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7th Circuit sends contractual claims back to state court

July 13, 2017

A fixed based operator stationed at the Gary/Chicago International Airport must pursue its contractual claims against the airport authority in state court, as the FBO failed to present a constitutional claim that could be considered in federal court, the 7th Circuit Court of Appeals ruled Thursday.

In the fall of 2006, Gary Jet Center Inc. began negotiating a lease extension that would govern Gary Jet’s operations at the airport. The lease included a provision in its “Minimum Standards” that called for a 1.5 percent charge on gross revenue that would apply ‘for all commercial FBO services on the airport on or after” Jan. 1, 2001.

However, Gary Jet’s original 1991 lease did not include that provision, so the it objected and the parties developed an alternative solution. Under the new lease, Gary Jet would pay a supplemental rent consisting of 10 percent of the amount of all fuel flowage, parking and lending fees that Gary Jet paid to the Gary/Chicago International Airport Authority each year.

The 39-year amended lease began on Jan. 1, 2007, and the terms of the lease held that Gary Jet must comply with the Minimum Standards unless the standards conflicted with the terms of the lease. In that case, the lease would control.

In December 2013, Gary Jet filed a complaint against the airport authority alleging breach of contract and a constitutional violation under 42 U.S. Code Section 1983. The parties entered into a settlement and mutual release agreement in August 2014. As part of the agreement, Gary Jet agreed to help the authority develop new Minimum Standards, which would then control in the case of a conflict with the FBO’s lease. Additionally, Gary Jet contended the parties also agreed to waive the 1.5 percent charge.

A second amended lease was signed in July 2014, in which the parties agreed the Minimum Standards would control. Then in May 2015, the authority informed Gary Jet that it intended to include a provision in the new Minimum Standards that would require that each FBO pay the authority a percentage of its gross revenue to the authority. That provision was approved over Gary Jet’s objection, reinstating the 1.5 percent payment requirement.

Gary Jet filed suit in September 2015, bringing a variety of claims including a violation of the Contracts Clause of the U.S. Constitution by impairing the obligations of the 2007 lease. The airport authority moved to dismiss, and the U.S. District Court for the Northern District of Indiana dismissed without prejudice as to the contracts-clause claim.

On appeal in Gary Jet Center, Inc. v. AFCO AvPorts Management, LLC, et al., 16-1233, the 7th Circuit Court of Appeals examined the issue of whether Gary Jet had stated a contracts-clause claim. In a Thursday opinion, Judge William Bauer wrote Gary Jet did not raise such a claim, so it “cannot plausibly demonstrate that it is without a remedy for any violation of its contractual rights, which is the sine qua non of a Contracts-Clause claim.”

Specifically, Bauer wrote that Gary Jet is still operational at the airport and has not been forced to comply with the new provisions in the Minimum Standards. Additionally, the authority pointed to the 2014 agreement that held the New Minimum Standards would control the lease.

Thus, no legislative power was used to deny the FBO’s remedy for a breach of the 2007 lease, so the contractual dispute does not rise to a constitutional level, Bauer said. Instead, the 7th Circuit affirmed the district court’s dismissal and held Gary Jet’s remaining state law claims must be pursued in state court.
 

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