BLB Aviation South Carolina, LLC v. Jet Linx Aviation, LLC , 748 F.3d 829 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-3461
___________________________
BLB Aviation South Carolina, LLC
lllllllllllllllllllll Plaintiff - Appellee
v.
Jet Linx Aviation, LLC; Jet Linx Aviation Corporation; Jet Linx Management
Company, LLC
lllllllllllllllllllll Defendants - Appellants
Jamie Walker
lllllllllllllllllllll Defendant
___________________________
No. 12-3508
___________________________
BLB Aviation South Carolina, LLC
lllllllllllllllllllll Plaintiff - Appellant
v.
Jet Linx Aviation, LLC; Jet Linx Aviation Corporation; Jet Linx Management
Company, LLC
lllllllllllllllllllll Defendants - Appellees
Jamie Walker
lllllllllllllllllllll Defendant
____________
Appeal from United States District Court
for the District of Nebraska - Omaha
____________
Submitted: November 19, 2013
Filed: May 9, 2014
____________
Before WOLLMAN, COLLOTON, and GRUENDER, Circuit Judges.
____________
GRUENDER, Circuit Judge.
BLB Aviation South Carolina, LLC (“BLB”) brought this action against Jet
Linx Aviation Corporation; Jet Linx Aviation, LLC; Jet Linx Management Company,
LLC (collectively, “Jet Linx”1 ); and Jamie Walker. Jet Linx then counterclaimed.
After a bench trial, the district court awarded $163,953.17 in damages to BLB and
$158,014.98 in damages to Jet Linx due to the parties’ breaches of their agreements.
Having ended trial almost where they began it, both parties appeal. We affirm in part
and reverse and remand in part.
1
The parties have not distinguished between these Jet Linx entities for purposes
of which entity or entities were parties to the contracts at issue here. We thus adopt
the convention for referring to the parties that Jet Linx and BLB used in the pretrial
order.
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I. Background
BLB is an aviation company that owns airplanes, some of which are leased for
charter flights. BLB is owned by Barry L. Bellue, Sr. (“Barry Bellue”) and his son
Barry L. Bellue, Jr. (“Lee Bellue”). Jet Linx operates an aircraft charter business.
Jamie Walker was an employee of Jet Linx at all relevant times.
In March 2007, Walker sent BLB a letter about the possibility of leasing one
or more of BLB’s airplanes for Jet Linx’s charter services. Shortly thereafter, Lee
Bellue and Walker discussed the possibility of BLB purchasing an airplane and
leasing it to Jet Linx. To explore this prospect, BLB contacted an aircraft broker
about purchasing the type of aircraft that Jet Linx had indicated would be suitable for
such a lease. The broker identified such an aircraft, which had a registration number
of N400GK (“N400GK”).
Prior to purchasing the N400GK, on or about June 20, 2007, BLB and Jet Linx
entered into a dry lease agreement for the N400GK (“DLA”). In the DLA, which
became effective on August 1, 2007, Jet Linx “guarantee[d] [BLB] a minimum
monthly lease payment of $47,100 per month, no matter the number of actual hours
flown.” Jet Linx, which was responsible for maintenance of the N400GK under the
DLA, further agreed that “[a]ll inspections, repairs, modifications, maintenance, and
overhaul work . . . will be performed in accordance with the standards set by the
Federal Aviation Regulations” and agreed to “maintain all log books and
records . . . in accordance with the Federal Aviation Regulations.” While Jet Linx
was responsible for maintaining the N400GK, BLB was responsible for paying for
the maintenance performed on the airplane. On or about August 10, 2007, BLB
purchased the N400GK for approximately $1,300,000. BLB also spent
approximately $50,000 to refurbish the airplane’s interior.
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BLB delivered the N400GK to Jet Linx on or about August 24, 2007.
However, due to unexpected maintenance issues, the N400GK did not make a charter
flight until October 2007. That October, Lee Bellue contacted Walker because BLB
had not received any lease payments for the N400GK from Jet Linx. Lee Bellue
explained that he was required to make monthly payments of $15,000 to his bank.
Jet Linx then paid BLB $15,000. Jet Linx claims that BLB agreed to accept this
amount as the full lease payment for August and September 2007.
In addition to the DLA, BLB and Jet Linx also negotiated a lease agreement for
Jet Linx to charter one of BLB’s existing airplanes, which had a registration number
of N789DJ (“N789DJ”). In August 2007, the parties signed a management services
agreement for the N789DJ (“MSA”). Pursuant to the MSA, BLB agreed to reimburse
Jet Linx for certain expenses for the N789DJ. As with the DLA, Jet Linx agreed in
the MSA to “maintain the [N789DJ] in compliance with all applicable Federal
Aviation Regulations” and “ensur[e] [that] the aircraft complies with FAA
maintenance requirements for accurate record entries.” The MSA also provided that
Jet Linx “does not assume any liability for damages caused by or resulting from,
directly or indirectly, wholly or in part, any failure or fault other than its negligence.”
On February 19, 2008, two Jet Linx pilots—James Clark and Shannon
Montanye—flew the N789DJ from Omaha, Nebraska to Sioux Falls, South
Dakota. Upon arrival in Sioux Falls, Clark performed a post-flight inspection of the
airplane. Clark reported that he “pulled the cap on the port engine to find the oil in
acceptable levels and replaced the cap and pushed the cap closing trigger in the down
position and proceeded to the starboard engine and repeated the process.” After
Clark’s inspection, the airplane was stored in a hangar overnight. Early the next
morning, Clark and Montanye prepared the airplane for another flight. However,
neither pilot performed a pre-flight inspection. After the plane taxied and was cleared
for takeoff, Montanye noticed that the oil-pressure light was illuminated and that the
oil-pressure gauge read zero. Montanye alerted an individual in the flight-control
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tower of this issue, who suggested that the aircraft taxi off of the active runway.
Montanye also called Tony Boatwright, the head of maintenance at Jet Linx, who
instructed the pilots to shut down the engine, which they did. Because the oil level
in the engine had dropped below the minimum level specified in the airplane’s
maintenance manual, a mechanic performed a teardown inspection of the N789DJ’s
engine and then performed necessary maintenance, resulting in significant expenses.
The mechanic found a crack in the oil cap, which Boatwright subsequently observed
when the oil cap was returned to Jet Linx.
Shortly after the oil-loss incident, Clark and Montanye submitted statements
describing the incident to Mike Kopp, Jet Linx’s chief pilot. Kopp placed a
disciplinary report in Clark’s employee file that concluded that the pilots had failed
to check the oil and the security of the oil cap on the morning of the flight and had
failed to shut down the engine promptly upon realizing that the engine had lost oil
pressure. The disciplinary report stated that “[t]he lack of proper preflight and
operational procedures in an abnormal situation caused the need for engine removal
and inspection as well as generator replacement due to oil damage.” The teardown
inspection and repair costs totaled $158,014.98. In December 2008, after asking its
insurer whether these repairs would be covered, Jet Linx sent an invoice to BLB for
this amount, which BLB refused to pay.
Following the oil-loss incident, the parties’ disagreements escalated. By mid-
2008, Barry Bellue had requested that the N789DJ be returned to BLB, and Jet Linx
had informed BLB that it would not renew the DLA under its existing terms. As their
contractual relationships came to an end, the parties discussed the outstanding
expenses related to the airplanes. On August 6, 2008, Jamie Barrett, a Jet Linx
employee, sent a letter to Barry Bellue (the “August 2008 letter”) in which Barrett
claimed that Jet Linx agreed with Barry Bellue’s proposal to end the DLA and
reimburse Jet Linx for certain maintenance expenses under the MSA. As part of this
purported agreement, the letter detailed that Jet Linx would pay BLB $16,000 per
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month for June and July 2008 for the lease of the N400GK rather than $47,100 per
month. After deducting the amount Jet Linx calculated that BLB owed to Jet Linx,
the August 2008 letter asserted that Jet Linx owed BLB a total of $12,347.50 and
enclosed a check for that amount. Two days later, Barry Bellue sent an email to
Barrett and Walker, complaining about what he termed the “creative charges” in “our
final wrap up.” Barry Bellue concluded this email by stating, “You guys are shady
and unscrupulous business dudes that talk a noble and sacred line to you[r]
unsuspecting clients. I will keep open my options.” Nevertheless, on August 14,
BLB deposited the check that accompanied the August 2008 letter.
BLB brought this action against Jet Linx and Walker; Jet Linx then
counterclaimed against BLB. After a bench trial, the district court concluded that:
(1) Jet Linx and BLB did not reach an accord and satisfaction by virtue of the August
2008 letter; (2) Jet Linx breached the DLA by failing to make full lease payments to
BLB for each month of the lease term; (3) Jet Linx breached the MSA by “marking
up” the cost of maintenance for the N789DJ; (4) Jet Linx breached the MSA and the
DLA by failing to maintain the airplanes’ maintenance records and part tags, but BLB
failed to prove any damages; and (5) BLB breached the MSA by refusing to
reimburse Jet Linx for the maintenance expenses it incurred in connection with the
oil-loss incident. Jet Linx appeals, and BLB cross-appeals.
II. Discussion
Because both parties cite state law for the standard of review, we look to state
law for the standard of review in accordance with the practice of our prior opinions
that considered an appeal following a bench trial in a diversity action.2 See, e.g., Pohl
2
In other cases, we have concluded that the standard of review is a procedural
issue that is governed by federal law. Kramer v. Cash Link Sys., 715 F.3d 1082, 1086
(8th Cir. 2013); see Newberry v. Burlington Basket Co., 622 F.3d 979, 983 (8th Cir.
2010). In any event, we discern no difference between the federal and state standards
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v. Cnty. of Furnas, 682 F.3d 745, 751 (8th Cir. 2012); John T. Jones Constr. Co. v.
Hoot Gen. Constr. Co., Inc., 613 F.3d 778, 782-83 (8th Cir. 2010); see also Access
Telecomm. v. Sw. Bell Tel. Co., 137 F.3d 605, 608 (8th Cir. 1998) (applying standard
of review that both parties argued “[w]ithout deciding the standard-of-review
question, which is best left to be resolved in a case in which it is contested”). The
parties further agree that Nebraska law governs this diversity action. In an appeal
from a bench trial in a law action, “the trial court’s factual findings have the effect of
a jury verdict and will not be disturbed on appeal unless clearly wrong.” City of
Scottsbluff v. Waste Connections of Neb., Inc., 809 N.W.2d 725, 739 (Neb. 2011).
This means that “[w]e do not reweigh the evidence but consider the judgment in a
light most favorable to the successful party and resolve evidentiary conflicts in favor
of the successful party,” who “is entitled to every reasonable inference deducible
from the evidence.” Id. The trial judge “is the sole judge of the credibility of the
witnesses and the weight to be given their testimony.” Eicher v. Mid Am. Fin. Inv.
Corp., 748 N.W.2d 1, 8 (Neb. 2008). For questions of law, including contract
interpretation, we “independently review” the trial court’s decision. City of
Scottsbluff, 809 N.W.2d at 739.
A. Jet Linx’s Appeal
1. Accord and Satisfaction
Jet Linx first challenges the district court’s finding that the parties did not enter
into an accord and satisfaction. Jet Linx contends that the parties entered into an
accord and satisfaction to settle their disagreements as evidenced by the parties’
discussions preceding the August 2008 letter, the August 2008 letter, and BLB’s
depositing of the enclosed check.
of review as applied here.
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“An accord and satisfaction is an agreement to discharge an existing
indebtedness by the rendering of some performance different from that which was
claimed due.” Peterson v. Kellner, 513 N.W.2d 517, 519 (Neb. 1994). An accord
and satisfaction requires “(1) a bona fide dispute between parties, (2) substitute
performance tendered in full satisfaction of the claim, and (3) acceptance of the
tendered performance.” Id. “The key element of accord and satisfaction is the intent
of the parties, which, although as a general rule presents a question of fact, becomes
a question of law when the evidence creates no conflict as to intent.” Lone Cedar
Ranches, Inc. v. Jandebeur, 523 N.W.2d 364, 369 (Neb. 1994).
Jet Linx contends that its tender of the check to BLB along with the August
2008 letter and BLB’s act of depositing the check established an accord and
satisfaction as a matter of law. The Nebraska Supreme Court, however, has explained
that a defendant’s tender of a check that the plaintiff subsequently deposits does not
effect an accord and satisfaction unless there is a “condition that the money be
accepted as a full payment or not be accepted at all.” Rees v. Huffman, 384 N.W.2d
631, 635 (Neb. 1986). This “condition must either be recited upon the check or
otherwise declared.” Langness v. “O” St. Carpet Shop, Inc., 353 N.W.2d 709, 714
(Neb. 1984). Neither the August 2008 letter nor the enclosed check contained such
a condition, and Jet Linx has not identified any evidence that this condition was
otherwise declared. See id. at 713-14 (declining to adopt a rule under which the court
would “infer such a condition”). Consequently, we find no error in the district court’s
conclusion that Jet Linx’s tender of the check and BLB’s act of depositing the check
did not amount to an accord and satisfaction. See Rees, 384 N.W.2d at 635.
Jet Linx also argues that Barry Bellue’s actions manifested an intent to settle
the parties’ disagreements on behalf of BLB in accordance with the terms outlined in
the August 2008 letter. The district court disagreed. We discern no clear error in this
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determination.3 The district court’s conclusion is consistent with the email Barry
Bellue sent immediately after he received the August 2008 letter, in which he told
Barrett and Walker that “I will keep open my options.” When asked at trial about this
email, Barry Bellue testified, “When I got the letter, I wrote this e-mail immediately[]
[to] let them know that I didn’t settle anything.” Barry Bellue further testified that
he did not know in advance that Jet Linx planned to send the August 2008 letter and
that it was a “ploy to try to suggest that I had reached some sort of settlement with
them.” Because the trial judge is the “sole judge of the credibility of the witnesses
and the weight to be given their testimony,” Eicher, 748 N.W.2d at 8, this evidence
is more than sufficient to conclude that the district court did not clearly err by finding
that BLB did not agree to the terms of the August 2008 letter. As a result, the district
court did not err by rejecting Jet Linx’s defense of accord and satisfaction. See Lone
Cedar Ranches, 523 N.W.2d at 369 (explaining that party claiming an accord and
satisfaction must show “that the minds of the parties . . . met”).
2. Jet Linx’s Failure to Make Full Lease Payments
Because the parties did not settle their contractual disputes, we consider Jet
Linx’s challenges to the district court’s resolution of BLB’s claims for breach of
contract. Jet Linx first objects to the conclusion that it breached the DLA by failing
to make full lease payments to BLB in August and September 2007 and in June and
July 2008, for which the district court awarded BLB $141,400.
3
In its reply brief, Jet Linx insists that we should review the district court’s
findings of fact with respect to accord and satisfaction de novo based upon Neb. Rev.
Stat. § 25-1925. Jet Linx’s argument overlooks that this statutory provision applies
to “appeals from the district court in suits in equity.” Id. In Peterson, where the
defendant raised accord and satisfaction as a defense to an action for breach of
contract—as Jet Linx does here—the Nebraska Supreme Court determined that the
action was one at law and reviewed the trial court’s findings of fact with respect to
accord and satisfaction for clear error. 513 N.W.2d at 518-20.
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Jet Linx urges us to find that the parties modified the DLA to permit reduced
payments for these four months. For August and September 2007, Jet Linx contends
that, during a conversation with Walker, Lee Bellue agreed on behalf of BLB to
accept only $15,000 as the full lease payment for these months. “[W]here the
modification of a contract substantially changes the liability of the parties, mutual
assent is required.” Whorley v. First Westside Bank, 485 N.W.2d 578, 581 (Neb.
1992). Whether a contract was orally modified is a question of fact. See Omaha
World-Herald Co. v. Nielsen, 369 N.W.2d 631, 637 (Neb. 1985); see also Poppen v.
Residential Mortg. Servs., Inc., 556 N.W.2d 49, 53 (Neb. Ct. App. 1996). Walker
testified that he and Lee Bellue “negotiated a payment, a short payment of $15,000
a month until the aircraft was actually available for the intended agreement.”
Contrary to Walker’s recollection of their conversation, Lee Bellue denied agreeing
to reduce Jet Linx’s obligation to make full monthly payments under the DLA for
August and September 2007. Because Lee Bellue and Walker recall their
conversation differently, the resolution of this issue comes down to a determination
of credibility. The district court believed Lee Bellue’s testimony and found that
Walker’s perception of this alleged agreement was based on a misunderstanding of
Jet Linx’s obligations under the DLA. In light of the deference due to this credibility
determination, see Eicher, 748 N.W.2d at 8, we find no clear error in the conclusion
that Lee Bellue and Walker did not orally modify the DLA to permit a reduced lease
payment of $15,000 for August and September 2007.
Jet Linx also argues that the parties modified the DLA to permit reduced lease
payments of $16,000 per month for June and July 2008. This purported modification
of the DLA is based on the August 2008 letter, in which Barrett stated that Jet Linx
agreed to pay BLB $16,000 per month for June and July 2008. As explained more
fully above, the district court did not commit clear error by finding that BLB did not
agree to the terms of the August 2008 letter. Consequently, the district court’s related
conclusion that BLB did not agree to modify the DLA to accord with the August 2008
letter is not clearly erroneous either.
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Jet Linx next argues that BLB breached the DLA by not providing an aircraft
capable of making charter flights during August and September 2007. Jet Linx relies
on the fact that, although BLB delivered the N400GK to Jet Linx on or around
August 24, 2007, the N400GK did not make a charter flight in August and September
due to unexpected maintenance issues. In arguing that this amounts to a breach of the
DLA by BLB, Jet Linx does not identify any language in the DLA that required BLB
to provide an aircraft capable of charter flights in order to receive a full lease payment
for that month. The DLA makes no provision for delaying, reducing, or in any way
altering Jet Linx’s monthly payments while the N400GK is undergoing maintenance.
Rather, the DLA provides for exactly the opposite, stating that the lease “is made
effective as of August 1, 2007” and that Jet Linx “guarantees [BLB] a minimum
monthly lease payment of $47,100 per month, no matter the number of actual hours
flown.” The fact that the N400GK did not make a charter flight in August and
September 2007, then, does not amount to a breach of the DLA by BLB.4
Jet Linx also argues that the district court erroneously placed on Jet Linx the
burden of proving the expenses that BLB saved from the failure of the N400GK to
make a charter flight in August and September 2007. This argument overlooks the
fact that BLB paid for the maintenance performed on the N400GK during these
months—a fact found by the district court that Jet Linx does not dispute. More
fundamentally, Jet Linx misapprehends BLB’s burden of proving expenses saved. Jet
Linx is correct that, under Nebraska law, the plaintiff bears the burden of proving
expenses saved as a result of the defendant’s breach of contract. See LeRoy Weyant
& Sons, Inc. v. Harvey, 321 N.W.2d 429, 431 (Neb. 1982). Thus, BLB’s burden of
proof was to prove expenses that it saved because of Jet Linx’s breach of the
DLA—as relevant here, expenses saved from Jet Linx’s failure to make full lease
4
Jet Linx also urges that BLB anticipatorily breached the DLA. But Jet Linx
did not develop this argument in its briefs beyond merely mentioning it. Therefore,
we deem it waived. See Cubillos v. Holder, 565 F.3d 1054, 1058 n.7 (8th Cir. 2009).
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payments in August and September 2007. BLB’s burden of proof was not, as Jet
Linx claims, to prove expenses that BLB allegedly saved due to the fact that the
N400GK did not make a charter flight during these months. Because Jet Linx
confuses what BLB had to prove in order to recover damages and offers no argument
with respect to BLB’s actual burden of proof, we conclude that BLB proved damages
from Jet Linx’s failure to make full lease payments with sufficient specificity.
For these reasons, we affirm the district court’s judgment for BLB with respect
to its claim for unpaid lease payments under the DLA and the award of $141,400 to
BLB.5
3. Jet Linx’s “Marking Up” of Maintenance Costs
The district court also determined that Jet Linx breached the MSA by “marking
up” the cost of maintenance for the N789DJ paid for by BLB, for which the district
court awarded BLB $15,774.67. Jet Linx argues that the parties agreed that Jet Linx
could mark up the cost of maintenance for the N789DJ.
5
Jet Linx failed to include its remaining defenses to BLB’s claim for breach of
contract based on unpaid lease payments in the pretrial order as issues for the district
court to decide—specifically, its defenses of abandonment, rescission, prevention,
failure to comply with a condition precedent, breach of an implied warranty, and
waiver. And in its proposed conclusions of law before the district court, Jet Linx
asserted that “[t]he matters to be tried are the controverted issues and defenses set
forth in the pretrial order.” Therefore, the defenses not included in the pretrial order
are waived. See Hartman v. Workman, 476 F.3d 633, 634 n.3 (8th Cir. 2007); see
also Youren v. Tintic Sch. Dist., 343 F.3d 1296, 1304-05 (11th Cir. 2003). Although
we have discretion to consider an argument not made to the district court if it is
purely legal or if a manifest injustice would otherwise result, we discern no reason
here to depart from our general practice of not considering arguments made for the
first time on appeal. See Hartman, 476 F.3d at 634-35.
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When the N789DJ required maintenance during the term of the MSA, Jet Linx
initially paid for these maintenance expenses. Because BLB agreed in the MSA that
it would ultimately be responsible for these expenses, Jet Linx billed BLB. Rather
than charge BLB for the amount it had paid for the maintenance, Jet Linx instead
charged BLB for more than that amount. On appeal, Jet Linx does not dispute that
it engaged in this practice. Over the term of the MSA, BLB paid Jet Linx $15,774.67
more than Jet Linx incurred for the maintenance of the N789DJ.
Jet Linx does not assert that the MSA as written permitted it to mark up the
cost of maintenance. Rather, Jet Linx only argues that the parties agreed to modify
the written terms of the MSA to permit this billing practice. This purported
modification, Jet Linx argues, was made in exchange for striking a provision from the
MSA providing for an operating expense fund. In the copy of the MSA admitted at
trial, a provision providing for an “Operating Expense Fund” is indeed struck
through. Barrett, a Jet Linx executive, testified that he believed that the parties had
negotiated this provision out of the MSA in exchange for allowing Jet Linx to mark
up the cost of maintenance. On this point, Lee Bellue testified that there was some
discussion about removing the operating expense fund provision from the MSA, but
he did not recall removing it in exchange for permitting Jet Linx to mark up the cost
of maintenance.
The district court did not reach the issue of whether the parties agreed to allow
Jet Linx to mark up the cost of maintenance because it concluded that the parol
evidence rule barred evidence of such a modification. “The parol evidence rule states
that if negotiations between the parties result in an integrated agreement which is
reduced to writing, then, in the absence of fraud, mistake, or ambiguity, the written
agreement is the only competent evidence of the contract between [the parties].”
R & B Farms, Inc. v. Cedar Valley Acres, Inc., 798 N.W.2d 121, 129-30 (Neb. 2011).
In other words, “[t]he parol evidence rule renders ineffective proof of a prior or
contemporaneous oral agreement which alters, varies, or contradicts the terms of a
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written agreement.” Sack Bros. v. Tri-Valley Coop., Inc., 616 N.W.2d 786, 791 (Neb.
2000).
Jet Linx does not dispute that the purported modification agreed to by Barrett
and Lee Bellue alters the terms of the MSA. Nor does Jet Linx question the district
court’s conclusion that the MSA is an integrated agreement. In addition, evidence
from trial supports the district court’s determination that this alleged modification,
if the parties actually agreed to it, was an oral agreement reached prior to or
contemporaneously with the MSA. The operating expense fund provision is struck
through in the signed copy of the MSA, and the MSA does not include a provision
for Jet Linx’s marking up of the cost of maintenance. Thus, absent fraud, mistake,
or ambiguity, the MSA is the only competent evidence of the agreement between Jet
Linx and BLB. See R & B Farms, 798 N.W.2d at 129-30. Jet Linx does not allege
fraud or mistake or argue that the MSA is ambiguous. Accordingly, we affirm the
district court’s judgment for BLB on this claim.
B. BLB’s Cross-Appeal
1. Jet Linx’s Failure to Maintain the Maintenance Records and Part
Tags
BLB challenges the district court’s conclusion that it did not prove its damages
arising from Jet Linx’s failure to maintain documentation for the maintenance
performed on the N789DJ and the N400GK. Under the MSA, Jet Linx agreed to
“maintain the [N789DJ] in compliance with all applicable Federal Aviation
Regulations” and was responsible for “ensuring the aircraft complies with FAA
maintenance requirements for accurate record entries.” Similarly, under the DLA, Jet
Linx agreed that “[a]ll inspections, repairs, modifications, maintenance, and overhaul
work [on the N400GK] . . . will be performed in accordance with the standards set by
the Federal Aviation Regulations” and that Jet Linx “will maintain all log books and
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records . . . in accordance with the Federal Aviation Regulations.” However, BLB’s
expert testified that when Jet Linx returned the airplanes to BLB, the airplanes’
maintenance records did not document all of the maintenance that had been
performed during the lease term. Moreover, many of the tags for the parts that were
installed during the lease term, which verify the airworthiness of these parts, were
missing. Relying on 14 C.F.R. § 91.417, which requires an owner or operator of an
airplane to keep certain maintenance records, the district court found that Jet Linx’s
failure to maintain these maintenance records and part tags amounted to a breach of
the MSA and the DLA.
On the issue of damages, BLB’s expert testified that in order to rectify the lack
of maintenance records and part tags, BLB would need to redo the maintenance that
was not documented and would need to recertify the parts without part tags. BLB’s
expert calculated that these repairs would cost $171,363.37. Despite this evidence,
the district court concluded that BLB failed to prove its damages. The court reasoned
that the diminution in the value of the airplanes, rather than BLB’s cost of repairing
the missing maintenance documentation and part tags, was the appropriate measure
of BLB’s damages and that BLB presented insufficient evidence of diminution of
value. As a result, the district court entered judgment for Jet Linx on this claim. BLB
argues that it is entitled to damages measured by the cost of repair.
This aspect of BLB’s cross-appeal presents the question of whether the proper
measure of damages is the cost of repair or the diminution in the value of the
airplanes. Under Nebraska law, the determination of whether diminution-in-value
damages or cost-of-repair damages is appropriate “depends upon the evidence in the
particular case.” Fink v. Denbeck, 293 N.W.2d 398, 401-02 (Neb. 1980). Where a
defect in the performance of a contract can be remedied, the ordinary measure of
damages is the cost of repair. Where the defect cannot be remedied, the usual
measure of damages is the “difference in value between the thing as represented and
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its actual value.” Id. at 402.6 This latter rule contemplates instances where there has
been substantial compliance with the contract, the plaintiff received substantially the
same benefits that it bargained for from the contract as performed, and performance
in accordance with the contract is infeasible or possible only at inordinate cost. See
Moss v. Speck, 306 N.W.2d 156, 157-58 (Neb. 1981). The Nebraska Supreme Court
has further explained that the plaintiff is entitled to damages measured by the cost of
repair “unless [the defendant] proves affirmatively and convincingly that such
construction and completion would involve an unreasonable economic waste.” Id.
at 158 (quoting 5 A. Corbin, Contracts § 488 (1964)); see also A-1 Track & Tennis,
Inc. v. Asphalt Maint., Inc., No. A-99-433, 2000 WL 781371, at *5 (Neb. Ct. App.
June 20, 2000). Accordingly, cost-of-repair damages are proper unless the defendant
establishes that the defect in his performance of the contract cannot be remedied in
light of the considerations outlined above.
The district court concluded that the diminution in the value of the airplanes
is the proper measure of BLB’s damages without undertaking any of the above
analysis. However, this measure of damages is appropriate only if Jet Linx first
established that the lack of maintenance documentation and part tags cannot be
remedied in light of the considerations described above. See Moss, 306 N.W. at 157-
6
Although this rule has been applied most often in the context of construction
contracts, the Nebraska Supreme Court has applied this rule more broadly, including
to a contract for repair. See Lis v. Moser Well Drilling & Serv., Inc., 377 N.W.2d 98,
99-100 (Neb. 1985) (explaining that this rule applies to an “improvement” where the
defendant failed to solve a well overflow problem); see also A R L Corp. v. Hroch,
268 N.W.2d 101, 103-04 (Neb. 1978) (applying rule where defendant failed to
prepare property for paving); 24 Williston on Contracts § 66:17 (4th ed. 2013)
(noting that the principles underlying the choice between cost-of-repair damages and
diminution-in-value damages “are generally applicable to all kinds of contracts for
a particular piece of work”). Although the MSA and DLA are leases for the use of
BLB’s airplanes, the contractual provisions at issue here require Jet Linx to maintain
and repair BLB’s airplanes.
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58. Absent such a finding, it was error for the district court to choose diminution in
value as the appropriate measure of BLB’s damages. See id. Accordingly, we reverse
and remand the district court’s judgment for further proceedings not inconsistent with
this opinion.
2. BLB’s Failure to Pay for Maintenance Expenses Arising From the
Oil-Loss Incident
BLB also cross-appeals the district court’s judgment on Jet Linx’s counterclaim
for breach of the MSA with respect to the maintenance expenses that Jet Linx
incurred in connection with the oil-loss incident involving the N789DJ. Under the
MSA, Jet Linx did not “assume any liability for damages caused by or resulting from,
directly or indirectly, wholly or in part, any failure or fault other than its negligence.”
Relying on this provision, the district court determined that Jet Linx’s employees
were negligent by failing to perform a pre-flight inspection and by failing to shut
down the N789DJ’s engine immediately but concluded that BLB failed to prove that
these instances of negligence caused the damage to the N789DJ’s engine, which
included the need for a teardown inspection and other engine repairs. As a result, the
district court ordered BLB to reimburse Jet Linx for the maintenance expenses arising
from the oil-loss incident, calculated to be $158,014.98.
Neither party disputes the district court’s conclusions that the MSA
incorporates the Nebraska tort-law concept of proximate causation and that BLB
bears the burden of proof. “A proximate cause is a cause that (1) produces a result
in a natural and continuous sequence and (2) without which the result would not have
occurred.” Staley v. City of Omaha, 713 N.W.2d 457, 466 (Neb. 2006). Although
proximate causation can be proved by circumstantial evidence, Hahn v. Weber &
Sons Co., 390 N.W.2d 503, 505 (Neb. 1986), proximate causation is not established
by evidence that leaves the factfinder with “[s]peculation and conjecture,” King v.
Crowell Mem’l Home, 622 N.W.2d 588, 594 (Neb. 2001). Whether negligence
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proximately caused an injury is a question of fact, which we review for clear error.
Bean v. State, 382 N.W.2d 360, 362 (Neb. 1986).
At trial, BLB did not offer expert testimony about the underlying cause of the
loss of oil pressure and engine damage or how a pre-flight inspection would have
prevented this engine damage. Instead, BLB relied upon a pilot disciplinary report,
Boatwright’s testimony, and other circumstantial evidence to support its theory that
the pilots’ failure to secure the oil cap during a pre-flight inspection led to the loss of
oil pressure and engine damage. The district court concluded that BLB presented
insufficient evidence connecting the lack of a pre-flight inspection to the engine
damage. We cannot say that this conclusion was clearly erroneous.
BLB argues that the district court should have given determinative weight to
so-called “admissions” by Jet Linx that its pilots’ negligence caused the engine
damage. The foremost of these “admissions,” according to BLB, was made by
Kopp—Jet Linx’s chief pilot—in a pilot disciplinary report relating to Clark’s
handling of the oil-loss incident. This report states: “The lack of proper preflight and
operational procedures in an abnormal situation caused the need for engine removal
and inspection as well as generator replacement due to oil damage. This has resulted
in significant avoidable expense to the company.” While probative of proximate
causation, this disciplinary report merely reflects Kopp’s opinion that the lack of a
pre-flight inspection and the delay in shutting down the engine played undefined roles
in causing the engine damage. The report does not explain the basis for this opinion.
Moreover, when asked at trial whether he had “any proof today . . . that [Clark’s]
failure to shut down the engine when he did actually caused any damage,” Kopp
stated that he did not. Furthermore, Kopp wrote this report shortly after the oil-loss
incident, well before Jet Linx learned the results of the teardown inspection of the
airplane’s engine, including the fact that the engine oil cap was cracked—a possible
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alternate cause of the oil loss incident.7 Thus, the district court appropriately could
have discounted Kopp’s conclusory opinion.
BLB also relies on Boatwright’s testimony about the oil-loss incident. At trial,
Boatwright agreed that he told the mechanic who performed the teardown inspection
that the “engine dipstick was reported not to be secure.” He relayed this information
because “there was no doubt in my mind that . . . the oil cap/dipstick was not in the
hole,” since the onsite mechanic had found the dipstick lying in the engine cowling.
At trial, Boatwright also agreed that, shortly after the oil-loss incident, he told Lee
Bellue that it was “possible the oil cap was left loose or left off.” However,
Boatwright’s comments predate his awareness of the results of the teardown
inspection, including the fact that the engine oil cap was cracked. Because
Boatwright’s statements did not account for the cracked oil cap, we cannot say that
his testimony compels the conclusion that the district court committed clear error.
7
BLB raises two objections to the district court’s finding that the oil cap was
cracked. First, BLB asserts that it is not supported by evidence that was admitted at
trial. This argument overlooks Boatwright’s testimony that the mechanic found the
crack and that Boatwright observed the crack once it was returned to Jet Linx.
Second, BLB urges us to draw an adverse inference from the fact that the oil cap was
destroyed by Jet Linx. However, BLB did not make this spoliation-of-evidence
argument to the district court. BLB elicited brief testimony about Jet Linx’s
destruction of the oil cap based on its understanding of an FAA requirement and
made cursory mention of this testimony in its briefs. But BLB did not argue that the
district court should impose sanctions for spoliation of evidence, which would require
“a finding of intentional destruction [of evidence] indicating a desire to suppress the
truth.” Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007) (quoting
Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 746 (8th Cir. 2004)). Nor did BLB
identify spoliation of evidence as an issue in the pretrial order. We thus discern no
reason to depart from our general practice of not considering an argument made for
the first time on appeal. See Hartman, 476 F.3d at 634-35.
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The final “admission” identified by BLB is Barrett’s discussion with Jet Linx’s
insurer about whether the oil-loss incident was covered under its insurance policy.
In a communication with Jet Linx’s insurer, Barrett apparently asked the insurer’s
agent whether there would be coverage if Jet Linx’s pilots acted negligently. But in
this same communication, Barrett also told the insurer’s agent that one of Jet Linx’s
options was “pass[ing] costs on[] to [the] aircraft owner.” Viewed most favorably to
Jet Linx, Barrett’s equivocal statements to the insurer indicate that Jet Linx simply
was exploring whether and under what circumstances the engine damage would be
covered under its insurance policy, and they are not determinative of proximate
causation.
In addition, BLB’s theory of causation fails to confront the simple fact that
Clark, one of the pilots of the N789DJ, performed a post-flight inspection on the
afternoon before the oil-loss incident. The district court found that this inspection
occurred and credited Clark’s statement that this inspection consisted of “pull[ing]
the cap on the port engine to find the oil in acceptable levels and replac[ing] the cap
and push[ing] the cap closing trigger in the down position.” BLB does not dispute
that Clark performed this inspection. Nor has it identified any evidence that Clark’s
inspection was deficient in any way. Following this post-flight inspection, the
N789DJ was stored in a hangar until its planned flight the next morning. Absent
evidence that a pre-flight inspection would have revealed something different from
what the post-flight inspection did, there is no reason to believe that a pre-flight
inspection would have averted the engine damage. See Worth v. Kolbeck, 728
N.W.2d 282, 290 (Neb. 2007) (“[C]onduct . . . is not a proximate cause if the event
would have occurred without that conduct.”). BLB did not present any such evidence
at trial. In its written closing argument before the district court, BLB identified no
evidence that explains how a pre-flight inspection would have revealed an issue that
did not exist or was not observed by Clark the afternoon before the oil-loss incident.
With no evidence connecting the lack of a pre-flight inspection to the engine damage,
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the district court was left with only “[s]peculation and conjecture” about proximate
causation. See King, 622 N.W.2d at 594.
The district court also concluded that BLB failed to prove that the pilots’ delay
in shutting down the engine proximately caused the engine damage. As with its
previous theory of causation, BLB did not offer expert testimony about whether and
how the pilots’ delay in shutting down the engine led to the engine damage. In light
of the evidence presented at trial, we cannot say that the district court’s conclusion
regarding the delay in shutting down the engine was clearly erroneous. BLB raises
three arguments to the contrary. First, BLB contends that the district court
overlooked Kopp’s disciplinary report for Clark, which indicates that the delay in
shutting down the engine played some unspecified role in causing the engine damage.
However, as discussed above, the district court appropriately could have discounted
the disciplinary report. The report merely contains Kopp’s conclusory statement
about the causes of the engine damage, and Kopp admitted at trial that he currently
has no evidence that the delay in shutting down the engine caused any engine
damage.
Second, BLB argues that the district court’s finding that there were “seconds
of delay” in shutting down the engine amounts to clear error. We disagree. Even
though Montanye contacted the flight-control tower and Boatwright before the pilots
shut down the engine, BLB has identified no evidence that undermines the district
court’s finding that Montanye made these calls immediately after she observed the
oil-pressure issue. Moreover, even if more than mere “seconds” elapsed, BLB has not
pointed us to any evidence suggesting how long the pilots actually delayed shutting
down the engine. In fact, Kopp testified that he does not know the length of the
delay. Nor can we find any evidence that explains how the actual delay—as opposed
to a delay of mere “seconds”—proximately caused the engine damage.
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Third, BLB objects to the inference that the district court drew from
Montanye’s observation that the oil-pressure gauge read zero when she realized that
the engine had lost oil pressure. The district court reasoned that Montanye’s
observation “suggests” that the engine damage already had occurred by the time that
the pilots noticed the oil-pressure issue. This inference—whether reasonable or
not—does not affect the district court’s ultimate conclusion that BLB failed to prove
that the pilots’ delay in shutting down the engine proximately caused the engine
damage. As such, we cannot say that the district court’s proximate-causation
determination was clearly erroneous.
For these reasons, we affirm the district court’s judgment in favor of Jet Linx
on its counterclaim for breach of the MSA and the award of damages to Jet Linx.8
III. Conclusion
For the reasons set forth above, we reverse and remand the district court’s
judgment for Jet Linx on BLB’s claim for breach of contract in connection with Jet
Linx’s failure to maintain the maintenance records and part tags. We affirm the
district court’s judgment in all other respects.
______________________________
8
The district court refused Jet Linx’s request for prejudgment interest on the
amount it paid for maintenance expenses in connection with the oil-loss incident. Jet
Linx appeals this conclusion. The parties agree that prejudgment interest is available
“when there is no reasonable controversy as to the plaintiff’s right to recover and the
amount of such recovery.” Archbold v. Reifenrath, 744 N.W.2d 701, 709 (Neb.
2008). Based upon the above analysis, a reasonable controversy as to Jet Linx’s right
to recover exists. We thus affirm the denial of prejudgment interest.
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