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Gary Jet Center, Inc. v. AFCO AvPORTS Management LLC

United States Court of Appeals, Seventh Circuit

July 13, 2017

Gary Jet Center, Inc., Plaintiff-Appellant,
v.
AFCO AvPorts Management LLC, et al., Defendants-Appellees.

          Argued January 6, 2017

         Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:15-cv-00368-JVB-JEM - Joseph S. Van Bokkelen, Judge.

          Before Wood, Chief Judge, and Bauer and Rovner, Circuit Judges.

          BAUER, CIRCUIT JUDGE.

         Plaintiff-appellant Gary Jet Center, Inc. is a Fixed Base Operator (FBO)[1] at the Gary/Chicago International Airport. Defendant-appellee Gary/Chicago International Airport Authority is a municipal corporation that owns and operates the Gary Airport. Defendants-appellees Mays, Dillard, Pritchett, Cooper, and Irving, are members of the Authority's board. Defendant-appellee AFCO AvPORTS Management LLC manages operations at the Gary Airport.

         Gary Jet began operating at Gary Airport after entering into a lease with the Authority on December 9, 1991. The rules and regulations that control the operation of FBOs are commonly referred to as "Minimum Standards." In the Fall of 2006, Gary Jet and the Authority began negotiating a lease extension. At that time, the Minimum Standards contained a 1.5% charge on gross revenue. The rule stated that the Authority "intend[ed] to enforce" the 1.5% provision "for all commercial FBO services on the airport on or after" January 1, 2001, "pending the expiration of existing leases which do not incorporate these terms."

         Gary Jet's original lease did not contain this provision, and the Authority had not attempted to collect such a payment from Gary Jet prior to the Fall of 2006. Gary Jet objected to the provision, and the parties settled on an alternative -Gary Jet would instead pay a "supplemental rent" consisting of 10% of the amount of all fuel flowage, parking, and landing fees that Gary Jet paid to the Authority each year.

         Gary Jet and the Authority entered into a First Amended Lease Agreement on January 1, 2007 ("2007 Lease"). The lease stated that its term was 39 years, ending on December 31, 2045. The lease required Gary Jet to pay base rent plus the supplemental rent described above. The lease stated Gary Jet "shall abide by the provisions" of the Minimum Standards, except when those standards conflict with the 2007 Lease. In the event of a conflict, the terms of the 2007 Lease controlled. The lease further stated that the Minimum Standards "shall be a part of and be made applicable to" any subsequent FBO lease agreement.

         On December 9, 2013, Gary Jet filed suit against the Authority claiming breach of contract and a constitutional violation under 42 U.S.C. § 1983. See Gary Jet Ctr. v. Gary/Chi. Int'l Airport Auth., et ah, No. 2:13-cv-453 (N.D. Ind. Dec. 9, 2013). The parties entered into a settlement and mutual release agreement ("2014 Settlement Agreement") effective August 7, 2014. As part of the agreement, Gary Jet agreed to work in good faith with the Authority to develop revised minimum standards ("New Minimum Standards") for FBOs at the airport. Additionally, the parties agreed that the New Minimum Standards controlled in the event of a conflict between Gary Jet's lease and the New Minimum Standards. Gary Jet also contends that the parties agreed to waive the provision of the Minimum Standards requiring Gary jet to pay the Authority 1.5% of its gross revenue.

         On July 28, 2014, Gary Jet and the Authority agreed to amend the 2007 Lease with a revised lease ("2014 Amended Lease"). The 2014 Amended Lease included a provision in which the parties agreed that the Minimum Standards con- trolled in the event of any conflicts with the terms of the 2014 Amended Lease. Gary Jet executed the 2014 Amended Lease and the 2014 Settlement Agreement contemporaneously.

         Gary Jet and the Authority began exchanging drafts of the New Minimum Standards on December 5, 2014. The initial draft did not include a provision requiring Gary Jet to pay the Authority a percentage of gross revenue. On May 7, 2015, the Authority notified Gary Jet that it intended to include in the New Minimum Standards a requirement that each FBO pay the Authority a percentage of its gross revenues. Gary Jet objected, but the Authority approved the New Minimum Standards with the gross revenue provision on September 14, 2015.

         Gary Jet contends that the New Minimum Standards altered its relationship with the Authority by: requiring 1.5% of Gary Jet's gross revenue; raising rent from $0.43 to $0.50 per square foot; compelling the disclosure of confidential business information concerning Gary Jet's revenues; and requiring Gary Jet to pay to maintain the fuel farm. Gary Jet argues that the New Minimum Standards violate the Contracts Clause of the United States Constitution by impairing the obligations of the 2007 Lease. It also argues that the New Minimum Standards exceed the Authority's power under Indiana law, and constitute a breach of the 2014 Settlement Agreement.

         Gary Jet filed suit on September 24, 2015. The Authority moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on October 19, 2015. The district court granted the motion as to the Contracts-Clause claim without prejudice on December 18, 2015. It declined to dismiss the state law claims pending further briefing on the issue of supplemental jurisdiction. At Gary Jet's ...


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