     Case: 11-10958     Document: 00512037269         Page: 1     Date Filed: 10/30/2012




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                         October 30, 2012

                                       No. 11-10958                        Lyle W. Cayce
                                                                                Clerk

JNV AVIATION, L.L.C.,

                                           Plaintiff-Appellee Cross-Appellant,
v.

FLIGHT OPTIONS, L.L.C.,

                                           Defendant-Appellant Cross-Appellee.



                   Appeals from the United States District Court
                        for the Northern District of Texas
                              USDC No. 1:10-CV-69


Before STEWART, Chief Judge, and DeMOSS and GRAVES, Circuit Judges.
PER CURIAM:*
        Defendant-Appellant Cross-Appellee Flight Options, L.L.C. (“Flight
Options”) appeals from the district court’s ruling on summary judgment that
Flight Options breached its contracts with Plaintiff-Appellee Cross-Appellant
JNV Aviation L.L.C. (“JNV”) relating to fractional interests in two aircraft.
Flight Options also appeals the district court’s determination of the valuation
date for assessing the Interest Repurchase Value of the fractional interests.
JNV cross-appeals from the district court’s determination of the Interest

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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Repurchase Value and the district court’s denial of attorneys’ fees to JNV. We
AFFIRM IN PART and VACATE AND REMAND IN PART.
                  I. FACTUAL AND PROCEDURAL HISTORY
A.      The Operative Agreements
        This case involves two transactions whereby Flight Options sold fractional
interests in two aircraft to JNV.        The transactions are governed by “a
coordinated group of agreements,” which consists of two sets of Purchase
Agreements, Management Agreements, Master Interchange Agreements, and
Owners Agreements (collectively, the “Operative Agreements”). Our discussion
focuses on the Purchase Agreements and the Management Agreements.
        1.    General Transaction Terms and the Flight Program
        On or about April 18, 2002, non-party AVJ Exploration Corporation
(“AVJ”) entered into the first Purchase Agreement with Flight Options, whereby
AVJ purchased an 18.75% interest in a 1998 Cessna Citation Jet/525 aircraft
bearing FAA Registration Number N253CW, which Flight Options owned. On
or about May 1, 2002, AVJ entered into the second Purchase Agreement with
Flight Options, purchasing a 6.25% interest in a 1991 Cessna Citation V-560
aircraft bearing FAA Registration Number N583CW, which Flight Options
owned. The substantive provisions of the Purchase Agreements are the same.
On or about October 1, 2004, AVJ transferred all of its interests in the Purchase
Agreements to JNV pursuant to an Assignment and Assumption Agreement,
with the approval of Flight Options. The original Citation Jet and Citation V are
collectively referred to as “the Original Aircraft,” and JNV’s fractional interests
in the Original Aircraft are referred to as the “Interests.”




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       The Purchase Agreements also provide in Section 4.2(j) that Flight
Options could require JNV to exchange its Interests in the Original Aircraft for
interests in other aircraft (“Exchange Aircraft”) of the same make and model.1
       As a result of its fractional Interests in the Original Aircraft, JNV had the
right to operate the two aircraft, or comparable alternative aircraft, for a set
number of total hours per year. The Management Agreements govern the
responsibilities of the parties under this flight program. Specifically, Section 5.1
of the Management Agreements states that Flight Options shall provide JNV
with use of the Original Aircraft, or comparable alternative aircraft, for JNV’s
total number of allocated hours during the term of the agreements, subject to
certain restrictions. Other provisions of the Management Agreements address
various aspects of the flight program such as management fees, insurance, and
maintenance of the aircraft.
       Ohio law governs the Operative Agreements, and Flight Options drafted
the agreements.
       2.     Provision for Flight Options’ Repurchase of JNV’s Interests
       Section 4 of the Purchase Agreements provides several scenarios under
which Flight Options could repurchase JNV’s Interests, one of which is relevant
to the disposition of this appeal. Section 4.2(d) of the Purchase Agreements
states:
              At any time after 60 months from the Closing, [Flight
              Options] may at its discretion elect to terminate that
              portion of its fractional aircraft ownership program
              which involves aircraft of the same make and model as
              the Aircraft. In such event [Flight Options] shall have

       1
         Pursuant to Section 4.2(j), JNV entered into various Exchange Agreements with
Flight Options whereby the parties exchanged JNV’s Interests in the Original Aircraft for
interests in Exchange Aircraft. As the Interest Repurchase Value is based on the value of the
Original Aircraft, these exchanges are not material to this appeal. Therefore, we refer to
JNV’s Interests in the “Original Aircraft” herein for simplicity even where, technically, JNV
held interests in Exchange Aircraft.

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            the option to repurchase the Interest upon 90 days’
            notice to [JNV] for the Interest Repurchase Value, less
            a 7 percent remarketing fee.

Thus, Section 4.2(d) permits Flight Options to terminate JNV’s participation in
the program and repurchase JNV’s Interests in the aircraft.
      3.    Provision Regarding Determination of the Interest Repurchase Value

      In the event that Flight Options repurchases the Interests, Section 4.1 of
the Purchase Agreements delineates how the parties shall determine the
monetary value of JNV’s Interests, which the Purchase Agreements refer to as
the “Interest Repurchase Value”:
            For purposes of any repurchase transaction under this
            Purchase Agreement, the “Interest Repurchase Value”
            shall be calculated in the manner set forth in this
            Section 4.1. There shall first be determined the then-
            prevailing average fair market value (“Aircraft Value”)
            of the Aircraft. Aircraft Value shall be determined by
            mutual agreement of [JNV] and [Flight Options], or
            absent such agreement, by an independent appraiser
            mutually agreed upon by the parties, or absent
            agreement upon such appraiser, by a majority of three
            independent appraisers, one selected and paid for by
            [JNV], one selected and paid for by [Flight Options],
            and the third selected by the other two appraisers and
            paid in [sic] equally by [JNV] and [Flight Options]. . . .
            Such determination of Aircraft Value shall be made
            promptly enough to avoid delaying the closing of any
            repurchase transaction hereunder.

Thus, the Purchase Agreements provide that, in the event of repurchase, the
parties shall mutually agree on the Interests’ value or appoint one or more
appraisers to determine the value.
      4.    Termination Provision of the Management Agreements
      Section 2 of the Management Agreements contains the following
termination provision:

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             The term of this Management Agreement . . . shall
             terminate (i) on the date [Flight Options] repurchases
             the Interest from [JNV] or the Interest is otherwise
             transferred from [JNV] in accordance with the terms of
             the Purchase Agreement, (ii) upon termination by
             [JNV] due to [Flight Options’] default, or (iii) upon not
             less than 90 days [sic] written notice by [JNV] to [Flight
             Options] of termination under this clause if during the
             90-day period prior to the termination date specified in
             such notice the Additional Interest Owners2 have also
             given notice to [Flight Options] of such termination.

Accordingly, the Management Agreements provide that they terminate, inter
alia, when Flight Options repurchases JNV’s Interests.
B.      Flight Options Invokes its Option to Purchase JNV’s Interests and
        the Subsequent Correspondence Between the Parties

        By letters dated February 15, 2007, Flight Options notified JNV that it
intended to terminate JNV’s ownership interests in the Original Aircraft and
that Flight Options was repurchasing JNV’s ownership interests (“February
15th letters”):
             [W]e have decided to redeem your fractional aircraft
             interest (the “Interest”) in the aircraft . . . . Flight
             Options hereby provides notice to you effective three
             days from the date of this letter that we are exercising
             our option to repurchase the Interest under Section
             4.2(d) of your Purchase Agreement on ninety days’
             notice.

        The February 15th letters also notified JNV that, pursuant to the
Purchase Agreements, JNV’s flying privileges would be suspended “on the
earlier of ninety days from the effective date of this notice or such earlier date
as may be determined by Flight Options for the closing under the Repurchase


       2
       The Management Agreements define “Additional Interest Owners” as other parties
who own or lease the remaining undivided interests in the aircraft.

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Agreement[s].”3      Along with the February 15th letters, Flight Options
transmitted proposed Repurchase Agreements for the fractional interests in the
aircraft. These proposed Repurchase Agreements offered to repurchase the
aircraft interests for the terms contained therein. The February 15th letters
explained that Flight Options decided to repurchase the Interests in order to
modernize its fleet by selling off its oldest aircraft as buyers’ interests in these
aircraft expired. JNV did not sign the proposed Repurchase Agreements.
      Flight Options’ February 15th letters and repurchase offers began an
exchange of correspondence between the parties. On February 23, 2007, Flight
Options informed JNV that the sale of one aircraft was pending, and that the
Repurchase Agreements could be funded within thirty days instead of ninety
days if JNV executed the Repurchase Agreements. Then, on April 12, 2007,
Flight Options agreed to extend JNV’s flying privileges to August 1, 2007.
      The parties never agreed on repurchase terms. On April 20, 2007, Flight
Options advised JNV of its rights to initiate the appraisal process. On June 11,
2007, JNV advised Flight Options that JNV was “going to be going to Appraisal”
and that JNV would “be in contact with [Flight Options] once [JNV had] all of
[its] paperwork ready.” On September 5, 2007, Flight Options e-mailed JNV,
noting that “it has been some time since Flight Options has received any
communication with regard to JNV Aviation’s intent to commit to Repurchase
or move forward with an appraisal remedy to determine Fair Market Value,” and
requested that JNV reply. On October 12, 2007, Flight Options sent JNV a new
proposal, $543,754 minus applicable deductions, and offered “to go to appraisal
if we have reached an impasse.” On March 4, 2008, Flight Options sent updated
Repurchase Agreements, along with a request that JNV advise Flight Options



      3
         Pursuant to Section 9.4 of the Purchase Agreements, the notices became “effective
on the earlier of three days following its sending or the time of actual receipt.”

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of its position regarding repurchase. On September 19, 2008, Flight Options e-
mailed JNV another proposal for $519,324 minus applicable deductions.
      Throughout the course of this correspondence, neither party ever formally
initiated the appraisal process.
      On February 23, 2010, JNV’s counsel sent a letter to Flight Options
demanding that it acquire JNV’s Interests with a valuation date of August 1,
2007. When Flight Options refused to do so, JNV brought this suit in Texas
state court on April 6, 2010. On April 21, 2010, Flight Options removed the
action to federal court.
      Following cross-motions for summary judgment, the district court held
that Flight Options breached the Purchase Agreements by exercising its option
to repurchase JNV’s Interests and then failing to follow through on the
repurchase process by not invoking the appraisal remedy contained in the
agreements. The district court further held that the proper valuation date for
JNV’s Interests was August 1, 2007, the date that JNV’s flying privileges
expired. The district court then reasoned that Flight Options’ repurchase offer
price dated October 12, 2007, as the offer closest in time to August 1, 2007, was
the best measure of the Interest Repurchase Value. Thus, the district court
determined the Interest Repurchase Value to be $543,754 minus applicable
deductions, based on the October 12th offer, and it awarded prejudgment and
postjudgment interest on this amount. The district court also ruled that JNV
failed to show that it was entitled to attorneys’ fees under Ohio law because both
parties, not just Flight Options, were at fault for not completing the transaction.
Finally, the district court dismissed with prejudice Flight Options’ breach of
contract counterclaim, and, at JNV’s request, the court dismissed without
prejudice JNV’s claims for fraudulent inducement and violations of Texas’s
Deceptive Trade Practices–Consumer Protection Act (“DTPA”), Tex. Bus. & Com.
Code § 17.50(a)(1)(A).

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                                 II. DISCUSSION
        Flight Options appeals: 1) the district court’s ruling that it breached the
agreements; and 2) the district court’s ruling that August 1, 2007 was the proper
date for the valuation of JNV’s Interests. JNV cross-appeals: 1) the district
court’s determination of the Interest Repurchase Value of JNV’s Interests; and
2) the district court’s denial of attorneys’ fees to JNV.
        We review a district court’s grant of summary judgment de novo. Garcia
v. LumaCorp, Inc., 429 F.3d 549, 553 (5th Cir. 2005). “The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). We also review a district court’s conclusions of law,
including contractual interpretations, de novo. Garcia, 429 F.3d at 553. These
standards apply to all of the issues on appeal.
A.      Flight Options’ Breach of Contract
        The Purchase Agreements provide that Ohio substantive law governs the
breach-of-contract claims. Under Ohio law, the elements of a breach-of-contract
claim are offer, acceptance, consideration, breach, and damages. See, e.g., Lucio
v. Safe Auto Ins. Co., 919 N.E.2d 260, 267 (Ohio Ct. App. 2009). The central
element that is in dispute is whether Flight Options’ February 15th notice to
JNV was a valid acceptance of an offer.
        Under Ohio law, “a contract is to be read as a whole and the intent of each
part gathered from a consideration of the whole.” Saunders v. Mortensen, 801
N.E.2d 452, 455 (Ohio 2004). “If it is reasonable to do so, we must give effect to
each provision of the contract.” Id. “Common words appearing in a written
instrument will be given their ordinary meaning unless manifest absurdity
results, or unless some other meaning is clearly evidenced from the face or
overall contents of the instrument.” Foster Wheeler Enviresponse, Inc. v.
Franklin Cnty. Convention Facilities Auth., 678 N.E.2d 519, 526 (Ohio 1997)

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(citations omitted). Further, “writings executed as part of the same transaction,
will be read as a whole, and the intent of each part will be gathered from a
consideration of the whole.” Id. (citations omitted). Finally, a court should
construe a contract strictly against the drafter and in favor of the nondrafting
party. Safeco Ins. Co. of Am. v. White, 913 N.E.2d 426, 430-31 (Ohio 2009).
      We agree with the district court that Flight Options breached the
Purchase Agreements when it failed to repurchase JNV’s Interests after
exercising its right to do so and contemporaneously terminating JNV’s flying
privileges. The central dispute between the parties here is whether Section
4.2(d) of the Purchase Agreements contained a unilateral offer that, when Flight
Options notified JNV that it was “exercising [its] option to repurchase” JNV’s
Interests, created a binding contract between the parties. JNV asserts that
Flight Options’ notice represented Flight Options’ acceptance of JNV’s unilateral
offer to sell back the Interests, thereby creating a binding contract. Flight
Options contends that the exercise of its option to repurchase JNV’s Interests
was contingent upon JNV’s acceptance of the prices Flight Options proposed to
pay. Flight Options also argues that it was able to change its mind about
exercising its option to repurchase because of the absence of a binding contract.
However, Flight Options’ interpretation of the agreements contradicts well-
established principles relating to option contracts.
      Under Ohio law, an option becomes effective as a contract once it is
accepted. See Moss et al. v. Olson, 76 N.E.2d 875, 878 (Ohio 1947) (holding that,
where a lease provided that the lessee shall have the right to renew and extend
such lease for a term of three years upon the giving of specified notice, the
lessee’s giving of such notice automatically extended the lease for three years);
Plickerd v. Mongeluzzo, 596 N.E.2d 601, 606 (Ohio Ct. App. 1992) (citation
omitted) (“[T]he party having the option is of course not bound to exercise it; he
can withdraw from it at any time prior to the exercise thereof[.]”); see also

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generally 17 Ohio Jurisprudence 3d Contracts § 30 (“An option becomes effective
as a contract upon acceptance thereof[.]”).
        In light of the foregoing principles, it is clear to us that the Purchase
Agreements contained JNV’s unilateral offer to sell back its Interests to Flight
Options, an offer which Flight Options accepted in the February 15th letters.
Flight Options’ own internal communications and sworn testimony relating to
this litigation support this conclusion. Thus, once Flight Options initiated the
repurchase, it was obligated to follow the process that the Purchase Agreements
prescribed for determining the value of the Interests–either mutual agreement
on a price or, if mutual agreement was not possible, the appraisal remedy.
Flight Options breached the agreements by failing to do so. We therefore affirm
the district court’s grant of summary judgment to JNV on its breach of contract
claim and the district court’s denial of summary judgment to Flight Options on
its breach of contract counterclaim.
B.      Valuation Date for the Repurchase
        We also agree with the district court that the proper valuation date for
assessing JNV’s Interests is August 1, 2007, when JNV’s flight privileges
expired. The parties dispute whether Flight Options could terminate JNV’s
flying privileges without also repurchasing JNV’s Interests under the Operative
Agreements.
        As noted already, the Management Agreements terminate, inter alia, “on
the date [Flight Options] repurchases the Interest from [JNV].”4 In our de novo
review, we are convinced by JNV’s argument that these agreements, and thus
JNV’s flying privileges, would not terminate until Flight Options repurchased
JNV’s Interests. By terminating JNV’s flying privileges on August 1, 2007,


        4
          We note that the Management Agreements provide other triggering events for
termination of the agreements; however, repurchase of JNV’s Interests is the only one relevant
to this appeal.

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Flight Options was obligated to repurchase JNV’s Interests as of that date.
Moreover, Flight Options has not refuted JNV’s contention that Flight Options
implicitly acknowledges August 1, 2007 as the proper valuation date when Flight
Options argues that its October 12, 2007 offer price is the appropriate value of
the Interests because it is closest in time to August 1, 2007. Accordingly, we
affirm the district court’s summary judgment ruling that August 1, 2007 is the
proper date for determining the Interest Repurchase Value.
C.      Interest Repurchase Value and Attorneys’ Fees
        JNV argues that the district court erred by determining the Interest
Repurchase Value and by ruling that JNV was not entitled to attorneys’ fees
because neither party moved for summary judgment on these issues. We agree.
         Rule 56 of the Federal Rules of Civil Procedure provides:

              After giving notice and a reasonable time to respond, the
              court may: (1) grant summary judgment for a
              nonmovant; (2) grant the motion on grounds not raised
              by a party; or (3) consider summary judgment on its
              own after identifying for the parties material facts that
              may not be genuinely in dispute.

Fed. R. Civ. P. 56(f) (emphasis added).
        “[W]e have vacated summary judgments and remanded for further
proceedings where the district court provided no notice prior to granting
summary judgment sua sponte, even where summary judgment may have been
proper on the merits.” Tolbert ex rel. Tolbert v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 657 F.3d 262, 271 (5th Cir. 2011) (citations omitted). “[D]istrict
courts are widely acknowledged to possess the power to enter summary
judgments sua sponte, so long as the losing party was on notice that she had to
come forward with all of her evidence.” Celotex Corp. v. Catrett, 477 U.S. 317,
326 (1986); see also Tolbert, 657 F.3d at 271. We also have held that a district
court’s failure to provide such notice is reviewed for harmless error. Leatherman

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v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 28 F.3d 1388, 1398
(5th Cir. 1994). The error is harmless “if the nonmoving party admits that he
has no additional evidence anyway or if . . . the appellate court evaluates all of
the nonmoving party’s additional evidence and finds no genuine issue of material
fact.”       Id. (citations omitted); see also Mannesman Demag Corp. v. M/V
CONCERT EXPRESS, 225 F.3d 587, 595 (5th Cir. 2000) (reversing district
court’s sua sponte grant of summary judgment where it provided no notice to the
parties and the error was not harmless).5
         Regarding the Interest Repurchase Value, neither party moved for
summary judgment on this issue, and the district court did not provide notice to
the parties that it intended to determine this value on summary judgment sua
sponte. Thus, it was error for the district court to determine this issue on
summary judgment without providing such notice. Moreover, the error was not
harmless because the summary judgment record demonstrates that there is a
genuine dispute between the parties regarding the value of JNV’s Interests on
August 1, 2007: the parties have proffered vastly different measures of this value
and were prepared to offer expert testimony on this issue at trial. We therefore
vacate and remand the district court’s summary judgment determining the
Interest Repurchase Value.
         Similarly, the district court erred by deciding that JNV is not entitled to
attorneys’ fees based on Flight Options’ alleged bad faith. Ohio law permits the
recovery of attorneys’ fees in a breach of contract action where: 1) the contract
expressly provides for them; 2) a statute entitles the plaintiff to attorneys’ fees;
or 3) where the plaintiff demonstrates that the defendant acted in bad faith.


         5
         We recognize that Leatherman and Mannesman interpreted the former version of Fed.
R. Civ. P. Rule 56(c), which required that a district court provide a nonmovant with ten days’
notice prior to granting summary judgment sua sponte. The current version of Rule 56 does
not contain this specific ten-day requirement, but it does require notice and a reasonable time
to respond. Accordingly, the harmless error analysis still applies.

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Sturm v. Sturm, 590 N.E.2d 1214, 1217 (Ohio 1992). Whether a party is entitled
to attorneys’ fees is a question of fact. See id. (citation omitted) (acknowledging
that attorneys’ fees are allowed where defendant’s conduct is “in bad faith,
vexatious, wanton, obdurate or oppressive”).
      Neither party moved for summary judgment on the issue of attorneys’ fees,
and the district court did not notify the parties that it intended to rule on this
issue beforehand. Thus, the district court erred by deciding this issue on
summary judgment sua sponte. Moreover, Flight Options and JNV dispute the
facts underlying the parties’ conduct relevant to the bad faith inquiry.
Therefore, because JNV’s entitlement to attorneys’ fees is a question of fact,
there are material facts in dispute, and the parties did not have an opportunity
to come forward with all of their evidence on this issue, the district court’s sua
sponte summary judgment denying JNV attorneys’ fees was not harmless error.
Accordingly, we vacate and remand the district court’s ruling that JNV is not
entitled to attorneys’ fees.
                               III. CONCLUSION
      For the foregoing reasons, we AFFIRM the district court’s summary
judgment rulings on the parties’ breach of contract claims and the valuation date
for determining the Interest Repurchase Value. We VACATE the district court’s
determination of the Interest Repurchase Value and its denial of attorneys’ fees
to JNV, and we REMAND for further proceedings.




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