Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash.: Breach of distribution agreement claims partially dismissed, (Jul 28, 2015)

By Michael Menzhuber, J.D., LL.M.

An airplane parts distributor’s claims, stemming from its distribution agreement with an airplane parts supplier, were dismissed in part and granted in part by the federal district court in Seattle. Thus, the supplier’s motion to dismiss the distributor’s claims for breach of contract and violation of Washington’s Consumer Protection Act (CPA) was granted. However, the court determined that the distributor’s allegations of fraudulent transfer met the required pleading standards and, therefore, were not dismissed (Jet Parts Engineering, Inc. v. Quest Aviation Supply, Inc., July 27, 2015, Martinez, R.).

Background. Jet Parts Engineering, Inc. (JPE) entered into two agreements with Quest Aviation Supply, Inc., pursuant to which Quest would supply airline parts to JPE for distribution. At some point, Quest provided inadequate parts for distribution pursuant to one of the agreements.

JPE eventually sold all of its assets to HEICO, a JPE competitor. Subsequent to the sale, pending purchase orders, which Quest was obligated to fill, went unfilled.

JPE brought claims against Quest and its sole shareholder, Brent K de Ruyter, that alleged, in part: (1) breach of contract; (2) unjust enrichment; (3) violations of Washington’s CPA; (4) piercing the corporate veil; and (5) fraudulent transfer.

Washington’s Consumer Protection Act (CPA). To prevail on an action for damages under the CPA, a plaintiff must establish: (1) an unfair or deceptive trade or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business; and (5) causation. The defendants moved to dismiss the CPA claim on the basis that JPE failed to allege facts sufficient to support the factors of “unfair or deceptive act” and “public interest.”

The court determined that the CPA claim was based on “an unfair practice not regulated by statute but in violation of the public interest.” The court agreed that JPE’s complaint was devoid of any facts sufficient to meet the “public interest” prong because its allegations were conclusory and failed to indicate that the defendants’ conduct extended, in any way, beyond the two parties to the distribution agreement at issue. The court also noted that, to establish the “public interest” element, there must be a real and substantial potential for repetition and that this requirement could not be inferred from JPE’s complaint.

Breach of contract. The defendants argued that the breach of contract claim against de Ruyter individually was not proper because he was not a party to the distribution agreement at issue. The court agreed and dismissed the claim. However, the court allowed JPE to amend its complaint with respect to it breach of contract claim.

Fraudulent transfer. The defendants argued that JPE’s claim for fraudulent transfer failed to meet the heightened pleading standards under Federal Rule of Civil Procedure 9(b). The court disagreed. It determined that the factual allegations in JPE’s complaint raised a right to relief above and speculative level and alleged plausible claim for fraudulent transfer. It then determined that the complaint met the Rule 9(b) pleading standard because it: (1) described who perpetrated the alleged fraud: (2) what the fraud consisted of; (3) when the fraud occurred; and (4) how the fraud was carried out.

The case is No. C15-0530RSM.

Attorneys: Christopher H. Howard (Schwabe Williamson & Wyatt) for Jet Parts Engineering, Inc. Brian M. Yates (Jeffer Mangels Butler & Mitchell) and Duncan Manville (Savitt Bruce & Willey LLP) for Quest Aviation Supply, Inc.

Companies: Jet Parts Engineering, Inc.; Quest Aviation Supply, Inc.

Cases: FranchisingDistribution WashingtonNews