This case came before the Court first, for hearing on May 27-29, 2008, on
Plaintiffs’ Motion for Preliminary Injunction [Doc. No. 24] and again, for a trial on
the merits on April 20-23, 2010. Having carefully considered the evidence
presented on behalf of Plaintiffs Mesa Air Group, Inc. (“Mesa”), and its wholly-
owned subsidiary, Freedom Airlines, Inc. “Freedom”) and Defendant Delta Air
Lines, Inc. (“Delta”), the credibility of the witnesses, the briefing of the parties
and the applicable law, the Court ORDERS and DECLARES (1) Delta is estopped
from terminating the Delta Connection Agreement based on the grounds set forth
in the March 28, 2008 termination letter; (2) the grounds proffered in Delta’s
termination letter are invalid; (3) the Contract remains in effect, subject to its
terms; (4) Delta’s conduct in attempting to terminate the Contract breached the
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implied and express duties of good faith and fair dealing; and (5) as a result of
Delta’s bad faith conduct, Plaintiffs are entitled to recover their attorneys fees and
claims for Breach of Contract and breach of the express and implied duty of good
faith. In support of its ruling, the Court makes the following findings of fact and
I. FINDINGS OF FACT
regional jet aircraft (the “Aircraft”) for Delta under the Delta name and airline
Freedom supplies the Aircraft, flight crews and other personnel and operates the
1
Mesa and Delta entered into "Amendment Number One" on March 13,
2007. (Third Am. Compl. ¶ 20; Answer ¶ 20.) (the Delta Connection Agreement,
together with Amendment Number One, is referred to herein as the "Contract").
Amendment Number One provided for the addition and removal of certain Aircraft
and addressed issues related to Delta's emergence from bankruptcy, but the
Contract terms relevant to this action were unchanged. (Id.)
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Hearing Transcript (hereinafter “Hr’g Tr.”)2 97:25; 98:1-5; Pls.’ Ex. 21)
the Contract; (2) a “Base Mark-up,” consisting of a 4% mark-up of Direct Costs for
any month in which Mesa achieves a “completion rate” of at least 95%; and
Direct Costs for any month in which Mesa achieves a designated monthly
incentive goal - generally a “completion rate” of 97% or more. (Pls.’ Ex. 21,
Art. 3; Hr’g Tr. 221:18-222:14.) The Contract provides Mesa with monthly
4. The Contract does not allow termination without cause or for the
the Contract early if Freedom “fails to maintain a completion rate of 95% during
any three months of any consecutive six month period ....” (Pls.’ Ex. 21, Art.
11.F(vi).) The Contract does not expressly define “completion rate.” (Pls. Ex. 21;
Hr’g Tr. 416:4-6.) Delta contends that Freedom’s completion rate was less than
2
Pursuant to the February 18, 2010 Stipulation between the Parties, all
evidence and testimony presented in connection with the May 27-29, 2008
Preliminary Injunction Hearing shall be considered part of the record for final
judgment. (Stipulation [# 133].)
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95% in October and December 2007, and February 2008, and Delta purported to
Contract. (Pls.’ Ex. 74.) This Amendment reflects the parties’ agreement
Agreement, including for purposes of calculating the completion rate”. (Pls.’ Ex.
74.)
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210:25; 545:16-546:24.)
or other air traffic control (“ATC”) restrictions, it is often not possible to fly all of
“coordination calls” with Freedom and other Delta Connection Carriers. (ld.
167:2-168:4; 545:21-546:10.)
8. During these calls, Delta asks its regional carriers, including Freedom,
called “mainline aircraft,” typically larger aircraft with more passengers) to operate
during times when not all scheduled flights can operate. (Id. 77:13-78:4;
173:3-10.)
or ATC event for which Delta is preparing. (Id. 545:24-546:10.) Delta’s objective
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those Coordinated Cancellations before they leave for the airport, and re-
10. Unlike Delta, Freedom has no incentive to and does not pre-cancel
Tyler, testified, “to the extent we were requested to cancel flights, we lose the
revenue associated with those flights.” (Id. 225:01-05.) Thus, when Freedom
typically waits until “about an hour and a half before its scheduled departure time.”
(Id. 176:9-17)
loses any chance to operate the flight, because even if Delta’s weather forecast
proves to be wrong and Freedom could have operated the flight at or near the
scheduled time, the passengers will all have been notified of the Coordinated
testified, “[t]his is not the FAA or ATC system telling us we can only fly so many
flights. This is Delta operations center calling us and asking us to reduce the
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Freedom did not agree to the Coordinated Cancellation, it could wait until close to
flights because only the aircraft certificate holder and the pilot may execute on the
decision not to fly. (Id. 184:10-15.) Nonetheless, Delta expected that its requests
expectation to Freedom and the other regional carriers from people in the field to
the highest levels of management. (Id. 162:13-17; 211 :01-06; 275:05-23; 358:14-
13. Recordings of the Delta OCC coordination calls bear this out. On one
call in December 2007, Delta’s James Ford said “there just can’t be any debate
about who runs the network, and it’s got to be the [Delta] OCC. And we need you
folks to follow the direction of the [Delta] OCC.” (Pls.’ Ex. 49; Hr’g Tr. 179:02-
24.) Mr. Ford reiterated this in an email reminding Freedom and the other Delta
regional carriers about the “REQUIREMENT to follow the lead of the [Delta]
OCC,” (Pls.’ Ex. 60) (all caps in original), and testified that Delta had an
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throughout Florida, with the base of its operations in Orlando. (Id. 69:12-16).
Freedom often posted a monthly completion rate greater than 99 percent, due to the
15. The Contract does not expressly address the method of accounting for
2007, and while its base of operations remained in Orlando, Freedom submitted
invoices to Delta based on a completion rate equal to the ratio of completed flights
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391:12-16.)
17. JFK is in one of the most congested air travel spaces in the world and
Moreover, because JFK is one of Delta’s largest hubs, with more than 400 flights
per day on average arriving from and departing to domestic and international
Cancellations much more frequent at JFK relative to Florida. (Ex. 53; Hr’g Tr.
83:19-85:7; 347:22.)
18. At its major hubs like JFK, when not all of the flights scheduled can
operate due to weather and other factors, Delta uses Coordinated Cancellations of
smaller regional jet flights like those operated by Freedom to make way for its own
smallest possible inconvenience for the smallest possible group of passengers. (Id.
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most [Delta Connection] flying and typically cancel[s] and/or delay[s] more
[regional jet] flights to allow bigger aircraft to be less delayed.” (Pls.’ Ex. 58; Hr’g
Tr. 271:22-273:07.) Delta’s CFO, Ed Bastian, testified that “when there are
planes are cancelled to allow the larger international jets to land and take off.”
57: 15-20.)
ERJ Aircraft to JFK, Mesa’s CEO, Jonathan Ornstein, raised the issue with then
4
For example, during October 2007, Coordinated Cancellations accounted
for 4.2 percent of Freedom's flights at JFK, even though Delta cancelled only 0.3
percent of its flights for ATC and weather reasons. In December 2007, Delta
cancelled 6.8 percent of Freedom's flights out of the JFK hub, even though Delta
cancelled only 2.9 percent of its own JFK flights for ATC and weather reasons. In
February 2008, Delta cancelled 5.2 percent of Freedom’s flights out of the JFK
hub, while cancelling only 1.9 percent of its own JFK flights for ATC and weather
reasons. (Pls.’ Ex. 53; Hr'g Tr. 83:19-84:20.)
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Delta COO Jim Whitehurst, sometime early in 2007. (Hr’g Tr. 73:17-74:18;
282:3-21.) Mr. Whitehurst assured Mr. Ornstein “we’re not trying to screw you
with the move,” and said words to the effect of” it’s not our intention to penalize
you for moving up to JFK. You know, that’s a decision that we decided to make,
and so we are happy to work with you on the terms.” (Id. 277:19-278:13; see also
Bates, discussed the issue of Coordinated Cancellations with Courtney Boyd, the
Delta manager responsible for the commercial relationship with Freedom. (Id.
(Id. 304:01-08.) Mr. Bates wanted an understanding with Ms. Boyd that when the
move to JFK took place, Coordinated Cancellations would not be counted against
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22. On February 6, 2007, Mr. Bates sent an email to Ms. Boyd “to recap
for agreement” a discussion they had the day before, stating that “when Delta
requests Freedom to cancel flights, those flights will be credited to Freedom for
23. Despite two follow-up emails from Mr. Bates. Ms. Boyd did not
respond and never rejected such an agreement. (Pls.’ Ex. 47; Hr’g Tr.
305:15¬306:1-7; 430:2-14.) She conceded that “it wasn’t a very high priority on
24. Mr. Bates met with Ms. Boyd in her office in late March or early
April 2007. (Id. 306:8-307:4.) He testified that Ms. Boyd agreed in that meeting
5
Plaintiffs additionally contend that, notwithstanding contractual language
providing that flights completed more than four hours late would be considered as
not completed, Mr. Bates reached an agreement with Ms. Boyd to the effect that
flights arriving four hours late but completed at Delta's request would be treated as
completed flights for the purpose of calculating Freedom’s completion rate under
the default provision of the Contract. Due to the agreement regarding Coordinated
Cancellations, the Court recognizes that such an agreement regarding flights flown
more than four hours late is unnecessary to find that Plaintiffs were not in default.
Nevertheless, the Court also finds that such an agreement existed and per its terms,
flights flown more than four hours late at Delta’s request are to be counted as
completed flights for purposes of calculating Freedom’s completion rate under
Article 11.F.(vi) of the Contract. (Hr’g. Tr. 308:21-25; 318:23-319:7; 339:23-
340:6; 344:10-18; Pls.’ Exs. 46, 47.)
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that Coordinated Cancellations would not count against Freedom’s completion rate
25. Mr. Bates did not put that agreement with Ms. Boyd in “writing
because he “had her word,” and had no reason to believe that he did not have an
agreement with Ms. Boyd. (Id. 307:17-24.) Nonetheless, Mr. Bates did refer to
26. In March or April of 2007, Mr. Bates reported to Mesa’s Mike Lotz
that he had reached an agreement with Ms. Boyd that Coordinated Cancellations
would not be held against Freedom in calculating completion rates, and that
27. In a July 13, 2007, email to Ms. Boyd, Wayne Aaron, a Delta
Connection Vice-President, Jim Ford, and others at Delta, Mr. Bates objected to
Mr. Bates told Delta that reporting all cancellations in the same field will “cloud
the commanded cancellations we get credit for on the commercial side,” per his
agreement with Ms. Boyd. (Pls.’ Ex. 45; Hr’g Tr. 309:6-311:22.)
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production (Pls.’ Ex. 45), this July 13, 2007 email was produced in this litigation in
an electronic .pdf format. (Pls.’ Exs. 78, 79.) One copy of this .pdf contains
Neither Plaintiffs nor Delta were able to locate or produce the original email string
in a native format. (Trial Tr. 149:19-21; Pls.’ Ex. 117 at 4.) Delta has alleged that
this email, when originally sent in 2007, may not have contained highlighted
[#142] at 12; Pls.’ Ex. 117 at 3-4.) Delta does not, however, dispute that other
portions of Mr. Bates’ July 13 query to Delta, Delta’s responses thereto, or the rest
Mr. Bates’ July 13, 2007 e-mail referencing “commanded cancellations.” In his
May 2008 deposition, Mr. Aaron, when asked whether he had heard of the term
“commanded cancellations,” stated that he had heard the term used by Mr. Bates in
an email asking whether Delta was going to automate operational tracking. (Aaron
Dep. [#60] 25:25-26:23; Pls.’ Ex. 132.) Mr. Aaron recalled the email and its
without being presented with the document. (Id.) He was not shown this email
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testimony. At that time, Mr. Aaron again confirmed his receipt, recollection—and
his reading—of this email, including the “critical language.” (Id. 68:19-69:13;
Id.)
30. Furthermore, Delta’s own computer forensics expert does not dispute
the time they were printed to .pdf format on July 24, 2007 (Pls.’ Ex. 78) and July
23, 2007 (Pls.’ Ex. 79), respectively. (Trial Tr. 153:8-16, 156:2-6, 157:3-8.)
Plaintiffs’ expert agreed. (Trial Tr. 263:14-19; Pls.’ Ex. 107.) Based on Mr.
Aaron’s unsolicited testimony regarding his receipt of the specific message from
Mr. Bates regarding commanded cancellations and the parties’ experts’ testimony,
this Court finds that the language at issue—that reporting all cancellations in the
same field will “cloud the commanded cancellations we get credit for on the
commercial side”—appeared in Mr. Bates’ email when it was sent on July 13,
2007.
31. Neither Ms. Boyd nor anyone else at Delta challenged or questioned
Mr. Bates’ assertion of the agreement. (Hr’g Tr. 312:2-22, 368:15-17; Aaron Dep.
[#60] 75:20-25; 76:1; 81:19-25; 82:1-2.) During this time, Delta was renegotiating
all of its Delta Connection agreements as part of its bankruptcy and Ms. Boyd was
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Although Ms. Boyd conceded that she “should have come back and communicated
a little more with [Mr. Bates] about this,” it “just unfortunately wasn’t a very high
32. The Court finds that the testimony of Jorn Bates regarding the
other evidence, including the July 13, 2007 e-mail. The Court acknowledges Ms.
Boyd’s testimony that she never reached an agreement with Mr. Bates, (id. 396:11-
16), but the Court does not find Ms. Boyd’s testimony on this point to be credible.
(Id. 631:1-8.)
credibility or the express agreement between Mr. Bates and Ms. Boyd, the Court
finds that Delta knew or reasonably should have known of Freedom’s practice of
rate, but failed to inform Freedom that Delta considered this practice to be contrary
to the Contract. (Id. 631:9-14.) The result was that Freedom cancelled hundreds
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of flights at Delta’s request, and for Delta’s benefit, which Delta then used as a
(Id. 224:15-20.) In the seven months between September 2007 through March
2008, Delta directed Freedom to cancel more than 400 flights. (Mesa’s Resp. to
Delta’s Interrog. No. 10.) In the three months during which Delta now claims
Freedom fell below a 95% completion rate (October 2007, December 2007 and
out of Orlando. (Pls.’ Brief in Support of Prelim. Inj. [#24] at 9; Pls.’ Ex. 53 at 3.)
both a daily and monthly basis. (Pls.’ Ex. 1-13, 16; Hr’g Tr. 80:11-81:02; 152:5-
cancellations. (Hr’g Tr. 213:21-215:01; 449:6-17.) Likewise, Jorn Bates’ July 13,
2007 e-mail to Delta plainly identified the issue of “commanded cancellations” for
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36. With the shift of flying to JFK, for the first time Coordinated
Ex. 44; Hr’g Tr. 261:12-18; 313:09-17.) Freedom’s invoice for September 2007
(Pls.’ Ex. 14, 44; Hr’g Tr. 224: 15-227:9; 241:25-242:04; 312:23-25; 313: 1-21.)
Freedom did not attempt to hide the basis of the calculation or mislead Delta on
37. For example, in a December 21, 2007 e-mail, Freedom’s Bud Tyler
informed Delta’s Hemang Patel and his superior, Chris Higgins – Freedom’s
primary points of contact at Delta regarding billing issues – that the September
2007 invoice took credit for Coordinated Cancellations, based on “the proviso that
these flights would not count against our completion factor.” (Pls.’ Exs. 14, 40;
38. From Mr. Tyler’s email, Mr. Higgins acknowledged that Delta was
aware of Freedom’s position that it could take credit for Coordinated Cancellations
address Mr. Tyler’s explanation of completion factor, testifying: “it should have
been looked into and responded to. . . . I should have done more with that email.”
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(Hr’g Tr. 353:13-354:21; see also H. Patel 5/20/08 Dep. [#58] (“Patel I”) 53:10-25;
39. Neither Mr. Patel nor Mr. Higgins ever responded to Mr. Tyler.
about its method of invoicing for September 2007. (Id.) Delta’s only response
was to pay Freedom – based on the completion rate calculation as reported and
explained by Freedom. (Pls.’ Ex. 40; Hr’g Tr. 228:24-229:23; 353:2; 455:14-24.)
40. Freedom submitted its invoice for October 2007 flying in late
December 2007, and its invoice for November 2007 flying in January 2008. As
Exs. 15, 16; Hr’g Tr. 230:07-232:19; 233:14-21; 455:14-456:11.) As before, Delta
voiced no objection, did nothing to alert Freedom that it disagreed with Freedom’s
calculation of completion rate, and paid Freedom based on the completion rates
11.) Delta credited Freedom for the November invoice in February 2008.
41. Freedom submitted its invoice for December 2007 flying in February
2008. It too gave Freedom credit for Coordinated Cancellations. (Pls.’ Ex. 17;
Hr’g Tr. 233:25-234:19.) On March 4, 2008, Mr. Patel e-mailed Mr. Tyler,
indicating for the first time that Delta’s calculation of completion rate differed
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42. Delta had its own data available to verify the completion rate and
flight departure and arrival data provided by Freedom. (Hr’g Tr. 456:18-457:14.)
Delta sets Freedom’s schedule and therefore knows how many flights Freedom is
to fly in any month. (Trial Tr. 123:12-16) Delta knows when one of its flights is
completed; it knows when those flights take off and when they land. (Trial Tr.
with Delta (not Freedom or Mesa employees) enter the departure time and arrival
time into Delta’s computer system. (Id.) Additionally, Freedom reported a variety
of data to Delta on a monthly and daily basis. (Pls.’ Ex. 1-13, 16, 89; Hr’g Tr.
129:4-21.) Among other information, every day Freedom reported scheduled and
actual arrival times for each flight flown that day and every prior day that month.
(Trial Tr. 129:4-21; Pls.’ Ex. 89.) With access to all of this information, Delta
raised questions when it could not verify or reconcile Freedom’s invoices with its
own records on other issues. (Hr’g Tr. 238:12-240:17; Pls.' Ex. 39 (questioning a
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hundreds of Freedom’s flights was for Delta’s benefit, and for the benefit of
Interrog. No. 10). Delta requested that Mesa cooperate with Delta’s requests to
cancel these flights in order to promote the orderly operation of Delta’s network in
cooperated with these requests. (Hr’g Tr. 88:17-89:8; Mesa’s Resp. to Delta’s
Interrog. No. 10; Pls.’ Ex. 64) In fact, when Delta relocated much of Mesa’s flying
to JFK in the late summer and early fall of 2007 where Coordinated Cancellations
were much more prevalent, it did so contemporaneous with the express assurance
by Delta’s then-Chief Operating Officer that that Mesa would not be “penalize[d]”
by moving to JFK. (Hr'g. Tr. 277:19-278:13; see also id. 73:17-74:11; 282:22-
283:6.)
44. Delta knew that Freedom believed it could take credit for Coordinated
Cancellations in the calculation of its completion rate. (See Plaintiffs’ Ex. 63;
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partnership with Delta. But Delta failed to inform Freedom that Delta considered
fact that, as early as December 2007, Delta was looking into Freedom’s completion
rate to determine if grounds for default existed. (Hr’g. Tr. 449: 22-450:2; 450:16-
45. Rather, Delta did not disclose this information until well after flying
in October and December 2007 had concluded, and well into the month of
February, 2008. (Def.’s Ex. 31.) Simply put, Delta did nothing to put Freedom on
notice that there would be “no forgiveness” for Mesa’s agreement to accept Delta’s
Coordinated Cancellations until a meeting that took place on or about February 21,
2008 (Id.), when it was too late for Freedom to exercise its Contractual right to
46. Delta has proffered no explanation for its failure to inform Freedom
that Delta disagreed with its calculation of completion rate. Numerous Delta
witnesses testified that when faced with an opportunity to alert Mesa to Delta’s
disagreement with this practice, Delta simply did nothing. For instance, Courtney
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Boyd failed to respond to two e-mails from Jorn Bates in February 2007. (Pls.' Ex.
Courtney Boyd (former Director of Delta Connection) and James Ford (former
of an e-mail from Jorn Bates alerting them to the extent to which a reporting
change would “cloud the issue of commanded cancellations”, but none of these
Delta Connection executives made any attempt to correct or even follow up on Mr.
Bates’ comment. (Aaron Dep. [#60] 26:4-23; 73:5-75:19; Hr’g Tr. 366:22-368:14;
Associate – Delta Connection Finance) and Chris Higgins (then a Manager – Delta
Connection) both received from Mesa’s Bud Tyler an e-mail that explained that
Mesa’s September completion rate counted as completed flights those that were
cancelled at the request of Delta. Yet, neither responded to Mr. Tyler or even
forwarded the e-mail to Ms. Boyd. (Patel I 52:25-53:25; 59:1-59:25; Higgins Dep.
47. Once more in February 2008, Mr. Bates wrote to Ms. Boyd regarding
Cancellations. Ms. Boyd failed to respond at all, this time because she was
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instructed by her superiors not to. (Hr’g Tr. 314:25-315:6; 439:22-441:5.) In this
way, Delta induced Mesa to cooperate with Delta’s requests to cancel Freedom
flights, and benefited form Freedom’s cancellations, but Delta repeatedly failed to
note its disagreement with Freedom’s accounting for those flights in its completion
percentage.
48. Delta likewise had all of the information it needed to determine the
number of Freedom’s flights that arrived more than four hours late and the number
of flights flown with zero passengers. (Trial Tr. 129:4-21; 191:10-192:17; 293:7-
49. Yet Delta did nothing to put Freedom on notice that it disagreed with
Freedom’s crediting of these flights in its calculation of completion rate until even
later – March 28, 2008. (Hr'g. Tr. 446:18-24; 457:12-458-13; 459:15-23; 578:5-
11; Pls.' Ex. 48.) Delta did not honor its contractual obligation to discuss with
Mesa any concerns about performance under the Contract (Pls.’ Ex. 21, Art. 10.B.)
Instead, Delta capitalized on its own failure to raise the issue previously, and
flights flown more than four hours late, and flights flown with zero revenue
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regional jet capacity. (Pls.’ Ex. 56 at 3.) The plan singled out the Mesa ERJ
Agreement for cancellation. (Id.) These documents show that as late as March
2008, Delta sought to cancel the Mesa Contract but even then believed that
buy out the Mesa contract, and when negotiations proved unsuccessful (Hr'g. Tr.
536:11-537:4; 585:18-586:11), Delta, for the first time, took the position that as a
four hours late and those flown with zero revenue passengers, that Freedom had
missed the 95% completion requirement in three out of six months and purported
to terminate the Contract. (Pls.’ Ex. 48, Delta’s Resp. to Req. for Admission, No.
51. Delta gave notice of terminating the Contract on this basis, even
though in both January 2008 and March 2008, Delta had informed Freedom that its
performance under the Contract had been “excellent” and that it should expect
“increased flying at JFK by summer.” (Pls.’ Ex. 66; Hr'g. Tr. 463:15-464:15.)
conduct of Delta to believe that its method of calculating completion rate during
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the three months at question (October and December 2007, and February 2008)
was acceptable to Delta. Moreover, Mesa’s Mike Lotz testified that had Freedom
been aware that Coordinated Cancellations were going to count against Freedom in
stopped cooperating with Delta and we would not have taken those requested
cancellations. We would have told Delta no, we would not do it.” (Hr’g Tr. 88:07-
16.) The evidence shows that had Freedom not honored Delta’s requests for
flights. (See Pls.’ Ex. 53 at 4, showing that in October 2007, for example,
flights), while Delta cancelled only 8 flights (0.3%) of its flights due to
Ms. Boyd was reasonable for the additional reason that the parties had previously
acted upon agreements and modifications to the Contract that were not reduced to
shall be effective unless it is in a signed writing. (Pls.’ Ex. 21, Art. 23.) The Court
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finds, however, that on several occasions unrelated to the present dispute, Delta
agreed without signed writings to modify the Contract, and to perform in ways
55. For example, Article 3.J. details procedures for annual adjustments to
the rates paid by Delta to Freedom for Base Compensation. (Pls.’ Ex. 21, Art. 3.J.;
Hr’g Tr. 406:13-18.) In late 2005, however, Freedom agreed verbally to freeze its
rates for 2006 rather than revise them through the process set forth in the Contract.
Delta accepted the benefits of this verbal agreement without a signed writing.
rates for 2007 in an amount equal to the annual change to the consumer price index
(CPI), rather than the method provided for by the Contract. (Id. 406:19-407:25.)
Delta accepted the benefits of this verbal agreement without a signed writing. (Id.
409:1-6.)
57. In 2008, the parties again adjusted the Base Compensation rates
pegged to CPI, simply by extending their past practice, and without a signed
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nothing more than verbal agreements and conduct to depart from the Contract’s
two of the Aircraft from the Contract early, before the time set by the Contract’s
terms. Although the parties contemplated a signed agreement, Freedom acted upon
this agreement, reached through discussion and emails, and removed the Aircraft
agreement without a signed writing, and through the date of the preliminary
depart from the Contract terms makes all the more reasonable Freedom’s reliance
settlement of Freedom’s invoices, “it was reasonable for Freedom to think that
Delta agreed with [Freedom’s completion rate] calculation method”. (Trial Tr.
313:18-314:7.)
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Bornhorst told Mesa’s Jonathan Ornstein, Mike Lotz and Jorn Bates that Delta
would not credit Freedom for Coordinated Cancellations, and that if it had done so
the call, Mr. Bates e-mailed Ms. Boyd, describing their agreement that “any
purposes and not operational performance goals.” (Pls.’ Ex. 43; Hr’g Tr. 314:12-
24.) At the direction of her superior, Mr. Bornhorst, Ms. Boyd did not respond to
this e-mail or in any way indicate to Mr. Bates that there was no such agreement.
61. On about March 14, 2008, Delta senior management met to discuss an
Contract Carriers.” (Pls.’ Ex. 56; Hr’g Tr. 447:10-20.) Under a heading called
“Action Plan – Contract Carriers,” the document states: “Financial savings from
plan was consistent with a strategy upon which Delta had embarked upon, in
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response to rising fuel prices, to reduce the regional jet capacity in Delta’s fleet.
Edward Bastian, Delta’s Vice President and Chief Financial Officer said, “we have
too many 50-seat jets.” (Bastian Dep. [#61] 12:8-13; Pls.’ Ex. 55.) Delta made
reduction of regional jet capacity a priority. (Bastian Dep. [#61] 9:19-23; 24:24-
62. The “Reduction Strategy Briefing” further states, under the “Action
enforce exit provisions in contracts: Freedom (Mesa) only true opportunity (on 1st
of 3 strikes).” (Pls.’ Ex. 56, page 3) (emphasis added.) There was no dispute that
Freedom’s completion rate for February 2008 was less than 95%, even with credit
for Coordinated Cancellations. Thus it appears that, as late as March 14, 2008,
even Delta believed that Freedom was not in default for the months of October and
completion rates back to at least October 2007. Delta found that it could show
completion rates less that 95% for October and December 2007, as well as
February 2008. Delta, however, did not share this belief or its recalculations with
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64. Instead, in late March, 2008, Delta’s Don Bornhorst called Mesa’s
CEO, Jonathan Ornstein, to discuss a possible buyout of the Contract. (Id. 585:07-
586:11.) Mr. Ornstein said he was open to discussion, but that given the disruption
to Mesa and Freedom that would result from early termination, the price would
likely be too high for Delta. (Id. 585:07-586:11; Bornhorst Dep. [#56] 176:10-
183:22.) Shortly after, Delta sent its purported termination letter to Freedom, on
65. The sole reason for termination given in the Termination Letter was
that Freedom had dropped below a completion rate of 95% in October and
December 2007 and February 2008, and had thus allegedly defaulted on the
communicated to Freedom that its completion rate had fallen below 95% for any
three months during any consecutive six month period. (See Pls.’ Ex. 48, Delta’s
Resp. to Request for Admission, No. 52.) Prior to March 28th, no one at Delta
ever suggested that Freedom was at risk for default. (Hr’g Tr. 313:22-25;
314:1¬11.) To the contrary, in late January 2008, Mr. Bornhorst had told Mr.
Ornstein that Freedom’s recent operational performance under the Contract and
customer satisfaction scores had been excellent. (Pls.’ Ex. 42; Hr’g Tr. 283:14-
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284:23; 581:8-17.) As late as March 20, 2008, just eight days prior to the
Termination Letter, Delta’s Courtney Boyd e-mailed the Mesa and Freedom Chief
Operating Officers stating that Freedom should expect “increased flying at JFK by
67. Freedom thus relied both on its understanding that there was an
agreement with Delta and on the belief that Delta would not hold against Freedom
the actions taken in conformity with Delta’s requests -- actions intended to show
good partnership with the mainline carrier. (Hr’g Tr. 88:17-89:01.) Freedom
would not have accepted Delta’s Coordinated Cancellation requests if it had known
that Delta could then use Freedom’s cooperation as grounds to terminate the
prepared papers necessary to file bankruptcy (id. 117:3-18). Mesa’s President and
Chief Financial Officer testified that if Mesa had been unable to secure an
injunction, Mesa’s bankruptcy filing was imminent. (Id. 115:18-116: 13; 9:10.)
J. Plaintiffs’ Damages
69. Plaintiffs have incurred and are seeking to recover certain expenses
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terminating the Contract. (Third Am. Compl. ¶¶ 104-105.) These expenses consist
of fees and expenses provided by: Jones Day, Trial Exhibits, Inc., Grant Thornton,
Seabury Group, and Cadwalader Wickersham & Taft. (Trial Tr. 42:14-43:5;
33221-25.)
70. The parties have stipulated that Plaintiffs’ expenses related to Trial
Exhibits, Inc. for trial presentation assistance for the preliminary injunction hearing
in the amount of $11,284.70 were necessary and reasonable in given the nature of
the engagement and the locality in which the work was performed. (Stipulation
71. The parties have also stipulated, and this Court agrees, that the fees set
forth in the Jones Day billing statements produced in this litigation constitute fees
and expenses incurred in this case, and that the hourly rates are reasonable given
the nature of the engagement and the locality in which the services were provided.
$1,813,108.68 in fees and expenses for the work performed by Jones Day on this
matter. A majority of the work for this matter was performed by a core group of
lawyers, four of whom have worked on this matter since the beginning through the
present (Trial Tr. 93:1-7; Pls.’ Ex. 80); three whose involvement was concentrated
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towards the preliminary injunction (Trial Tr. 93:19-94:20; Pls.’ Ex. 80); and two
who were recently added to the team. (Trial Tr. 94:21-95:10, Pls.’ Ex. 80) This
team of attorneys spent 3,539.15 hours on the matter, generating fees in the amount
of $1,374,215.00. (Trial Tr. 93:1-95:10; Def.’s Ex. 151; Pls.’ Ex. 80.) Based on
the difficult and protracted nature of this litigation, (Trial Tr. 86:6-12) the work
descriptions provided in Jones Day’s billing statements, and the testimony of Mr.
Garrett, the Court finds that the tasks performed and hours billed by these attorneys
related to the review and production of documents in this matter. Jones Day
production, reviewed much more) in approximately six weeks. (Trial Tr. 89:13-18,
91: 2-10; Def.’s Ex. 151.) This work constituted approximately 861 hours and
$226,505 in fees. (Trial Tr. 88:22-24, Pls.’ Ex. 80, Def.’s Ex. 151.) The Court
finds that, based on the complex nature of the litigation and the volume of
documents produced on the expedited basis, that the work performed by this group
of individuals was necessary and the number of hours spent in completing this
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causing Plaintiffs to incur fees and expenses related to that appeal. In addition to
the core members of the litigation team, Jones Day utilized two members of its
Issues and Appeals practice to help defend against Delta’s appeal of the
preliminary injunction. (Trial. Tr. 90:18-91:1, 91:16-92:24; Pls.’ Ex. 80.) These
attorneys billed a total of 51.50 hours on the matter, for a total of $18,087.50.
(Trial Tr. 90:18-91:1, Def.’s Ex. 151.) Based on the nature of the appeal and the
billing descriptions of these attorneys the Court finds that the work performed and
hours billed by the Issues and Appeals attorneys were necessary and reasonable.
issues by members of Jones Day’s restructuring and airline practices. (Trial Tr. 89:
19-90:9.) The fees billed by these attorneys total $28,937.50. (Id.; Def.’s Ex. 151;
Pls.’ Ex. 80.) A separate group of attorneys performed various discrete tasks on the
matter, for a total number of 46.50 hours and $14,475.00 billed. (Def.’s Ex. 151,
Pls.’ Ex. 80.) Based on the testimony provided by Mr. Garrett and the billing
descriptions submitted by these attorneys, the Court finds that the tasks performed
and hours billed for performing this work to be necessary and reasonable.
76. The remainder of the time billed to this matter consists of 336.9 hours
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Ex. 151, Pls.’ Ex. 80.) Based on the nature of the case and the billing descriptions
submitted, the Court finds that the tasks performed and hours billed by the
expenses related to Jones Day is expenses totaling $85,496.43. (Trial Tr. 95:16-
18; Pls.’ Ex. 80.) Based on a review of the invoices submitted and the complex
nature of the litigation, the over two-year duration of the matter and the testimony
provided at trial, the Court finds that these expenses were reasonable and
necessary.
Anderson Dep. [#170] 13:15-14:1; Pls.’ Ex. 130). Grant Thornton collected over
860 gigabytes of data from Plaintiffs (Trial Tr. 88:22-24) and assisted in the
performed this task over a period of six weeks. (Anderson Dep. [#170] 14:21-
15:14; Pls.’ Ex. 130.) This time period was significantly shorter than is customary
for this type of engagement. (Id.) Grant Thornton billed Plaintiffs on an hourly
basis. (Anderson Dep. 28:18-19; Pls.’ Ex. 81, 130.) Before Grant Thornton
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time charged for work performed for Plaintiffs. (Anderson Dep. [#170] 19:5-20:3;
Pls.’ Ex. 30.) The amounts invoiced to, and paid by, Plaintiffs reflect the reduced
charges. (Id.) Based on a review of the invoices and the testimony of the project
supervisor, Douglas Anderson, the Court finds that the services performed by
Grant Thornton were necessary to the prosecution of Plaintiffs claims in this matter
and the hourly rates charged by Grant Thornton are reasonable given the nature of
the engagement and the locality in which the services were provided. The Court
further finds that the total fees and expenses charged for those services, $79,099.15
to be reasonable.
(Hr’g. Tr. 116:22-118:12.) But for Delta’s attempted termination of the Contract,
Mesa would not have hired Seabury. (Trial Tr. 47:21-23.) Mesa retained Seabury
within weeks after receiving Delta’s termination letter. (Trial Tr. 45:21-24.)
Before retaining Seabury, Mesa spoke to several other firms, but ultimately
retained Seabury due to the its expertise regarding the airline industry and aircraft
80. The work performed by Seabury for Mesa can be divided into three
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[#169] 16:11-19; Trial Tr. 46:20-47:20, Pls.’ Ex. 131.) Plaintiffs are only seeking
to recover for costs and fees related to the restructuring and cash management
work. (Trial Tr. 47:24-48:7.) These costs and fees total $413,508 and consist of
$112,500 in fees from the May 6, 2008 invoice (Seabury Dep. [#169] 32:9-12;
Pls.’ Exs. 82; 131); $252,113 in fees and $39,295 in costs from a May 31, 2008
invoice (Seabury Dep. [#169] 43:4-8; 44:7-11;47:5-16; Pls.’ Exs. 82, 131), and
81. The $112,500 in fees invoiced on May 6, 2008 were incurred as part
Mesa’s businesses and prospects; assisted in the development of the Mesa’s long-
term business plan and related financial projections; assisted in the development of
creditors and other third parties; analyzed the company’s financial liquidity and
capacity and alternative capital structures. (Seabury Dep. [#169] 39:13-17, 40:3-
82. The $291,408 invoiced on May 31, 2008, consists of $252,113 in fees
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(Seabury Dep. [#169] 43:4-8, 13-24; 44:7-11; 47:5-16; Pls.’ Exs. 82; 131.) As part
planning, training and managing a vendor control program, which would assist
to improve Mesa’s liquidity and maintain its cash. (Seabury Dep. [#169] 45:11-13,
restructuring and cash management services are reasonable and customary for
these types of services in the regions in which these services were performed.
Pls.’ Exs. 82, 131.) Based on a review of the invoices submitted (Pls.’ Ex. 82) and
the testimony of Mr. Lotz and Seabury Group, the Court finds that the work
Mesa’s potential bankruptcy in 2008. The Court further finds that the total
amount charged and the total amount sought to be recovered by Plaintiffs for the
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prepare Mesa’s initial motions for its potential bankruptcy and to provide related
jurisdiction in which Mesa should file bankruptcy and ways in which Mesa could
(Id. 43:17-44:6.) Plaintiffs are seeking to recover $500,000 in fees and expenses
related to the work performed by Cadwalader. (Id. 44:12-45:2; Pls.’ Ex. 84.) But
for Delta’s attempted termination of the Contract, Mesa would not have engaged
the services of Cadawalader and would not have incurred the fees and expenses
6
The parties have agreed that the Record will remain open for the
submission of evidence regarding (1) Jones Day invoices for March and April,
2010 in addition to its fees and expenses related to the drafting and submission of
Plaintiffs’ proposed Findings of Fact and Conclusions of Law in May, 2010; (2)
the reduction of Jones Day fees and expenses related to Delta’s Partial Motion to
Dismiss; (3) fees and expenses of Trial Exhibits, Inc. related to work performed in
relation to the April 2010 Trial, and (4) evidence regarding fees and expenses from
Cadwalader, including the deposition of a Cadwalader representative.
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K. Delta’s Counterclaim.
85. In its counterclaim, Delta seeks to recover amounts it claims were
billed by Freedom to Delta “in error.”7 (Delta's Resp. to Mesa's Second Interrog.
No. 1, Pls.’ Ex. 115; Trial Tr. 118:23-119:5; 119:17-120:7.) Specifically Delta
seeks to recover amounts paid for the 4% base markup in flying in June 2007
($607,855) and December 2007 ($586,988). Delta is also seeking recover the 1%
($146,747). (Id.)
86. The evidence in the record shows, however, that prior to filing its
counterclaim Delta took some amounts it is now seeking to recover. On March 17,
2008, Mr. Patel withheld a total of $293,300.53 from Delta’s payment to Freedom
as a setoff for amounts Delta previously paid to Freedom for the 1% incentive
markup in September and December 2007. (Pls.’ Ex. 67; Patel 4/18/10 Dep.
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95% needed to earn the 4% base markup in October and December 2007. (Pls.’
Ex. 54; Joint Stipulation Regarding Certain Facts [#168] (“Joint Stipulation”)
¶¶ 8(d), 9(f).) This is true even if flights flown more than four hours late and
flights flown with no passengers are not counted as completed flights. (Id.)
counterclaim, the parties have entered into a stipulation regarding certain facts.
completed flights for flying in the month of August 2007, Freedom achieved a
Delta’s handling and payment of Freedom’s invoices, payments it now claims were
erroneous. Under the terms of the Contract, Delta was to perform an internal
reconciliation before issuing a payment or credit. (Pls.’ Ex. 39-41; Hr’g Tr.
performance.]” (Pls.’ Ex. 21, Art. 3.H.). During the months at issue, Hemang Patel
was the person Delta empowered to process Freedom’s invoices (Patel I 5:06-7:04;
Trial Tr. 292:9-12) and Chris Higgins was the commercial team’s counterpart who
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had the same oversight responsibilities regarding invoices as did Mr. Patel. (Trial
Tr. 292:13-16). Mr. Higgins directly succeeded Anthony Canitano in that position.
Freedom’s data matched Delta’s”, to “run discrepancies to ground”, and not “to
assume that all of Freedom’s data was correct”. (Trial Tr. 294:15-24.) If Mr. Patel
understand the explanation for it, “basic due diligence required following up until
90. In spite of these requirements, Delta was far from diligent in its
markups. Although Mr. Patel did not know or understand the source of Freedom’s
completion rate, he did not ask anyone at Delta or anyone at Freedom. (Patel II
24:13-25:7.) He simply did not follow up. When Mr. Patel supposedly did not
understand what Freedom’s Mr. Tyler meant in his December 21, 2007 email
regarding “the proviso that [Coordinated Cancellations] would not count against
[Freedom’s] completion factor” he did not ask Mr. Tyler what he meant (id.; Patel
I 60:13-60:24) and he did not ask Mr. Higgins or Ms. Boyd about such a “proviso”
(Patel I 59:1-59:25; 76:08-76:16.) According to Ms. Boyd, Mr. Patel (and Mr.
Higgins) “should have run it by [her] to ask if [she] knew anything about this.”
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(Trial Tr. 295:8-14.) All he did, however, was process and settle the invoice.
91. Mr. Higgins was copied on the December 21 email from Mr. Tyler,
but he failed to question or respond in any way to Mr. Tyler or Mr. Patel or to even
forward the email to Ms. Boyd, who he thought was the more appropriate person to
He was too busy with other projects on December 21 to review Mr. Tyler’s email
carefully or to take any action on it. (Id. 188:11-18.) There was no reason,
however, that Mr. Higgins could not have followed up later. (Id. 296:5-7.)
92. In short, Delta’s controls were “very sloppy, at best” and, as further
described by Ms. Boyd, “unacceptable”. (Trial Tr. 297:4-6.) Though Delta was
obligated by the Contract and indeed the idea of good business practices to perform
discrepancies (see paragraph 89, supra) what Delta in fact did was to “routinely
contract without ever seeing if its own data on completion factors matched what
was being reported by Freedom”. (Hr’g. Tr. 577:9-15; Trial Tr. 121:24-122:4.)
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found in paragraph 42, supra, Freedom sent Delta its flying statistics every day.
Additionally, Delta had the ability to, and did, track the scheduled and actual
departure and arrival times of its flights flown by Freedom, the number of
passengers on those flights. Furthermore, Delta knew when one of its flights was
cancelled and did not fly. Delta simply chose not to use this information when
before paying Freedom’s invoices. Delta “had the information” but chose not to
94. Even more telling, however, is that when it was important to Delta,
Delta made use of this information. Shortly after the February 28, 2008 call
among Mr. Bornhorst, Mr. Ornstein and Mr. Bates, both Mr. Bornhorst and Ms.
Boyd reviewed Freedom’s invoices and compared the submitted completion rate
with that in Delta’s records and were able to identified that those numbers did
95. Also, in December 2007, Delta, as part of its business plan to reduce
its regional jet capacity, began to investigate Freedom’s completion rate. (Hr'g. Tr.
flight data. (Hr'g. Tr. 451:16-452:10.) Though Delta claims that its own data
regarding flights flown more than four hours late is “not very accurate” (Trial Tr.
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305:3), Delta was able to make the comparison requested of Ms. Bennett by using
data Freedom was reporting directly to Delta. (Hr'g. Tr. 402:6-403:4; 532:25-
534:4.)
have established that Delta should be equitably estopped from terminating the
interpreted in accordance with, the laws of the State of New York, excluding
conflicts of laws principles . . . .” (Pls.’ Ex. 21, Art. 20.A.) Defendants have set
forth no basis for disturbing this conclusion of this Court in its Order granting
Plaintiffs’ Motion for Preliminary Injunction ([#24]) or the Eleventh Circuit Court
of Appeals’ affirmance of this point. See Nassau Trust Co. v. Montrose Concrete
Prods. Corp., 436 N.E.2d 1265, 1269, 56 N.Y.2d 175, 184 (1982); Mesa Air Group
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98. Under New York law, the elements of estoppel are (1) a false
See Nassau Trust Co. v. Montrose Concrete Prods. Corp., 436 N.E.2d 1265, 1269
(N.Y. 1982) and Mesa Air Group et al., 573 F.3d. at 1129.
99. New York’s doctrine of equitable estoppel “prevents one party from
enforcing rights which would result in a fraud or injustice upon a second party
who, in justifiable reliance upon the former parties’ words or conduct, had been
misled into acting upon the belief that such enforcement would not be sought.”
Travellers Int’l AG v. Trans World Airlines, Inc., 722 F. Supp. 1087, 1098
(S.D.N.Y. 1989) (citing Nassau Trust Co., 436 N.E.2d at 1269, 56 N.Y.2d at 184)
100. "An estoppel rests upon the word or deed of one party upon which
another rightfully relies and so relying changes his position to his injury.” Nassau
Trust, 436 N.E.2d at 1269, 56 N.Y.2d at 184 (internal quotation omitted). “An
estoppel defense may also be invoked where the failure to promptly assert a right
that right.” John Robert P. v. Vito C., 804 N.Y.S.2d 802, 804, 23 A.D.3d 659, 661
(App. Div. 2005); see also Ashland Window & Housecleaning Co. v. Metro. Cas.
Ins. Co. of New York, 53 N.Y.S.2d 677, 680, 269 A.D. 31, 35 (App. Div. 1945)
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101. Under New York law, words or conduct may give rise to estoppel.
Nassau Trust, 436 N.E.2d at 1269, 56 N.Y.2d at 184; Mesa Air Group, Inc. et al.,
573 F.3d at 1129. If Mesa can demonstrate that it “justifiably relied on [Delta’s]
Asset Mgmt., L.P., 850 N.E.2d 653, 658, 7 N.Y.3d 96, 106-07 (2006)), an estoppel
may be granted.
102. The Court finds that the testimony of Jorn Bates regarding the
the various e-mails introduced in evidence. The Court does not find Ms. Boyd’s
103. Even setting the agreement between Mr. Bates and Ms. Boyd to one
side, and as Ms. Boyd herself admitted, Delta knew of Freedom’s subsequent
completion rate, but failed to inform Freedom that Delta considered this practice to
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understanding of the agreement. Delta stood silent, while never denying the
Consequently, Freedom did not know that Delta disagreed with Freedom’s method
contrary to the Contract until well after the time that Freedom could have changed
the calculation of completion rate is alone enough to satisfy the falsity requirement.
John Robert P., 804 N.Y.S.2d at 804, 23 A.D.3d at 661; see also Ashland Window
& Housecleaning Co., 53 N.Y.S.2d at 680, 269 A.D. at 35. Accordingly, the Court
finds that Mesa has satisfied the first element of equitable estoppel.
8
Delta seeks credit for the fact that certain emails purport to show that Delta
informed Joseph Serratelli, Freedom's new COO, on February 21, 2008, that there
would be “no forgiveness” for Coordinated Cancellations. (Def.’s Ex. 31). But,
whether Delta first advised Mesa of this position on February 21 or February 28,
when Don Bornhorst spoke with Mesa's CEO, is of no consequence. In either case,
Delta's notice was insufficient to provide Freedom with any opportunity to change
its conduct of the past five and half months in order avoid default.
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such a manner that Freedom could reasonably have believed that Delta agreed with
completion rate.
106. Delta need not have intended that Mesa rely on its conduct. Rather,
estoppel is proper where the defendant “so act[ed] that the party asserting the
Co., 486 F. Supp. 1018, 1023 (S.D.N.Y. 1980); see also Lottie Joplin Thomas
Trust v. Crown Publ’r., Inc., 456 F. Supp. 531, 535 (S.D.N.Y. 1977). Delta’s
of the agreement between Ms. Boyd and Mr. Bates, and its failure to dispute
Freedom’s calculation of completion rate created just that right of belief in Mesa.
Indeed, even though she denies an express agreement with Jorn Bates, Delta’s
Courtney Boyd agreed that based on Delta’s record of paying Freedom based on
believe that Delta agreed with Freedom’s calculation. (Trial Tr. 313:8-314:7).
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reasonably relied on Delta’s conduct to its injury. See Travellers Int'l., 722 F.
Supp. at 1098; Rosenthal, 486 F. Supp. at 1023; see also Broadworth Realty v.
Chock 336 B’way Operating, Inc., 562 N.Y.S.2d 630, 632, 168 A.D.2d 299, 299
October and December 2007, and February 2008, when doing so placed it below a
109. The evidence shows that had Freedom known that it was Delta’s
calculating completion rate, Freedom would not have cooperated with Delta’s
requests to take Coordinated Cancellations. (Hr’g. Tr. 88:07-16; Trial Tr. 52:20-
53:5)
110. Therefore, based on the foregoing findings of fact, the Court finds that
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method of calculating completion rate through March 31, 2008.9 Travellers Int’l.,
722 F. Supp. at 1098; see also Rosenthal, 486 F. Supp. at 1022; Mesa Air Group,
9
Mesa prevails even if, as Delta contends, Georgia law applied. Georgia
courts regularly find equitable estoppel on facts indistinguishable from this case.
See Smith v. Direct Media Corp., 544 S.E.2d 762, 763-64, 247 Ga. App. 771, 773-
75 (Ct. App. 2001) (affirming a trial court’s finding of equitable estoppel where a
party attempted to deny the existence of a contract on the basis that he had not
formally executed the agreement); Touch Indus. v. Canton Bus. Park Ltd P’ship,
415 S.E.2d 40, 40, 202 Ga. App. 548, 548-49 (Ct. App. 1992) (finding estoppel
where a tenant sought to avoid the obligations of a lease despite “never ma[king] a
contrary representation in response to appellee’s direct request for assurance”);
Primo’s, Inc. v. Clayton Common Assocs., Ltd., 398 S.E.2d 631, 633, 197 Ga. App.
286, 289 (Ct. App. 1990) (tenant estopped from denying liability under lease based
on prior representation to lessor).
It should be noted that Delta’s argument that Mesa’s claim for equitable
estoppel under Georgia law is invalid likewise has no merit. According to Delta,
estoppel is not recognized as an independent cause of action under Georgia law
and is relegated to a "supporting role" to other stand-alone causes of action.
Mesa’s estoppel claim, however, fits squarely within the definition that Delta cites
because estoppel “supports” its declaratory judgment and breach of contract claims.
For example, Mesa’s claim for Declaratory Relief (Count III) is a stand-alone
cause of action. Count III specifically states, "[I]n light of Delta's prior assurances
and the parties' course of conduct, all of which Mesa has detrimentally relied upon,
Delta is equitably estopped from terminating the Contract." (Third Am. Compl.
¶ 79.) Furthermore, Delta’s own cited case upholds estoppel as a valid claim. See
Sabin Meyer v. Citizens Bank, 502 F. Supp. 557, 560 (N.D. Ga. 1980). ("Estoppel
may be used to prevent a party from denying at the time of litigation a
representation that was made by that party and accepted and reasonably acted upon
by another party with detrimental results to the party that acted thereon.")
Mesa likewise would prevail under the Georgia’s doctrines of waiver and
mutual departure. “A waiver may be established even though acts, conduct or
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112. Based on the foregoing facts and the determination by this Court that
Delta is equitably estopped from terminating the Contract, this Court holds that
Delta’s proffered grounds for termination of the Contract as set forth in its March
(continued…)
Georgia has codified the common law of mutual departure, which would
provide yet another basis for the relief sought by Mesa. “Under O.C.G.A. § 13-4-
4, a mutual departure from the terms of an agreement results in a quasi-new
agreement suspending the original terms of the agreement until one party has given
the other reasonable notice of its intent to rely on the original terms.” Vakilzadeh
Enters., Inc. v. Housing Auth. of the County of Dekalb, 635 S.E.2d 825, 827, 281
Ga. App. 203, 206 (Ct. App. 2006). Contractual “provisions may be waived by the
conduct of both parties intended to result in the ‘mutual disregard’ of, or the
‘mutual departure’ from the contract terms.” Kusuma v. Metametrix, Inc., 381
S.E.2d 322, 323, 191 Ga. App. 255, 257 (Ct. App. 1989).
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28, 2008 letter are not valid and that the Contract remains in effect, subject to its
dealings with the other party hereto and in performance of its obligations under this
under the circumstances here, however, was not an exercise of discretion in good
faith.
114. Under New York law, the obligation to deal in good faith “embraces a
pledge that neither party shall do anything which will have the effect of destroying
or injuring the right of the other party to receive the fruits of the contract.” Dalton
v. Educ. Testing Serv., 663 N.E.2d 289, 291, 87 N.Y.2d 384, 389 (1995) (internal
based on its recalculation of completion rates for the three months in question, but
Delta has proffered no explanation for its failure to inform Freedom, prior to
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completion rates.
116. Instead, the evidence shows that as early as December 2007, Delta
was looking for ways to terminate the Contract and had begun to investigate
Freedom’s completion rate, but, contrary to the terms of the Contract (Pls.’ Ex. 21,
Art. 10(B)), Delta never discussed with Freedom that it might be danger of
defaulting under the Contract. (Delta’s Resp. to Pls.’ Req. for Admission Nos. 51,
52) Indeed, there is no evidence that Delta alerted Freedom, prior to the
take Coordinated Cancellations. Rather, the evidence shows that, but for
Freedom’s completion rate in October and December 2007 would have exceeded
117. Delta claims it made “an error in the [invoice] processing process for
a couple of months,” and that when it discovered this “error,” Delta “fixed it” by
terminating the Contract. (Hr’g Tr. at 469:5-22.) For Delta to exercise its
discretion to terminate the Contract on this basis is contrary to the express duty of
good faith in the Contract and the duty of good faith implied in every contract.
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partnership with Mesa that Delta’s Senior Vice President of Delta Connection, Don
injunction issued in June, 2008. (Trial Tr. 229:11-22) To the contrary, the record
shows that by seizing upon the alleged default that resulted in large part from
benefit of Delta’s passengers – cooperation that Delta secured through its direct
representations and through its silence on the key issues surrounding these
calculations – it was Delta that acted opportunistically and in bad faith. Because
Delta’s own representations, omissions and conduct created the very basis by
which Delta used to terminate the contract, termination on these grounds thus
violates Delta’s “pledge that neither party shall do anything which will have the
effect of destroying or injuring the right of the other party to receive the fruits of
the contract.” Dalton, 663 N.E.2d at 291, 87 N.Y.2d at 389 (internal quotation
omitted).
119. This failure of Delta to raise the issue with Freedom, and its ensuing
attempt to cancel the Contract, plainly indicate bad faith. Thus, the Court grants
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Plaintiffs’ claim for breach of the express and implied duties of good faith and fair
dealing.
B. Delta’s Bad Faith And Malicious Conduct Entitles Mesa To Recover Its
Litigation Expenses.
120. Delta’s bad faith and malicious conduct entitles Mesa to its costs of
litigation under New York law, which recognizes an exception to the general rule
that a party must carry its own legal costs, known as the “bad faith exception.” See
Ltown Ltd. P'ship v. Sire Plan, Inc., 489 N.Y.S.2d 567, 572, 108 A.D.2d 435, 440-
441 (App. Div. 1985) ("The [bad faith] exception… is unquestionably an assertion
Sierra Club v. U.S. Army Corps. of Eng'rs, 776 F.2d 383, 390-391 (2d Cir. 1985)
(upholding a lower court's grant of attorneys' fees under the bad faith exception
Co., Inc. v. U.S. for the Use of Indus. Lumber Co., Inc., 417 U.S. 116, 129 (1974)
("[The Supreme Court] ha[s] long recognized that attorneys' fees may be awarded
to a successful party when his opponent has acted in bad faith, vexatiously,
10
Mesa likewise would be entitled to its attorneys’ fees and costs under
O.C.G.A. § 13-6-11. O.C.G.A. § 13-6-11 provides that a party’s litigation
expenses are recoverable “where the defendant has acted in bad faith”. O.C.G.A.
§ 13-6-11 In Georgia, bad faith “has been defined as ‘actual or constructive fraud
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121. The bad faith exception has been applied by New York Courts to
award attorneys’ fees to a plaintiff where there is a showing that the defendant
engage legal counsel.” United Pickle v. Omanoff, 405 N.Y.S.2d 727, 728, 63
A.D.2d 892, 892-893 (App. Div. 1978) (holding that defendant's use of legal
proceedings to harass plaintiff fell within the bad faith exception, and ordering new
conduct). Under New York law, this is an “actionable wrong”. Id. Furthermore,
“malice may consist of any personal hatred or ill will, any improper or sinister
purpose, or any reckless disregard for the rights of others which is inconsistent
with good faith or the mere purpose to further the ends of justice.” Tender Trap v.
Huntington, 418 N.Y.S.2d 537, 543, 100 Misc. 2d 108, 116 (Sup. Ct. 1979).
terminate the Contract forms the basis of each of Plaintiffs’ claims in this matter.
(continued…)
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See section II.A.(1), and fn. 6, supra. The Court’s review of the testimony given
and documents produced in support of Plaintiffs’ litigation expenses shows that the
fees and expenses incurred in this matter, with the exception of the Motion to
Dismiss, relate to the investigation and proof of claims and defenses on which
123. This Court has found that for Delta to exercise its discretion to
terminate the Contract on this basis is contrary to the express duty of good faith.
attempt to terminate the Agreement forced Mesa to incur legal fees to (1) secure an
immediate appeal of this Court’s findings, and (3) litigate this matter to a final
hearing. See Tender Trap, 418 N.Y.S.2d at 543, 100 Misc. 2d at 115.
(Paragraph 68, supra; Pls.’ Ex. 26; Hr’g Tr. 116:05-119:10). Because Mesa’s legal
and bankruptcy expenses were “proximately related to the malicious acts” of Delta,
Mesa is due to be compensated for those expenses (United Pickle, 405 N.Y.S.2d at
728, 63 A.D.2d at 893), specifically, the fees and expenses for Seabury Group and
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associated with alleged overpayments for months in which it contends it was billed
cancellations, flights arriving more than four hours late and flights with zero
revenue passengers as completed flights. Under New York law, Delta likewise has
the burden of proving that these alleged “overpayment[s]” were not voluntary.
Whiting v. City Bank of Rochester, 77 N.Y. 363, 368 (1879) (stating that in
general, payments are assumed to be voluntarily made until the contrary is shown,
and the burden rests on the party seeking to recover a payment to prove that a
amounts paid to Mesa: (i) voluntarily, (ii) with full knowledge of the facts, and (iii)
in the absence of fraud or mistake of material fact or law. Dillon v. U-A Columbia
Cablevision of Westchester, Inc., 790 N.E.2d 1155, 1156, 100 N.Y.2d 525, 526
(2003). New York law is clear that “[w]hen a party intends to resort to litigation in
order to resist paying an unjust demand, that party should take its position at the
time of the demand, and litigate the issue before, rather than after, payment is
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396, 398, 292 A.D.2d 25, 28 (App. Div. 2002) (aff'd by Dillon, 790 N.E.2d 1155,
Delta, relating to this legal bar to Delta’s counterclaim. Based on this evidence,
this Court holds that Delta’s counterclaims are barred by New York’s doctrine of
voluntary payment. First, the evidence shows that Delta’s payments to Mesa were
voluntary. Here, Delta has provided no testimony or other evidence that Mesa, or
anyone else, forced Delta to pay the amounts in Delta’s counterclaim. In fact, Mr.
Patel’s testimony makes it clear that Delta controls how much it pays Freedom—
and that when Delta wanted to pay less, it unilaterally took setoffs against future
128. Second, the evidence has also shown that Delta had full knowledge of
the facts. Although the voluntary payment doctrine does not apply where there is
an absence of full disclosure (Samuel v. Time Warner, Inc., 809 N.Y.S.2d 408, 418,
10 Misc. 3d 537, 549 (Sup. Ct. 2005)) or where there was unequal bargaining
power between the parties (Caiviano v. Brill, 11 N.Y.S.2d 498, 502, 171 Misc. 298,
302 (N.Y. Misc. 1939)), the evidence presented by the parties makes clear that
neither is the case here. On the contrary, the evidence shows that Delta had all of
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the facts related to the incentive and markup payments. For example, Delta’s
Anthony Canitano, Chris Higgins, and Courtney Boyd all admitted that Delta had
two readily-available sources of flight level data: (a) the information that it
received from Mesa; and (b) the data that Delta maintained itself. The Senior Vice
President of Delta Connection, Don Bornhorst, even admitted that Delta “had the
information but not the knowledge.” (Trial Tr. 129:10-21.) Furthermore, Delta is
largest airline in the world (Trial Tr. 303:9-12), and cannot claim it was unequal in
129. Finally, Delta paid Mesa without a mistake of law or fact. New York
courts have held that the payor is not laboring under a material mistake of fact if (i)
the payor makes a payment without protest or inquiry or (ii) has knowledge of the
material facts. Citicorp N. A., Inc., v. 5th Ave. 58/59 Acquisition Co. LLC., 895
N.Y.S.2d 39, 39-40, 70 A.D.3d 408, 409 (App. Div. 2010) (barring recovery under
the voluntary payment doctrine because the plaintiffs, highly sophisticated entities,
made no inquiry into the amount of rent they were paying for years); Gimbel Bros.
v. Brook Shopping Ctrs., 499 N.Y.S.2d 435, 439, 118 A.D.2d 532, 535-536 (N.Y.
App. Div. 1986) (holding that the company’s decision to continue making
payments for over two years without any effort to learn its legal obligations,
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restitution of payments).
with Freedom a low priority (Hr’g Tr. 431:18-432:1), were preoccupied with the
Christmas holidays (Hr’g Tr. 162:1-9) or the month-end process (Patel II 21:24-
22:8), and “they paid the invoiced [] amounts without protest or even inquiry, and
were not laboring under any material mistake of fact when they did so.” Citicorp,
variances between its own calculations and Freedom’s invoices, even after
receiving Mesa’s explanation that its completion rate reflected its view that flights
cancelled at Delta’s requests would be counted as completed flights (Pls.’ Ex. 40),
show that Delta made these payments “without any effort to learn what their legal
obligations were” and “demonstrated a clear lack of diligence . . . .” Id. For the
forgoing reasons, this Court holds that Delta is not entitled to recover on its
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completed flights, Delta also is not entitled to recover the base markup of $607,855
at or above 95% in October and in December. (Pls.’ Ex. 54, Joint Stipulation
[#168] ¶¶ 8(d), 9(f).) Delta likewise is not entitled to recover the base markup for
August, 2007 because crediting Mesa for Coordinated Cancellations in 2007 yields
required for the base markup. (Joint Stipulation [# 168] ¶ 6(d); see also Pls.’ Ex.
2.)
(3) Delta Already Has Reclaimed Monies it Now Claims Mesa Owes.
132. Delta’s Counterclaim as to the incentive payments made for flying in
September and December, 2007 are also barred for the separate and independent
reason that the evidence shows that Delta has already reclaimed those payments.
Thus, Delta is not entitled recover $146,554 for September, 2007 or $146,747 for
December, 2007.
133. On March 17, 2008, Delta took back amounts previously paid for the
September, 2007 incentive markup. (Pls.’ Ex. 67; Patel II 49:16-50:22). Also on
that day, Delta took back amounts previously paid for the December, 2007
incentive markup. (Id.) In all events, it goes without saying that Delta is not
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entitled to money that it has already taken back from Mesa as part of the settlement
of later invoices.
Based on the foregoing findings of fact and conclusions of law, and for good
on the grounds set forth in its March 28, 2008 termination letter;
than four hours late as completed flights when calculating the completion
factor for October and December 2007 and February 2008, are invalid;
(6) Delta’s Counterclaim and all prayers for relief related thereto are
denied in full.
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CLARENCE E. COOPER
UNITED STATES DISTRICT COURT
JUDGE
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