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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION MESA AIR GROUP, INC. and FREEDOM AIRLINES, INC., Plaintiffs, v. DELTA AIR LINES, INC., Defendant. : : : : : : : : : :

CIVIL ACTION FILE NO. 1:08-CV-1334-CC

[PROPOSED] FINDINGS OF FACT AND CONCLUSIONS OF LAW This case came before the Court first, for hearing on May 27-29, 2008, on Plaintiffs’ Motion for Preliminary Injunction [Doc. No. 24] and again, for a trial on the merits on April 20-23, 2010. Having carefully considered the evidence presented on behalf of Plaintiffs Mesa Air Group, Inc. (“Mesa”), and its whollyowned subsidiary, Freedom Airlines, Inc. “Freedom”) and Defendant Delta Air Lines, Inc. (“Delta”), the credibility of the witnesses, the briefing of the parties and the applicable law, the Court ORDERS and DECLARES (1) Delta is estopped from terminating the Delta Connection Agreement based on the grounds set forth in the March 28, 2008 termination letter; (2) the grounds proffered in Delta’s termination letter are invalid; (3) the Contract remains in effect, subject to its terms; (4) Delta’s conduct in attempting to terminate the Contract breached the
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implied and express duties of good faith and fair dealing; and (5) as a result of Delta’s bad faith conduct, Plaintiffs are entitled to recover their attorneys fees and litigation expenses. Regarding Delta’s counterclaim, the Court DENIES Delta’s claims for Breach of Contract and breach of the express and implied duty of good faith. In support of its ruling, the Court makes the following findings of fact and conclusions of law as provided in Federal Rule of Civil Procedure 52(a): I. A. FINDINGS OF FACT

The Delta Connection Agreement. 1. Mesa, Freedom and Delta entered into the “Delta Connection

Agreement” on May 3, 2005, under which Freedom operates up to 36 ERJ-145 regional jet aircraft (the “Aircraft”) for Delta under the Delta name and airline code, “DL.” (Third Am. Compl. ¶ 1; Pls.’ Ex. 21.)1 2. Freedom’s schedules and fares are set and published by Delta.

Freedom supplies the Aircraft, flight crews and other personnel and operates the

Mesa and Delta entered into "Amendment Number One" on March 13, 2007. (Third Am. Compl. ¶ 20; Answer ¶ 20.) (the Delta Connection Agreement, together with Amendment Number One, is referred to herein as the "Contract"). Amendment Number One provided for the addition and removal of certain Aircraft and addressed issues related to Delta's emergence from bankruptcy, but the Contract terms relevant to this action were unchanged. (Id.)
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Aircraft. (Third Am. Compl. ¶ 21; Answer ¶¶ 1, 21; Preliminary Injunction Hearing Transcript (hereinafter “Hr’g Tr.”)2 97:25; 98:1-5; Pls.’ Ex. 21) 3. Delta is obligated to pay Mesa: (1) certain “Direct Costs” defined in

the Contract; (2) a “Base Mark-up,” consisting of a 4% mark-up of Direct Costs for any month in which Mesa achieves a “completion rate” of at least 95%; and (3) “Monthly Incentive Compensation,” consisting of an additional 1% mark-up of Direct Costs for any month in which Mesa achieves a designated monthly incentive goal - generally a “completion rate” of 97% or more. (Pls.’ Ex. 21, Art. 3; Hr’g Tr. 221:18-222:14.) The Contract provides Mesa with monthly revenues of approximately $20 million. (Hr’g Tr. 102:15-17.) 4. The Contract does not allow termination without cause or for the

convenience of Delta until November 2012; however, Delta is entitled to terminate the Contract early if Freedom “fails to maintain a completion rate of 95% during any three months of any consecutive six month period ....” (Pls.’ Ex. 21, Art. 11.F(vi).) The Contract does not expressly define “completion rate.” (Pls. Ex. 21; Hr’g Tr. 416:4-6.) Delta contends that Freedom’s completion rate was less than

Pursuant to the February 18, 2010 Stipulation between the Parties, all evidence and testimony presented in connection with the May 27-29, 2008 Preliminary Injunction Hearing shall be considered part of the record for final judgment. (Stipulation [# 133].)
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95% in October and December 2007, and February 2008, and Delta purported to terminate the Contract on that basis. (Pls.’ Ex. 57.) 5. In March, 2009, the parties entered into “Amendment No. 2” to the

Contract. (Pls.’ Ex. 74.) This Amendment reflects the parties’ agreement regarding the effect of coordinated cancellations on the calculation of Freedom’s completion rate beginning in January 2009.3 (Trial Transcript (hereinafter “Trial Tr.”) 39:22-40:7.) Specifically, Amendment No. 2 provides that coordinated cancellations “shall not be included as a Delta Connection Flight under this Agreement, including for purposes of calculating the completion rate”. (Pls.’ Ex. 74.) B. Coordinated Or Commanded Cancellations. 6. Freedom’s completion rate is impacted by flight cancellations for

various causes. One cause is advance cancellations of flights due to forecasted weather events, expected congestion or other restrictions projected to impact flight operations, known at various times as “coordinated cancellations,” “OCC-coordinated cancellations,” “prioritized cancellations,” “mainline-initiated cancellations,” or “commanded cancellations.” For consistency, the Court will The parties executed a letter agreement identifying certain coordinated cancellations from January 10, 2009 through March 3, 2009 that would be removed from Freedom’s completion rate per the terms of Amendment No. 2. (Pls.’ Ex. 75.)
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refer to them as “Coordinated Cancellations.” (Hr’g Tr. 77:13-78:12; 208:12210:25; 545:16-546:24.) 7. During periods of irregular operations involving weather, congestion,

or other air traffic control (“ATC”) restrictions, it is often not possible to fly all of the flights scheduled to operate during a given period of time. In anticipation of such circumstances, Delta’s Operations Control Center (“OCC”) convenes “coordination calls” with Freedom and other Delta Connection Carriers. (ld. 167:2-168:4; 545:21-546:10.) 8. During these calls, Delta asks its regional carriers, including Freedom,

to make Coordinated Cancellations of flights in anticipation of weather and congestion-related restrictions. (Id. 161:24-162:17; 167:10-169:14; 208:19-210:25; 546:11-24.) Such cancellations enable Delta’s own aircraft (socalled “mainline aircraft,” typically larger aircraft with more passengers) to operate during times when not all scheduled flights can operate. (Id. 77:13-78:4; 173:3-10.) 9. The coordination calls occur about 24 hours in advance of the weather

or ATC event for which Delta is preparing. (Id. 545:24-546:10.) Delta’s objective is to have the regional carriers pre-cancel flights, notify passengers impacted by

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those Coordinated Cancellations before they leave for the airport, and reaccommodate them on other flights. (Id. 544:4-545:23.) 10. Unlike Delta, Freedom has no incentive to and does not pre-cancel

flights. (Id. 176:9-25.) Freedom’s goal is to “complete as many flights as possible,” because, as Mesa’s Director of Contract Revenue Management, Bud Tyler, testified, “to the extent we were requested to cancel flights, we lose the revenue associated with those flights.” (Id. 225:01-05.) Thus, when Freedom considers whether to cancel a specific flight due to weather or ATC restrictions, it typically waits until “about an hour and a half before its scheduled departure time.” (Id. 176:9-17) 11. When Freedom cooperates with Delta’s request to cancel a flight, it

loses any chance to operate the flight, because even if Delta’s weather forecast proves to be wrong and Freedom could have operated the flight at or near the scheduled time, the passengers will all have been notified of the Coordinated Cancellation and placed on different flights. (Hr’g Tr. 79:23-80:10; 207:1-5; 212:13-25; 213:1-20; 423:22-424:16; 548:19-24.) As Mesa’s COO, Mike Lotz testified, “[t]his is not the FAA or ATC system telling us we can only fly so many flights. This is Delta operations center calling us and asking us to reduce the number off lights that we are operating . . . .” (Id. 80:03-10.) In contrast, if

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Freedom did not agree to the Coordinated Cancellation, it could wait until close to scheduled departure time to determine if weather and ATC conditions permitted the flight to operate. (Id. 76:22-77:12; 80:3-10; 198:4-200:20; 204:13-23.) 12. FAA regulations prevent Delta from unilaterally cancelling Freedom’s

flights because only the aircraft certificate holder and the pilot may execute on the decision not to fly. (Id. 184:10-15.) Nonetheless, Delta expected that its requests for Coordinated Cancellations would be honored, and communicated this expectation to Freedom and the other regional carriers from people in the field to the highest levels of management. (Id. 162:13-17; 211 :01-06; 275:05-23; 358:1417; 364:1-12; 555:16-558:11; N. Stronach Dep. [#57] 40:2-14; 47:10-17; Bastian Dep. [#61] 38:23-39:2; 44:16-19.) 13. Recordings of the Delta OCC coordination calls bear this out. On one

call in December 2007, Delta’s James Ford said “there just can’t be any debate about who runs the network, and it’s got to be the [Delta] OCC. And we need you folks to follow the direction of the [Delta] OCC.” (Pls.’ Ex. 49; Hr’g Tr. 179:0224.) Mr. Ford reiterated this in an email reminding Freedom and the other Delta regional carriers about the “REQUIREMENT to follow the lead of the [Delta] OCC,” (Pls.’ Ex. 60) (all caps in original), and testified that Delta had an

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“expectation” that the regional carriers would cooperate with Coordinated Cancellations. (Hr’g Tr. 364:1-12.) C. Freedom Commences Operations Under The Contract In Florida, Where Coordinated Cancellations Are Infrequent. 14. Freedom began operating under the Contract by flying the Aircraft

throughout Florida, with the base of its operations in Orlando. (Id. 69:12-16). Freedom often posted a monthly completion rate greater than 99 percent, due to the favorable operating conditions in the region that made Coordinated Cancellations infrequent. (Id. 69:17-24; 223:21-224:14.) 15. The Contract does not expressly address the method of accounting for

Coordinated Cancellations. (Id. 415:16-416:1; Pls.’ Ex. 21.) Prior to September 2007, and while its base of operations remained in Orlando, Freedom submitted invoices to Delta based on a completion rate equal to the ratio of completed flights to scheduled flights, counting all cancellations, regardless of reason, against Freedom. (Hr’g Tr. 222:25-223:04.) Because Coordinated Cancellations were so infrequent, they did not impact Freedom’s compensation. (Id. 223:21-224:14.)

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D.

Delta Moves Freedom Flights To JFK, Where Coordinated Cancellations Are More Frequent, And Assures Freedom That It Will Not Be Penalized For The Move. 16. In late 2006 or early 2007, Delta announced that it would move a

“significant portion” of Freedom’s flights to JFK. (Id. 73:6-16; 270:1-271:11; 391:12-16.) 17. JFK is in one of the most congested air travel spaces in the world and

poor weather impacting flight operations is more common. (Id. 70:06-17.) Moreover, because JFK is one of Delta’s largest hubs, with more than 400 flights per day on average arriving from and departing to domestic and international destinations, Delta makes operation of those international and long-haul domestic flights a top priority. (Id. 160:25-162:12.) These conditions make Coordinated Cancellations much more frequent at JFK relative to Florida. (Ex. 53; Hr’g Tr. 83:19-85:7; 347:22.) 18. At its major hubs like JFK, when not all of the flights scheduled can

operate due to weather and other factors, Delta uses Coordinated Cancellations of smaller regional jet flights like those operated by Freedom to make way for its own larger mainline aircraft, including those departing to or arriving from international destinations. (Hr’g Tr. 162:5-17; 223:5-20.) Delta’s objective is to create the smallest possible inconvenience for the smallest possible group of passengers. (Id.

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273:15-25; 274:1-19.) As Delta’s former COO explained, “Delta does control most [Delta Connection] flying and typically cancel[s] and/or delay[s] more [regional jet] flights to allow bigger aircraft to be less delayed.” (Pls.’ Ex. 58; Hr’g Tr. 271:22-273:07.) Delta’s CFO, Ed Bastian, testified that “when there are operational problems . . . and coordinated cancellations, typically the smaller planes are cancelled to allow the larger international jets to land and take off.” (Bastian Dep. [#61] 46:15-47:8.)4 Delta’s former President of Delta Connection, J.T. Fisher, conceded that revenue considerations “absolutely” played a role in Delta’s decision-making regarding Coordination Cancellations. (Fisher Dep. [#63] 57: 15-20.) 19. Freedom was concerned that moving a significant number of flights to

the difficult operating environment at JFK would negatively impact Freedom’s performance. (Hr’g Tr. 391:12-16.) 20. Upon learning of Delta’s plans to relocate a significant number of the

ERJ Aircraft to JFK, Mesa’s CEO, Jonathan Ornstein, raised the issue with then For example, during October 2007, Coordinated Cancellations accounted for 4.2 percent of Freedom's flights at JFK, even though Delta cancelled only 0.3 percent of its flights for ATC and weather reasons. In December 2007, Delta cancelled 6.8 percent of Freedom's flights out of the JFK hub, even though Delta cancelled only 2.9 percent of its own JFK flights for ATC and weather reasons. In February 2008, Delta cancelled 5.2 percent of Freedom’s flights out of the JFK hub, while cancelling only 1.9 percent of its own JFK flights for ATC and weather reasons. (Pls.’ Ex. 53; Hr'g Tr. 83:19-84:20.)
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Delta COO Jim Whitehurst, sometime early in 2007. (Hr’g Tr. 73:17-74:18; 282:3-21.) Mr. Whitehurst assured Mr. Ornstein “we’re not trying to screw you with the move,” and said words to the effect of” it’s not our intention to penalize you for moving up to JFK. You know, that’s a decision that we decided to make, and so we are happy to work with you on the terms.” (Id. 277:19-278:13; see also id. 73:17-74:11; 282: 22-283:6.) E. Freedom and Delta Agree that Coordinated Cancellations Will Not Count Against Freedom’s Completion Rate. 21. Around the same time, Freedom’s Chief Operating Officer, Jorn

Bates, discussed the issue of Coordinated Cancellations with Courtney Boyd, the Delta manager responsible for the commercial relationship with Freedom. (Id. 303:16-22; 395:15-22.) As Mr. Bates explained: Freedom had historically operated primarily in the Orlando or Florida marketplace which was a quite favorable operating environment. We had placed some other airplanes in New York [Dash-8’s] and I saw the effects of that and also learned that our ERJ-145’s would soon be moving up to New York. Being that would be a significant change to our operational landscape, I felt it was time to talk to her about that and get a proper interpretation of the contract. (Id. 304:01-08.) Mr. Bates wanted an understanding with Ms. Boyd that when the move to JFK took place, Coordinated Cancellations would not be counted against

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Freedom in calculating completion rate. (Id. 304:12-16. )5 22. On February 6, 2007, Mr. Bates sent an email to Ms. Boyd “to recap

for agreement” a discussion they had the day before, stating that “when Delta requests Freedom to cancel flights, those flights will be credited to Freedom for purposes of incentive payments and minimum performance calculations on the commercial side.” (Pls.’ Ex. 47; Hr’g Tr. 305:3-10.) 23. Despite two follow-up emails from Mr. Bates. Ms. Boyd did not

respond and never rejected such an agreement. (Pls.’ Ex. 47; Hr’g Tr. 305:15¬306:1-7; 430:2-14.) She conceded that “it wasn’t a very high priority on [her] list to get this resolved.” (Hr’g Tr. 431:18-432:1.) 24. Mr. Bates met with Ms. Boyd in her office in late March or early

April 2007. (Id. 306:8-307:4.) He testified that Ms. Boyd agreed in that meeting Plaintiffs additionally contend that, notwithstanding contractual language providing that flights completed more than four hours late would be considered as not completed, Mr. Bates reached an agreement with Ms. Boyd to the effect that flights arriving four hours late but completed at Delta's request would be treated as completed flights for the purpose of calculating Freedom’s completion rate under the default provision of the Contract. Due to the agreement regarding Coordinated Cancellations, the Court recognizes that such an agreement regarding flights flown more than four hours late is unnecessary to find that Plaintiffs were not in default. Nevertheless, the Court also finds that such an agreement existed and per its terms, flights flown more than four hours late at Delta’s request are to be counted as completed flights for purposes of calculating Freedom’s completion rate under Article 11.F.(vi) of the Contract. (Hr’g. Tr. 308:21-25; 318:23-319:7; 339:23340:6; 344:10-18; Pls.’ Exs. 46, 47.)
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that Coordinated Cancellations would not count against Freedom’s completion rate on the commercial side. (Id.) 25. Mr. Bates did not put that agreement with Ms. Boyd in “writing

because he “had her word,” and had no reason to believe that he did not have an agreement with Ms. Boyd. (Id. 307:17-24.) Nonetheless, Mr. Bates did refer to the agreement in several contemporaneous communications. 26. In March or April of 2007, Mr. Bates reported to Mesa’s Mike Lotz

that he had reached an agreement with Ms. Boyd that Coordinated Cancellations would not be held against Freedom in calculating completion rates, and that Freedom would be responsible for cancellations within its own control - maintenance cancellations and crew cancellations – as well as weather and ATC cancellations. (Id. 74:19-76:11.) 27. In a July 13, 2007, email to Ms. Boyd, Wayne Aaron, a Delta

Connection Vice-President, Jim Ford, and others at Delta, Mr. Bates objected to Delta’s requirement that Freedom list all cancellations, including Coordinated Cancellations, in the same field in a daily operations report required by Delta. Mr. Bates told Delta that reporting all cancellations in the same field will “cloud the commanded cancellations we get credit for on the commercial side,” per his agreement with Ms. Boyd. (Pls.’ Ex. 45; Hr’g Tr. 309:6-311:22.)

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28.

In addition to being produced as part of Plaintiffs’ document

production (Pls.’ Ex. 45), this July 13, 2007 email was produced in this litigation in an electronic .pdf format. (Pls.’ Exs. 78, 79.) One copy of this .pdf contains highlighting of the language regarding commanded cancellations. (Pls.’ Ex. 79.) Neither Plaintiffs nor Delta were able to locate or produce the original email string in a native format. (Trial Tr. 149:19-21; Pls.’ Ex. 117 at 4.) Delta has alleged that this email, when originally sent in 2007, may not have contained highlighted “critical language” regarding commanded cancellations. (Delta’s Trial Brief, [#142] at 12; Pls.’ Ex. 117 at 3-4.) Delta does not, however, dispute that other portions of Mr. Bates’ July 13 query to Delta, Delta’s responses thereto, or the rest of the email chain are authentic. (Pls.’ Ex. 117 at 4.) 29. Mr. Aaron’s own testimony, however, confirms the authenticity of

Mr. Bates’ July 13, 2007 e-mail referencing “commanded cancellations.” In his May 2008 deposition, Mr. Aaron, when asked whether he had heard of the term “commanded cancellations,” stated that he had heard the term used by Mr. Bates in an email asking whether Delta was going to automate operational tracking. (Aaron Dep. [#60] 25:25-26:23; Pls.’ Ex. 132.) Mr. Aaron recalled the email and its reference to “commanded cancellations” from memory, and gave this testimony without being presented with the document. (Id.) He was not shown this email

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until later in his deposition—after he had given over 40 additional pages of testimony. At that time, Mr. Aaron again confirmed his receipt, recollection—and his reading—of this email, including the “critical language.” Id.) 30. Furthermore, Delta’s own computer forensics expert does not dispute (Id. 68:19-69:13;

that the language regarding commanded cancellations appeared in the document at the time they were printed to .pdf format on July 24, 2007 (Pls.’ Ex. 78) and July 23, 2007 (Pls.’ Ex. 79), respectively. (Trial Tr. 153:8-16, 156:2-6, 157:3-8.) Plaintiffs’ expert agreed. (Trial Tr. 263:14-19; Pls.’ Ex. 107.) Based on Mr. Aaron’s unsolicited testimony regarding his receipt of the specific message from Mr. Bates regarding commanded cancellations and the parties’ experts’ testimony, this Court finds that the language at issue—that reporting all cancellations in the same field will “cloud the commanded cancellations we get credit for on the commercial side”—appeared in Mr. Bates’ email when it was sent on July 13, 2007. 31. Neither Ms. Boyd nor anyone else at Delta challenged or questioned

Mr. Bates’ assertion of the agreement. (Hr’g Tr. 312:2-22, 368:15-17; Aaron Dep. [#60] 75:20-25; 76:1; 81:19-25; 82:1-2.) During this time, Delta was renegotiating all of its Delta Connection agreements as part of its bankruptcy and Ms. Boyd was

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under pressure to have each of these agreements timely approved by Delta’s creditors committee and the bankruptcy court. (Trial Tr. 287:14-288:13.) Although Ms. Boyd conceded that she “should have come back and communicated a little more with [Mr. Bates] about this,” it “just unfortunately wasn’t a very high priority.” (Hr’g Tr. 438:06-17.) 32. The Court finds that the testimony of Jorn Bates regarding the

agreement reached with Delta’s Courtney Boyd is credible, and corroborated by other evidence, including the July 13, 2007 e-mail. The Court acknowledges Ms. Boyd’s testimony that she never reached an agreement with Mr. Bates, (id. 396:1116), but the Court does not find Ms. Boyd’s testimony on this point to be credible. (Id. 631:1-8.) F. Delta Knows Of Freedom’s Practice Of Crediting Coordinated Cancellations, Does Not Object, And Pays Freedom On That Basis. 33. Regardless of this finding, even if the Court did not consider witness

credibility or the express agreement between Mr. Bates and Ms. Boyd, the Court finds that Delta knew or reasonably should have known of Freedom’s practice of taking credit for Coordinated Cancellations in the calculation of the completion rate, but failed to inform Freedom that Delta considered this practice to be contrary to the Contract. (Id. 631:9-14.) The result was that Freedom cancelled hundreds

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of flights at Delta’s request, and for Delta’s benefit, which Delta then used as a basis to cancel the Contract. 34. After the move to JFK, Coordinated Cancellations rose significantly.

(Id. 224:15-20.) In the seven months between September 2007 through March 2008, Delta directed Freedom to cancel more than 400 flights. (Mesa’s Resp. to Delta’s Interrog. No. 10.) In the three months during which Delta now claims Freedom fell below a 95% completion rate (October 2007, December 2007 and February 2008), Coordinated Cancellations totaled 78 (4.2%), 92 (6.8%), and 59 (5.2%) flights out of JFK, respectively. In contrast, Freedom incurred only 60 Coordinated Cancellations during the entire 21 months while Freedom operated out of Orlando. (Pls.’ Brief in Support of Prelim. Inj. [#24] at 9; Pls.’ Ex. 53 at 3.) 35. Beginning in the Summer of 2007, Freedom reported to Delta

Coordinated Cancellations and weather/ATC cancellations as separate statistics, on both a daily and monthly basis. (Pls.’ Ex. 1-13, 16; Hr’g Tr. 80:11-81:02; 152:5153:13; 173:11-174:17; 181:08-183:14; 262:2-264:4.) Delta understood that Freedom was reporting Coordinated Cancellations separately from weather/ATC cancellations. (Hr’g Tr. 213:21-215:01; 449:6-17.) Likewise, Jorn Bates’ July 13, 2007 e-mail to Delta plainly identified the issue of “commanded cancellations” for which Mesa was claiming credit. (Pls.’ Ex. 45.)

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36.

With the shift of flying to JFK, for the first time Coordinated

Cancellations affected the compensation to which Freedom was entitled. (Pls.’ Ex. 44; Hr’g Tr. 261:12-18; 313:09-17.) Freedom’s invoice for September 2007 flying (submitted to Delta in December 2007) excluded Coordinated Cancellations. (Pls.’ Ex. 14, 44; Hr’g Tr. 224: 15-227:9; 241:25-242:04; 312:23-25; 313: 1-21.) Freedom did not attempt to hide the basis of the calculation or mislead Delta on this issue. (Hr’g Tr. 631:14-16.) 37. For example, in a December 21, 2007 e-mail, Freedom’s Bud Tyler

informed Delta’s Hemang Patel and his superior, Chris Higgins – Freedom’s primary points of contact at Delta regarding billing issues – that the September 2007 invoice took credit for Coordinated Cancellations, based on “the proviso that these flights would not count against our completion factor.” (Pls.’ Exs. 14, 40; Hr’g Tr. 227:10-228:23.) 38. From Mr. Tyler’s email, Mr. Higgins acknowledged that Delta was

aware of Freedom’s position that it could take credit for Coordinated Cancellations in the completion factor. He conceded that it was wrong not to do anything to address Mr. Tyler’s explanation of completion factor, testifying: “it should have been looked into and responded to. . . . I should have done more with that email.”

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(Hr’g Tr. 353:13-354:21; see also H. Patel 5/20/08 Dep. [#58] (“Patel I”) 53:10-25; 56:20-23; 59:1-62:25, 76:1-25.) 39. Neither Mr. Patel nor Mr. Higgins ever responded to Mr. Tyler.

(Hr’g. Tr. 228:24-229:16; 352:24-353:14.) No one at Delta objected to Freedom about its method of invoicing for September 2007. (Id.) Delta’s only response was to pay Freedom – based on the completion rate calculation as reported and explained by Freedom. (Pls.’ Ex. 40; Hr’g Tr. 228:24-229:23; 353:2; 455:14-24.) 40. Freedom submitted its invoice for October 2007 flying in late

December 2007, and its invoice for November 2007 flying in January 2008. As before, the invoices credited Coordinated Cancellations as completed flights. (Pls.’ Exs. 15, 16; Hr’g Tr. 230:07-232:19; 233:14-21; 455:14-456:11.) As before, Delta voiced no objection, did nothing to alert Freedom that it disagreed with Freedom’s calculation of completion rate, and paid Freedom based on the completion rates reported and invoiced by Freedom. (Hr’g Tr. 231:7-24; 232:25-233:3; 455:14-456: 11.) Delta credited Freedom for the November invoice in February 2008. 41. Freedom submitted its invoice for December 2007 flying in February

2008. It too gave Freedom credit for Coordinated Cancellations. (Pls.’ Ex. 17; Hr’g Tr. 233:25-234:19.) On March 4, 2008, Mr. Patel e-mailed Mr. Tyler, indicating for the first time that Delta’s calculation of completion rate differed

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from Freedom’s, based on Delta treating Coordinated Cancellations as uncompleted flights. (Pls.’ Ex. 41; Hr’g Tr. 234:20-235:17.) 42. Delta had its own data available to verify the completion rate and

flight departure and arrival data provided by Freedom. (Hr’g Tr. 456:18-457:14.) Delta sets Freedom’s schedule and therefore knows how many flights Freedom is to fly in any month. (Trial Tr. 123:12-16) Delta knows when one of its flights is completed; it knows when those flights take off and when they land. (Trial Tr. 124:8-16; 125:17-126:23; 191:6-9.) Delta employees, or persons under contract with Delta (not Freedom or Mesa employees) enter the departure time and arrival time into Delta’s computer system. (Id.) Additionally, Freedom reported a variety of data to Delta on a monthly and daily basis. (Pls.’ Ex. 1-13, 16, 89; Hr’g Tr. 80:11-81:02; 152:5-153:13; 173:11-174:17; 181 :08-183:14; 262:2-264:4; Trial Tr. 129:4-21.) Among other information, every day Freedom reported scheduled and actual arrival times for each flight flown that day and every prior day that month. (Trial Tr. 129:4-21; Pls.’ Ex. 89.) With access to all of this information, Delta raised questions when it could not verify or reconcile Freedom’s invoices with its own records on other issues. (Hr’g Tr. 238:12-240:17; Pls.' Ex. 39 (questioning a fuel discrepancy in the amount of $4,126).)

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G.

Delta Induces Freedom to Cooperate with Delta’s Cancellation of Flights and then Seeks to Terminate the Agreement for a Completion Factor that Counts those Cancellations Against Freedom. 43. The Court finds that the Delta-initiated Coordinated Cancellation of

hundreds of Freedom’s flights was for Delta’s benefit, and for the benefit of Delta’s passengers. (Hr'g. Tr. 77:13-78:4; 173:3-10; Mesa's Resp. to Delta's Interrog. No. 10). Delta requested that Mesa cooperate with Delta’s requests to cancel these flights in order to promote the orderly operation of Delta’s network in times of airport congestion or when difficult operating conditions were anticipated (Hr'g. Tr. 161:24-162:17; 167:10-169:14; 208:19-210:25; 546:11-24.) Freedom cooperated with these requests. (Hr’g Tr. 88:17-89:8; Mesa’s Resp. to Delta’s Interrog. No. 10; Pls.’ Ex. 64) In fact, when Delta relocated much of Mesa’s flying to JFK in the late summer and early fall of 2007 where Coordinated Cancellations were much more prevalent, it did so contemporaneous with the express assurance by Delta’s then-Chief Operating Officer that that Mesa would not be “penalize[d]” by moving to JFK. (Hr'g. Tr. 277:19-278:13; see also id. 73:17-74:11; 282:22283:6.) 44. Delta knew that Freedom believed it could take credit for Coordinated

Cancellations in the calculation of its completion rate. (See Plaintiffs’ Ex. 63; Plaintiffs’ Ex. 40; Trial Tr. 181:5-182:14; 185:13-186:19; Patel I 52:25-53:25.)

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Delta asked—and expected—Freedom to cancel these flights in furtherance of its partnership with Delta. But Delta failed to inform Freedom that Delta considered Freedom’s practice of counting these flights as completed, for calculation of Freedom’s completion rate, to be contrary to the Contract. This is in spite of the fact that, as early as December 2007, Delta was looking into Freedom’s completion rate to determine if grounds for default existed. (Hr’g. Tr. 449: 22-450:2; 450:1620, 451:5-452:10; Pls.’ Ex. 97.) 45. Rather, Delta did not disclose this information until well after flying

in October and December 2007 had concluded, and well into the month of February, 2008. (Def.’s Ex. 31.) Simply put, Delta did nothing to put Freedom on notice that there would be “no forgiveness” for Mesa’s agreement to accept Delta’s Coordinated Cancellations until a meeting that took place on or about February 21, 2008 (Id.), when it was too late for Freedom to exercise its Contractual right to decline further Coordinated Cancellations as a means to avoid default. (Hr’g Tr. 459:15-23; Trial Tr. 296:5-298:23.) 46. Delta has proffered no explanation for its failure to inform Freedom

that Delta disagreed with its calculation of completion rate. Numerous Delta witnesses testified that when faced with an opportunity to alert Mesa to Delta’s disagreement with this practice, Delta simply did nothing. For instance, Courtney

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Boyd failed to respond to two e-mails from Jorn Bates in February 2007. (Pls.' Ex. 47; Hr’g Tr. 305:15-306:7; 429:10-430:14; 432:2-3, 23-5; 435:21-24.) Likewise, in July 2007, Delta’s Wayne Aaron (former Vice-President of Delta Connection), Courtney Boyd (former Director of Delta Connection) and James Ford (former General Manager of Delta Connection Performance) all received numerous copies of an e-mail from Jorn Bates alerting them to the extent to which a reporting change would “cloud the issue of commanded cancellations”, but none of these Delta Connection executives made any attempt to correct or even follow up on Mr. Bates’ comment. (Aaron Dep. [#60] 26:4-23; 73:5-75:19; Hr’g Tr. 366:22-368:14; 442:25-444:14.) Again, in December 2007, Delta’s Hemang Patel (then an MBA Associate – Delta Connection Finance) and Chris Higgins (then a Manager – Delta Connection) both received from Mesa’s Bud Tyler an e-mail that explained that Mesa’s September completion rate counted as completed flights those that were cancelled at the request of Delta. Yet, neither responded to Mr. Tyler or even forwarded the e-mail to Ms. Boyd. (Patel I 52:25-53:25; 59:1-59:25; Higgins Dep. 44:25-49:25; Trial Tr. 185:18-187:23.) 47. Once more in February 2008, Mr. Bates wrote to Ms. Boyd regarding

the agreement he believed that they had reached regarding Coordinated Cancellations. Ms. Boyd failed to respond at all, this time because she was

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instructed by her superiors not to. (Hr’g Tr. 314:25-315:6; 439:22-441:5.) In this way, Delta induced Mesa to cooperate with Delta’s requests to cancel Freedom flights, and benefited form Freedom’s cancellations, but Delta repeatedly failed to note its disagreement with Freedom’s accounting for those flights in its completion percentage. 48. Delta likewise had all of the information it needed to determine the

number of Freedom’s flights that arrived more than four hours late and the number of flights flown with zero passengers. (Trial Tr. 129:4-21; 191:10-192:17; 293:712; 304:17-305:11; 309:19-310:8.) 49. Yet Delta did nothing to put Freedom on notice that it disagreed with

Freedom’s crediting of these flights in its calculation of completion rate until even later – March 28, 2008. (Hr'g. Tr. 446:18-24; 457:12-458-13; 459:15-23; 578:511; Pls.' Ex. 48.) Delta did not honor its contractual obligation to discuss with Mesa any concerns about performance under the Contract (Pls.’ Ex. 21, Art. 10.B.) Instead, Delta capitalized on its own failure to raise the issue previously, and attempted to terminate the Contract based in part on its re-calculation of the completion rate to exclude from completed flights, Coordinated Cancellations, flights flown more than four hours late, and flights flown with zero revenue passengers. (Hr'g. Tr. 469:5-22; 533:15-535:6.)

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50.

Delta’s internal documents reveal a plan to respond to rising fuel

prices in 2007 by “actively enforc[ing] exit provisions in contracts” to reduce regional jet capacity. (Pls.’ Ex. 56 at 3.) The plan singled out the Mesa ERJ Agreement for cancellation. (Id.) These documents show that as late as March 2008, Delta sought to cancel the Mesa Contract but even then believed that Freedom was not in default. (Id.) Subsequently, Delta initiated negotiations to buy out the Mesa contract, and when negotiations proved unsuccessful (Hr'g. Tr. 536:11-537:4; 585:18-586:11), Delta, for the first time, took the position that as a result of the Delta-initiated coordinated cancellations, as well as the flights flown four hours late and those flown with zero revenue passengers, that Freedom had missed the 95% completion requirement in three out of six months and purported to terminate the Contract. (Pls.’ Ex. 48, Delta’s Resp. to Req. for Admission, No. 52; Pls.' Ex. 57.) 51. Delta gave notice of terminating the Contract on this basis, even

though in both January 2008 and March 2008, Delta had informed Freedom that its performance under the Contract had been “excellent” and that it should expect “increased flying at JFK by summer.” (Pls.’ Ex. 66; Hr'g. Tr. 463:15-464:15.) 52. Freedom justifiably relied on the representations, omissions and

conduct of Delta to believe that its method of calculating completion rate during

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the three months at question (October and December 2007, and February 2008) was acceptable to Delta. Moreover, Mesa’s Mike Lotz testified that had Freedom been aware that Coordinated Cancellations were going to count against Freedom in calculating its monthly completion rate, Freedom “would have immediately stopped cooperating with Delta and we would not have taken those requested cancellations. We would have told Delta no, we would not do it.” (Hr’g Tr. 88:0716.) The evidence shows that had Freedom not honored Delta’s requests for Coordinated Cancellations, Freedom would likely have operated a number of those flights. (See Pls.’ Ex. 53 at 4, showing that in October 2007, for example, Freedom’s Coordinated Cancellations at JFK were 78 (4.2% of its scheduled flights), while Delta cancelled only 8 flights (0.3%) of its flights due to weather/ATC; Hr’g Tr. 86:18-87:10.) H. The Parties Have A History Of Modifying The Contract Without Signed Writings. 53. Freedom’s reliance on the agreement between Mr. Bates and

Ms. Boyd was reasonable for the additional reason that the parties had previously acted upon agreements and modifications to the Contract that were not reduced to writing. (Hr’g Tr. 247:8-248:6.) 54. Article 23 of the Contract states that no amendment or modification

shall be effective unless it is in a signed writing. (Pls.’ Ex. 21, Art. 23.) The Court
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finds, however, that on several occasions unrelated to the present dispute, Delta agreed without signed writings to modify the Contract, and to perform in ways different than the Contract terms that benefited Delta. 55. For example, Article 3.J. details procedures for annual adjustments to

the rates paid by Delta to Freedom for Base Compensation. (Pls.’ Ex. 21, Art. 3.J.; Hr’g Tr. 406:13-18.) In late 2005, however, Freedom agreed verbally to freeze its rates for 2006 rather than revise them through the process set forth in the Contract. Delta accepted the benefits of this verbal agreement without a signed writing. (Hr’g Tr. 408:01-13; 411:11-15.) 56. In 2006, Freedom verbally agreed to adjust its Base Compensation

rates for 2007 in an amount equal to the annual change to the consumer price index (CPI), rather than the method provided for by the Contract. (Id. 406:19-407:25.) Delta accepted the benefits of this verbal agreement without a signed writing. (Id. 409:1-6.) 57. In 2008, the parties again adjusted the Base Compensation rates

pegged to CPI, simply by extending their past practice, and without a signed writing or express verbal agreement. (Boyd Dep. [#64] 100:23-101:19.) Again, Delta accepted the benefits of this unsigned agreement. Collectively, this represented a savings of hundreds of thousands of dollars to Delta based on

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nothing more than verbal agreements and conduct to depart from the Contract’s terms. (Hr’g Tr. 411:11-19.) 58. As another example, Freedom agreed, at Delta’s request, to remove

two of the Aircraft from the Contract early, before the time set by the Contract’s terms. Although the parties contemplated a signed agreement, Freedom acted upon this agreement, reached through discussion and emails, and removed the Aircraft as promised, without a signed writing. Delta accepted the benefits of this agreement without a signed writing, and through the date of the preliminary injunction hearing, no such signed writing existed. (Id. 410:6-411:9.) 59. This history of verbal agreements and agreements by conduct to

depart from the Contract terms makes all the more reasonable Freedom’s reliance on Delta’s representations, omissions and conduct (including payment of invoices) regarding Freedom’s method of calculating completion rate by crediting Coordinated Cancellations. Indeed Ms. Boyd agreed that based on Delta’s settlement of Freedom’s invoices, “it was reasonable for Freedom to think that Delta agreed with [Freedom’s completion rate] calculation method”. (Trial Tr. 313:18-314:7.)

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I.

As A Basis To Terminate The Contract, Delta Recalculates Completion Rates, But Does Not Inform Freedom Until It Sends Its Termination Letter. 60. On February 28, 2008, Delta Connection Senior Vice President Don

Bornhorst told Mesa’s Jonathan Ornstein, Mike Lotz and Jorn Bates that Delta would not credit Freedom for Coordinated Cancellations, and that if it had done so previously, that “was wrong.” (Hr’g Tr. 313:22-314:24; 578:12-579:3.) Following the call, Mr. Bates e-mailed Ms. Boyd, describing their agreement that “any [coordinated] cancellations would be backed out for the purpose of commercial purposes and not operational performance goals.” (Pls.’ Ex. 43; Hr’g Tr. 314:1224.) At the direction of her superior, Mr. Bornhorst, Ms. Boyd did not respond to this e-mail or in any way indicate to Mr. Bates that there was no such agreement. (Hr’g Tr. 314:25-315:6; 439:22-441:5.) 61. On about March 14, 2008, Delta senior management met to discuss an

internal presentation entitled “2008 Reduction Strategy Briefing -Delta Connection Contract Carriers.” (Pls.’ Ex. 56; Hr’g Tr. 447:10-20.) Under a heading called “Action Plan – Contract Carriers,” the document states: “Financial savings from reductions will be sourced from 3 perspectives: . . . Cancellation of all or part of Freedom (Mesa) agreement.” (Pls.’ Ex. 56 at 3; Hr’g Tr. 447:21-448:10.) This plan was consistent with a strategy upon which Delta had embarked upon, in

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response to rising fuel prices, to reduce the regional jet capacity in Delta’s fleet. (Hr’g Tr. 159:10-160:12; 450:16-451:15; 461:25-463:9; Pls.’ Exs. 17, 55.) As Edward Bastian, Delta’s Vice President and Chief Financial Officer said, “we have too many 50-seat jets.” (Bastian Dep. [#61] 12:8-13; Pls.’ Ex. 55.) Delta made reduction of regional jet capacity a priority. (Bastian Dep. [#61] 9:19-23; 24:2425; 25:1-19; Pls.’ Ex. 56.) 62. The “Reduction Strategy Briefing” further states, under the “Action

Plan” section: “Aggressively monitor carrier performance and costs to actively enforce exit provisions in contracts: Freedom (Mesa) only true opportunity (on 1st of 3 strikes).” (Pls.’ Ex. 56, page 3) (emphasis added.) There was no dispute that Freedom’s completion rate for February 2008 was less than 95%, even with credit for Coordinated Cancellations. Thus it appears that, as late as March 14, 2008, even Delta believed that Freedom was not in default for the months of October and December 2007. (Hr’g Tr. 448:11-449:5.) 63. Sometime after March 14, 2008, Delta recalculated Freedom’s

completion rates back to at least October 2007. Delta found that it could show completion rates less that 95% for October and December 2007, as well as February 2008. Delta, however, did not share this belief or its recalculations with Freedom. (Hr’g Tr. 90:5-19: 457:15-458:13.)

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64.

Instead, in late March, 2008, Delta’s Don Bornhorst called Mesa’s

CEO, Jonathan Ornstein, to discuss a possible buyout of the Contract. (Id. 585:07586:11.) Mr. Ornstein said he was open to discussion, but that given the disruption to Mesa and Freedom that would result from early termination, the price would likely be too high for Delta. (Id. 585:07-586:11; Bornhorst Dep. [#56] 176:10183:22.) Shortly after, Delta sent its purported termination letter to Freedom, on March 28, 2008 (“the Termination Letter”). (Pls.’ Ex. 57.) 65. The sole reason for termination given in the Termination Letter was

that Freedom had dropped below a completion rate of 95% in October and December 2007 and February 2008, and had thus allegedly defaulted on the Contract. (See id.) 66. It is undisputed that prior to the Termination Letter, Delta never

communicated to Freedom that its completion rate had fallen below 95% for any three months during any consecutive six month period. (See Pls.’ Ex. 48, Delta’s Resp. to Request for Admission, No. 52.) Prior to March 28th, no one at Delta ever suggested that Freedom was at risk for default. (Hr’g Tr. 313:22-25; 314:1¬11.) To the contrary, in late January 2008, Mr. Bornhorst had told Mr. Ornstein that Freedom’s recent operational performance under the Contract and customer satisfaction scores had been excellent. (Pls.’ Ex. 42; Hr’g Tr. 283:14-

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284:23; 581:8-17.) As late as March 20, 2008, just eight days prior to the Termination Letter, Delta’s Courtney Boyd e-mailed the Mesa and Freedom Chief Operating Officers stating that Freedom should expect “increased flying at JFK by summer.” (Pls.’ Ex. 66; Hr’g Tr. 463:15-464:15.) 67. Freedom thus relied both on its understanding that there was an

agreement with Delta and on the belief that Delta would not hold against Freedom the actions taken in conformity with Delta’s requests -- actions intended to show good partnership with the mainline carrier. (Hr’g Tr. 88:17-89:01.) Freedom would not have accepted Delta’s Coordinated Cancellation requests if it had known that Delta could then use Freedom’s cooperation as grounds to terminate the Contract. (Id. 88:3-89:1.) 68. As a result of the attempted Contract termination, Mesa retained an

outside financial advisor and bankruptcy counsel (id. 116:22-118:12), who prepared papers necessary to file bankruptcy (id. 117:3-18). Mesa’s President and Chief Financial Officer testified that if Mesa had been unable to secure an injunction, Mesa’s bankruptcy filing was imminent. (Id. 115:18-116: 13; 9:10.) J. Plaintiffs’ Damages 69. Plaintiffs have incurred and are seeking to recover certain expenses

related to the prosecution of their case to prevent Delta from unlawfully

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terminating the Contract. (Third Am. Compl. ¶¶ 104-105.) These expenses consist of fees and expenses provided by: Jones Day, Trial Exhibits, Inc., Grant Thornton, Seabury Group, and Cadwalader Wickersham & Taft. (Trial Tr. 42:14-43:5; 33221-25.) 70. The parties have stipulated that Plaintiffs’ expenses related to Trial

Exhibits, Inc. for trial presentation assistance for the preliminary injunction hearing in the amount of $11,284.70 were necessary and reasonable in given the nature of the engagement and the locality in which the work was performed. (Stipulation [#144]; Pls.’ Ex. 83.) This Court agrees. 71. The parties have also stipulated, and this Court agrees, that the fees set

forth in the Jones Day billing statements produced in this litigation constitute fees and expenses incurred in this case, and that the hourly rates are reasonable given the nature of the engagement and the locality in which the services were provided. (Stipulation [# 144].) This Court agrees. 72. Through and including February 2008, Plaintiffs have incurred

$1,813,108.68 in fees and expenses for the work performed by Jones Day on this matter. A majority of the work for this matter was performed by a core group of lawyers, four of whom have worked on this matter since the beginning through the present (Trial Tr. 93:1-7; Pls.’ Ex. 80); three whose involvement was concentrated

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towards the preliminary injunction (Trial Tr. 93:19-94:20; Pls.’ Ex. 80); and two who were recently added to the team. (Trial Tr. 94:21-95:10, Pls.’ Ex. 80) This team of attorneys spent 3,539.15 hours on the matter, generating fees in the amount of $1,374,215.00. (Trial Tr. 93:1-95:10; Def.’s Ex. 151; Pls.’ Ex. 80.) Based on the difficult and protracted nature of this litigation, (Trial Tr. 86:6-12) the work descriptions provided in Jones Day’s billing statements, and the testimony of Mr. Garrett, the Court finds that the tasks performed and hours billed by these attorneys were necessary and reasonable given the nature of the engagement. 73. Another significant portion of the work performed by Jones Day

related to the review and production of documents in this matter. Jones Day attorneys produced approximately 64,000 pages (and by the nature of document production, reviewed much more) in approximately six weeks. (Trial Tr. 89:13-18, 91: 2-10; Def.’s Ex. 151.) This work constituted approximately 861 hours and $226,505 in fees. (Trial Tr. 88:22-24, Pls.’ Ex. 80, Def.’s Ex. 151.) The Court finds that, based on the complex nature of the litigation and the volume of documents produced on the expedited basis, that the work performed by this group of individuals was necessary and the number of hours spent in completing this work was reasonable.

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74.

Delta appealed this Court’s grant of the preliminary injunction

causing Plaintiffs to incur fees and expenses related to that appeal. In addition to the core members of the litigation team, Jones Day utilized two members of its Issues and Appeals practice to help defend against Delta’s appeal of the preliminary injunction. (Trial. Tr. 90:18-91:1, 91:16-92:24; Pls.’ Ex. 80.) These attorneys billed a total of 51.50 hours on the matter, for a total of $18,087.50. (Trial Tr. 90:18-91:1, Def.’s Ex. 151.) Based on the nature of the appeal and the billing descriptions of these attorneys the Court finds that the work performed and hours billed by the Issues and Appeals attorneys were necessary and reasonable. 75. Early in this litigation, 58 hours were spent on bankruptcy-related

issues by members of Jones Day’s restructuring and airline practices. (Trial Tr. 89: 19-90:9.) The fees billed by these attorneys total $28,937.50. (Id.; Def.’s Ex. 151; Pls.’ Ex. 80.) A separate group of attorneys performed various discrete tasks on the matter, for a total number of 46.50 hours and $14,475.00 billed. (Def.’s Ex. 151, Pls.’ Ex. 80.) Based on the testimony provided by Mr. Garrett and the billing descriptions submitted by these attorneys, the Court finds that the tasks performed and hours billed for performing this work to be necessary and reasonable. 76. The remainder of the time billed to this matter consists of 336.9 hours

or $49,799.75 in fees billed by paralegals and litigation support personnel. (Def.’s

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Ex. 151, Pls.’ Ex. 80.) Based on the nature of the case and the billing descriptions submitted, the Court finds that the tasks performed and hours billed by the paralegals and support personnel were necessary and reasonable. 77. The remaining amount Plaintiffs seek to recover for litigation

expenses related to Jones Day is expenses totaling $85,496.43. (Trial Tr. 95:1618; Pls.’ Ex. 80.) Based on a review of the invoices submitted and the complex nature of the litigation, the over two-year duration of the matter and the testimony provided at trial, the Court finds that these expenses were reasonable and necessary. 78. Plaintiffs engaged the services of Grant Thornton to manage the

technical aspects of its collection, processing and production of documents. (D. Anderson Dep. [#170] 13:15-14:1; Pls.’ Ex. 130). Grant Thornton collected over 860 gigabytes of data from Plaintiffs (Trial Tr. 88:22-24) and assisted in the production of over 64,000 pages of documents. (Id. 91:2-10.) Grant Thornton performed this task over a period of six weeks. (Anderson Dep. [#170] 14:2115:14; Pls.’ Ex. 130.) This time period was significantly shorter than is customary for this type of engagement. (Id.) Grant Thornton billed Plaintiffs on an hourly basis. (Anderson Dep. 28:18-19; Pls.’ Ex. 81, 130.) Before Grant Thornton submitted its invoices to Plaintiffs, it deducted or wrote off significant amounts of

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time charged for work performed for Plaintiffs. (Anderson Dep. [#170] 19:5-20:3; Pls.’ Ex. 30.) The amounts invoiced to, and paid by, Plaintiffs reflect the reduced charges. (Id.) Based on a review of the invoices and the testimony of the project supervisor, Douglas Anderson, the Court finds that the services performed by Grant Thornton were necessary to the prosecution of Plaintiffs claims in this matter and the hourly rates charged by Grant Thornton are reasonable given the nature of the engagement and the locality in which the services were provided. The Court further finds that the total fees and expenses charged for those services, $79,099.15 to be reasonable. 79. As set forth in paragraph 68, Delta’s attempted termination of the

Contract caused Mesa to retain an outside financial advisor, Seabury Group. (Hr’g. Tr. 116:22-118:12.) But for Delta’s attempted termination of the Contract, Mesa would not have hired Seabury. (Trial Tr. 47:21-23.) Mesa retained Seabury within weeks after receiving Delta’s termination letter. (Trial Tr. 45:21-24.) Before retaining Seabury, Mesa spoke to several other firms, but ultimately retained Seabury due to the its expertise regarding the airline industry and aircraft leases. (Trial Tr. 45:25-46:19.) 80. The work performed by Seabury for Mesa can be divided into three

areas: restructuring, cash management and bond-related issues. (Seabury Dep.

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[#169] 16:11-19; Trial Tr. 46:20-47:20, Pls.’ Ex. 131.) Plaintiffs are only seeking to recover for costs and fees related to the restructuring and cash management work. (Trial Tr. 47:24-48:7.) These costs and fees total $413,508 and consist of $112,500 in fees from the May 6, 2008 invoice (Seabury Dep. [#169] 32:9-12; Pls.’ Exs. 82; 131); $252,113 in fees and $39,295 in costs from a May 31, 2008 invoice (Seabury Dep. [#169] 43:4-8; 44:7-11;47:5-16; Pls.’ Exs. 82, 131), and $9,600 related to services performed by Organizational Concepts in May 2008 (Seabury Dep. [#169] 42:13-19; Pls.’ Exs. 82, 131). 81. The $112,500 in fees invoiced on May 6, 2008 were incurred as part

of Seabury’s restructuring services. As part of these services, Seabury evaluated Mesa’s businesses and prospects; assisted in the development of the Mesa’s longterm business plan and related financial projections; assisted in the development of financial data and presentations to the company’s board of directors, various creditors and other third parties; analyzed the company’s financial liquidity and evaluating alternatives to improve liquidity; and evaluated the company’s debt capacity and alternative capital structures. (Seabury Dep. [#169] 39:13-17, 40:312; Pls.’ Ex. 131.) 82. The $291,408 invoiced on May 31, 2008, consists of $252,113 in fees

and $39,295 in costs incurred as part of Seabury’s cash management services.

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(Seabury Dep. [#169] 43:4-8, 13-24; 44:7-11; 47:5-16; Pls.’ Exs. 82; 131.) As part of its cash management services, Seabury provided Mesa with assistance in planning, training and managing a vendor control program, which would assist Mesa is managing its relationships with vendors system-wide as a means of minimizing cash requirements leading up to, as well as during, reorganization while maintaining continuity of operations. Seabury also evaluated opportunities to improve Mesa’s liquidity and maintain its cash. (Seabury Dep. [#169] 45:11-13, 46:1-10; Trial Tr. 62:4-15; Pls.’ Exs. 82, 131.) 83. The fees charged by Seabury to Mesa related to Seabury’s

restructuring and cash management services are reasonable and customary for these types of services in the regions in which these services were performed. (Seabury Dep. [#169] 32:9-12; 38:25-39:5; 42:13-24; 43:4-8; 44:7-45:47:5-20; Pls.’ Exs. 82, 131.) Based on a review of the invoices submitted (Pls.’ Ex. 82) and the testimony of Mr. Lotz and Seabury Group, the Court finds that the work performed by Seabury was necessary considering the nature of the engagement. Plaintiffs’ engagement of Seabury was necessitated by and was directly related to Mesa’s potential bankruptcy in 2008. The Court further finds that the total amount charged and the total amount sought to be recovered by Plaintiffs for the services provided by Seabury are reasonable.

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84.

As a result of Delta’s attempt to terminate the Contract, Plaintiffs

retained the law firm of Cadwalader, Wickersham & Taft (“Cadwalader”) to prepare Mesa’s initial motions for its potential bankruptcy and to provide related advice. (Trial Tr. 43:9-16; 45:3-7.) Cadwalader provided advice on the jurisdiction in which Mesa should file bankruptcy and ways in which Mesa could attempt to avoid filing bankruptcy by performing on out-of-court restructuring. (Id. 43:17-44:6.) Plaintiffs are seeking to recover $500,000 in fees and expenses related to the work performed by Cadwalader. (Id. 44:12-45:2; Pls.’ Ex. 84.) But for Delta’s attempted termination of the Contract, Mesa would not have engaged the services of Cadawalader and would not have incurred the fees and expenses related to Cadwalader’s work regarding Mesa’s reorganization and a potential bankruptcy filing in 2008.6

The parties have agreed that the Record will remain open for the submission of evidence regarding (1) Jones Day invoices for March and April, 2010 in addition to its fees and expenses related to the drafting and submission of Plaintiffs’ proposed Findings of Fact and Conclusions of Law in May, 2010; (2) the reduction of Jones Day fees and expenses related to Delta’s Partial Motion to Dismiss; (3) fees and expenses of Trial Exhibits, Inc. related to work performed in relation to the April 2010 Trial, and (4) evidence regarding fees and expenses from Cadwalader, including the deposition of a Cadwalader representative.
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K.

Delta’s Counterclaim. 85. In its counterclaim, Delta seeks to recover amounts it claims were

billed by Freedom to Delta “in error.”7 (Delta's Resp. to Mesa's Second Interrog. No. 1, Pls.’ Ex. 115; Trial Tr. 118:23-119:5; 119:17-120:7.) Specifically Delta seeks to recover amounts paid for the 4% base markup in flying in June 2007 ($555,371), July 2007 ($586,549), August 2007 ($601,960), October 2007 ($607,855) and December 2007 ($586,988). Delta is also seeking recover the 1% incentive markup for flying in September ($146,554) and December 2007 ($146,747). (Id.) 86. The evidence in the record shows, however, that prior to filing its

counterclaim Delta took some amounts it is now seeking to recover. On March 17, 2008, Mr. Patel withheld a total of $293,300.53 from Delta’s payment to Freedom as a setoff for amounts Delta previously paid to Freedom for the 1% incentive markup in September and December 2007. (Pls.’ Ex. 67; Patel 4/18/10 Dep. (“Patel II”) 57:20-23; Hr’g. Tr. 464:16-465:17.) 87. As previously set forth, Freedom is entitled to be credited with

Coordinated Cancellations, and therefore, Freedom’s completion rate is above the Despite Defendant’s counsel’s statements and implications to the contrary, Delta has not plead, much less proven, any fraudulent conduct by Plaintiffs in their billing practices or otherwise. (See Answer to Third Am. Compl. and Counterclaim [#120] ¶¶ 1-22; Pls.’ Ex. 115.)
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95% needed to earn the 4% base markup in October and December 2007. (Pls.’ Ex. 54; Joint Stipulation Regarding Certain Facts [#168] (“Joint Stipulation”) ¶¶ 8(d), 9(f).) This is true even if flights flown more than four hours late and flights flown with no passengers are not counted as completed flights. (Id.) 88. Though Delta presented no evidence at trial regarding its

counterclaim, the parties have entered into a stipulation regarding certain facts. The parties have stipulated that if Coordinated Cancellations are counted as completed flights for flying in the month of August 2007, Freedom achieved a completion rate at or above 95.0%. (Joint Stipulation [# 168] ¶ 6(d)). 89. Significant evidence, however, was presented at trial regarding

Delta’s handling and payment of Freedom’s invoices, payments it now claims were erroneous. Under the terms of the Contract, Delta was to perform an internal reconciliation before issuing a payment or credit. (Pls.’ Ex. 39-41; Hr’g Tr. 238:12-239:25; 349:22-350:12; 454:05-13). The Contract requires Delta “to reconcile the actual costs incurred by [Freedom] . . . including actual performance in the Performance Categories [which include completion rate and on-time performance.]” (Pls.’ Ex. 21, Art. 3.H.). During the months at issue, Hemang Patel was the person Delta empowered to process Freedom’s invoices (Patel I 5:06-7:04; Trial Tr. 292:9-12) and Chris Higgins was the commercial team’s counterpart who

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had the same oversight responsibilities regarding invoices as did Mr. Patel. (Trial Tr. 292:13-16). Mr. Higgins directly succeeded Anthony Canitano in that position. (Id. 159:10-12). Their focus was to “identify discrepancies”, to “verify, to see if Freedom’s data matched Delta’s”, to “run discrepancies to ground”, and not “to assume that all of Freedom’s data was correct”. (Trial Tr. 294:15-24.) If Mr. Patel or Mr. Higgins questioned an invoice because of a discrepancy and did not understand the explanation for it, “basic due diligence required following up until they did understand”. (Id. 294:25-295:4.) 90. In spite of these requirements, Delta was far from diligent in its

review and payment of Freedom’s invoices as regarding base and incentive markups. Although Mr. Patel did not know or understand the source of Freedom’s completion rate, he did not ask anyone at Delta or anyone at Freedom. (Patel II 24:13-25:7.) He simply did not follow up. When Mr. Patel supposedly did not understand what Freedom’s Mr. Tyler meant in his December 21, 2007 email regarding “the proviso that [Coordinated Cancellations] would not count against [Freedom’s] completion factor” he did not ask Mr. Tyler what he meant (id.; Patel I 60:13-60:24) and he did not ask Mr. Higgins or Ms. Boyd about such a “proviso” (Patel I 59:1-59:25; 76:08-76:16.) According to Ms. Boyd, Mr. Patel (and Mr. Higgins) “should have run it by [her] to ask if [she] knew anything about this.”

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(Trial Tr. 295:8-14.) All he did, however, was process and settle the invoice. (Patel I 59:11-61:12; Patel II 24:3-25:15.) 91. Mr. Higgins was copied on the December 21 email from Mr. Tyler,

but he failed to question or respond in any way to Mr. Tyler or Mr. Patel or to even forward the email to Ms. Boyd, who he thought was the more appropriate person to respond to Mr. Tyler’s email. (Trial Tr. 169:1-170:13; 185:18-186:19; 187:1-23.) He was too busy with other projects on December 21 to review Mr. Tyler’s email carefully or to take any action on it. (Id. 188:11-18.) There was no reason, however, that Mr. Higgins could not have followed up later. (Id. 296:5-7.) 92. In short, Delta’s controls were “very sloppy, at best” and, as further

described by Ms. Boyd, “unacceptable”. (Trial Tr. 297:4-6.) Though Delta was obligated by the Contract and indeed the idea of good business practices to perform reconciliation of Freedom’s invoices and to thoroughly investigate any discrepancies (see paragraph 89, supra) what Delta in fact did was to “routinely pay hundreds of thousands of performance or incentive bonuses under the Freedom contract without ever seeing if its own data on completion factors matched what was being reported by Freedom”. (Hr’g. Tr. 577:9-15; Trial Tr. 121:24-122:4.) 93. Delta’s failure to take any reasonable steps to verify Freedom’s

invoices was not based on a lack of information regarding Freedom’s flying. As

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found in paragraph 42, supra, Freedom sent Delta its flying statistics every day. Additionally, Delta had the ability to, and did, track the scheduled and actual departure and arrival times of its flights flown by Freedom, the number of passengers on those flights. Furthermore, Delta knew when one of its flights was cancelled and did not fly. Delta simply chose not to use this information when before paying Freedom’s invoices. Delta “had the information” but chose not to have the “knowledge”. (Trial Tr. 129:20-21.) 94. Even more telling, however, is that when it was important to Delta,

Delta made use of this information. Shortly after the February 28, 2008 call among Mr. Bornhorst, Mr. Ornstein and Mr. Bates, both Mr. Bornhorst and Ms. Boyd reviewed Freedom’s invoices and compared the submitted completion rate with that in Delta’s records and were able to identified that those numbers did indeed differ. (Hr. Tr. 401:15-24; 530:19-21; 531:15-532:8.) 95. Also, in December 2007, Delta, as part of its business plan to reduce

its regional jet capacity, began to investigate Freedom’s completion rate. (Hr'g. Tr. 449:22-452:15.) As part of this process, Ms. Boyd instructed Joy Bennett to compare the Freedom’s completion rate as reported in its invoices to Freedom’s flight data. (Hr'g. Tr. 451:16-452:10.) Though Delta claims that its own data regarding flights flown more than four hours late is “not very accurate” (Trial Tr.

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305:3), Delta was able to make the comparison requested of Ms. Bennett by using data Freedom was reporting directly to Delta. (Hr'g. Tr. 402:6-403:4; 532:25534:4.) II. A. CONCLUSIONS OF LAW

Based on the Court’s Careful Review of the Record Evidence, Mesa Is Entitled To A Judgment In Its Favor. (1) 96. Delta is Estopped from Terminating the Agreement. Based on the foregoing factual findings, the Court holds that Plaintiffs

have established that Delta should be equitably estopped from terminating the Contract on the grounds set forth in the Termination Letter. a) 97. New York law supplies the relevant legal standard.

By its terms, the Contract “is subject to, and will be governed by and

interpreted in accordance with, the laws of the State of New York, excluding conflicts of laws principles . . . .” (Pls.’ Ex. 21, Art. 20.A.) Defendants have set forth no basis for disturbing this conclusion of this Court in its Order granting Plaintiffs’ Motion for Preliminary Injunction ([#24]) or the Eleventh Circuit Court of Appeals’ affirmance of this point. See Nassau Trust Co. v. Montrose Concrete Prods. Corp., 436 N.E.2d 1265, 1269, 56 N.Y.2d 175, 184 (1982); Mesa Air Group et al., 573 F.3d. at 1129.

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98.

Under New York law, the elements of estoppel are (1) a false

representation, (2) reasonable reliance and (3) a detrimental change of position. See Nassau Trust Co. v. Montrose Concrete Prods. Corp., 436 N.E.2d 1265, 1269 (N.Y. 1982) and Mesa Air Group et al., 573 F.3d. at 1129. 99. New York’s doctrine of equitable estoppel “prevents one party from

enforcing rights which would result in a fraud or injustice upon a second party who, in justifiable reliance upon the former parties’ words or conduct, had been misled into acting upon the belief that such enforcement would not be sought.” Travellers Int’l AG v. Trans World Airlines, Inc., 722 F. Supp. 1087, 1098 (S.D.N.Y. 1989) (citing Nassau Trust Co., 436 N.E.2d at 1269, 56 N.Y.2d at 184) (enjoining termination of contract based on equitable estoppel). 100. "An estoppel rests upon the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury.” Nassau Trust, 436 N.E.2d at 1269, 56 N.Y.2d at 184 (internal quotation omitted). “An estoppel defense may also be invoked where the failure to promptly assert a right has given rise to circumstances rendering it inequitable to permit the exercise of that right.” John Robert P. v. Vito C., 804 N.Y.S.2d 802, 804, 23 A.D.3d 659, 661 (App. Div. 2005); see also Ashland Window & Housecleaning Co. v. Metro. Cas. Ins. Co. of New York, 53 N.Y.S.2d 677, 680, 269 A.D. 31, 35 (App. Div. 1945)

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(estoppel may be asserted where plaintiff is prejudiced by defendant’s unreasonable delay in disclaiming responsibility for payment under a contract); Mesa Air Group et al., 573 F.3d at 1129-30. b) Delta's words and conduct constitute a false representation.

101. Under New York law, words or conduct may give rise to estoppel. Nassau Trust, 436 N.E.2d at 1269, 56 N.Y.2d at 184; Mesa Air Group, Inc. et al., 573 F.3d at 1129. If Mesa can demonstrate that it “justifiably relied on [Delta’s] conduct to its disadvantage” (Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 850 N.E.2d 653, 658, 7 N.Y.3d 96, 106-07 (2006)), an estoppel may be granted. 102. The Court finds that the testimony of Jorn Bates regarding the agreement reached with Delta’s Courtney Boyd is credible, and corroborated by the various e-mails introduced in evidence. The Court does not find Ms. Boyd’s testimony on this point to be credible. 103. Even setting the agreement between Mr. Bates and Ms. Boyd to one side, and as Ms. Boyd herself admitted, Delta knew of Freedom’s subsequent practice of taking credit for Coordinated Cancellations in the calculation of the completion rate, but failed to inform Freedom that Delta considered this practice to be contrary to the Contract. (Hr’g Tr. 631:9-14.)

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104. Mesa representatives sent multiple emails to Delta regarding its understanding of the agreement. Delta stood silent, while never denying the existence of an agreement, and paid Freedom’s invoices without objection. Consequently, Freedom did not know that Delta disagreed with Freedom’s method of calculation, and Delta failed to inform Freedom that Delta considered it to be contrary to the Contract until well after the time that Freedom could have changed its position of accepting Coordinated Cancellations to avoid default.8 Delta’s failure to take any reasonable steps to correct Freedom’s understanding regarding the calculation of completion rate is alone enough to satisfy the falsity requirement. John Robert P., 804 N.Y.S.2d at 804, 23 A.D.3d at 661; see also Ashland Window & Housecleaning Co., 53 N.Y.S.2d at 680, 269 A.D. at 35. Accordingly, the Court finds that Mesa has satisfied the first element of equitable estoppel. c) Freedom reasonably relied on Delta’s words and conduct.

105. By both its months-long failure to dispute that Coordinated Cancellations would be counted as completed flights and its payment of Freedom’s Delta seeks credit for the fact that certain emails purport to show that Delta informed Joseph Serratelli, Freedom's new COO, on February 21, 2008, that there would be “no forgiveness” for Coordinated Cancellations. (Def.’s Ex. 31). But, whether Delta first advised Mesa of this position on February 21 or February 28, when Don Bornhorst spoke with Mesa's CEO, is of no consequence. In either case, Delta's notice was insufficient to provide Freedom with any opportunity to change its conduct of the past five and half months in order avoid default.
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invoices based on Freedom’s method of calculating completion rate, Delta acted in such a manner that Freedom could reasonably have believed that Delta agreed with Freedom’s practice of crediting Coordinated Cancellations in calculating completion rate. 106. Delta need not have intended that Mesa rely on its conduct. Rather, estoppel is proper where the defendant “so act[ed] that the party asserting the estoppel has a right to believe it is so intended.” Rosenthal v. National Life Ins. Co., 486 F. Supp. 1018, 1023 (S.D.N.Y. 1980); see also Lottie Joplin Thomas Trust v. Crown Publ’r., Inc., 456 F. Supp. 531, 535 (S.D.N.Y. 1977). Delta’s conduct in paying Freedom’s invoices, its failure to object to Freedom’s statement of the agreement between Ms. Boyd and Mr. Bates, and its failure to dispute Freedom’s calculation of completion rate created just that right of belief in Mesa. Indeed, even though she denies an express agreement with Jorn Bates, Delta’s Courtney Boyd agreed that based on Delta’s record of paying Freedom based on Freedom’s calculation of completion rate, it was “reasonable” for Freedom to believe that Delta agreed with Freedom’s calculation. (Trial Tr. 313:8-314:7). Thus, Plaintiffs have satisfied the second element of estoppel. d) Mesa reasonably relied to its detriment on Delta's words and conduct.

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107. Finally, to prove equitable estoppel, Mesa must show that it reasonably relied on Delta’s conduct to its injury. See Travellers Int'l., 722 F. Supp. at 1098; Rosenthal, 486 F. Supp. at 1023; see also Broadworth Realty v. Chock 336 B’way Operating, Inc., 562 N.Y.S.2d 630, 632, 168 A.D.2d 299, 299 (App. Div. 1990). 108. Freedom justifiably relied upon Delta’s assurances, conduct (including payment), and ensuing silence and acquiescence to its detriment by honoring Delta’s requests for Coordinated Cancellations during the months of October and December 2007, and February 2008, when doing so placed it below a 95% completion rate, based on Delta’s method of calculation. 109. The evidence shows that had Freedom known that it was Delta’s position that Coordinated Cancellations would be counted against Freedom in calculating completion rate, Freedom would not have cooperated with Delta’s requests to take Coordinated Cancellations. (Hr’g. Tr. 88:07-16; Trial Tr. 52:2053:5) 110. Therefore, based on the foregoing findings of fact, the Court finds that Delta is equitably estopped from terminating the Contract based on Freedom’s

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method of calculating completion rate through March 31, 2008.9 Travellers Int’l., 722 F. Supp. at 1098; see also Rosenthal, 486 F. Supp. at 1022; Mesa Air Group, Inc. et al., 573 F.3d at 1124.
9

Mesa prevails even if, as Delta contends, Georgia law applied. Georgia courts regularly find equitable estoppel on facts indistinguishable from this case. See Smith v. Direct Media Corp., 544 S.E.2d 762, 763-64, 247 Ga. App. 771, 77375 (Ct. App. 2001) (affirming a trial court’s finding of equitable estoppel where a party attempted to deny the existence of a contract on the basis that he had not formally executed the agreement); Touch Indus. v. Canton Bus. Park Ltd P’ship, 415 S.E.2d 40, 40, 202 Ga. App. 548, 548-49 (Ct. App. 1992) (finding estoppel where a tenant sought to avoid the obligations of a lease despite “never ma[king] a contrary representation in response to appellee’s direct request for assurance”); Primo’s, Inc. v. Clayton Common Assocs., Ltd., 398 S.E.2d 631, 633, 197 Ga. App. 286, 289 (Ct. App. 1990) (tenant estopped from denying liability under lease based on prior representation to lessor). It should be noted that Delta’s argument that Mesa’s claim for equitable estoppel under Georgia law is invalid likewise has no merit. According to Delta, estoppel is not recognized as an independent cause of action under Georgia law and is relegated to a "supporting role" to other stand-alone causes of action. Mesa’s estoppel claim, however, fits squarely within the definition that Delta cites because estoppel “supports” its declaratory judgment and breach of contract claims. For example, Mesa’s claim for Declaratory Relief (Count III) is a stand-alone cause of action. Count III specifically states, "[I]n light of Delta's prior assurances and the parties' course of conduct, all of which Mesa has detrimentally relied upon, Delta is equitably estopped from terminating the Contract." (Third Am. Compl. ¶ 79.) Furthermore, Delta’s own cited case upholds estoppel as a valid claim. See Sabin Meyer v. Citizens Bank, 502 F. Supp. 557, 560 (N.D. Ga. 1980). ("Estoppel may be used to prevent a party from denying at the time of litigation a representation that was made by that party and accepted and reasonably acted upon by another party with detrimental results to the party that acted thereon.") Mesa likewise would prevail under the Georgia’s doctrines of waiver and mutual departure. “A waiver may be established even though acts, conduct or
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(2)

Because Delta is Estopped from Terminating the Agreement, Mesa is Entitled to a Declaratory Judgment that Delta did not Have the Right to Terminate the Agreement.

111. It is a well-settled principle that "declaratory relief may be sought to resolve contract disputes [including] [t]he right to terminate the contract." MOORE'S FEDERAL PRACTICE § 57.80 (3d ed. 1997). 112. Based on the foregoing facts and the determination by this Court that Delta is equitably estopped from terminating the Contract, this Court holds that Delta’s proffered grounds for termination of the Contract as set forth in its March
(continued…)

declarations are insufficient to establish an estoppel.” Ponse v. Atlanta Cas. Co., 563 S.E.2d 499, 501, 254 Ga. App. 641, 643 (Ct. App. 2002). “Ordinarily, a waiver operates to preclude a subsequent assertion of the right waived or any claim based thereon” and “once a right is waived the waiver cannot be withdrawn without the consent of the other party, even if subsequent events prove the right waived to have been more valuable than was anticipated.” Mauldin v. Weinstock, 411 S.E.2d 370, 374, 201 Ga. App. 514, 520 (Ct. App. 1991). Georgia has codified the common law of mutual departure, which would provide yet another basis for the relief sought by Mesa. “Under O.C.G.A. § 13-44, a mutual departure from the terms of an agreement results in a quasi-new agreement suspending the original terms of the agreement until one party has given the other reasonable notice of its intent to rely on the original terms.” Vakilzadeh Enters., Inc. v. Housing Auth. of the County of Dekalb, 635 S.E.2d 825, 827, 281 Ga. App. 203, 206 (Ct. App. 2006). Contractual “provisions may be waived by the conduct of both parties intended to result in the ‘mutual disregard’ of, or the ‘mutual departure’ from the contract terms.” Kusuma v. Metametrix, Inc., 381 S.E.2d 322, 323, 191 Ga. App. 255, 257 (Ct. App. 1989).

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28, 2008 letter are not valid and that the Contract remains in effect, subject to its terms. Plaintiffs’ claim for declaratory relief is granted. (3) Delta Violated the Agreement's Express and Implied Duties of Good Faith and Fair Dealing by Capitalizing on its Failure to Correct Mesa's Belief.

113. The Contract expressly requires the parties to “exercise good faith in dealings with the other party hereto and in performance of its obligations under this Agreement.” (Pls.’ Ex. 21 at 35, Art.26.) Delta’s termination of the Agreement under the circumstances here, however, was not an exercise of discretion in good faith. 114. Under New York law, the obligation to deal in good faith “embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 291, 87 N.Y.2d 384, 389 (1995) (internal quotation omitted). Specifically, the duty of good faith applies to contractual provisions that contemplate the exercise of discretion. See id. 115. Delta purported to exercise its discretion to terminate the Contract based on its recalculation of completion rates for the three months in question, but Delta has proffered no explanation for its failure to inform Freedom, prior to

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termination, that Delta disagreed with Freedom’s practice of calculating completion rates. 116. Instead, the evidence shows that as early as December 2007, Delta was looking for ways to terminate the Contract and had begun to investigate Freedom’s completion rate, but, contrary to the terms of the Contract (Pls.’ Ex. 21, Art. 10(B)), Delta never discussed with Freedom that it might be danger of defaulting under the Contract. (Delta’s Resp. to Pls.’ Req. for Admission Nos. 51, 52) Indeed, there is no evidence that Delta alerted Freedom, prior to the Termination Letter, that Freedom risked default if it honored Delta’s requests to take Coordinated Cancellations. Rather, the evidence shows that, but for Freedom’s cooperation with Delta’s requested Coordinated Cancellations, Freedom’s completion rate in October and December 2007 would have exceeded 95%. (Pls.’ Ex. 54, page 3.) 117. Delta claims it made “an error in the [invoice] processing process for a couple of months,” and that when it discovered this “error,” Delta “fixed it” by terminating the Contract. (Hr’g Tr. at 469:5-22.) For Delta to exercise its discretion to terminate the Contract on this basis is contrary to the express duty of good faith in the Contract and the duty of good faith implied in every contract.

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118. It is, perhaps, emblematic of Delta’s approach to its supposed partnership with Mesa that Delta’s Senior Vice President of Delta Connection, Don Bornhorst, accused Mesa of being “opportunistic” in seeking a final, written agreement resolving the Coordinated Cancellation issue when Delta persisted in requesting that Mesa accept Coordinated Cancellations after the preliminary injunction issued in June, 2008. (Trial Tr. 229:11-22) To the contrary, the record shows that by seizing upon the alleged default that resulted in large part from Freedom’s cooperation in proactively cancelling flights at Delta’s direction for the benefit of Delta’s passengers – cooperation that Delta secured through its direct representations and through its silence on the key issues surrounding these calculations – it was Delta that acted opportunistically and in bad faith. Because Delta’s own representations, omissions and conduct created the very basis by which Delta used to terminate the contract, termination on these grounds thus violates Delta’s “pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Dalton, 663 N.E.2d at 291, 87 N.Y.2d at 389 (internal quotation omitted). 119. This failure of Delta to raise the issue with Freedom, and its ensuing attempt to cancel the Contract, plainly indicate bad faith. Thus, the Court grants

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Plaintiffs’ claim for breach of the express and implied duties of good faith and fair dealing. B. Delta’s Bad Faith And Malicious Conduct Entitles Mesa To Recover Its Litigation Expenses. 120. Delta’s bad faith and malicious conduct entitles Mesa to its costs of litigation under New York law, which recognizes an exception to the general rule that a party must carry its own legal costs, known as the “bad faith exception.” See Ltown Ltd. P'ship v. Sire Plan, Inc., 489 N.Y.S.2d 567, 572, 108 A.D.2d 435, 440441 (App. Div. 1985) ("The [bad faith] exception… is unquestionably an assertion of inherent power in the courts to allow attorneys' fees in particular situations."); Sierra Club v. U.S. Army Corps. of Eng'rs, 776 F.2d 383, 390-391 (2d Cir. 1985) (upholding a lower court's grant of attorneys' fees under the bad faith exception due to "manipulative and deceptive conduct" by the defendant); accord F. D. Rich Co., Inc. v. U.S. for the Use of Indus. Lumber Co., Inc., 417 U.S. 116, 129 (1974) ("[The Supreme Court] ha[s] long recognized that attorneys' fees may be awarded to a successful party when his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.")10

Mesa likewise would be entitled to its attorneys’ fees and costs under O.C.G.A. § 13-6-11. O.C.G.A. § 13-6-11 provides that a party’s litigation expenses are recoverable “where the defendant has acted in bad faith”. O.C.G.A. § 13-6-11 In Georgia, bad faith “has been defined as ‘actual or constructive fraud
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121. The bad faith exception has been applied by New York Courts to award attorneys’ fees to a plaintiff where there is a showing that the defendant “intentionally sought to inflict economic injury on [plaintiffs] by forcing them to engage legal counsel.” United Pickle v. Omanoff, 405 N.Y.S.2d 727, 728, 63 A.D.2d 892, 892-893 (App. Div. 1978) (holding that defendant's use of legal proceedings to harass plaintiff fell within the bad faith exception, and ordering new trial to determine the amount of damages attributable to defendant's malicious conduct). Under New York law, this is an “actionable wrong”. Id. Furthermore, “malice may consist of any personal hatred or ill will, any improper or sinister purpose, or any reckless disregard for the rights of others which is inconsistent with good faith or the mere purpose to further the ends of justice.” Tender Trap v. Huntington, 418 N.Y.S.2d 537, 543, 100 Misc. 2d 108, 116 (Sup. Ct. 1979). 122. Delta’s conduct leading up to and culminating in an attempt to terminate the Contract forms the basis of each of Plaintiffs’ claims in this matter.
(continued…)

or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake, but prompted by some sinister motive.’” ADP-Fin. Computer, Inc. v. 1st Nat. Bank of Cobb Cty., 703 F.2d 1261, 1267 (11th Cir. 1983). Critically, even where there is a bona fide controversy as to liability, a court may find that a defendant acted in “atrocious bad faith” in its dealing with the plaintiff and award attorneys’ fees. City of Lilburn v. Astra Group, Inc., 649 S.E.2d 813, 816, 286 Ga. App. 568, 571 (Ct. App. 2007).
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See section II.A.(1), and fn. 6, supra. The Court’s review of the testimony given and documents produced in support of Plaintiffs’ litigation expenses shows that the fees and expenses incurred in this matter, with the exception of the Motion to Dismiss, relate to the investigation and proof of claims and defenses on which Plaintiff's have prevailed. 123. This Court has found that for Delta to exercise its discretion to terminate the Contract on this basis is contrary to the express duty of good faith. (Section II.A.(3), supra). Likewise, there is no question that Delta’s improper attempt to terminate the Agreement forced Mesa to incur legal fees to (1) secure an immediate preliminary injunction, (2) defend that injunction from Delta’s immediate appeal of this Court’s findings, and (3) litigate this matter to a final hearing. See Tender Trap, 418 N.Y.S.2d at 543, 100 Misc. 2d at 115. 124. Furthermore, Delta’s improper and bad-faith termination of the Agreement made a bankruptcy filing by Mesa both likely and imminent. (Paragraph 68, supra; Pls.’ Ex. 26; Hr’g Tr. 116:05-119:10). Because Mesa’s legal and bankruptcy expenses were “proximately related to the malicious acts” of Delta, Mesa is due to be compensated for those expenses (United Pickle, 405 N.Y.S.2d at 728, 63 A.D.2d at 893), specifically, the fees and expenses for Seabury Group and Cadwalader, Wickersham & Taft.

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C.

Delta Is Not Entitled To Its Counterclaim For Damages. (1) Delta is barred from Recovering Under the Voluntary Payment Doctrine.

125. Delta bears the burden of proof on its counterclaim for damages associated with alleged overpayments for months in which it contends it was billed “in error” by Mesa based on completion rates that counted coordinated cancellations, flights arriving more than four hours late and flights with zero revenue passengers as completed flights. Under New York law, Delta likewise has the burden of proving that these alleged “overpayment[s]” were not voluntary. Whiting v. City Bank of Rochester, 77 N.Y. 363, 368 (1879) (stating that in general, payments are assumed to be voluntarily made until the contrary is shown, and the burden rests on the party seeking to recover a payment to prove that a payment is not voluntary) 126. Indeed, the voluntary payment doctrine prevents recovery of all amounts paid to Mesa: (i) voluntarily, (ii) with full knowledge of the facts, and (iii) in the absence of fraud or mistake of material fact or law. Dillon v. U-A Columbia Cablevision of Westchester, Inc., 790 N.E.2d 1155, 1156, 100 N.Y.2d 525, 526 (2003). New York law is clear that “[w]hen a party intends to resort to litigation in order to resist paying an unjust demand, that party should take its position at the time of the demand, and litigate the issue before, rather than after, payment is
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made.” Dillon v. U-A Columbia Cablevision of Westchester, Inc., 740 N.Y.S.2d 396, 398, 292 A.D.2d 25, 28 (App. Div. 2002) (aff'd by Dillon, 790 N.E.2d 1155, 100 N.Y.2d 525). 127. Significant evidence was adduced at trial, without any objection by Delta, relating to this legal bar to Delta’s counterclaim. Based on this evidence, this Court holds that Delta’s counterclaims are barred by New York’s doctrine of voluntary payment. First, the evidence shows that Delta’s payments to Mesa were voluntary. Here, Delta has provided no testimony or other evidence that Mesa, or anyone else, forced Delta to pay the amounts in Delta’s counterclaim. In fact, Mr. Patel’s testimony makes it clear that Delta controls how much it pays Freedom— and that when Delta wanted to pay less, it unilaterally took setoffs against future payments. (Pls.’ Ex. 67; Patel II 49:16-50:22.) 128. Second, the evidence has also shown that Delta had full knowledge of the facts. Although the voluntary payment doctrine does not apply where there is an absence of full disclosure (Samuel v. Time Warner, Inc., 809 N.Y.S.2d 408, 418, 10 Misc. 3d 537, 549 (Sup. Ct. 2005)) or where there was unequal bargaining power between the parties (Caiviano v. Brill, 11 N.Y.S.2d 498, 502, 171 Misc. 298, 302 (N.Y. Misc. 1939)), the evidence presented by the parties makes clear that neither is the case here. On the contrary, the evidence shows that Delta had all of

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the facts related to the incentive and markup payments. For example, Delta’s Anthony Canitano, Chris Higgins, and Courtney Boyd all admitted that Delta had two readily-available sources of flight level data: (a) the information that it received from Mesa; and (b) the data that Delta maintained itself. The Senior Vice President of Delta Connection, Don Bornhorst, even admitted that Delta “had the information but not the knowledge.” (Trial Tr. 129:10-21.) Furthermore, Delta is largest airline in the world (Trial Tr. 303:9-12), and cannot claim it was unequal in bargaining power with Mesa, a regional airline presently engaged in a bankruptcy restructuring. (Trial Tr. 40:21-41:9.) 129. Finally, Delta paid Mesa without a mistake of law or fact. New York courts have held that the payor is not laboring under a material mistake of fact if (i) the payor makes a payment without protest or inquiry or (ii) has knowledge of the material facts. Citicorp N. A., Inc., v. 5th Ave. 58/59 Acquisition Co. LLC., 895 N.Y.S.2d 39, 39-40, 70 A.D.3d 408, 409 (App. Div. 2010) (barring recovery under the voluntary payment doctrine because the plaintiffs, highly sophisticated entities, made no inquiry into the amount of rent they were paying for years); Gimbel Bros. v. Brook Shopping Ctrs., 499 N.Y.S.2d 435, 439, 118 A.D.2d 532, 535-536 (N.Y. App. Div. 1986) (holding that the company’s decision to continue making payments for over two years without any effort to learn its legal obligations,

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demonstrated a clear lack of diligence, and as a result, it was not entitled to restitution of payments). 130. Delta is a sophisticated entity whose employees considered this issue with Freedom a low priority (Hr’g Tr. 431:18-432:1), were preoccupied with the Christmas holidays (Hr’g Tr. 162:1-9) or the month-end process (Patel II 21:2422:8), and “they paid the invoiced [] amounts without protest or even inquiry, and were not laboring under any material mistake of fact when they did so.” Citicorp, 895 N.Y.S.2d at 39-40, 70 A.D.3d at 409. Delta’s failure to follow up on known variances between its own calculations and Freedom’s invoices, even after receiving Mesa’s explanation that its completion rate reflected its view that flights cancelled at Delta’s requests would be counted as completed flights (Pls.’ Ex. 40), show that Delta made these payments “without any effort to learn what their legal obligations were” and “demonstrated a clear lack of diligence . . . .” Id. For the forgoing reasons, this Court holds that Delta is not entitled to recover on its Counterclaim, which is barred by New York’s voluntary payment doctrine. (2) Crediting Mesa with Coordinated Cancellations as Completed Flights Also Eliminates any Entitlement to Repayment for August, October and December base markup.

131. Because this Court already has found that the Coordinated Cancellations accepted by Mesa prior to March 31, 2008 are to be counted as

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completed flights, Delta also is not entitled to recover the base markup of $607,855 in October, 2007 or $587,988 in December, 2007 because when Coordinated Cancellations are counted as completed flights, Mesa achieves completion rates of at or above 95% in October and in December. (Pls.’ Ex. 54, Joint Stipulation [#168] ¶¶ 8(d), 9(f).) Delta likewise is not entitled to recover the base markup for August, 2007 because crediting Mesa for Coordinated Cancellations in 2007 yields a completion rate of at or above 95% which is above the minimum threshold required for the base markup. (Joint Stipulation [# 168] ¶ 6(d); see also Pls.’ Ex. 2.) (3) Delta Already Has Reclaimed Monies it Now Claims Mesa Owes.

132. Delta’s Counterclaim as to the incentive payments made for flying in September and December, 2007 are also barred for the separate and independent reason that the evidence shows that Delta has already reclaimed those payments. Thus, Delta is not entitled recover $146,554 for September, 2007 or $146,747 for December, 2007. 133. On March 17, 2008, Delta took back amounts previously paid for the September, 2007 incentive markup. (Pls.’ Ex. 67; Patel II 49:16-50:22). Also on that day, Delta took back amounts previously paid for the December, 2007 incentive markup. (Id.) In all events, it goes without saying that Delta is not

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entitled to money that it has already taken back from Mesa as part of the settlement of later invoices.

Based on the foregoing findings of fact and conclusions of law, and for good cause shown, the Court hereby Orders and Declares: (1) Delta is estopped from terminating the Delta Connection Agreement

on the grounds set forth in its March 28, 2008 termination letter; (2) The grounds proffered in Delta’s termination letter, based on

Freedom’s inclusion of Coordinated Cancellations and flights flown more than four hours late as completed flights when calculating the completion factor for October and December 2007 and February 2008, are invalid; (3) (4) The Contract remains in effect, subject to its terms; Delta’s conduct in attempting to terminate the Contract breached the

implied and express duties of good faith and fair dealing; (5) As a result of Delta’s bad faith conduct, Plaintiffs are entitled to

recover their attorneys fees and litigation expenses; (6) Delta’s Counterclaim and all prayers for relief related thereto are

denied in full.

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SO ORDERED this _____ day of May, 2010.

CLARENCE E. COOPER UNITED STATES DISTRICT COURT JUDGE

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