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Syntelco Ltd. v. Reish

United States District Court, D. Arizona

July 9, 2018

Syntelco Limited, Plaintiff,
v.
Robert Reish, Defendant.

          ORDER

          HONORABLE JOHN Z. BOYLE UNITED STATES MAGISTRATE JUDGE

         Pending before the Court is Third Party Defendants', Darrin and Tina Cannon, f/d/b/a Phoenix Heliparts, Inc. (the “Cannons”), Motion to Dismiss all claims in Third Party Plaintiff Robert Reish's Third Party Complaint (“TPC”) (doc. 23) pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 43.) Specifically, the Cannons argue that Reish's claims are barred by the doctrine of res judicata, are inappropriate under Rule 14(a), and erroneously attempt to hold the Cannons individually liable for equitable indemnity and contribution where the underlying claims are not based in tort. (Id. at 1.) The Court will grant the Motion in part.

         I. Background.

         This third-party-litigation stems from the Azerbaijan Ministry of Defense's suit of Robert Reish over his alleged breach of a contract between them regarding the purchase and sale of a helicopter. (Doc. 1.) Defendant Reish asserts that his culpability in the underlying lawsuit, if any, can be properly attributed to the Cannons, and filed his TPC against the Cannons concurrently with his answer to AMOD's complaint. (Doc. 23.) With that posture of the parties in mind, the following facts are asserted in the TPC, and are taken as true for the purposes of this motion.

         A. Factual History as to Reish and PHP.

         On November 13, 2017, Reish filed an answer to AMOD's Complaint (doc. 1). (Doc. 23.) Included therein was Reish's TPC alleging claims against Darrin and Tina Cannon. (Id.) At the outset, the Court notes that Reish's TPC is not the model of clarity. Stated plainly, it is meandering, poorly formulated, difficult to read, and largely unintelligible for considerable portions of its factual allegations. That said, to the best of the Court's ability to interpret the TPC, Reish alleges the following facts.

         1. Agreements between Reish and PHP.

         In 2004, Reish heard about PHP as an entity, and was told to contact PHP on a possible future contract to refurbish a helicopter Reish had just purchased. (Doc. 23 at 38, ¶ 8.) Several years later, between 2011 and 2017, Reish entered into several agreements with PHP for various services, including the purchase, sale, or refurbishment of four separate helicopters. Specifically, Reish alleges the following agreements: (1) the purchase and refurbishment of Helicopter #600FF from PHP in 2011 (id., ¶¶ 14-16); (2) the purchase of Helicopter #0041FF from PHP in 2013-14 (id., ¶¶ 17-19, 24, 26, 28); (3) the purchase of Helicopter # 1170229D from PHP in 2014 (id., ¶¶ 22, 25, 26, 28); (4) the purchase of Helicopter #0175FF from PHP customer, Fedorchuck Leasing, LLC, in 2014 (id., ¶¶ 35, 36).

         2. The 41FF Sales Agreement.

         On February 13, 2014, PHP and Reish executed a contract for PHP to sell Reish a MD Helicopter, Model 369FF, Serial No. 0041FF (the “41FF”) for the “Base Project Price” of $1, 395, 000. The 41FF had previously been wrecked, and PHP needed to make significant repairs before it could deliver it to Reish in compliance with the 41FF sales agreement. (See doc. 43, ex. 2, at 18, ¶ 4 (the 41FF Sales Agreement, requiring that the 41FF be delivered “with all systems operational, a current Airworthiness Certificate, Flight records up to date, all mandatory Airworthiness Directives and Service Bulletins complied with.”)). Because of the pending necessary repairs, the total price in the February 13, 2014 41FF Sales Agreement was left as “TBD” (to be determined), and the delivery date was set as “seven months after Reish paid his deposit and after the parties had agreed upon the scope of work.” (Id., ¶ 9).

         PHP failed to complete the repairs on the 41FF, render it airworthy, or deliver it to Reish by the delivery deadline. (Doc. 23 at 38.) As late as September 2015, Reish was still pushing PHP to finish the 41FF so he could sell it to another party.

         3. The Ryuko Note.

         In April 2015, on behalf of PHP, Cannon contacted Reish and asked for a loan of $850, 000. (Doc. 23 at 50, ¶ 40.) Reish agreed to lend Cannon/PHP the money from his close corporation, Ryuko, Inc., in exchange for a discount note for $1, 275, 000. (Id., ¶ 41.) As part of the deal, PHP “would receive credit against this note for part of the purchase price of [the 41FF] and Serial Number #175FF.” (Id.) Reish and Cannon executed the installment note (the “Ryuko Note”) in favor of “Ryuko, Inc. Trustees Robert C. Reish and/or Kathleen A. Reish” calling for payment by PHP of $1, 275, 000 on or before April 1, 2016.

         On April 21, 2015, Ryuko wired $850, 000 to PHP in connection with the Ryuko Note. (Id.) Reish asserts that completion of the Ryuko Note and wiring of funds to PHP effected payment for the remaining balance owed on the 41FF. (Id., ¶ 42 (“Hence, with this $1, 275, 000.00 deal the two MD 530F Helicopters (serial number #0041FF . . . #0175FF . . .) and a third Hughes Helicopter [#1170229D] would . . . be fully paid.”); see also In re Phoenix Heliparts Inc., 2:16-ap-00331-DPC.

         4. PHP's Chapter 11 Filing.

         On September 18, 2015, PHP filed its chapter 11 bankruptcy case. See In re Phoenix Heliparts Inc., 15-bk-12003-DPC at Docket 1.[1] The bankruptcy filing was precipitated by a January 2015 state court judgment against PHP for $26 million and the state court's subsequent order requiring PHP to post a supersedeas appellate bond for $6, 765, 260.89. (Bankr. Doc. 1.) On October 22, 2015, the Court appointed Louis Mukai as chapter 11 Trustee for PHP. (Bankr. Doc. 108.)

         5. Sale of the 41FF from Reish to AMOD.

         Subsequent to the appointment of Mr. Mukai as PHP's chapter 11 Trustee in October 2015, Tina Cannon, without permission of the Trustee or the bankruptcy court, and on behalf of Reish, orchestrated the sale of the 41FF from Reish to AMOD. (Doc. 23 at 56, ¶ 53-54.) At that time, the 41FF's chain of title had become tangled, resulting in a need for Tina Cannon make numerous title transfers to facilitate the sale. Specifically, in November 2015, Cannon had to arrange for title to be transferred from the 41FF's prior owner, RotorMate, to PHP, and for an accompanying Wells Fargo lien on the 41FF to be released.[2] (Id.) Once that transfer was complete, Cannon completed documents purporting to transfer title of the 41FF from PHP to Reish and again from Reish to AMOD. (Id.)

         Reish “was unaware of any Chapter 11 Bankruptcy involving [PHP] until sometime in January 2016.” (Doc. 23 at 38.) At all times prior, “Reish was told by [Tina] Cannon that [PHP] had title and ownership of [the 41FF].” (Id.) On March 29, 2016, Reish filed a position paper with the bankruptcy court titled “Statement of Position of Robert & Kathrine Reish and Ryuko, Inc. Re: Post Petition/Post Trustee Appointment Sale of Reish/Ryuko Helicopters to ‘AMOD' by Tina Cannon.” (Doc. 43 at 3; Bankr. Doc. 356.) Therein, Reish argued that he maintained possession of the 41FF, and that it was not estate property at the time relief was ordered in the bankruptcy, or anytime thereafter. (Id.) On May 31, 2016, the bankruptcy court entered an order confirming the Trustee's First Amended Plan of Liquidation. (Bankr. Dkt. 482.)

         On July 11, 2016, Reish initiated an adversarial proceeding in the matter by filing a complaint against Trustee Louie Mukai “[t]o determine validity of Ownership Interest in [the 41FF].” See Reish v. Phoenix Heliparts Inc., 2:16-ap-00331-DPC at Docket 1 (Bankr. D. Ariz. July 11, 2016).[3] On February 9, 2017, the bankruptcy court held oral argument on the parties' cross motions for summary judgment in the adversarial proceeding. (APBankr. Doc. 35.) On May 4, 2017, the bankruptcy court issued its order granting the Trustee's motion for summary judgment seeking to avoid the transfer of the 41FF under § 549 of the bankruptcy code. (APBankr. Doc. 42.) As a result of that ruling, “[t]he bankruptcy Trustee now claims an interest in the sales proceeds that Reish received from AMOD because of the sale of [the 41FF], which the Trustee claims was estate property when sold.” (Doc. 23 at 42, ¶ 21.)

         Shortly after the bankruptcy court's May 4, 2017 order Reish filed an appeal, and on May 7, 2018, the Bankruptcy Appellate Panel of the Ninth Circuit granted him relief. In re Phoenix Heliparts Inc., 2018 WL 2107796 at *1 (B.A.P. 9th Cir. May 7, 2018). Specifically, the appellate court held that the lower court had applied the wrong legal standard, vacated the lower court's order, and remanded for further proceedings. See id.

         B. Underlying Litigation and Current Procedural Posture.

         On February 28, 2017, the Azerbaijan Ministry of Defense (AMOD) filed the underlying lawsuit against Robert Reish, alleging nine claims: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of warranty; (4) fraud and deceit; (5) intentional misrepresentation (6) concealment; (7) conversion; (8) violation of the Arizona Consumer Fraud Act; and (9) unjust enrichment. (Doc. 1; Doc. 26 (Amended Complaint).)

         In AMOD's Complaint, they allege the following facts. On November 11, 2015, AMOD and Reish entered into a “Helicopter Purchase Agreement” (the Agreement). (Doc. 26, ¶ 22.) The Agreement provided that AMOD would pay Reish $2, 322, 000.00 in exchange for a “one fully operational and test-flight ready 530F Helicopter serial number 00041FF.” (Id., ¶ 23.) In the Agreement, Reish made written representations regarding the helicopter, including that: “[t]he Helicopter will be delivered with all systems operational, Flight records up to date, all mandatory Federal Aviation Administration (‘FAA') Airworthiness Directives and Service Bulletins complied with. Helicopter to be delivered to SELLER at Phoenix Heliparts facility in Mesa, Arizona[, ]” and that “[t]he SELLER warrants that the title of the Helicopter will be free and clear of all encumbrances at the time of said delivery of the helicopter to the PURCHASER and that the FAA Bill of Sale conveying title is executed by a fully authorized person or persons.” (Id., ¶ 24 (citing Exhibit A, ¶¶ 4, 8).)

         AMOD asserts that, during preliminary negotiations for the helicopter purchase, Ms. Tina Cannon, President of Phoenix Heliparts, Inc., was identified to AMOD's Counsel as Reish's representative and agent in the negotiations. (Id., ¶¶ 14-15.) It is Ms. Cannon, in her capacity as Reish's Agent, whom AMOD alleges “mislead [AMOD] regarding Defendant Reish's intent and ability to fully perform under the Agreement.” (Id., Exh. C.) Specifically, AMOD asserts that “Defendant Reish, acting in his own capacity and/or by and through his agent Cannon, misled the [AMOD] to believe that he was the lawful owner of and held title to the MD530F helicopter that is the subject of this dispute.” (Doc. 1, ¶ 17.; Doc. 26, ¶¶ 62-65) AMOD asserts “on information and belief” that Reish “did not hold title to the aircraft shell and parts, ” and “the aircraft shell and parts have not been assembled into an airworthy aircraft in full compliance with all the terms and requirements of the Agreement between the parties.” (Doc. 26, ¶ 58.)

         Following the close of escrow, AMOD contacted Reish and Ms. Cannon on numerous occasions, both by phone and in writing, to notify Reish of his failure to comply with certain terms. (Id., ¶¶ 36-38.) On June 3, 2016, AMOD's Counsel sent a letter to Reish's Counsel offering to “waive any and all additional rights and remedies it was entitled to as a result of Defendant Reish's breach of the contract in exchange for the return of the [AMOD's] funds in the total amount of $2, 322, 000.00.” (Id., ¶ 37). Reish did not respond to AMOD's offer of settlement before the deadline expired. (Id.) On July 25, 2016, a formal Notice of Revocation of Acceptance was mailed by AMOD's Counsel to Reish's Counsel. (Id., ¶ 38.) Despite that, “[t]o date, Defendant Reish has not provided the ...


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