Monocoque Diversified Interests, LLC v. Aquila Air Capital DAC

Background

MDI is an aviation consulting firm, and Aquila buys and leases airplanes and engines. The parties entered into a Services Agreement on August 25, 2021. Under that agreement, MDI would identify and negotiate opportunities for Aquila to buy and lease aviation equipment. MDI would receive consulting fees and percentages of certain acquisition, leasing, and sale proceeds.

The agreement gave MDI the right, no more than once per calendar year and at its own expense, to engage a mutually agreed third-party auditing firm to examine Aquila’s books and records concerning the equipment. The agreement also restricted certain interference with business opportunities, including MDI’s diversion of business from Aquila and either party’s use of confidential information to solicit the other party’s customers or financial partners in competition with the other party.

The agreement allowed Aquila to terminate the consultancy without cause with 60 days’ written notice. Aquila sent its termination notice on August 15, 2022, and the parties agreed that the agreement remained in force until October 14, 2022. On August 15, Aquila also sent letters to equipment lessees stating that it had terminated its servicing relationship with MDI and would immediately take over servicing responsibilities.

On October 12, 2022, MDI demanded an audit and said it had engaged Weaver, a forensic accounting firm. Aquila said it would comply with an audit but objected to MDI’s unilateral selection of Weaver and to the proposed scope. Aquila identified several other firms it would accept, while MDI represented that those firms had declined the engagement.

Motion and Legal Standard

MDI sought a mandatory preliminary injunction. A preliminary injunction is an extraordinary temporary order issued before a final judgment. A mandatory injunction requires a party to take an affirmative action and carries a higher burden. MDI had to show a likelihood of success on its claims, likely irreparable harm without immediate relief, a favorable balance of equities, and consistency with the public interest.

MDI asked the court to order Aquila to submit to an audit by Weaver and to stop doing business with a long list of aviation entities and making negative statements about MDI or its principals.

Business-Relationship Allegations

The court held that MDI had not shown a likelihood of success on its claim that Aquila interfered with MDI’s business relationships. The letters to lessees were technically inaccurate in stating that Aquila had already terminated the relationship on August 15, because the agreement remained in force until October 14. But the letters did not state or imply that the termination was for cause, and they did not support a finding that Aquila interfered with MDI’s relationships or reputation.

MDI’s evidence consisted principally of testimony that its relationships and revenue worsened after the termination. The court found that this evidence did not establish that Aquila had done anything improper. Aquila was permitted under the agreement to terminate without cause and to take steps toward an orderly transition. MDI also did not argue or provide evidence that Aquila used confidential information to solicit MDI’s customers or financial partners.

The court further found that MDI had not shown likely irreparable harm. Although loss of reputation, goodwill, or business opportunities can sometimes qualify as irreparable harm, the evidence here did not show a threat to the continued viability of MDI’s business. The court also found that MDI’s proposed restrictions were far broader than any proven injury and were not narrowly tailored.

Audit Allegations

The court recognized that the Services Agreement created an audit right but held that MDI had not shown a likelihood of success merely because Aquila had not agreed to MDI’s unilateral selection of Weaver. The agreement required the parties to mutually agree on the auditing firm, and Aquila was not required to accept Weaver simply because firms it had previously identified allegedly declined the engagement.

The court also held that MDI’s proposed forensic audit exceeded the agreement’s scope. Reading the audit provision in context, the court concluded that MDI’s right to inspect Aquila’s books and records was limited to determining what Aquila had done with the equipment that might entitle MDI to fees. The court stated that MDI’s demand for regulatory filings, tax filings, and other broad categories of information went beyond that right.

The court did not decide the precise scope of any eventual audit. Instead, it directed the parties to work together to engage an auditor for an audit within the agreement’s scope. If they could not agree, the court stated that it would determine the scope at the conclusion of the case.

Disposition

The court denied MDI’s motion for a preliminary injunction. It also denied MDI’s request to strike argumentative portions of Aquila’s proposed findings of fact and conclusions of law or to file an additional brief. The order directed the Clerk of Court to terminate the motions at docket entries 4 and 41.