Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. N. Mar. I.: Construction subcontractor’s counterclaims against Boeing in airport renovation dispute fail, (Jul 16, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by an aviation company against a construction company for violations of the Northern Mariana Islands Commonwealth Consumer Protection Act in relation to the construction contract for an airport terminal renovation project, the deceptive practices counterclaims by the construction company should be dismissed for failure to state a plausible claim, the U.S. District Court for the Northern Mariana Islands has decided (Boeing Co. v. Leo A. Daly Co., July 10, 2014, Seabright, M.).

Global aviation company Boeing through Boeing Service Company, entered into a contract with the Commonwealth Ports Authority (CPA) for renovations to the Saipan Airport. Boeing subsequently entered into a subcontract with the Leo A. Daly Company for the design and construction management of the project. Following the completion of the project, CPA brought an action against Boeing and Daly, claiming that the renovation did not meet seismic code requirements. After Daly refused to indemnify Boeing in the litigation, Boeing filed an action against Daly alleging deficient performance under the subcontract in violation of the Commonwealth of Northern Mariana Islands Consumer Protection Act (CCPA), among other claims. Daly asserted counterclaims for violation of the CCPA. After Daly’s motion to dismiss the complaint was denied, Boeing moved to dismiss Daly’s counterclaims.

Deceptive practices counterclaims. The court found that Daly failed to state a plausible counterclaim for deceptive practices under the CCPA. Daly alleged that Boeing misrepresented that it was entitled to indemnity and an unreserved defense from Daly when it knew or should have known that the design subcontract contained no valid indemnity obligation or defense. In this case, Daly failed to plead facts explaining that Boeing’s assertions regarding indemnify were false in contrast to an express provision in the subcontract that Boeing was entitled to indemnity, according to the court.

Moreover, Daly failed to plausibly allege that it detrimentally relied on Boeing’s representations that Daly had an obligation to indemnify Boeing. The dispute involved two sophisticated parties who entered into a design subcontract in which Daly agreed to design and construct an additional airport terminal and Daly provided insufficient basis as to how and why it relied on Boeing’s statements and did not form its own opinion regarding the truth of those statements, the court noted.

Finally, Daly did not allege that parties engaged in any trade or commerce relating to the alleged misrepresentation. Boeing’s statements that is was entitled to indemnity and an unqualified defense from Daly in connection with CPA’s lawsuit were not related to trade or commerce, rather the statements were made after Daly had provided services to Boeing and was defending itself in the CPA litigation. Thus, Daly failed to allege the necessary elements for a claim under the CCPA.

The case is No. 1:13-cv-00027.

Attorneys: Elizabeth S. Hess (Kirkland & Ellis LLP) for Boeing Co. Joseph E. Horey (O'Connor Berman Dotts & Banes) for Leo A. Daly Co.

Companies: The Boeing Co.; Leo A. Daly Co.

Cases: StateUnfairTradePractices