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Kamps, Inc. v. Mustang Aviation, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

December 20, 2018

KAMPS, INC., et al. Plaintiffs / Counter Defendants,
MUSTANG AVIATION, INC., Defendant / Counter Claimant.

          OPINION & ORDER

          Robert E. Wier, United States District Judge

         Mustang Aviation, Inc., moved to dismiss Counts 2, 3, and 4 of Plaintiffs' Complaint. DE #9 (Motion). Kamps, Inc., and Kamps Air, LLC (collectively, Kamps), moved to dismiss Mustang's Counterclaim. DE #11 (Motion). The matters are fully briefed, see DE ##10, 12, 16, 17, and ripe for consideration. For the following reasons, the Court GRANTS IN PART and DENIES IN PART Mustang's motion (DE #9) and wholly GRANTS Kamps's (DE #11). The Court dismisses Complaint Count 2 and the totality of the Counterclaim, but permits Complaint Counts 3 and 4 to proceed.


         This case arises from a disputed aircraft inspection. In late 2017 / early 2018, Kamps became interested in purchasing an aircraft for business purposes. DE #1, at ¶ 9. As part of the procurement process, Kamps engaged Mustang to conduct “a pre-purchase inspection” of a particular aircraft. See Id. at ¶¶ 10-18. Mustang ultimately did an inspection, invoiced Kamps $2, 258.04, and provided a “Pre-Purchase Examination Report.” Id. at ¶¶ 19-20. Kamps paid the bill, id. at ¶ 22, and “in reliance on” the Pre-Purchase Examination Report, bought the aircraft. Id. at ¶ 23. So far, so good.

         Kamps alleges, however, that after the purchase, “the Aircraft was examined, and it was discovered that there are more than one-hundred and thirty (130) Discrepancies on the Aircraft totaling approximately One Hundred Thousand Dollars ($100, 000) in parts and labor that should have been discovered during the course of any reasonable pre-purchase inspection.” DE #1, at ¶ 24. Kamps alleges that it “relied on Mustang's Pre-Purchase Examination Report and inspection in completing the purchase of the Aircraft at a price of $348, 000.00, ” and that had it “known about the Discrepancies, Kamps would not have proceeded with the purchase of the Aircraft at that price.” Id. at ¶¶ 27-28. Kamps also claims other damages-namely, that it “employ[ed] a local aircraft maintenance facility to repair the Aircraft to airworthy standards” and “charter[ed] another aircraft to fulfill pre-planned, scheduled company flights” during the time “the Aircraft [was] in maintenance.” Id. at ¶¶ 29-30.

         Based on these allegations, Kamps asserted four causes of action against Mustang: (1) breach of contract, (2) promissory estoppel, (3) fraud, and (4) negligent misrepresentation. Mustang seeks dismissal of Counts 2-4.[1]

         Under Fed.R.Civ.P. 12(b)(6), a party may seek dismissal based on an alleged “failure to state a claim upon which relief can be granted.” Faced with such a motion, the Court views the relevant assertions in the light most favorable to the non-moving party, accepts as true all well-pleaded factual allegations, and draws all reasonable inferences in the non-moving party's favor. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009) (citing Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007)); Brent v. Wayne Cnty. Dep't of Human Servs., 901 F.3d 656, 675-76 (6th Cir. 2018). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 127 S.Ct. at 1974). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw reasonable inferences that the defendant is liable for the misconduct alleged.” Id. A “formulaic recitation of the elements of a cause of action will not do.” Twombly, 127 S.Ct. at 1965. The Court need not accept the verity of legal conclusions. Id.

         First-promissory estoppel. Mustang's argument that promissory estoppel is unavailable in the presence “of an otherwise enforceable contract” is correct. See, e.g., Derby City Capital, LLC v. Trinity HR Servs., 949 F.Supp.2d 712, 729-30 (W.D. Ky. 2013) (collecting cases).[2] Kamps, noting Mustang's concessions on relevant contract topics, does not protest Count 2 dismissal. See DE #10, at 4. Accordingly, the Court dismisses Complaint Count 2.

         Second-fraud and negligent misrepresentation. Mustang seeks dismissal of Counts 3 and 4 based (solely) on application of the economic loss rule. DE #9-1, at 7-12. Kamps opposes. DE #10, at 5-9; see also DE #12, at 3-11.

         Kentucky's economic loss rule “prevents the commercial purchaser of a product from suing in tort to recover for economic losses arising from the malfunction of the product itself, recognizing that such damages must be recovered, if at all, pursuant to contract law.” Giddings & Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011). The “rule recognizes that economic losses, in essence, deprive the purchaser of the benefit of his bargain and that such losses are best addressed by the parties' contract and relevant provisions of Article 2 of the Uniform Commercial Code.” Id. at 738. “Three policies support applying the economic loss doctrine to commercial transactions: (1) it maintains the historical distinction between tort and contract law; (2) it protects parties' freedom to allocate economic risk by contract; and (3) it encourages the party best situated to assess the risk of economic loss, usually the purchaser, to assume, allocate, or insure against that risk.” Id. at 739 (quoting Mt. Lebanon Pers. Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)).

         The Court, on full consideration of the parties' arguments, joins the unanimous chorus of judicial voices forecasting that the Kentucky Supreme Court would not likely expand the economic loss rule to service contracts, as Kamps had with Mustang, for the reasons cogently stated in the cases cited below.

         Over thirteen years ago, the late Judge Heyburn reasoned:

Virtually every classic description of the economic loss rule pertains to and often limits its application to the sale of products. The cases make this distinction in order to preserve the distinction between the remedies available under the U.C.C. and those available in tort. Such a distinction would be immaterial here because the U.C.C. does not govern services. In the context of selling a product, the economic loss rule can limit its application to those circumstances in which the damage is solely to the product. Where services are involved, the rule could not be so easily or clearly limited. In addition, one providing a negligent service that damages related property appears to have breached a duty, rather than having breached a warranty. In such circumstances, the injured party has not suffered purely economic losses, but property damage recoverable in tort. All of these reasons suggest the conceptual difficulty of applying the economic loss rule to services.
None of the existing cases suggest that an expansion of the rule is likely. . . . This Court believes that it is on sound ground in predicting that Kentucky courts would apply the ...

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