Tenth Circuit Decides a Mistake Case Under Oklahoma Law

Real life is far more complicated than necessary for teaching purposes. There are a lot of moving parts here, but it seems to come down to this: Accelerated, LLC (Accelerated) contracted to purchase a plane from LMI II, LLC (LMI). Pre-purchase inspection indicated problems with the engines and so the parties agreed that LMI would take out an insurance policy to cover the costs of temporary engines while the original engines were repaired. LMI was to forward the proceeds from that insurance to Accelerated.  The parties entered into an Addendum to their agreement reflecting this understanding and then closed their deal. A few days later, the manufacturer issued “Technical Variances” (TVs) that rendered the repairs unnecessary.

LMI received a check from its insurer to cover the cost of repairs and temporary engines. It then asked Accelerated for proof that it had in fact incurred such costs.  Accelerated provided no such proof. When LMI refused the payment, Accelerated sued for breach of the Addendum, seeking a $500,000 payment allowed under the supplemental insurance policy. The district court granted to summary judgment to LMI, finding that the Addendum had been entered into based on a mutual mistake of fact.  Both parties thought the engines needed to be repaired.  They did not.

In Accelerated, LLC v. LMI II, LLC, the Tenth Circuit affirmed. Accelerated tried to argue that there was no mistake. The plane’s engines were damaged in ways that reduced its value and that would eventually need to be repaired. The Court disagreed. The mistake was that the damage rendered the engines in need of immediate repair. Once the TVs were issued, the engines were fine, and in fact Accelerated did not have the engines repaired. So the parties were mistaken as to the availability of benefits under the supplemental insurance policy.

The Court then considers allocation of risk. Perhaps Oklahoma does not follow the Restatement approach on assignment of risk. Accelerated argues that the parties agreed that LMI bore the risk of mistake.  The Court is unpersuaded that LMI bore the risk of an unfounded insurance claim. Under the Restatement approach, it should not be enough to decide that LMI did assume the risk by the parties’ agreement. The Court still needs to determine which party ought to bear the risk. If the Court undertook such an analysis, it did so sub silentio. There is a footnote about waived arguments, but it would seem odd for the Corut to not apply the full test for allocation of risk of mistake because the losing party only relied on one of its prongs. However, given the facts, it seems the Court reached the right result. LMI promised to pay $500,000 based on a mistake of fact.  If it is the party better positioned to have avoided the mistake of fact, then the risk ought to be assigned to it. But here the problem is not really mistake of fact but that, if appears, Accelerated did something outrageous, seeking reimbursement for costs that it never incurred.

The Court then turned to Accelerated’s equitable claims. The District Court properly dismissed those claims. Accelerated had no claims for promissory estoppel because it did not do anything in reliance on a the promise contained in the Addendum. It was already contractually obligated to buy the plane. Its claims for money had and received and for unjust enrichment failed because the party that might make such a claim was AIG, not Accelerated.

Finally, the Tenth Circuit affirmed the award of attorneys’ fees to LMI. Oklahoma follows the American rule that each party pays its own attorneys’ fees. However, that is a default rule, and here the agreement between the parties provided that the prevailing party was also entitled to an award of attorneys’ fees. Accelerated argued that the dispute arose under the Addendum, not under the agreement itself. The Tenth Circuit affirmed the District Court’s ruling that the Addendum was an Addendum to the agreement and thus the litigation was an attempted to recover under the agreement as amended by the Addendum.