Gary Jet Center, Inc. v. AFCO AvPORTS Management, LLC ( 2017 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 16-1233
GARY JET CENTER, INC.,
Plaintiff-Appellant,
v.
AFCO AVPORTS MANAGEMENT LLC,
et al.,
Defendants-Appellees.
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.
ARGUED JANUARY 6, 2017 — DECIDED JULY 13, 2017
Before WOOD, Chief Judge, and BAUER and ROVNER, Circuit
Judges.
2 No. 16-1233
BAUER, Circuit Judge. Plaintiff-appellant Gary Jet Center, Inc.
is a Fixed Base Operator (FBO)1 at the Gary/Chicago Inter-
national Airport. Defendant-appellee Gary/Chicago Inter-
national 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.
1
A FBO is a commercial business allowed to operate on airport grounds
in order to provide services such as fueling, hangaring, and aircraft
maintenance.
No. 16-1233 3
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 supple-
mental 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 agree-
ment.
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 al., 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 Mini-
mum 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 Author-
ity 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-
4 No. 16-1233
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 Stand-
ards 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 jurisdic-
No. 16-1233 5
tion. At Gary Jet’s request, it relinquished jurisdiction over the
state law claims on January 19, 2016. This appeal followed.
DISCUSSION
We review de novo a district court’s decision granting
a motion to dismiss under Rule 12(b)(6), accepting all
well–pleaded factual allegations in the complaint as true and
drawing all reasonable inferences in favor of the appellants.
St. John v. Cach, L.L.C., 822 F.3d 388, 389 (7th Cir. 2016). To
avoid dismissal, the complaint must “state a claim to relief that
is plausible on its face.” Jackson v. Blitt & Gaines, P.C., 833 F.3d
860, 862 (7th Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009)).
The primary issue on appeal is whether Gary Jet has stated
a Contracts-Clause claim, as it is the sole basis for federal
jurisdiction. The Contracts Clause provides that “No state shall
… pass any … Law impairing the Obligation of Contracts … .
” U.S. CONST. art. I, § 10. “To succeed on a Contracts-Clause
claim, a plaintiff must demonstrate that a ‘change in state law
has operated as a substantial impairment of a contractual
relationship.’” Council 31 of the Am. Fed’n of State, Cty. & Mun.
Emps., AFL-CIO v. Quinn, 680 F.3d 875, 885 (7th Cir. 2012)
(quoting Gen. Motors Corp. v. Romein, 503 U.S. 181, 186 (1992)).
We have required plaintiffs to show “(1) that there is a contrac-
tual relationship, (2) that a change in law has impaired that
relationship, and (3) that the impairment is substantial.” Id.
(citation omitted). We only need to address whether there has
been an impairment of the contractual relationship in this case.
We have repeatedly found that the distinguishing charac-
teristic between an unconstitutional impairment and a contrac-
6 No. 16-1233
tual breach is whether the non–breaching party has an avail-
able remedy. Council 31, 680 F.3d at 885; Horwitz-Matthews, Inc.
v. City of Chicago, 78 F.3d 1248, 1250–51 (7th Cir. 1996). In
Horwitz-Matthews, the City and a developer entered into an
agreement in which the developer agreed to purchase a
condemned parcel of real estate from the City and redevelop
the land in accordance with the City’s urban renewal plan. 78
F.3d at 1249. The agreement was codified in a city ordinance.
Id. After years of delay, the City Council passed a second
ordinance that repealed the first ordinance and declared that
there was no contract for the sale and redevelopment of land
between the City and the developer. Id. at 1250. The developer
sued the City, alleging that its new ordinance impaired the
developer’s contractual rights under the Contracts Clause. Id.
at 1249.
The district court dismissed the developer’s constitutional
claim under Rule 12(b)(6). Id. We affirmed, reasoning that if a
state fails to perform on its contract, but the legal obligation to
pay damages for that breach remains, the contract has not been
impaired. Id. at 1251. We further explained that a contract is
impaired only when the legislation destroys both the obligation
to perform on the contract and the obligation to pay damages
for nonperformance. Id. Because the City’s repealing ordinance
merely announced the City’s termination of the contract, and
the City did not rely upon it as a defense to the developer’s
breach of contract claim, the developer could not state a claim
for a Contracts-Clause violation. Id. at 1251–52.
Gary Jet argues that the issuance of the New Minimum
Standards unconstitutionally impairs the 2007 Lease. The
district court found that because Gary Jet did not raise a claim
No. 16-1233 7
for breach of the 2007 Lease, the Authority had no occasion
to answer or raise any defenses to such a claim. The court
concluded that the nature of the Authority’s defenses was too
speculative to state a claim under Rule 12(b)(6). We agree. At
this juncture, the Authority has not relied on any legislative
power to negate any hypothetical claim by Gary Jet for a
breach of the 2007 Lease because no such claim has been
raised. Therefore, Gary Jet 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.
Gary Jet contends that it did not raise a claim for breach of
the 2007 Lease because it anticipated that the Authority would
rely on its regulatory authority over Gary Jet to defeat such a
claim. See Ind. Code § 8-22-3-11. However, the Authority’s
primary argument is that the parties agreed that the New
Minimum Standards would govern the 2007 Lease as part of
the 2014 Settlement Agreement. Therefore, this is a matter of
contract interpretation, not a constitutional violation.
The Authority has refused to waive entirely a defense that
relies on its regulatory authority because Gary Jet declined to
include this claim in its complaint, and thus it has been unable
to evaluate the merits of such a claim. This position strikes us
as a prudent litigation tactic. Because the district court dis-
missed the case without prejudice, if Gary Jet decides to bring
a claim for breach of the 2007 Lease in state court along with its
other state law claims, and the Authority relies upon its
legislative power, Gary Jet may have a viable Contracts-Clause
claim that could be refiled in federal court.
8 No. 16-1233
Relying upon E & E Hauling, Inc. v. Forest Preserve District
of DuPage County, Illinois, 613 F.2d 675 (7th Cir. 1980), Gary Jet
argues that it should not have to litigate a breach of contract
claim in state court before being permitted to bring a
Contracts-Clause claim. In E & E Hauling, the defendant Forest
Preserve District entered into a contract providing the plaintiff
the exclusive right to operate and maintain a landfill at a
recreational preserve. 613 F.2d at 677. The plaintiff and its
customers deposited liquids and sludge into the landfill. Id.
The District later adopted ordinances forbidding the deposit of
liquids and sludge at the landfill. Id. The District went so far as
to station guards at the landfill who turned away trucks and
threatened to arrest the drivers and impound the trucks. Id.
The plaintiff argued that the ordinances unconstitutionally
impaired its contract with the District in violation of the
Contracts Clause. Id. The district court dismissed the suit,
finding that the plaintiff was free to pursue a breach of contract
suit in state court. Id. We reversed and remanded, finding that
the ordinances had impaired the parties’ contract by preclud-
ing recovery for damages. Id. at 680–81. In dicta, we noted that
“[t]he plaintiff need not first discover in a state court action
that the law prevents a recovery in damages.” Id. at 681 n.8.
However, E & E Hauling is distinguishable from the instant
case. In the former case, we noted that the District used armed
guards to prevent the plaintiff from depositing sludge and
liquids at the landfill, and thus “used its legislative authority
to prevent the plaintiff from fulfilling its contract.” Id. at 681.
Here, no such obstruction of contractual rights has been
alleged; Gary Jet is still operational at the Gary Airport and has
not been forced to comply with the new provisions set forth in
No. 16-1233 9
the New Minimum Standards. Further, the Authority relies
upon the 2014 Settlement Agreement in which the parties
agreed that the New Minimum Standards would control Gary
Jet’s lease. No legislative power has been used to deny Gary Jet
a remedy for a breach of the 2007 Lease. Therefore, this
contract dispute has not risen to the level of a constitutional
impairment. Accordingly, we find that Gary Jet has failed to
state a Contracts-Clause claim. Because there is no basis for
federal jurisdiction, Gary Jet’s remaining state law claims must
be pursued in state court.
CONCLUSION
We AFFIRM the district court’s dismissal of Gary Jet’s suit.