TRANSNATIONAL MANAGEMENT, ET AL VS PEGASUS ELITE AVIATION

Tentative Rulings

Case Number: LC100724    Hearing Date: December 07, 2020    Dept: W

transnational management, et al. v. pegasus elite aviation

MOTION TO BIFURCATE

Date of Hearing: December 7, 2020 Trial Date: December 14, 2020

Department: W Case No: LC100724

Moving Party: Defendant/Cross-Complainant Pegasus Elite Aviation, Inc.

Responding Party: No opposition.

BACKGROUND

Plaintiffs Transnational Management Systems LLC (“TMS”) and Transnational Management Systems II, LLC (“TMS 2”) entered into lease agreements with Defendant Pegasus Elite Aviation, Inc. (“Pegasus”) to operate and manage two of Plaintiffs’ aircrafts. The aircrafts were to be used for personal use and also rented out for chartered use. Adam Victor is the managing member of TMS and TMS 2.

Plaintiffs allege in January 2012 they noticed that the planes were not being properly maintained. Plaintiffs also allege they discovered that the hours logged did not match up with hours logged with the FAA and that the aircrafts were using more fuel than seemed typical. Plaintiffs believe that Defendant Pegasus was deceiving them about how much the planes were being used, charged Plaintiffs for repairs that were never performed, and that Defendant rented the planes to others but pocketed the fees that were intended for Plaintiffs. Despite these issues, Plaintiff TMS entered an aircraft operating agreement with Defendant Pegasus with regard to one of the planes (1992 Gulfstream). Plaintiff TMS2 entered a similar agreement with regard to the other plane (1987 Gulfstream). The terms of the agreements varied in some respects from the earlier agreements covering these planes.

As part of the agreements, Defendant Pegasus was permitted to use the aircraft for its personal transportation needs. These owner operated flights were called Part 91 flights. When the aircraft was not being used for Part 91 flights, Defendant Pegasus was supposed to be marketing the aircrafts for charter aviation flights, called Part 135 flights. For these flights, Defendant Pegasus would bill the charter uses, retain a percentage for administrative costs and overhead, deduct certain expenses and pay the balance to plaintiffs. There were still disputes relating to the operation of the planes prior to the second set of agreements. On May 30, 2012, Defendant Pegasus and Plaintiff TMS entered into a Settlement Agreement, which acknowledged the disputes between the parties that arose prior to the May 2012 agreements and called for arbitration of the disputes. However, resolution of the disputes never occurred.

In late 2012, Plaintiffs transferred the custody, control, and operation of both of the planes from Pegasus to a new operating company. At that point, Plaintiffs discovered that Pegasus had failed to make promised repairs including leaking lavatory fluid that damaged the aircraft. Further, Plaintiffs were shortly thereafter advised by the Los Angeles taxing authorities that use tax penalties would be assessed. In order to mount a defense to these assessments, Plaintiffs require the flight logs for 2011 and 2012 for the two airplanes. Plaintiffs maintain these logs are in the possession of Defendant Pegasus, who will not produce them.

Plaintiffs filed a complaint on August 23, 2013. The operative complaint, filed in June 2014, alleges causes of action for: 1) Breach of Written Contracts of November 1, 2009 and June 1, 2010; 2) Breach of Written Contracts of May 1, 2012; and 3) Accounting.

On July 18, 2014, Defendant Pegasus filed a cross complaint against Plaintiffs and against Adam Victor and Gas Orange Partners, LP. Defendant Pegasus alleges that the 3 entities and Mr. Victor are alter egos. Defendant Pegasus filed its Second Amended Cross Complaint (SAXC) on June 3, 2015, alleging: 1) Breach of Written Agreement; 2) Breach of Oral Agreement; 3) Unjust Enrichment; 4) Common Count for Money Lent; 5) Interference with Contractual Relations; 6) Intentional Interference with Prospective Economic Advantage; and 7) Negligent Interference with Prospective Economic Advantage

The first four causes of action involve fees for Part 91 flights that Defendant Pegasus claims have not been paid. The fifth through seventh causes of action allege that Mr. Victor, while aboard his aircraft on Part 91 flights, sexually harassed and abused Pegasus employees and/or contractors acting as flight attendants and pilots. Pegasus and Cross-Defendants settled the fifth through seventh causes of action in Pegasus’ operative Second Amended Cross-Complaint.

[TENTATIVE] RULING

Defendant/Cross-Complainant Pegasus Elite Aviation, Inc.’s Motion to Bifurcate is GRANTED.

DISCUSSION

Defendant/Cross-Complainant Pegasus Elite Aviation, Inc. moves for an order bifurcating the trial of this action so that the contract interpretation/liability issues raised by plaintiffs’ claims are tried first before, if necessary, the issues pertaining to damages on those claims. Pegasus also submits their remaining cross claims should be handled in the first phase of the trial (or an abbreviated second phase) as, unlike the situation with plaintiffs’ claims, the damages are both inherently uncomplicated and directly intertwined with proof of the cross-claims. The cross-claims are based on cross-defendants’ failure to pay for personal flights of Adam Victor.

Code of Civil Procedure section 1048(b) provides: “The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any cause of action … or of any separate issue or of any number of causes of action or issues …” Section 598 provides that the court may order certain issues tried before others “when the convenience of witnesses, the ends of justice or the economy and efficiency of handling the litigation would be promoted thereby.” Granting or denying of a motion for separate trials lies within the trial court's sound discretion, and is subject to reversal on appeal only for clear abuse. (Grappo v. Coventry Financial Corp. (1991) 235 Cal.App.3d 496, 504.) In determining whether to order separate trials, courts consider a number of factors including judicial economy, the danger of unnecessary jury confusion if separate trials are not held, and potential prejudice. (Id.)

Pegasus argues the court must first interpret the agreements upon which Plaintiffs sue to ascertain their meaning and whether any breach has occurred. (E.g., Wolf v. Walt Disney Pictures (2008), 162 Cal.App.4th 1107, 1125 (“well-established” that contract interpretation is a judicial function).) As recognized by the courts in Equitable Life Assurance Society v. Berry (1989) 212 Cal.App.3d 832 and Manneck v. Lawyers Title Ins. Corp. (1994) 28 Cal.App.4th 1294, bifurcation is a well-established and proper procedure for deciding issues of contract interpretation. As a result, adjudicating the contract interpretation issues first will conserve judicial resources and potentially avoid a lengthier trial on plaintiffs’ claims.

The court agrees. The Equitable Life court noted that bifurcating liability and the interpretation of a contract from damages is “…a classical case for severance under Code of Civil Procedure section 598.” (Equitable Life Assurance Society, supra, 212 Cal.App.3d 832 at p. 836.) Here, the parties disagree as to whether under the terms of the management agreements, Pegasus owes Plaintiffs for the monies that Pegasus invoiced its customers (essentially, whatever a customer paid to Pegasus). Pegasus contends that is not what the agreements state and not what Victor testified to in the FEC proceedings and thus, one of the key contract interpretation issues the court must first resolve before the issue of damages, if any, is considered, is what Pegasus was obligated to pay.

As a result, the court finds bifurcation will promote judicial economy by potentially eliminating the need for a further trial on damages on plaintiffs’ claims.

Pegasus’ unopposed motion to bifurcate is GRANTED.

Case Number: LC100724    Hearing Date: August 05, 2020    Dept: W

Amended Ruling on Defendants’ Motion to Dismiss the Second Amended Complaint

The court previously denied Defendants’ Motion to Dismiss the Second Amended Complaint, finding that a triable issue of fact existed as to whether plaintiffs were required to register with the Secretary of State given the extent of its intrastate activities. The court further found that if plaintiffs were required to register, their claims would be barred under the statute of limitations because all claims had expired during the period that they were not registered. It is undisputed that plaintiff did not register with the Secretary of State until January 22, 2020. (See Ruling on Submitted Matter dated April 15, 2020.)

Subsequently, the court conducted further research and found two cases which stood for the proposition that the filing of the cross-complaint by Pegasus tolled the statute of limitations on plaintiffs’ complaint, allowing its late registration on January 22 to revive the complaint it filed while unregistered. The court directed the parties to submit supplemental briefing on the two cases: American Alternative Energy Partners II v. Windridge, Inc. (1996) 42 Cal.App.4^th 551, and Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834. The parties submitted supplemental briefing, which the court has now considered.

The court has the inherent ability to reconsider its own interim orders to correct any errors it has made. (Le Francois v. Goel (2005) 35 Cal.4^th 1094, 1096.) In the instant case, the court provided notice to counsel that it was reconsidering its orders as they related to the statute of limitations and the consequences of the lack of registration in this case and allowed them to fully brief the issue. The court concludes that it erred in failing to address the rulings of American Alternative Energy Partners and Electronic Equipment; when those cases are considered, it is evident that the statute of limitations was tolled with the filing of the cross-complaint on July 18, 2014. It remained tolled until January 22, 2020, when registration revived the complaint. Because plaintiffs’ causes of action (all of which had a four year statute of limitations) had not expired prior to July 18, 2014, those causes have now been revived with the registration.

Electronic Equipment holds that the filing of a cross-complaint tolls the statute of limitations for the plaintiff’s claims. In that case, the court considered a plaintiff corporation which was suspended at the time it filed its complaint for accounting malpractice. The statute of limitations expired on its claims during the time that it was still suspended. However, because the accounting firm had filed a cross-complaint against the corporation prior to the running of the statute of limitations on the accounting malpractice claim, the court held that the statute of limitation was tolled and posed no bar to revival of the plaintiff’s claims when its corporate status was reinstated. Although Electronic Equipment dealt with the suspension of a corporation and here we face an unregistered corporation, the court sees no reason to distinguish between the two situations. The filing of the cross-complaint tolled the statute of limitations in Electronic Equipment, and it does so here was well.

Defendant dismisses Electronic Equipment as wrongly decided, “flawed,” “sloppy,” and “illogical.” Nonetheless, it is binding precedent and was followed by American Alternative Energy Partners. (42 Cal.App.4^th 551, 564.) Defendant also argues that the two cases are inapplicable because they dealt with voluntarily filed cross-complaints, and theirs was a compulsory cross-complaint. While it is true that the Electronic Equipment decision concluded that the cross-complaint before it was voluntarily filed before the statute of limitations had run, the cross-complaint was technically a compulsory cross complaint as it arose out of the same transaction as the malpractice case brought against it. Indeed, it was an action for unpaid accounting fees. Thus, the decision in Electronic Equipment would cover compulsory counterclaims, as presented here. Electronic Equipment merely noted that the cross-complainant could have waited to file its counter-claim until after the statute of limitations had expired. Here too, Pegasus could have waited until January 2017 to file its cross complaint, by which time the statute of limitations would have expired on all of plaintiffs’ claims. The court also does not find sufficient evidence of unclean hands on the part of the Transnational plaintiffs with respect to a single discovery response in which they stated they “believed” they were qualified to do business in every state. The plaintiffs did not state that they were registered with the Secretary of State in California. Defendant could easily have checked with the Secretary of State on this basic fact, rather than raising it after seven years of litigation. This central and easily discoverable fact seems to have been overlooked in the heated battle that has raged between the parties for nearly a decade.

Because the statute of limitations no longer poses a bar to plaintiffs’ claims, there is no need for the court to bifurcate this case to address whether or not plaintiffs were involved in intra or interstate commerce. The statute scheme is clear that all that is required is registration, which plaintiff has now done. If plaintiff owes back taxes or faces some other penalty due to its late registration, that is not for this court or this proceeding to decide. Once “registered” a foreign corporation can defend and prosecute an action. (Corp. Code § 17708.07(a).) There is also no need for any further discovery on the issue of plaintiff’s intrastate business, taxation records or other issues raised by the registration issue.