INC., Plaintiff/Appellant, v. HONEYWELL INTERNATIONAL, INC., Defendant/Appellee.
Fennemore Craig, PC, Phoenix By Joseph A. Schenk, Heather A. Macre, Lyndsey Maasch Counsel for Plaintiff/Appellant Perkins Coie, LLP, Phoenix By Jessica L. Everett-Garcia, Christopher S. Coleman Counsel for Defendant/Appellee
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV2018-004553 The Honorable Timothy J. Thomason, Judge
Fennemore Craig, PC, Phoenix By Joseph A. Schenk, Heather A. Macre, Lyndsey Maasch Counsel for Plaintiff/Appellant
Perkins Coie, LLP, Phoenix By Jessica L. Everett-Garcia, Christopher S. Coleman Counsel for Defendant/Appellee
Presiding Judge David D. Weinzweig delivered the decision of the Court, in which Judge Randall M. Howe and Judge D. Steven Williams joined.
MEMORANDUM DECISION
WEINZWEIG, JUDGE
¶1 Propulsion Aero International, Inc. ("Aero") appeals the superior court's grant of summary judgment and entry of final judgment in favor of Honeywell International, Inc. ("Honeywell"). We affirm both.
FACTS AND PROCEDURAL BACKGROUND
¶2 Honeywell manufactures aircraft engines, sells replacement parts for the engines, and offers maintenance and repair services to engine owners. Aero negotiates with aircraft engine manufacturers like Honeywell to craft low-cost maintenance plans, which it then markets and sells to engine operators.
¶3 Aero approached Honeywell in 2009, proposing a pre-paid maintenance plan for Honeywell's turboprop engine, the TPE331. Honeywell was interested, anticipating that a maintenance plan could extend the engine's life, so Honeywell could sell more replacement parts. Contract
¶4 A year and a half later, Honeywell and Aero agreed on a group maintenance plan contract, named the TPE331 Turboprop Engine Group Maintenance Plan Fleet Owner Contract ("Contract"). Aero promised to enroll used engines into the maintenance plan. Honeywell promised to "provide the goods and services set forth in this Contract for a period of sixty (60) months following the Effective Date set forth on page 1." Engine operators paid fixed monthly fees to Aero for coverage of scheduled and unscheduled engine maintenance costs; Aero paid part of those fees to Honeywell, described as buy-in and monthly engine usage fees. Honeywell negotiated the unilateral right "to terminate the engine procurement portion of the program" and suspend the enrollment of new engines.
¶5 Honeywell held sole discretion under the Contract on whether to accept an engine into the maintenance program. Honeywell made this decision based on its "serviceability inspection" of the engine, and information about the engine's "serviceability and configuration." The program worked like health insurance for airplane engines. Once enrolled in the program, Honeywell bore the risk that an engine might require unscheduled maintenance, which could exceed the monthly fees paid on that engine. To mitigate Honeywell's risk, Aero promised to enroll a minimum number of engines.
¶6 The Contract envisioned the parties would enter a follow-on contract after five years for "similar goods and services," but only if Aero (1) applied to Honeywell at least 60 days before the Contract expired, (2) agreed to "the terms, conditions, and rates offered by [Honeywell] at that time," and (3) maintained "a credit standing satisfactory to [Honeywell]." Amendment
¶7 Around eight months after entering the Contract, Honeywell and Aero agreed on an Amendment to ensure that engine operators were not left in a lurch if and when the Contract expired. Under the Amendment, Honeywell promised to offer all enrolled engines its publicly available Maintenance Service Plan if the Contract was "terminated for any reason."
¶8 Almost two years into the Contract, Honeywell told Aero that the "math [was] not working," and directed Aero to stop further enrollments. Honeywell did not, however, terminate the Contract. And the parties attempted to re-establish viable business objectives and goals. In the end, however, they could not "reach a mutually agreed plan that is financially viable for both parties."
This Lawsuit
¶9 Aero formally requested a follow-on contract in 2016, which Honeywell refused. Aero then sued Honeywell in 2018, alleging that Honeywell breached the Contract and the implied covenant of good faith and fair dealing by not entering a follow-on contract. Aero alleged that Honeywell also breached the implied covenant when it "ceas[ed] engine enrollments, attempt[ed] to terminate the Contract, and [did] not provid[e] services to enrolled engines after the Contract expired (for full 60 months after engines enrolled)." Aero also requested a declaratory judgment that Honeywell was required to cover all enrolled engines for a period of 60 months after the date Aero enrolled each engine, rather than "[60] months from the effective date of the Contract."
¶10 After discovery, Honeywell moved for summary judgment on all counts. The superior court granted summary judgment to Honeywell on the breach of contract and declaratory judgment claims, finding that Honeywell had no duty to enter a follow-on contract, and need not cover maintenance and service of the enrolled engines after the Contract expired.
¶11 The court denied summary judgment on the remaining claim, however, leaving a jury to decide whether Honeywell breached the implied covenant of good faith when it declined to accept engine enrollments for three years. In its ruling, the court explained that "[a]lthough the evidence is thin, a jury could conclude that Honeywell's more or less blanket refusals to accept enrollments constituted an abuse of discretion that was contrary to [Aero's] reasonable expectations."
¶12 A six-day jury trial was conducted, and the jurors unanimously found in favor of Honeywell on Aero's breach of good faith and fair dealing claim. Aero appealed. We have jurisdiction. See A.R.S. § 12-2101(A)(1).
DISCUSSION
¶13 Aero contends the superior court erroneously granted summary judgment to Honeywell on Aero's breach of contract and declaratory judgment claims. Aero also contests an evidentiary ruling at the jury trial.
I. Summary Judgment
¶14 We review de novo the superior court's grant of summary judgment, Jackson v. Eagle KMC LLC, 245 Ariz. 544, 545, ¶ 7 (2019), construing the facts in the light most favorable to the non-moving party, Wells Fargo Bank, N.A. v. Allen, 231 Ariz. 209, 213, ¶ 14 (App. 2012). Summary judgment is appropriate when "the moving party shows that there is no genuine dispute as to any material fact and [it] is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a).
¶15 So too, we interpret contracts de novo because contract interpretation presents a question of law. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 2009). We construe a contract to determine and enforce the parties' intent. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 152 (1993). We consider the plain meaning of the words "in the context of the contract as a whole." United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 259 (App. 1983).
Follow-On Contract Clause
¶16 Aero first argues the Contract required Honeywell to enter a follow-on contract, and that Honeywell breached the Contract and the covenant of good faith and fair dealing when it did not enter a follow-on contract. We disagree.
¶17 An agreement to agree is not enforceable in Arizona. See Universal Const. Co. v. Arizona Consol. Masonry &Plastering Contractors Ass'n, 93 Ariz. 4, 9 (1963) ("An agreement to make in the future such a contract as may be agreed upon at the later time amounts to nothing, is not binding, and cannot be made the basis of a cause of action."). A contract's terms must be reasonably certain to form an enforceable contract. See Schade v. Diethrich, 158 Ariz. 1, 9-11 (1988) ("[Reasonable certainty is important as a factor in determining whether the parties intended to make a binding offer and acceptance.").
¶18 The Contract left much about the follow-on contract to later negotiations. "[F]requently where the parties contemplate a future written contract, it is obvious from their language or other surrounding circumstances that other matters, as to which no definite agreement has been reached, are expected to be included in the writing." Williston on Contracts § 4:11 (4th ed.). That happened here. The Contract directed that "entry into" a follow-on contract was "subject to" three conditions, including that Aero "agrees to the terms, conditions, and rates offered by [Honeywell], at that time for the follow-on [contract]." To that end, Honeywell and Aero had discussed a follow-on contract for years, even exchanging drafts, but they never reached an agreement.
¶19 For its part, Aero contends that one term of the follow-on contract was certain-hourly usage rate-under a formula set forth in subpart B of Exhibit A of the Contract. But Aero ignores the Contract's actual words, which plainly envision a future offer and agreement, leaving the parties to negotiate "the terms, conditions, and rates." And, even assuming the hourly rate was fixed, the parties had no agreement on the balance of terms and conditions.
¶20 Aero also relies on Chu v. Ronstadt, 17 Ariz.App. 486 (1972) ("[A] contract will not be prevented from so operating by the mere fact that the parties also manifest an intention to prepare and adopt a written memorial thereof."). But Chu goes on to state, "where the conditions of the deferred contract are not set out in the provisional one, or where material conditions are omitted, it is not a contract [at the present time] because the minds of the parties have not met and may never meet." Id. Like in Chu, the parties here did not reach an agreement on the follow-on contract's terms and conditions.
¶21 Because Honeywell did not breach the Contract when it refused to enter a follow-on contract, summary judgment was proper on Aero's breach of good faith claim too. See Sw. Sav. &Loan Ass'n v. SunAmp Sys., Inc., 172 Ariz. 553, 558 (App. 1992) ("If contracting parties cannot profitably use their contractual powers without fear that a jury will second-guess them under a vague standard of good faith, the law will impair the predictability that an orderly commerce requires.").
Contract Duration
¶22 Aero next argues the Contract required Honeywell to service and repair each enrolled engine for a period of 60 months, and the court erroneously dismissed that argument on summary judgment.
¶23 Aero would interpret the Contract as having many effective dates and many 60-month terms, one for each engine enrolled in the plan. It does so based on Section III(F), which states, "The first contract year shall be 12 consecutive months beginning with the 1st day of the month the respective Engine was enrolled, as specified on Exhibit B herein. Subsequent contract years shall begin on the anniversary of that date."
¶24 We are not persuaded. First, the Contract recognized only one effective date and one 60-month term. On its face, the Contract described an "Effective Date of Contract," not "Effective Dates of Contract." And then, the Contract described its duration, "Honeywell shall provide the goods and services set forth in this Contract for a period of sixty (60) months," and "[a]t the expiration of this 60 month period." At other points, the Contract references "this 60 month period," the "date of expiration," and "an additional period of 60 months." The signature page, too, envisions one effective "date." And Exhibit B confirms the interpretation, declaring that "Multiple Engines [will be] added through 60 month term of Contract." (emphasis added).
¶25 Second, Section III(F) does not purport to identify the Contract's duration, but instead falls under "Monthly Payment and Minimum Service Charge," and defines "contract year" for the purpose of calculating Honeywell's minimum service charge.
¶26 Aero also insists the absence of an "Effective Date of Contract" on page one of the Contract meant the Contract had many effective dates. That argument fails under the Contract's plain language. We thus affirm the superior court's grant of summary judgment to Honeywell on the breach of contract and declaratory judgment claims.
II. Evidentiary Ruling
¶27 Aero next challenges the superior court's decision to preclude certain evidence. "We apply an abuse of discretion standard when reviewing a trial court's rulings regarding the admission or exclusion of evidence." Waddell v. Titan Ins. Co., Inc., 207 Ariz. 529, 536, ¶ 28 (App. 2004). "Because the trial court is in the best position to balance the probative value of challenged evidence against its potential for unfair prejudice, the trial court has broad discretion in this decision." State v. Connor, 215 Ariz. 553, 564, ¶ 39 (App. 2007). The superior court may exclude relevant evidence if its probative value is substantially outweighed by the danger of "unfair prejudice, confusing the issues, misleading the jury, undue delay, [or] wasting time." Ariz. R. Evid. 403.
¶28 Earlier in the case, Aero argued that Honeywell must return maintenance "reserve" funds paid to Honeywell for future maintenance services. The court rejected that argument, however, finding the Contract did not require Honeywell to hold fees in reserve for the maintenance costs and Aero had no right to the reimbursements. Aero never appealed that decision. At the jury trial, the court precluded the admission of evidence "on the question of whether Aero had a right to reimbursement of reserve funds."
¶29 Aero contends the evidence was admissible during trial to show Honeywell's financial motivation. But that misses the point and ignores the Contract's plain language. If the reserve funds belonged to Honeywell under the Contract, the jury could not ascribe bad motives to Honeywell for relying on a negotiated deal. Moreover, this evidence had reasonable potential to confuse issues, mislead the jury, cause undue delay and waste time. See Ariz. R. Evid. 403. We discern no abuse of discretion.
CONCLUSION
¶30 We affirm the superior court's entry of summary judgment and its final judgment after the jury trial. We also grant Honeywell's request for reasonable attorney fees incurred on appeal under A.R.S. § 12341.01, and reasonable costs upon compliance with ARCAP 21.