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MD Helicopters Incorporated v. The Boeing Company

United States District Court, D. Arizona

April 23, 2018

MD Helicopters Incorporated, Plaintiff,
v.
The Boeing Company, Defendant.

          ORDER

          JAMES A. TEILBORG, SENIOR UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Plaintiff MD Helicopters Inc.'s (“MDHI”) Motion to Dismiss Defendant The Boeing Company's (“Boeing”) Counterclaims 1-4 and 6-9, (Doc. 21). Boeing filed a Response in Opposition to the Motion to Dismiss, (Doc. 25), and MDHI filed a Reply in Support of Plaintiff's Motion to Dismiss, (Doc. 26).

         I. Background

         MDHI manufactures helicopters for commercial, military, and law enforcement markets. (Doc. 9 at 2). Boeing is an aerospace business that, among other product offerings, designs, develops, produces, sells, and offers support for military helicopters. (Doc. 9 at 3); (Doc. 16 at 2). In February of 2005, MDHI and Boeing entered into an Asset Acquisition Agreement (“AAA”), (Doc. 16-1 at 2-39), and a Cross License, (Doc. 16-2 at 1-21), so that Boeing could purchase some of MDHI's intellectual property and, in turn, license the purchased assets back to MDHI on a non-exclusive basis, (Doc. 16 at 8); (Doc. 29 at 1-2). In July of 2010, Boeing and MDHI entered into a Memorandum of Agreement (“2010 MOA”), (Doc. 16-2 at 22-46), providing that “MDHI and Boeing will cooperatively produce and support the AH-6i Aircraft in the worldwide market, ” (Doc. 16 at 12); (Doc. 9 at 3). On October 6, 2011, MDHI and Boeing signed a Long Term Requirements Contract (“LTRC”) whereby MDHI agreed to sell and Boeing agreed to buy airframes and related components for the AH-6i helicopter. (Doc. 9 at 3); (Doc. 16 at 12). The LTRC incorporated the Boeing Company General Provisions 1, (Doc. 16-3 at 36-45), dated April 1, 2009 (“GP1”), (Doc. 9 at 4); (Doc 16 at 13). In November 2011, the parties agreed to the Master Purchase Contract No. 524842 (“Master PC”), which incorporates the terms of the LTRC. (Doc. 16 at 14); (Doc. 9 at 4).

         Boeing claims, and MDHI denies, that, from late 2011 to the middle of 2012, MDHI complained to Boeing that there had not been any orders for parts under the LTRC. (Doc. 16 at 15); (Doc. 29 at 4). Boeing likewise claims, and MDHI denies, that in April of 2012, MDHI announced that it would compete against Boeing for an Army contract by bidding its own helicopter, the MD 540F, against Boeing's AH-6i. Id.

         On July 26, 2012, Boeing issued Purchase Contract No. 648538 to MDHI for the purchase of airframes and related components for the AH-6i. Id. Boeing claims, and MDHI denies, that MDHI initially refused to sign this Purchase Contract in an alleged violation of the LTRC. Id. Eventually, in September of 2012, MDHI signed Purchase Contract No. 648538. Id.

         Following these events, Boeing claims, and MDHI denies, that MDHI attempted to frustrate Boeing's AH-6i program, by engaging in delivery delays and poor production. Id. MDHI claims, and Boeing denies, that during the course of performance under the purchase contract for airframes for the AH-6i, MDHI raised various issues regarding the pricing, delivery schedule, and additional work required. (Doc. 9 at 4); (Doc. 16 at 3). In May of 2015, MDHI prepared and submitted to Boeing a formal Request for Equitable Adjustment (“REA”). Id. Additionally, in response to the various issues surrounding the production and delivery of the AH-6i parts, in August of 2015, the parties entered into a Memorandum of Agreement (“2015 MOA”). (Doc. 9 at 5); (Doc. 16 at 3). Boeing claims that after the parties entered into the 2015 MOA, MDHI timely delivered five AH-6i airframes. (Doc. 16 at 16). However, after that, on March 7, 2016, Boeing and MDHI entered into the Purchase Contract Change No. 32 (“PCC-32”), which Boeing alleges established a new schedule setting deadlines for delivery of the remaining airframes. (Doc. 16 at 16); (Doc. 29 at 5). Boeing further alleges that, despite that agreed-upon schedule under the PCC-32, MDHI failed to timely deliver the remaining seventeen airframes as required. (Doc. 16 at 16). MDHI claims that AH-6i production delays were caused, in part, by labor unrest issues in Monterrey, Mexico. (Doc. 29 at 5). Boeing conducted an investigation into the delays and does not accept MDHI's explanation, but rather believes that MDHI's reasons for the post-2015 MOA delays were pretextual and that MDHI's true objective was to undermine Boeing's efforts so MDHI could promote its own MD 540F helicopter. (Doc. 16 at 16-18).

         After the performance period of the LTRC, Boeing sought out other suppliers to supply parts for the AH-6i. Boeing claims, and MDHI denies, that MDHI instructed other suppliers not to work with Boeing. (Doc. 16 at 20-21); (Doc. 29 at 6). Boeing likewise claims, and MDHI denies, that MDHI did not provide written notice to MDHI's suppliers that they could work with Boeing as allegedly required by the AAA and the Cross License. (Doc. 16 at 20); (Doc. 29 at 6).

         MDHI claims Boeing has failed to pay MDHI for the AH-6i airframes delivered to Boeing. (Doc. 9 at 6). Boeing admits that it is in possession of the AH-6i airframes MDHI delivered, but states that MDHI's delivery of the final airframe was incomplete and nonconforming, thus MDHI was not entitled to payment. (Doc. 16 at 4).

         Boeing also claims that MDHI is in possession of parts that rightfully belong to Boeing and its customers. (Doc. 16 at 22-23). Boeing believes that MDHI is holding these parts as a method to extract payment on MDHI's contract claims. (Doc. 16 at 24).

         MDHI has presented two claims: 1) Breach of the 2015 MOA and 2) Breach of Implied Covenant of Good Faith and Fair Dealing. Boeing has presented nine counterclaims: 1) Breach of the AAA; 2) Breach of the Cross License; 3) Breach of LTRC; 4) Breach of the GP1; 5) Breach of the 2015 MOA and PCC-32; 6) Breach of the Implied Covenant of Good Faith and Fair Dealing; 7) Conversion; 8) Tortious Interference with Contract and Business Expectancy; and 9) Declaratory Judgment. MDHI has moved to dismiss all of Boeing's counterclaims except its fifth counterclaim.

         II. Legal Standard

         MDHI has moved to dismiss the Boeing's Counterclaims 1-4 and 6-9 for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Under Rule 12(b)(6), a motion to dismiss should not be granted “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief.” Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994) (citations and internal quotation marks omitted).

         To survive a Rule 12(b)(6) motion to dismiss, a complaint must meet the requirements of Rule 8. Rule 8(a)(2) requires a “short and plain statement of the claim showing that the pleader is entitled to relief, ” so that the defendant has “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Although a complaint attacked for failure to state a claim does not need detailed factual allegations, the pleader's obligation to provide the grounds for relief requires “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The factual allegations of the complaint must be sufficient to raise a right to relief above a speculative level. Id.

         Rule 8's pleading standard demands more than “an unadorned, the-defendant unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). A complaint that offers nothing more than blanket assertions will not suffice. A complaint must contain sufficient factual matter, which, if accepted as true, states a claim to relief that is “plausible on its face.” Iqbal, 556 U.S. at 678. Facial plausibility exists if the pleader pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Plausibility does not equal “probability, ” but it requires more than a sheer possibility that a defendant has acted unlawfully. Id. “Where a complaint pleads facts that are ‘merely consistent' with a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         When analyzing a complaint for failure to state a claim, all factual allegations are taken as true and construed in the light most favorable to the nonmoving party. Iolab Corp. v. Seaboard Sur. Co., 15 F.3d 1500, 1504 (9th Cir. 1994). All reasonable inferences are to be drawn in favor of the nonmoving party. Jacobsen v. Hughes Aircraft Co., 105 F.3d 1288, 1296 (9th Cir. 1997), rev'd on other grounds, 525 U.S. 432 (1999). Moreover, “[i]f a complaint is accompanied by attached documents, the court is not limited by the allegations contained in the complaint. These documents are part of the complaint and may be considered in determining whether the plaintiff can prove any set of facts in support of the claim.” Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).

         Furthermore, absent specific exceptions, the Court will not consider evidence or documents beyond the complaint in the context of a Rule 12(b)(6) motion to dismiss. See Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990) (amended decision). There are two exceptions to the general rule. First, “[i]f the documents are not physically attached to the complaint, they may be considered if the documents' authenticity . . . is not contested and the plaintiff's complaint necessarily relies on them.” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (internal quotations and citations omitted). “Second, under Fed.R.Evid. 201, a court may take judicial notice of matters of public record.” Id. at 688-89 (internal quotations and citations omitted).

         Finally, this Court has diversity jurisdiction under Section 1332. See 28 U.S.C. § 1332. A court sitting in diversity applies federal procedural law and state substantive law. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Accordingly, this Court will apply the substantive law of Arizona. Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., Inc., 306 F.3d 806, 812 (9th Cir. 2002).

         III. Analysis

         A. First Counterclaim: Breach of Contract-AAA

         In order to state a claim for breach of contract, the counterclaimant must allege the existence of a contract between the parties, a breach of the contract, and damages. Chartone, Inc. v. Bernini, 83 P.3d 1103, 1111 (Ariz.Ct.App. 2004).

         a. Failure ...


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