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Wednesday, April 1, 2020

Dispute over lost aviation parts ironed out in Delaware Chancery Court

State Court

By Charmaine Little | Nov 12, 2019


WILMINGTON, Del. (Legal Newsline) – On Oct. 31, the Delaware Court of Chancery granted summary judgment to both the buyers and the sellers in a lawsuit over an aviation parts deal.

Vice Chancellor Morgan T. Zurn ruled that the sellers in the deal are owed partial summary judgment on the buyers’ counterclaim and the buyers are entitled to summary judgment on the sellers' affirmative claims.

Bradley E. Julius sued for five claims for relief as a seller representative for BKJ Holdings Inc., formerly known as ZTM Inc., the Bradley E. Julius Revocable Trust, the Kelly Julius Revocable Trust, Kelly E. Julius and himself (collectively the sellers).

The defendants, Accurus Aerospace Corp. and Accurus Aerospace Wichita LLC, formerly known as ZTM Acquisitions LLC, and ZTM Aerospace LLC (collectively buyers), filed their own counterclaim against the sellers.

The buyers say the sellers breached the asset purchase agreement (APA) when they didn’t tell the buyers that Boeing Co. awarded expired parts to other suppliers and Accurus didn’t have the chance to bid on the parts. 

“Buyers’ bargained-for-representations and warranties did not protect them against the risk that they would be unable to bid on the lost parts," Zurn wrote. "Nor did the APA impose on sellers an obligation to notify buyers about Boeing’s decision to award the lost parts to other suppliers in 2013 and 2014.”

Ultimately, she ruled that the buyers couldn’t prove that the sellers infringed on the contract and that they’re owed summary judgment.

 Zurn also ruled that the sellers didn’t actually breach section 3.25(d) of the APA since there weren’t any “disputes,” “complaints” or “issues” with Boeing and the lost parts when the contract was signed.

She also wrote that the sellers never breached sections 3.25(a) and 3.7(a) of the APA since those sections were only related to things that happened after Dec. 31, 2015, and Boeing gave the lost parts in question to other suppliers in 2013 and 2014.

As for Section 3.28 of the APA, Zurn determined the sellers didn’t breach that either since their representations and warranties didn’t include any false or deceptive statements about the lost parts.

Zurn also ruled against the buyers when it comes to indemnification.

“Because sellers did not breach the APA’s representations and warranties, buyers are not entitled to indemnification under section 8.3(a),” he wrote.

However, the buyers are owed summary judgment on the first four counts of the amended complaint since they didn’t infringe on the APA or escrow agreement, as well as the count alleging breach of implied covenant of good faith and fair dealing since they didn’t breach it.

Zurn also ruled that each side would take care of their own attorneys’ fees. 

“Under the American Rule and Delaware law, litigants are normally responsible for paying their own litigation costs,” Zurn wrote.

The ruling states Julius launched ZTM to manufacture aerospace parts and its primary customer was The Boeing Co., which was more than half of its sales. Scoring a contract renewal bid with Boeing wasn’t automatic for ZTM, but winning was vital to its success.

In December 2015, ZTM’s business manager, Jamie Woodson, noticed parts that ZTM wasn’t offered the chance to re-bid on. Those parts came in at $2 million in sales in 2015. Julius and Woodson reached to Boeing and began the process of ZTM’s chance to re-bid on the parts.

Also in that year, Julius sold ZTM and promoted the company as “the second largest interior shop for Boeing Commercial,” the ruling states. That August, ZTM’s broker, Ed Dunn, reached out to Accurus concerning the sale of ZTM’s rights, property and assets. Dunn in turn sent an overview of the sale to Liberty Hall Capital Partners, which formed Accurus in November 2013, and is founded by Rowan Taylor.

Accurus ultimately bought ZTM on June 3, 2016, via an asset purchase agreement. But once the closing occurred, the buyers came across 53 parts that consisted of ZTM’s projections under contracts that ran out at the end of 2016, and noted that the parts weren’t included on the award letter. The profit from the lost parts accounted for 10 percent of ZTM’s total projected sales from 2017 through 2019.

The ruling states the sellers and the buyers didn’t know that Boeing awarded the lost parts to other suppliers before the sale and the buyers alleged they would have lowered the price had they known.

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Delaware Court of Chancery