Thad Spalding
Thad Spalding ()

When Thad Spalding’s client paid $110,000 for a used helicopter only to later discover that it wasn’t airworthy, the seller beat them to the courthouse and won a summary judgment ruling that sealed the deal.

So Spalding took the case to the U.S. Court of Appeals for the Fifth Circuit and recently won a ruling that may make his client whole. Spalding presented evidence that his client rejected the aircraft under Texas contract law after learning the helicopter they bought wasn’t what was advertised.

The background to the Fifth Circuit’s ruling in Luig v. North Bay Enterprises is as follows.

North Bay Enterprises entered into a contract with Perry J. Luig to purchase the helicopter. According to the contract, Luig would deliver the aircraft in airworthy condition and a current certificate of airworthiness. But when they received the helicopter, North Bay asserted that it wasn’t what Luit advertised because its turbo charger had been removed and it wasn’t in compliance with Federal Aviation Administration airworthiness directives.

After being alerted to North Bay’s concerns, Luig filed a declaratory judgment action, which was removed to federal court in Wichita Falls. North Bay then filed a breach of contract counterclaim against Luig before U.S. District Court Judge Reed O’Connor, who handles the Wichita Falls docket.

O’Connor denied North Bay’s motion for summary judgment and sua sponte granted summary judgment for Luig—dismissing North Bay’s counter claim and ruling for Luig’s request for declaratory relief preserved the sale.

O’Connor ruled that North Bay’s contract counterclaim failed as a matter of law because they didn’t reject or revoke the helicopter. Specifically, he ruled that under Texas contract law, damages are only permitted under a breach of contract when the seller fails to deliver the goods, the buyer has rejected the goods or the buyer has revoked his acceptance.

O’Connor ruled that the “as is” provision in the contract did not disclaim the express warranty in the contract that the helicopter was not airworthy as a matter of law.

North Bay then filed a motion to alter the judgment, presenting evidence for the first time that the pilot who flew the helicopter to North Bay in California heard a noise during the trip and later took it to a repair shop, where it was discovered the aircraft was out of FAA compliance. Luig agreed to a partial offer to repair the aircraft, an offer that later expired. North Bay never used the helicopter because it was out of compliance.

But without acknowledging the newly presented evidence, O’Connor denied North Bay’s motion to alter the judgment or amend its pleadings.

North Bay then appealed to the Fifth Circuit, arguing that O’Connor had improperly granted summary judgment to Luig. And in its March 28 decision, the Fifth Circuit agreed with North Bay.

“Under Texas law, the evidence presented by North Bay in its motion for reconsideration is probative as to whether North Bay rejected or revoked the helicopter—the only grounds upon which the district court sua sponte granted summary judgment for Luig,” wrote Judge Stephen Higginson, reversing and remanding the case back to O’Connor.

“Although North Bay likely had access to the evidence presented in the [motion to reconsider] at the time it filed its summary judgment motion, North Bay’s failure to present the evidence was excusable because the district court did not give North Bay the opportunity to present this evidence before granting summary judgment.”

Spalding, a partner in Dallas’ Kelly, Durham & Pittard who represents North Bay, is pleased with the decision. His client had purchased the aircraft to use for helicopter tours of San Francico’s Bay Area.

“The Fifth Circuit is sending it back to Judge O’Connor to look at the evidence,” Spalding said. “And now the hope is we can work this out with the other side or that Judge O’Connor will deny [Luig's] summary judgment and grant summer judgment in our favor on breach of contract.”

Gant Grimes, an associate in Wichita Fall’s Gibson, Davenport & Anderson, who represents Luig on appeal, did not return a call for comment.