Air Marshall Islands Inc. v Dornier [2002] MHSC 9; Case 2002-12 (24 December 2002)

IN THE SUPREME COURT
REPUBLIC OF THE MARSHALL ISLANDS

Supreme Court Case No. 2002-12
High Court Civil Action No. 2000-195

AIR MARSHALL ISLANDS, INC.
Plaintiff - Appellee

v

DORNIER LUFTFAHRT, GmbH
Defendant - Appellant

OPINION

BEFORE: FIELDS, Chief Justice; GOODWIN* and KURREN,** Acting Associate Justices.

Argued and Submitted November 20, 2002

GOODWIN, Acting Associate Justice:

Fairchild Dornier, GmbH¹ ("Dornier") appeals a default judgment in favor of Air Marshall Islands ("AMI") for approximately $4.2 million. AMI cross-appeals for punitive damages.

Facts and Procedural History

AMI is a Republic of the Marshall Islands corporation and is wholly-owned by the RMI. Dornier is a German public corporation in the business of aircraft manufacture.

On February 11, 1999, Tony A. de Brum, RMI Minister of Finance, signed a contract for the purchase of two aircraft manufactured by Dornier (the "Manila Agreement"). Three provisions of the Manila Agreement are relevant to this appeal. The first is Article 3, which requires a predelivery payment of 15% of the price of each aircraft to Dornier, due on February 25, 1999. Dornier agreed to arrange the financing for the remaining 85% of the purchase price. The second is Article 19.10, which provides that the Manila Agreement "shall come into force upon its signature" but conditions "effectiveness" on the occurrence of (1) Dornier's receipt of the pre-delivery payment, (2) AMI board approval, issued on or before February 19, 1999, and (3) written approval by the Cabinet of the RMI, issued on or before February 19, 1999. The final paragraph of this Article states:

This Agreement is valid only if accepted and executed by Purchaser, the resolution and approval [of the AMI board and Cabinet] is [sic] issued on or before February 19, 1999 and the predelivery payment ... is received on or before February 25, 1999.

Finally, Article 18 provides that any "dispute arising out of or in connection with" the Manila Agreement will be submitted to an arbitration panel of three, in Munich Germany, and will be settled in accordance with the rules of the International Chamber of Commerce.

None of the conditions precedent to effectiveness was satisfied in accordance with the terms of the Manila Agreement. AMI asserts that it informed Dornier in April and May of 1999 that AMI considered the Manila Agreement null and void. Dornier responded that it considered the Manila Agreement "suspended." In any event, the failure to satisfy the agreement's conditions precedent is problematic.

Because AMI continued to be in need of new aircraft, representatives of the two companies met in South Bend, Indiana, on May 18, 1999. There, according to AMI, Dornier represented that it would re-market the two aircraft unless AMI made an immediate $500,000 payment. The parties orally agreed that if AMI made a payment of $2.1 million to Dornier by the end of June 1999, Dornier would reserve one aircraft and make delivery "as soon as possible." On June 6, 1999, AMI paid $500,000 to Dornier. AMI paid another $1.6 million to Dornier on October 15, 1999 on the belief that this payment was necessary to obtain financing. Prior to payment, however, AMI secured a letter agreement from Dornier (the "Refund Agreement") stating that "in case of non-availability of .... financing until delivery of the aircraft," the $1.6 million would be refunded to AMI. Interestingly, the Refund Agreement refers to Article 3 of the Manila Agreement. AMI never obtained financing, and Dornier did not refund the $1.6 million despite a demand from AMI.

On September 11, 2000, AMI filed a complaint in the High Court, alleging fraud and duress in connection with the two payments made to Dornier, and negligent misrepresentation in connection with the Refund Agreement. The complaint also alleged wrongful interference by Dornier with an unrelated contract between AMI and a third party (JAS), as well as wrongful interference with prospective economic advantage by blocking a potential sale of a Saab 2000 aircraft by AMI to CityJet.

To this complaint, Dornier filed a 12(b) motion and moved to compel arbitration. On February 9, 2001, AMI moved to stay arbitration on the ground that no agreement to arbitrate was made because (1) the Manila Agreement never became effective since the conditions precedent to effectiveness were not satisfied, (2) the person that signed the Manila Agreement on behalf of AMI did not have authority to bind the company, and (3) in any case, AMI's claims of interference with the unrelated contract are not subject to the arbitration clause. AMI also filed an amended complaint, which clarified the negligent misrepresentation claim, added several new claims (including conversion and unjust enrichment claims with respect to Dornier's retention of the $2.1 million payment), and reasserted the claims of the original complaint. AMI requested return of the $2.1 million, general damages, punitive damages, and costs.

The High Court denied Dornier's motion and granted AMI's motion on February 26, 2001. In its order, the High Court stated that Dornier failed to provide any grounds or legal basis for dismissing AMI's action. The High Court also found that the Manila Agreement was not an enforceable agreement to arbitrate, and ordered Dornier to answer AMI's complaint by March 15, 2001.

On March 15, 2001, Dornier moved for reconsideration of the February 26 order and for expedited discovery on the issue of AMI's agreement to arbitrate, attaching supporting affidavits. The High Court denied the motion on March 20, 2001, finding the affidavits insufficient to support an agreement to arbitrate. On March 21, 2001, Dornier moved for further reconsideration of the February 26 order, expedited discovery, and extension of time to file an answer. The High Court denied the reconsideration motion on April 18, 2001, but granted an extension to answer until May 10, 2001. Dornier also appealed the February 26 and March 20 orders to this Court on March 28, but that interlocutory appeal was dismissed for want of a final judgment. We also denied Dornier's motion to stay the litigation pending that appeal.