Aeropesca Ltd. v. Butler Aviation International, Inc.

Gilbert, C. J., delivered the opinion of the Court. — THE PREFACE — This case may have had its origin when Icarus on wings of feather and wax, fashioned by his father Daedalus, made his ill-fated flight. 1 In the matter now before us, Aeropesca Limited, a Colombian corporation (ALC) made what might well have been, depending upon what version of events one believes, an ill-fated flight from Baltimore-Washington International Airport to Miami, Florida, and, thereafter, to Bogota, Colombia. The flight was commenced only after the appellee and cross-appellant, Butler Aviation International, Inc. (Butler), represented to the Federal Aviation Administration (FAA) that ALC’s Vickers Viscount airplane was “airworthy” when in point of fact it was not. Understandably aggravated by what it must have viewed as a “rip-off,” ALC sued Butler 2 in the Circuit Court for Anne Arundel County alleging in one count that Butler breached its contract and in the other count, an action of fraud and deceit. The case was tried non-jury before Judge Raymond G. Thieme, Jr. The judge concluded that ALC was entitled to one hundred dollars ($100) damages on the breach of contract count, and seventeen thousand one hundred twenty dollars and sixty-two cents ($17,120.62) damages in the tort action.

Judge Thieme rejected ALC’s claim for punitive damages opining that despite Butler’s “reprehensible” conduct, motivated by “greed,” no evidence of actual malice was ⁶¹² presented nor would the “existence of implied malice” support punitive damages. (Emphasis supplied.) ALC, in this Court, has raised five issues for our review. Four of them are concerned with punitive damages, the fifth relates to the matter of compensatory damages for breach of contract. We think the four issues regarding punitive damages may be combined and stated simply as: Did the trial judge err in his interpretation of the law insofar as the assessment of punitive damages is concerned?

Butler has also appealed and it puts three issues to us, namely: 1) that the proof failed to supply the “essential elements of actionable fraud”; 2) a failure to perform, or to perform properly, that which one had agreed to perform is not fraudulent; and 3) ALC, a non-registered foreign corporation, is precluded from maintaining an action in the courts of Maryland. — THE FACTS — With minor editing, we adopt Judge Thieme’s “Statement of Facts,” as it appears in his “Memorandum and Order”: “[ALC] is ... engaged in transporting freight and passengers in Colombia and to surrounding South American countries. Its offices are in Bogota. At the time of the trial the corporation’s airplanes consisted of two C-46s and four Vickers Viscounts. These aircraft are four engined turbo-jet passenger liners each capable of carrying approximately fifty-two passengers.

During the early part of 1974 ... [ALC] was anxious to have major maintenance work done on HK1319, one of its Viscounts. Representatives of... [Butler] travelled to Bogota where an agreement was reached on the work to be done on HK1319____ At this time ... [ALC] expressed its interest in purchasing another Viscount. The ... [Butler] representatives advised ... [ALC] of some Viscounts that were available within a price range of $60,000 — $75,000. It is ... [one of those] Viscount[s] which eventually became the subject matter of this suit. ⁶¹³ Upon their return to the States, John Wightman, a sales representative for ... [Butler], confirmed their discussions regarding the purchase of another Viscount..., indicating the manner of payment and the cost of the plane would be $70,000.00.

An estimated additional $20,000.00 to $30,000.00 would be required to license the aircraft for export to Bogota. When Viscount HK1319 was brought to [Butler’s] facilities in Baltimore for the contracted repairs, representatives of... [ALC] accompanied it for the purpose of pursuing the matter of the purchase of another Viscount. From Baltimore they were taken to Georgetown, Delaware by... [Butler]. There, based upon the assurances of... [Butler] that Viscount N7440 was the best as well as the easiest to ferry away for necessary repairs, ... [ALC] subsequently entered into an agreement with Samuel Goldman, representative of Viscount International Corporation which owned the plane, ... for its purchase for $62,000.00____Subsequent discussions regarding the necessary repairs ... [were] had back in Baltimore____[ALC] was assured by ... [Butler] that the total cost of the plane and the necessary repairs which were to be done by ... [Butler] would be $90,000.00.

After their return to Bogota, ... [ALC] received the contract from ... [Butler on May 8, 1974]... which [ALC] accepted in Bogota.... [Butler] forwarded a statement to ... [ALC on May 29,1974, which showed]... the status of the accounts between them on both the HK1319 and the newly purchased Viscount N7440. In response to an August 2,1974, notification from ... [Butler] that N7440 was ready, Captain Sarmiento, an ... [ALC] pilot, arrived in Baltimore around August 14, 1974, to fly the plane back to Bogota. At ... [that] time ... [Butler] requested additional monies for labor and parts on N7440. A dispute then arose over the additional work claimed ⁶¹⁴ to have been performed and whether ... [the agreement] was a fixed price contract or a cost-plus contract____ [E]ventually ... [ALC] ... [was] required to place $25,000.00 in escrow... so that the plane could be released____No bill was ever shown to have been prepared by ... [Butler] and to have been submitted to ... [ALC] for ... [that] additional work. ... [Butler], on August 19, 1974, certified that Viscount N7440 was airworthy____As a result of a test flight on August 23, 1974, discrepancies were found in the operation of the plane----They were: pressurization inoperative due to an inoperative door seal, controls heavy; difficulty in trimming the plane, fuel gauges inoperative and the oleo switch (controls braking of the plane upon landing through the propeller pitch)____ [ALC] was assured by ... [Butler] that ... [the deficiencies] would be corrected.... [T]here is no evidence [, however,] that ... [Butler] attempted to correct... [the] problems after the test flight on August 23, 1974, and prior to the release of the aircraft for flight from Baltimore to Miami ... [a month later].

An Export Certificate of Airworthiness was issued by the Federal Aviation Administration on September 10, 1974, for Viscount N7440 (a/k/a 745D). ... [On board the aircraft in its flight to Miami] were Captain Sarmiento and his co-pilot, both employees of ... [ALC], Raymond DeLuna, an avionics technician employed by ... [Butler], who, among other duties, was on the flight ‘... to see anything that might be wrong with the aircraft in the flight and to note it and then notify Mr. Burns and then repair it.’... Colonel Diaz, his wife and children, Colombian nationals returning home and Captain Marovitch, a pilot required to be on board under FAA regulations. During the course of the flight, problems again occurred with the plane. The Aircraft Log Book ... ⁶¹⁵ indicate[s] that the following items were inoperative on the flight to Miami: The DME (a navigational device), the spill valve (controls intake of outside air), pressurization (the door liner failed to inflate and seal the door), fuel gauges, fuel trim on engine #2, controls heavy, stall warning, tachometer, radar, autopilot, ADF (a navigational device) and some radio channels on the VHF equipment, air stair, left oleo switch (controls the braking action of the propeller upon landing), hydraulic system had low pressure (hydraulic fluid was discovered, after landing, on the exterior of the fuselage skin from the nose to the tail), corrosion around the toilet, dead flashlight batteries and noise in the elevator trim tab.

The ... Aircraft Log Book indicated] that... [the] items were subsequently repaired by Air Tech in Miami, an independent contractor retained and paid by ... [Butler] after efforts by ... [Butler] employees sent from Baltimore to correct the problems proved unsuccessful. Testimony showed that some of ... [the] items affected the airworthiness of the plane. On October 29, 1974, the plane, flown by Captain Sarmiento, left Miami for Bogota.

Again, some of the items initially complained of after the Baltimore test flight of August 24, 1974, were plaguing the plane.... Specifically: The ADF was inoperative, and the pressure system was inoperative and an engine had to be feathered in flight. However, Captain Sarmiento did indicate that on the flight to Bogota there was no longer a problem with the controls. Upon its final landing in Bogota, the plane was inspected by Jose Escolar, ... [ALC’s] Director of Maintenance.

He testified to various items ... which in his opinion rendered the plane unairworthy. The plane was ... grounded in Colombia for a considerable period of time.” ⁶¹⁶ I. —ALC’S ELIGIBILITY TO PROCEED IN MARYLAND COURTS — We shall first consider Butler’s third issue inasmuch as should it be decided favorably to Butler, the case is at an end. Butler asserts that because ALC failed to register as a foreign corporation doing business in this State, pursuant to Md. Corp. & Ass’ns. (1975) Code Ann. § 7-202, it is precluded from maintaining an action in the Maryland courts.

Md. Corp. & Ass’ns. (1975) Code Ann. § 7-301. The trial judge rejected Butler’s argument, and so do we. Section 7-202 of Md. Corp. & Ass’ns.

(1975) Code Ann. provides: “(a) Registration required. — Unless it is qualified to do business under § 7-203 of this subtitle, before doing any interstate or foreign business in this State, a foreign corporation shall register with the Department. (b) Manner of registration. — To register, the corporation shall certify to the Department: (1) The address of the corporation; and (2) The name and address of its resident agent in this State. (c) Period for which registration effective. — Unless terminated by the corporation, the registration is effective as long as the corporation has a resident agent in this State.” Section 7-203 states: “(a) Qualification required. — Before doing any intrastate business in this State, a foreign corporation shall qualify with the Department. (b) Manner of qualification. — To qualify, the corporation shall: (1) Certify to the Department: (i) The address of the corporation; and (ii) The name and address of its resident agent in this State; ⁶¹⁷ (2) File with the Department a certificate which: (i) States that the corporation is in good standing under the laws of the place where it is organized; and (ii) Is executed by the official of that place who has custody of the pertinent records; and (3) File with the Department an officially certified statement which specifies the date and record reference of: (i) Its charter or, if not incorporated, the instrument under which it is organized; and (ii) Each amendment and supplement to the charter or instrument under which it is organized.

(c) Period for which qualification effective. — Unless terminated by the corporation, the qualification is effective as long as: (1) The corporation has a resident agent in this State; (2) The corporation does not forfeit its right to do intrastate business under the laws of this State; and (3) If the corporation qualifies or changes its name after June 1,1951, the name of the corporation complies with the requirements of Title 2 of this article relating to corporate names.” The Legislature has mandated sanctions against foreign corporations who do business or have done business in Maryland, without complying with section 7-203. The sanctions are set forth in section 7-301 of the Corp. and Ass’ns. portion of the Code. That section provides: “If a foreign corporation is doing or has done any intrastate, interstate, or foreign business in this State without complying with the requirements of Subtitle 2 of this title, neither the corporation nor any person claiming under it may maintain a suit in any court of this State unless it shows to the satisfaction of the court that: (1) The foreign corporation or the person claiming ⁶¹⁸ under it has paid the penalty specified in § 7-302 of this subtitle; and (2) Either: (i) The foreign corporation or a foreign corporation successor to it has complied with the requirements of Subtitle 2 of this title; or (ii) The foreign corporation and any foreign corporation successor to it are no longer doing intrastate, interstate, or foreign business in this State.” (Emphasis supplied.) Patently, in order for Butler to prevail in its contention that ALC may not pursue an action in the courts of this State, we must find that ALC’s purchase of and repair to the Viscount constituted “doing business” within the meaning of section 7-301. The evidence showed that ALC contracted with Butler to replace a center lower spar on one of ALC’s Viscounts.

Subsequently, ALC purchased a Viscount for $62,000 and contracted with Butler for major repairs to the aircraft. ALC, insofar as we are aware, does not maintain an office in Maryland, nor does it schedule flights from or to Maryland. All that it seems to have done was to contract with a Maryland concern to have a wing spar replaced on one plane and to have purchased a second plane that was to undergo extensive repair by Butler. Short of those two transactions, ALC has no contact with Maryland.

It does not solicit, perform, or transact business in this State on anything approaching a regular basis. Indeed, it is difficult to characterize ALC’s isolated dealings with Butler as even sporadic. The statutory provisions relating to foreign corporations “doing business” in Maryland, Md. Corp. and Ass’ns. Code Ann. §§ 7-202, 7-203, and 7-301, were never intended to bar foreign corporations from entering into an occasional contract with Maryland businesses and, when necessary, pursuing in Maryland courts, rights under that contract or actions arising out of it.

Were the law otherwise, commerce between Maryland based companies and those dehors the geographical confines of this State would cease abruptly. The ⁶¹⁹ deleterious effect of such a law is too obvious to require further comment. G.E.M., Inc. v. Plough, Inc., 228 Md. 484, 486 , 180 A.2d 478, 480 (1962) states that: “Whether a foreign corporation may maintain a suit without qualifying- or registering clearly depends upon whether it is ‘doing business’ as defined in the cases on the subject.” See International Shoe Co. v. Washington, 326 U.S. 310 , 66 S. Ct. 154 , 90 L. Ed. 95 (1945). G.E.M. makes manifest that each case must stand or fall on its own facts.

When the facts in the matter now before us are weighed, the scale tilts against a conclusion that ALC was “doing business” within this State for the purposes of section 7-801. Hence, it is not precluded from proceeding in Maryland courts in order to obtain redress for alleged wrongs done to it by Butler. II. — LAW OF FRAUD AND DECEIT — Judge Pattison, writing for the Court of Appeals in Gittings v. Von Dorn, 136 Md. 10, 15 , 109 A. 558 , 554 (1920), distilled a number of that Court’s prior cases involving fraud and deceit 3 into the five elements now recognized as necessary to maintain such an action. The Court, in Gittings, declared: “To entitle the plaintiff to recover [in an action for fraud and deceit] it must be shown: (1) that the representation made is false; (2) that its falsity was either known to the speaker or the misrepresentation was made with such a reckless indifference to truth as to be equivalent to actual knowledge; (3) that it was made for the purpose of defrauding the person claiming to be injured thereby; (4) that such person not only relied upon the ⁶²⁰ misrepresentation, but had a right to rely upon it in the full belief of its truth, and that he would not have done the thing from which the injury resulted had not such misrepresentation been made; and (5) that he actually suffered damage directly resulting from such fraudulent misrepresentation.” What Gittings espoused sixty years ago is still the law of Maryland today.

See James v. Weisheit, 279 Md. 41, 44 , 367 A.2d 482, 484 (1977); Wedeman v. City Chevrolet Co., 278 Md. 524, 532, n. 5 , 366 A.2d 7, 12, n. 5 (1976); James v. Goldberg, 256 Md. 520, 528-29 , 261 A.2d 753, 758 (1970); Suburban Properties Management, Inc. v. Johnson, 236 Md. 455, 460 , 204 A.2d 326, 329 (1964); Lambert v. Smith, 235 Md. 284, 287 , 201 A.2d 491, 493 (1964). — EVIDENCE OF FRAUD IN THE INSTANT CASE — The evidence adduced by ALC showed that in April 1974, it had entered into a contract to purchase, through Butler, a Vickers Viscount 745, a four-engine turbo prop aircraft capable of carrying 52 passengers. 4 The Viscount’s purchase price was $62,000. Butler agreed that for the total sum of $90,000, ALC could buy the plane and have it repaired to the point where is was in an “airworthy condition.” Butler notified ALC in August 1974 that the aircraft was ready for delivery and a FAA export certificate. On August 14, 1974, two pilots from ALC arrived at BWI 5 in order to take delivery of the Viscount on behalf of ALC. The balance of the purchase-repair price was tendered Butler, but Butler refused to deliver the plane unless it received an additional $40,000 that Butler claimed was due because of cost overruns.

ALC retained locál counsel, and after some discussion, an agreement was reached whereby ALC deposited the sum of $25,000 6 in an escrow account. The escrow money was to be released upon judicial determination of the contract dispute. 7 ⁶²¹ Finally, on August 23, 1974, ten days after their arrival at BWI, the ALC pilots, along with Butler employees and a Captain John Moravitz, retained by Butler, went aloft on a test flight. Prior to the test the Viscount had been certified by Butler employees as “airworthy” and in compliance with FAA’s directives. During the test flight a number of “squawks” 8 were noted.

The nature of some of the “squawks,” in the view of the ALC pilots, was such as to make the plane “unairworthy” and in need of additional repair. 9 ALC was assured by Butler that the “squawks” would be corrected. There is, however, no evidence in the record to indicate that Butler ever undertook to make the necessary corrections. Nevertheless, an “Export Certificate of Airworthiness” was issued by the FAA on September 10, 1974. The application for the certificate was signed by “E. Karl Dirksen, Chief Inspector,” and it represented that the aircraft had received “a satisfactory flight test on 8-23-74.” Mr. Dirksen testified that he was employed at the time of the application in the Inspection Department of Butler.

Dirksen said that he “held the title of Chief Inspector for pay purposes only....” Dirksen told Judge Thieme that a Mr. Tom Caine was the chief inspector in fact, although Caine’s title had been changed, for pay purposes, to “manager of quality control.” Dirksen was licensed by the FAA. He was authorized by Butler to certify to the customer or to the FAA as to the airworthiness of planes. Dirksen acknowledged that although he signed the application and certified as to the airworthiness of the aircraft, he did not inspect the Viscount ⁶²² upon completion of the work by Butler. No one ever discussed with him the discrepancies that were detected during the test flight.

He made the application for the FAA certificate solely on the basis of Tom Caine’s request that he do so. Dirksen was “sure” that Tom Caine did not inspect the Viscount. Mr. Raymond A. DeLuna, who was employed by Butler as avionics manager at the time pertinent to this case, testified that the Viscount “was brought to Butler to be worked on, to make it airworthy and to repair as necessary.” He said that he was told by Butler’s vice president, Jim Burns, that there was a contract which was a “package deal,” 10 and that “[he had]... to hold the cost low.” DeLuna stated that he did some things differently than what he normally would have done on a cost-plus job. He gave as an example that he would have “repaired ... [the] radar instead of just patching it up so I could just get up off the ground.” Additionally, DeLuna would have installed “the proper type of radio; and ... would have overhauled the omnis.” * 11 During the course of “repairing the auto pilot... [he] found out that... [it] was not able to control the aircraft.” The “ailerons were able to control the aircraft” but “the rudder” could not “control” it; “the elevators were heavy...” as was “the rudder....” “The rudder is what guides the aircraft.” DeLuna related that he was told that the cause of the problem might be the “servos” and to take it off of another plane and put it on the Viscount.

Following the test flight, a meeting of some of the staff was held by Vice President Burns. At that time he gave “the order to correct” the deficiencies found during the test flight. DeLuna said that “what happened was that somebody goofed and notified ... [ALC] to come pick-up the plane when the plane wasn’t even ready....” The ALC pilots were “hustle[d] ... out to New York” while “we tried to put the airplane together.” The “servos” was again changed but “it didn’t work.” Prior to the time of take off on the flight to Miami, DeLuna told Burns that “the airplane was [not] safe to fly ... because ... [DeLuna] had ... [his] reasons.” Burns told ⁶²³ him that it was ready, and that another employee, Chuck Hausholter, the maintenance manager, said that “everything that was wrong with ... [the plane] has been corrected.” DeLuna was one of the Butler employees who was in the Viscount on its flight to Miami. The events that occurred on the flight convinced DeLuna that the deficiencies noted in the test flight had not, in fact, been corrected.

He opined that the plane was not airworthy notwithstanding the certificate issued by the FAA on the strength of Butler’s application. DeLuna further said that had he not been told by Hausholter that “everything ... was okay,” he “wouldn’t have gone on the flight.” The pilot, Captain Mario Sarmiento, gave testimony similar to that of DeLuna insofar as the controls, rudder, and auto pilot were concerned. The Captain also said that when they reached Miami, after a low level flight caused by the failure of cabin pressure, they made an emergency landing