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PHI Inc. v. Aero Propulsion Support, Inc.

United States District Court, W.D. Louisiana, Lafayette Division

May 16, 2019

PHI INC.
v.
AERO PROPULSION SUPPORT, INC.

          JUNEAU, Judge.

          REPORT AND RECOMMENDATION

          PATRICK J. HANN, UNITED STATES MAGISTRATE JUDGE.

         Pending before this Court is the motion to dismiss, which was filed by the defendant, Aero Propulsion Support, Inc. (Rec. Doc. 6). Aero Propulsion argued that the case should be dismissed under Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction and further argued that the case should be dismissed under Fed.R.Civ.P. 12(b)(6) because the plaintiff's claims are prescribed. This Court converted the Rule 12(b)(6) motion to a motion for summary judgment so that materials extraneous to the complaint could be considered. (Rec. Doc. 18). The parties were given an opportunity to submit evidence or additional briefing following the conversion, but nothing further was submitted. The motion is opposed, and oral argument was held on May 15, 2019. The motion was referred to the undersigned magistrate judge for review, report, and recommendation in accordance with the provisions of 28 U.S.C. § 636 and the standing orders of this Court. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained below, it is recommended that the motion should be denied.

         Background

         In this lawsuit, PHI, Inc. seeks to recover from Aero Propulsion Support, Inc. for the loss of PHI's helicopter bearing Registration No. N4999. On June 3, 2016, the helicopter was in flight near Mountain City, Tennessee when it allegedly produced a loud “bang” sound, accompanied by a left yaw and rapidly increasing measured gas temperature. The helicopter lost engine power, and the pilot performed a hard emergency landing in a parking lot. One passenger sustained minor injuries, and the helicopter was a total loss.

         The National Transportation Safety Board (“NTSB”) and the Federal Aviation Administration (“FAA”) conducted an investigation, which revealed that the helicopter's engine contained a vane diffuser (Serial No. GY27720R) that had been overhauled by the defendant, Aero Propulsion Support, Inc., and shipped to PHI in Lafayette, Louisiana, where PHI installed it in the helicopter.

         In connection with the NTSB and FAA's investigation of the incident, Rolls-Royce Corporation (the manufacturer of the helicopter's engine) conducted a metallurgical investigation of the vane diffuser. In its Materials Evaluation Report dated July 27, 2016, Rolls-Royce concluded that a portion of the vane diffuser's aft plate had separated near a braze joint[1] due to inadequate braze coverage between the components. Rolls-Royce also found that the vane diffuser did not match Rolls-Royce's specifications for this part, which called for a single component rather than two components joined by brazing. Rolls-Royce e-mailed its Materials Evaluation Report to the FAA on August 8, 2016 and, on August 25, 2016, Rolls-Royce emailed a copy of the report to Allan Slattery of Aero Propulsion and Mike Block of PHI.[2] The NTSB issued its report on April 20, 2018.[3]

         On November 15, 2018, PHI filed the complaint in this lawsuit, contending that the allegedly defective vane diffuser caused the incident. PHI asserted claims against Aero Propulsion for redhibition, breach of contract, and attorneys' fees. Aero Propulsion responded to PHI's complaint by filing the instant motion.

         Contentions of the Parties

         Aero Propulsion posited two theories supporting its motion for dismissal of PHI's complaint. First, Aero Propulsion argued that the case should be dismissed under Fed.R.Civ.P. 12(b)(2) because the court lacks personal jurisdiction over it. PHI argued to the contrary that Aero Propulsion's contacts with Louisiana are sufficient for specific jurisdiction. Second, Aero Propulsion argued that PHI's suit should be dismissed under Fed.R.Civ.P. 12(b)(6) because it was not filed within one year after Mr. Block learned about Rolls-Royce's report. PHI argued, however, that Mr. Block's knowledge of the content of Rolls-Royce's report was not attributable to PHI and that the suit was timely filed within one year after the completion of the NTSB investigation. The Rule 12(b)(6) motion to dismiss was converted to a motion for summary judgment.

         Law and Analysis

         A. The Personal Jurisdiction Standard

         Federal Rule of Civil Procedure 12(b)(2) requires a court to dismiss a claim if the court does not have personal jurisdiction over the defendant. Whether personal jurisdiction can be exercised over a nonresident defendant is a question of law.[4]“Personal jurisdiction is an essential element of the jurisdiction of a district court, without which it is powerless to proceed to an adjudication.”[5] When, as in this case, a nonresident defendant challenges personal jurisdiction, the plaintiff, as the party seeking to invoke the power of the court, bears the burden of proving that jurisdiction exists.[6] When the defendant's motion is decided without an evidentiary hearing, the plaintiff is required to present facts sufficient to constitute a prima facie case of personal jurisdiction to satisfy their burden.[7] A prima facie showing of personal jurisdiction may be established by the pleadings, depositions, affidavits, or exhibits of record.[8] The court must accept as true the party's uncontroverted allegations and resolve any factual conflicts in favor of the plaintiff.[9] But the court is not required to credit conclusory allegations, even if left uncontroverted.[10] If the court holds an evidentiary hearing, however, the plaintiff “must establish jurisdiction by a preponderance of the admissible evidence.”[11]

         In determining whether personal jurisdiction is proper, a district court sitting in diversity, as in this case, applies the law of the forum state in which it sits.[12] The Louisiana Long-Arm Statute provides that this court may exercise personal jurisdiction over any nonresident so long as the basis for such jurisdiction is consistent with the United States Constitution.[13] Consequently, the limits of the Louisiana Long-Arm Statue are coextensive with the limits of constitutional due process.[14] This Court need only determine whether subjecting the defendant to suit in Louisiana would be consistent with the Due Process Clause of the Fourteenth Amendment.[15]

         The exercise of personal jurisdiction over a nonresident defendant satisfies due process when: (1) the defendant has purposefully availed itself of the benefits and protections of the forum state by establishing minimum contacts with that state, and (2) the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.[16] In other words, due process is satisfied when the defendant's connection with Louisiana is such that the defendant should reasonably anticipate being haled into court in Louisiana.[17]

         PHI contends that the defendant's contacts give rise to specific, as opposed to general, jurisdiction.[18] Specific personal jurisdiction exists when a nonresident defendant has purposefully directed its activities at the forum state and the litigation results from alleged injuries that arose out of or related to those activities.[19] Thus, specific personal jurisdiction requires a claim-specific inquiry, [20] and “only those acts which relate to the formation of the contract and the subsequent breach are relevant.”[21] This includes “prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing.”[22] In other words, the specific jurisdiction analysis “focuses on the relationship among the defendant, the forum, and the litigation.”[23] When analyzing a claim arising from a contract, “only those acts which relate to the formation of the contract and the subsequent breach are relevant.”[24] “The ‘minimum contacts' inquiry is fact intensive and no one element is decisive; rather the touchstone is whether the defendant's conduct shows that it ‘reasonably anticipates being haled into court.'”[25]

         The inquiry used to determine whether specific jurisdiction exists has three steps. First, it must be determined whether the defendant has sufficient minimum contacts with the forum state or, in other words, whether the defendant has purposefully directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there.[26] Random, fortuitous, or attenuated contacts are insufficient, [27] but a single, substantial act directed toward the forum can support specific jurisdiction.[28]

         Second, it must be determined whether the plaintiff's cause of action arose out of or resulted from the defendant's contacts with the forum.[29] At this step, the proper focus in the analysis is on the “relationship among the defendant, the forum, and the litigation.”[30] This is a claim-specific inquiry, as “the Due Process Clause prohibits the exercise of jurisdiction over any claim that does not arise out of or result from the defendant's forum contacts.”[31]

         Finally, if the plaintiff satisfies the first two prongs, the burden shifts to the defendant to defeat jurisdiction by showing that the forum state's exercise of jurisdiction would be unfair or unreasonable.[32] In this inquiry, a court analyzes five factors: “(1) the burden on the nonresident defendant, (2) the forum state's interests, (3) the plaintiff's interest in securing relief, (4) the interest of the interstate judicial system in the efficient administration of justice, and (5) the shared interest of the several states in furthering fundamental social policies.”[33] “It is rare to say the assertion [of jurisdiction] is unfair after minimum contacts have been shown.”[34]

         In April 2018, the Fifth Circuit recognized that the circuit courts are divided with regard to the theory that a defendant is subject to personal jurisdiction in any state in which its product arrives after being placed into the stream of commerce.[35] The Fifth Circuit also confirmed that it adheres to the more expansive view, under which a plaintiff need only show that the defendant delivered the product that injured him into the stream of commerce with the expectation that it would be used by consumers in the forum state in order to establish personal jurisdiction.[36]

         B. Aero Propulsion's Contacts with Louisiana are Sufficient to Establish Personal Jurisdiction

         It is undisputed that Aero Propulsion is an Ohio corporation with its principal place of business in Ohio. It is also undisputed that Aero Propulsion contracted with PHI for the overhaul of vane diffuser GY27720R before it was installed in helicopter N4999. In April 2014, PHI sent vane diffuser GY27720R to Aero Propulsion for overhaul. Rather than waiting for that exact part to be overhauled and returned, however, PHI and Aero Propulsion agreed that Aero Propulsion would send to PHI a previously overhauled vane diffuser that was already in Aero Propulsion's pool of components. GY27720R was eventually overhauled, and it was then placed in Aero Propulsion's components pool. On August 25, 2015, PHI sent a repair order to Aero Propulsion along with a different vane diffuser that needed to be overhauled. In accordance with their agreement, Aero Propulsion sent GY27720R back to PHI on October 16, 2015. PHI then installed GY27720R in the Rolls-Royce engine in helicopter N4999. Thus, it is undisputed that Aero Propulsion deliberately delivered the specific part that is alleged to have caused the helicopter to make an emergency landing to PHI in Louisiana in furtherance of the business arrangement between PHI and Aero Propulsion.

         Aero Propulsion argued, however, that the transaction by which vane diffuser GY27720R was supplied to PHI “was not part of an ongoing, long-term relationship between PHI and Aero Propulsion.” (Rec. Doc. 6-1 at 13). Aero Propulsion argued that PHI would “occasionally contact[] Aero Propulsion to request repair or overhaul of a part, and if contacted by PHI, Aero Propulsion would enter into a transaction with PHI to overhaul or repair a part or to provide a previously overhauled or repaired part. . . .” (Rec. Doc. 6-1 at 13). But PHI presented contrary evidence. PHI presented evidence establishing that it had a business relationship with Aero Propulsion that spanned fourteen years, from 2004 to 2018, during which PHI and Aero Propulsion were parties to 314 commercial transactions for parts and services for which PHI paid Aero Propulsion approximately $594, 237.[37] This Court finds that the relationship between PHI and Aero Propulsion went far beyond a single contract and was the type of long-term, ongoing relationship that might lead Aero Propulsion to anticipate being haled into court in Louisiana. More importantly, however, the lawsuit arose out of a specific transaction between PHI and Aero Propulsion.

         It is well settled that a nonresident's contracting with a resident of the forum state, standing alone, is insufficient to subject the nonresident to the jurisdiction of the forum state.[38] Rather, a court must evaluate “prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing. . . in determining whether the defendant purposefully established minimum contacts within the forum.”[39] Under this approach, the Fifth Circuit has looked to certain factors that include: (1) the place of contracting and (2) the place where the contract was to be performed, [40] (3) whether the contract contains an arbitration or choice-of-law clause, [41] and (4) whether the defendant's officers visited the forum state.[42]

         Aero Propulsion argued that this case should be decided in accordance with Holt Oil & Gas Corp. v. Harvey[43] and Stuart v. Spademan, [44] in which the Fifth Circuit found that personal jurisdiction was lacking. While both of those cases involved contracts between the plaintiff and defendant, neither was a case in which an item that was repaired by the defendant in one state was shipped to the plaintiff in another state then malfunctioned, causing harm.

         This case is more similar to Ruston Gas Turbines, Inc. v. Donaldson Co., Inc.[45]There, Corchran, a company with its operations in Minnesota, manufactured component parts of systems sold by another company, Donaldson, to a company in Texas called Ruston. Although Corchran did not have an office or a sales representative in Texas, the contract that it entered into made it clear that the parts it was manufacturing would be sold by Donaldson to Ruston in Texas. Further, Corchran shipped parts directly to Ruston in Texas 211 times between 1977 and 1992. The Fifth Circuit found that Corchran had minimum contacts with Texas and the exercise of personal jurisdiction over Corchran in Texas did not offend fair play and substantial justice.

         The Fifth Circuit has stated that “[w]here a nonresident's contact with the forum state stems from a product, sold or manufactured by the foreign defendant, which has caused harm in the forum state, the court has [specific] jurisdiction if it finds that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased or used by consumers in the forum state.”[46]This Court has previously applied this principle, ruling that minimum contacts were established when a company knew that a pump it manufactured was purchased by a Louisiana company, and shipped to Louisiana where it malfunctioned and caused injury, stating: “There is no doubt that Western delivered the Predator Pump into the stream of commerce with the knowledge that it would ultimately end up in Louisiana. Moreover, additional contacts are unnecessary because this single purposeful contact of putting the Predator Pump in the stream of commerce destined for delivery in Louisiana is sufficient to confer personal jurisdiction because plaintiff's cause of action arises from that single contact.”[47]

         This case presents a virtually identical fact pattern except for two important differences. First, Aero Propulsion did not simply offer its product for sale in the stream of commerce. Instead, it contracted with PHI to repair or overhaul the vane diffuser and then ship it to Louisiana. The vane diffuser was deliberately sent to Louisiana and only to Louisiana. Second, Aero Propulsion's delivery of the vane diffuser to PHI was not an isolated incident. Aero Propulsion has been doing business with PHI for over a decade. In accordance with that long-term business relationship, this was neither the first nor the only product that Aero Propulsion delivered to PHI in Louisiana. When this particular overhauled vane diffuser left Aero Propulsion's plant in Ohio, Aero Propulsion knew as a matter of fact that the product was going to be delivered to this one specific user in Lafayette, Louisiana. Therefore, Aero Propulsion could reasonably have anticipated that if the product failed and caused an injury, the company could be haled into court in Louisiana. “It is not unfair or unjust to require the manufacturer of a good that is knowingly delivered to a specific state to respond to a lawsuit arising out of defects in the good in that state. Therefore, the second prong of the due process test is satisfied; the exercise of personal jurisdiction over [the manufacturer] in [the remote state] does not offend fair play and substantial justice.”[48]

         This Court therefore finds, first, that Aero Propulsion had sufficient contacts with Louisiana to anticipate having to litigate claims arising from its repair of the product in this state and, second, that exercising personal jurisdiction over Aero Propulsion and subjecting Aero Propulsion to litigation in Louisiana does not offend constitutional due process protections.

         C. The Motion for Summary Judgment Standard

         Although Aero Propulsion originally raised the issue of the timeliness of PHI's claims in a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, this Court converted the motion to a motion for summary judgment so that evidence beyond the four corners of the complaint could be considered.[49] The parties were afforded an opportunity to submit additional evidence or briefing following the conversion, but neither did so.

         Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is appropriate when there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. A fact is material if proof of its existence or nonexistence might affect the outcome of the lawsuit under the applicable governing law.[50] A genuine issue of material fact exists if a reasonable jury could render a verdict for the nonmoving party.[51]

         The party seeking summary judgment has the initial responsibility of informing the court of the basis for its motion and identifying those parts of the record that demonstrate the absence of genuine issues of material fact.[52] If the moving party carries its initial burden, the burden shifts to the nonmoving party to demonstrate the existence of a genuine issue of a material fact.[53] All facts and inferences are construed in the light most favorable to the nonmoving party.[54]

         If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by pointing out that there is insufficient proof concerning an essential element of the nonmoving party's claim.[55] The motion should be granted if the nonmoving party cannot produce evidence to support an essential element of its claim.[56]

         D. Was PHI's Suit Timely Filed?

         In its complaint, PHI asserted claims for redhibition, breach of contract, and attorneys' fees. The complaint reads as follows: “On April 20, 2018 the NTSB released its Factual Report; and, for the first time, PHI learned that the cause of the engine failure was due to the fact that Aero Propulsion improperly repaired the helicopter's vane diffuser, S/N GY 27720R. The defective vane diffuser, including the work performed on that system by Aero Propulsion, was the direct, proximate[, ] and producing cause of the damages incurred by PHI as a result of the incident in question.” (Rec. Doc. 1 at 2). Thus, PHI contends that, by filing suit in November 2018, it filed suit less than one year after it allegedly learned that the vane diffuser was the cause of the incident. Under Louisiana law, an action for redhibition prescribes one year after a buyer discovers a defect in the product he purchased, [57]and a breach of contract claim has a ten year prescriptive period.[58] Therefore, PHI alleged that its suit was timely.

         In support of its contention that the suit prescribed before it was filed, Aero Propulsion presented two arguments. First, Aero Propulsion argued that PHI's breach of contract claim was actually a tort claim with a one-year prescriptive period. Second, Aero Propulsion argued that PHI filed suit more than one year after learning that the vane diffuser caused the accident.

         Aero Propulsion argued that PHI was actually asserting a tort claim rather than a contract claim because PHI's claim should be interpreted as a claim for negligent performance of repair work under Louisiana Civil Code Article 2316. If so, the claim would be subject to a one-year prescriptive period.[59] In its briefing and at oral argument, PHI made it clear, however, that its breach of contract claim is based on Aero Propulsion's alleged breach of the warranty provisions set forth on the documentation related to the transaction by which Aero Propulsion overhauled the vane diffuser that was in the helicopter at the time of the crash.

         How PHI acquired the vane diffuser is a little complicated. At some unknown point in time, PHI acquired a Rolls-Royce helicopter engine with a vane diffuser bearing Serial Number GY27720R already installed in it. On April 22, 2014, PHI sent Aero Propulsion its Repair Order No. RO-035558-2014, requesting that the vane diffuser with Serial No. GY27720R be overhauled.[60] Rather than waiting for that same vane diffuser to be repaired and returned, Aero Propulsion instead sent PHI a different vane diffuser from its inventory. This type of transaction is called a “core exchange.” Later, when PHI sent a vane diffuser with Serial No. 330915 to Aero Propulsion to be overhauled, another core exchange occurred. This time, Aero Propulsion retrieved the vane diffuser bearing Serial No. GY27720R from its inventory or parts pool, and sent Serial No. GY27720R back to PHI on October 16, 2015.[61] A “Certificate of Conformance” reiterated ...


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