First Security Bank of Utah, N.A. v. Northwest Airlines, Inc. (43 F. Supp. 2d 136, 1999)

MEMORANDUM AND ORDER ADOPTING THE MAGISTRATE JUDGE’S REPORT AND RECOMMENDATION ON THE PARTIES’ CROSS-MOTION FOR SUMMARY JUDGMENT

STEARNS, District Judge.

On June 29, 1998, Magistrate Judge Karol issued an exhaustive fifty-six page Report, recommending that plaintiffs be granted summary disposition on Count IV of the Third Amended Complaint (seeking a declaration of the rights of the parties). Defendant Northwest Airlines objected. After further briefing, a hearing was held on January 28, 1999. After careful study of the Report, the disputed Lease, and the pleadings, I will adopt the substance of the Magistrate Judge’s Recommendation. While I do not necessarily agree with every nuance of the Magistrate Judge’s interpretation of the Lease, his ultimate conclusion achieves an equitable result that is ■ consistent with a common sense deduction of the parties’ reasonable expectations on entering the Lease. The Magistrate Judge’s overall construction of the Lease gives neither party an undue advantage at the other’s expense. Under the Magistrate Judge’s analysis, plaintiffs were entitled to “get back the original Engines, maintained in accordance with the Lease or their equivalents [i.e., Replacement Engines] — nothing less, but nothing more either.” Report, at 35.

I agree with the Magistrate Judge that his interpretation restores symmetry to the leases by placing the return of the Engines on the same footing as the return of the Airframes. Report, at 35, 43. I further agree with his conclusion that section 7.2.2 of the Lease “prohibited[ed] Northwest from doing just what it did here,” Report, at 16, particularly when section 7.2.2 is read in conjunction with its parent, section 7.2, which prohibited Northwest from discrimination in its maintenance of the Lessor’s aircraft. (I read more significance into section 7.2 than perhaps did the Magistrate Judge, although the difference in emphasis does not detract from his ultimate conclusion). And, I agree with the Magistrate Judge that Northwest’s selective deconstruction of the terms of the Lease, while not implausible as a parsing exercise, leads to so peculiar a result (“permit[ting] Northwest to do indirectly what the Lease indisputably prohibits it from doing directly,” as the Magistrate Judge phrased it) that it is impossible to believe that it could accurately reflect the outcome of arms-length negotiations between parties of essentially equal bargaining power.

Northwest’s objections at their core focus on section 8.6 of the Lease to the exclusion of all others. Section 8.6 established a floor below which the number of remaining hours and cycles of operation on an Engine’s disks could not fall. Because the Replacement Engines returned by Northwest indisputably met this minimum standard, Northwest argues that it is enti-tied to summary judgment. The Magistrate Judge disagreed, pointing out that Northwest’s myopic focus on section 8.6 rendered a number of other provisions of the Lease (notably section 7.2.2) essentially meaningless. He also adopted the Lessor’s argument that section 8.6 merely “establishes a floor below which the Hours and Cycles remaining on the returned Engines must not under any circumstances fall, but that it does not supercede any general provision dealing with maintenance or Parts replacement.” Report, at 23. See also id., at 41 n. 8. This interpretation is sensible, as it addresses the not implausible possibility that Northwest, for economic or other reasons, might lower, over the term of the Lease, maintenance standards in its fleet to the minimum levels required by federal regulation.

Northwest’s repeated refrain is that under the Magistrate Judge’s “fixture” analysis, it is the victim of its own good deeds. “[I]f Northwest, never expecting to return the original Engines, happened to have installed on them disks having remaining hours and cycles significantly in excess of the requirements of either ordinary wear and tear or Section 8.6, Northwest would be obliged to forfeit that additional value to the lessors.” Defendant’s Objections, at 26-27. This complaint ignores the fact that, under the Magistrate Judge’s construction of the Lease, Northwest was permitted to build down a Replacement Engine that in the normal course of maintenance had acquired Parts superior to those that had come to be contained in an original Engine that it was then replacing. Report, at 34, 53.. By requiring defendant to return Replacement Engines at least comparable in value and utility to the original Engines as of the time the Lessor transferred title to the original Engines to Northwest, and nothing more, the Magistrate Judge was careful to insure that the Lessor would receive no undue windfall. Assuming that Northwest complied with the nondiscrimination provisions of the Lease in maintaining the original Engines, the law of averages works to protect Northwest’s interests. Given its own description of the manner in which disks are replaced (on a parts available basis, whether new or used) some of the original Engines will have received superior Parts (disks), others Parts less valuable.

In its fundamentals, this dispute stems from a concept (an engine is not an Engine is not a Part) that was written into the Lease as a valuable accommodation to Northwest (permitting it to cycle the Engines in regular course through its fleet and relieving it of the burden of locating and reattaching the original Engines before returning the Airframes to the Lessor). Report, at 43. Northwest should not now be permitted to twist this concept, from which it derived a significant benefit, so as to extract from the Lessor an additional advantage never contemplated by the contracting parties.

ORDER

For the foregoing reason, the Magistrate Judge’s Recommendation is ADOPTED as to Count IV of the Third Amended Complaint. Plaintiffs’ request for further discovery, as set out in footnote 11 of their Response, is also ALLOWED. Defendant will produce the requested discovery within thirty (30) days of this ORDER.

REPORT AND RECOMMENDATION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT (DOCKET NOS. 52 AND 60)

KAROL, United States Magistrate Judge.

This case is about the meaning of three substantially identical lease agreements, each lease being for a single commercial aircraft leased by one of three trusts to defendant, Northwest Airlines, Inc. (“Northwest”). The specific question is whether Northwest, upon its return of the aircraft at the end of the lease term, had the right to remove relatively valuable parts from the engines of the aircraft and substitute less valuable parts for them. The answer turns entirely on how the leases are interpreted, there being no dispute about the fact that removal and substitution occurred. Each side has moved for summary judgment on the issue of lease interpretation, claiming that the leases are unambiguous but that, even if they contain a material ambiguity, the ambiguity can be resolved only one way on the basis of undisputed extrinsic ■ evidence. For reasons set forth below, I conclude that the leases, though exceptionally complex, are indeed unambiguous with respect to the matter in dispute, and that, with certain modifications, the plaintiffs’ interpretation is the correct one. Accordingly, subject to those modifications and without consideration of the proffered extrinsic evidence, I recommend that summary judgment on the issue of interpretation be granted- to plaintiffs.

I. BACKGROUND AND PRIOR PROCEEDINGS

Plaintiffs are First Security Bank, N.A. (“FSB”) and Investors Asset Holding Corp. (“IAHC”), in their respective capacities as trustees of three separate trusts. Each trust entered into an Aircraft Lease Agreement with Northwest in December 1989 for a different Boeing 727-200 Advanced Series jetliner equipped with three Pratt & Whitney Model JT8D-15 engines. The three Aircraft Lease Agreements (collectively, the “Leases” or, individually, a “Lease”) are identical in all respects material to the present dispute. FSB is trustee of two of those trusts, designated as the AFG/Northwest Airlines 1989-3 Trust and the AFG/Northwest Airlines 1989^1 Trust; IAHC is trustee of the third, designated as AFG/Northwest Airlines 1989-2 Trust. Since there are no material differences among the Leases, all further references will be to the Lease between IAHC and Northwest, a true and accurate copy of which was marked as Deposition Exhibit 26 (Docket No. 78) and submitted for consideration by the court in connection with the pending cross motions for summary judgment.

The Lease is a well-drafted but formidable document that only a lawyer or an insomniac could love. It consists of twenty-five sections and scores of subsections that fill seventy-five densely written, single-spaced pages (plus supplements and exhibits) that are bursting with cross references, provisos, and defined terms. Three of the sections are particularly germane: Section 1, which sets forth definitions for dozens of terms, several of which are pertinent to the present dispute; Section 7, which deals, among other things, with aircraft maintenance requirements and parts replacement; and Section 8, which is aptly titled “Return of the Aircraft.” The dispute, in a nutshell, is this: did Northwest violate the Lease by stripping engines of valuable parts and replacing them with less valuable parts just before it returned the aircraft at the end of each Lease term in the fall of 1995? That such stripping occurred is not disputed; whether the Leases permitted it very much is.

The particular engine part around which the controversy swirls is a rotating object called a “disk” (although plaintiffs do not waive their right to claim that Northwest also removed other valuable engine parts and replaced them with less valuable counterparts). Each JT8D-15 engine contains 17 such disks; collectively, these 17 disks comprise a substantial portion of the value of the engine. Each disk has a limited useful life, and disk life is carefully regulated and monitored. As explained by Northwest in its Memorandum in Support of Its Motion for Summary Judgment (“Northwest’s Mem. in Support”), at 6-7 (Docket No. 54):

The disks contained in a JT8D-15 engine are subject to mandatory “life limits,” assigned by the manufacturer, that are expressed in terms of both a maximum number of flight “hours” and a maximum number of “cycles” (each “cycle” consisting of one takeoff and landing) .... The life limits established by the manufacturer, in turn, are incorporated into Northwest’s FAA-approved Maintenance Program (defined in the Leases as the “Maintenance Program”) .... When any disk in an engine reaches the end of its permitted life, the engine may no longer be flown, under FAA regulations, until that disk has been replaced.... Because the disk with the least number of “hours” and “cycles” remaining effectively limits the permissible time of operation of the engine before it must be removed for overhaul, that disk is commonly referred to as the “limiter.”

In the summer of 1995, as the Leases were approaching expiration, the parties met and discussed, among other things, the condition of the engines that Northwest would be returning. As explained below, it is undisputed that Northwest was not required to return the same engines that it had received at Lease inception; rather, subject to various constraints, some of which are at issue here, Northwest had the right to return other engines of the same type. When the discussion turned to the condition of the disks of the engines to be returned, Northwest made no secret of the fact that it intended to replace at least some of the disks of those engines with other disks that were closer to the limits of their useful life, but which Northwest insisted would still meet all requirements of the Leases. Each party uses its own euphemism to describe the engines that Northwest intended to (and actually did) return: Northwest describes those engines as having been “freshly built;” plaintiffs describe them as having been “built down.” In either case, the parties sharply disagreed about whether Northwest had the right under the Leases to “rebuild” the engines to substitute shorter life disks for longer life ones. Notwithstanding such disagreement, Northwest in fact returned engines in the fall of 1995 which had been rebuilt in the manner it had described, and plaintiffs accepted the return of those engines, under a reservation of rights. This litigation quickly ensued.

The operative complaint is the Third Amended Complaint (Docket No. 44), which sets forth seven counts. Counts I, II, and III, respectively, are for breach of contract with respect to each of the three Leases. Count TV", for declaratory judgment, seeks a declaration that Northwest’s practice of substituting shorter life disks for longer life disks in the returned engines violated the Leases. Counts V, VI, and VII, which allege essentially the same conduct, are for breach of Massachusetts General Laws ch. 93A (“Chapter 93A”), breach of the implied covenant of good faith and fair dealing, and conversion, respectively.

At a Rule 16 Scheduling Conference in January 1996, the court bifurcated the case into two phases: Phase I, dealing with the issue of Lease interpretation, and Phase II, if necessary, dealing with damages. Following some initial skirmishing, including the denial by the court of Northwest’s motion for judgment on the pleadings on plaintiffs’ claim for violation of Chapter 93A, the parties proceeded with, and completed, Phase I discovery. Each party then moved for summary judgment on the issue of whether the Leases, properly interpreted, permitted Northwest to do what it did. (See Northwest’s Motion for Summary Judgment, Docket No. 52; Plaintiffs Cross-Motion for Summary Judgment, Docket No. 60.) In October 1997,1 heard oral argument on the parties’ cross motions and, at that time, inquired about a possible variation of plaintiffs’ interpretation that neither side had proposed. Under that alternative interpretation, Northwest may or may not have been permitted to do what it did, depending on the existence of certain circumstances that could not be determined on the basis of the present record. At the conclusion of the hearing, I invited the parties to submit supplemental memoranda addressing two related issues: whether the alternative explanation was at least plausible, and whether the parties continued to believe, as they had maintained in their pre-hear-ing memoranda, that the issue of interpretation involved a pure question of law. (Transcript of Hrg. on Oct. 27, 1997 at 76-80, Docket No. 73.)

Supplemental briefing was completed in January 1998. (See Northwest’s Supplemental Memorandum Addressing Question Posed By Magistrate Judge (“Northwest’s Supp.Mem.”), Docket No. 76; Plaintiffs Supplemental Memorandum in Support of Cross-Motion for Summary Judgment (“PL’s Supp.Mem.”), Docket No. 77.) Both sides continued to maintain that the Leases were unambiguous (in their respective favor) and should be interpreted as a matter of law, but that, even if they were ambiguous, they should still be interpreted in their respective favor as a matter of law because the material extrinsic evidence was also undisputed and supported only one conclusion. (Northwest’s Supp.Mem. at 3 — 4, Docket No. 76; Pl.’s Supp.Mem at 6-7, Docket No. 77.) Regarding the alternative interpretation on which I had invited supplemental briefing, Northwest’s unequivocal position was that such interpretation was implausible and inconsistent with the plain language of the Leases. (Northwest’s Supp.Mem. at 2-3, Docket No. 76.) Plaintiffs, on the other hand, while continuing to maintain that their original interpretation was the proper one, took the position that the alternative interpretation about which I had invited comment was plausible and, in most respects, “consistent” with theirs, so much so that they did not oppose and were prepared to accept it. (PL’s Supp.Mem at I, 5, Docket No. 77.) Upon consideration of the supplemental memoranda, the arguments of counsel, and the entire summary judgment record, and for reasons set forth below, I have concluded that the Leases, taken as a whole and without resort to extrinsic evidence, can fairly be read only in accordance with the alternative that was first discussed at the October 1997 hearing. I therefore recommend that partial summary judgment be granted to plaintiffs in accordance with such interpretation, leaving for another day the unresolved factual question whether, under such interpretation, there was a breach of the Leases by Northwest and, if so, the amount of damages, if any, to which plaintiffs are entitled.

II. THE LEASES

A. Overview

As noted, each Lease deals with a single Boeing 727-200 Advanced Series jetliner equipped with three Pratt & Whitney Model JT8D-15 engines, for which combination there is set forth in a supplement to each Lease a single, comprehensive monthly rental rate. Significantly, however, the Lease permits Northwest to remove the three leased engines from the leased airframe to which they are initially attached, to attach the leased engines to airframes other than the leased airframe, and to attach to the leased airframe engines other than the leased engines, all without affecting the manner in which the Lease applies to the leased engines. In this respect, the Lease follows the engines. In fact, it is helpful to an overall understanding of the Lease to conceptualize it for most purposes as governing the lease of a specific airframe and, as a distinct matter, the lease of three specific engines (wherever within the Northwest fleet those three engines may from time to time be located), which engines happen to be physically attached to the airframe at Lease inception but need never be attached to it again. With one exception material to the present dispute, the provisions that govern the airframe and that govern the engines mirror each other. The exception is that, barring extraordinary circumstances, Northwest was expected to return at the end of the Lease term the same airframe that it had received at the beginning, but it was not expected to return the same engines. This significant difference in treatment is attributed by both sides, with varying degrees of emphasis, to the fact that it is industry practice for large air carriers such as Northwest routinely to remove engines from airframes for periodic maintenance, which can take several months, and to replace them with whatever engines happen to be coming out of the maintenance shop. The need for the Lease to accommodate this industry practice of rotating engines through the carrier’s fleet to minimize aircraft downtime is what ultimately gives rise to the question presented here about the quality standards that the returned engines must meet. To begin the process of answering that question, I will now set forth the Lease provisions that appear to have the most direct bearing on the issue, followed by comments that attempt to explain the significance of the highlighted provisions.

B. Review of Specific Lease Provisions

SECTION 1. Definitions

The term “Aircraft” is defined to mean, in pertinent part, “(i) the Airframe identified and described in the Lease Supplement ... to be delivered and leased hereunder (or any airframe from time to time substituted for such Airframe pursuant to the terms hereof)” and “(ii) the three Engines initially leased hereunder (or any engine substituted for any of such Engines pursuant to the terms hereof), whether or not any of such initial or substituted Engines may from time to time be installed on such initial or substituted Airframe or may be installed on any other airframe or on any other aircraft.” (Lease at I, Docket No. 78.)

Comment: It is important to note that the “Engines initially leased hereunder or any engine substituted for any of such Engines pursuant to the terms [of the Lease],” (id.), continue to be included -within the definition of “Aircraft” (and therefore to be the property of the Lessor and subject to the Lease), even though they may have been removed from the Airframe. This much is undisputed. There is a dispute, however, about the meaning of the word “substituted,” or, more precisely, about the point at which an engine becomes “substituted” for an Engine. Plaintiffs contend that the substitution of an engine for an Engine occurs as early as the point at which Northwest is aware that' a particular engine is going to be attached to the Airframe in place of an Engine. Northwest contends, correctly in my opinion, that the phrase “pursuant to the terms hereof’ means that substitution does not take place until Northwest formally conveys to the Lessor title to the substitute engine and the Lessor, in return, conveys title to the original Engine to Northwest, all through a formal exchange of title documents. This usually occurs, if at all, at the end of the Lease term pursuant to Section 8.2 (discussed below), but it can also occur under other circumstances, such as pursuant to Section 10.2 (Event of Loss with Respect to an Engine) or 10.5 (Requisition for Use of an Engine by the United States Government, etc.), both of which are also discussed below. In this manner, three Engines, and only three Engines, are always subject to the Lease at any given time.

The term “Airframe” is defined to mean, in pertinent part, “(i) the Aircraft (except Engines or engines from time to time installed thereon) [or any permitted substitute therefor] ... and (ii) any and all Parts (except Parts which are incorporated or installed in or attached to an Engine) ... provided, however, that at such time as an aircraft (except Engines or engines from time to time installed thereon) shall be deemed part of the property leased hereunder in substitution for the Airframe pursuant to the applicable provisions hereof, the replaced Airframe shall cease to be an Airframe hereunder.” (Id. at 1-2.)

Comment: This definition introduces two important concepts. First, it demonstrates the distinction the Lease makes between an Airframe and Engines. Together, the two comprise the Aircraft, for which the Lease charges a single, monthly rental. For most other purposes, however, the Lease treats an Airframe and Engines as separately leased (but similarly treated) components. Second, it presents an important concept that will later be made applicable to Engines as well. At any given time, only a single, specifically identified Airframe can and must be subject to the Lease (just as three specifically identified Engines can and must at all times be subject to the Lease). This is accomplished by the provision that causes the initial Airframe to “cease to be an Airframe hereunder” as soon as another airframe is for any reason substituted for the initial Airframe. (Id. at 2.)

The term “Cycle” is defined to mean “one takeoff and landing of the Aircraft.” (Id. at 3.)

Comment: The dispute, in part, is whether Northwest had the right to substitute disks with a relatively low number of Cycles remaining for disks with a relatively high number of Cycles remaining in the engines it rebuilt and returned at the end of the Lease term in place of the original Engines.

The term “Engine” is defined to mean, in pertinent part, “(i) each of the engines listed by manufacturer’s model and serial number in the Lease Supplement and installed on the Airframe ... on the Delivery Date, whether or not from time to time thereafter installed on the Airframe or installed on any other airframe or on any other aircraft; [and] (ii) any engine which may from time to time be substituted, pursuant to the terms hereof, for any of such three engines ... provided, however, that at such time as an engine shall be deemed part of the property leased hereunder in substitution for an Engine pursuant to the applicable provisions hereof, the replaced Engine shall cease to be an Engine hereunder.” (Id. at 4.)

Comment: This definition is the counterpart to the definition of “Airframe” and is what causes the Lease to follow the Engines. Thus, it defines “Engine” initially to mean the three specific engines delivered at Lease inception, wherever within Northwest’s fleet they may happen to be located from time to time; it extends the definition to engines “which may from time to time be substituted, pursuant to the terms hereof,” (Id.), for any of those original Engines; and, to assure that only three Engines are subject to the Lease at any given time, it excludes from the definition of “Engine” any former Engine for which another Engine has been substituted “pursuant to the applicable provisions” (id.), of the Lease. The Lease does not define the word “substituted,” and, as noted above, the parties disagree about the point at which substitution occurs.

The term “Maintenance Program” is defined to mean, in pertinent part, “the Lessee’s FAA-approved maintenance program for aircraft of the same type as the Aircraft and engines of the same type as the Engines as in effect from time to time.” (Id. at 6.)

Comment: Lessors contend that the replacement of disks under the circumstances involved here constitutes an impermissible deviation from Northwest’s Maintenance Program. Northwest contends that the Maintenance Program has no applicability whatsoever to disk replacement under the circumstances involved here.

The term “Parts” is defined to mean, in pertinent part, “all appliances, parts, instruments, appurtenances, accessories, furnishing and other equipment of whatever nature (other than ... complete Engines or engines ...) which may from time to time be incorporated or installed in or attached to the Airframe or any Engine or so long as title thereto shall remain vested in Lessor in accordance with Section 7 after removal therefrom.” (Id. at 7.)

Comment: This is a critical definition. All the parts of an Airframe are Parts and all the Parts of an Engine are Parts, but neither complete Engines nor complete engines are themselves Parts. For example, a tire or a seat is a Part, because it is incorporated or installed in or attached to the Airframe, and an Engine disk is also a Part, because it is incorporated or installed in or attached to the Engine. But the leased Engines themselves are not Parts; nor are other engines that Northwest may happen to own outright. This is important because, as we shall soon see, the Lease permits Northwest to replace Parts (such as tires, seats, and Engine disks), provided it replaces them with Parts of equal value and utility. Under this definition, therefore, Northwest is not permitted to remove from an Engine a disk with X Cycles or Hours remaining and replace it with a disk with only ,5X Cycles or Hours remaining, because the replacement disk, a Part of an Engine, would be less valuable than the disk that it replaced. This much is undisputed. Northwest contends, nevertheless, that since a complete Engine or engine is not itself a Part, the Lease permits Northwest, at the end of the Lease term, to replace a complete Engine whose disks have X Cycles or Hours remaining with a less valuable engine whose disks have only .5X Cycles or Hours remaining, if it happens to own such a complete engine outright and have it available for such purpose. Further, it contends that since an engine does not become an Engine until it has been substituted for an Engine in accordance with the terms of the Lease, the parts of such engines do not become Parts until the engine in which they are installed is substituted for the Engine in accordance with the terms of the Lease. Putting all this together, Northwest contends that even if it does not happen to have available an engine with short disk life remaining as the Lease approaches expiration, it may create such an engine by removing longer life disks from any engine that it happens to own outright and replacing them with shorter life disks (because engines are not Engines and parts of such engines are therefore not Parts). In addition, once it has made such replacement, it may substitute such rebuilt engine for the more valuable original Engine containing the longer life disks. Since complete Engines and complete engines are not Parts, this swap, according to Northwest, does not run afoul of the Lease provision that requires it to replace each removed Part with a Part of comparable value and utility. In accordance with this interpretation of the Lease, Northwest in fact rebuilt engines and made such swaps in just this manner immediately before it returned the Aircraft in the fall of 1995, thus doing indirectly what the Lease would clearly prohibit it from doing directly.

Deferring for the moment the question whether complete Engines and engines were excluded from the definition of Parts for the specific purpose of permitting the swapping of relatively low-value, rebuilt engines for relatively high-value Engines, a little reflection reveals a plausible alternative explanation for the exclusion of complete Engines and engines from the definition of Parts. If complete Engines were Parts, then each time an Engine were removed from an Airframe for routine maintenance the Engine, being a Part (ie., a piece of equipment attached to the Airframe), would immediately have to be replaced by another Engine, which new Engine would then immediately become the property of the Lessor and subject to the Lease in place of the original Engine, and which original Engine, in turn, would simultaneously become the property of Northwest and cease to be an Engine. This would be fundamentally inconsistent with the underlying concept of the Lease, which, as noted, was to have the Lease follow the Engines as they traveled through Northwest’s fleet. None of this is to say that, for this reason alone, Northwest’s interpretation of the Lease must be rejected. It is only to say that there is a simple alternative explanation for excluding complete Engines and engines from the definition of Parts, the existence of which undercuts any suggestion that there could have been no other reason for the parties to define Parts the way they did except to permit Northwest to do what it did.

SECTION 7. Registration, Maintenance and Operation; Possession and Subleases; Insignia.

Moving from the Definitions section of the Lease to the substantive provisions, Section 7.2, entitled “Maintenance,” provides, in pertinent part, that Northwest, as the Lessee, shall “maintain, service, repair, and overhaul ... the Aircraft in accordance with the Maintenance Program so as to keep the Aircraft in as good operating condition as when acquired by Lessor ordinary wear and tear excepted ... utibzing ... the same manner of maintenance, service, repair or overhaul used by Lessee with respect to similar aircraft owned or operated by Lessee.” (Id. at 17.)

Comment: This is the so-called “anti-discrimination” provision and is one of the provisions on which plaintiffs rely most heavily for their argument that the Lease prohibited Northwest from swapping shorter life disks for longer life disks in engines that were to be used as replacements for Engines at the end of the Lease term. Plaintiffs’ argument, in essence, is that removing and replacing disks is a form of Aircraft maintenance and, moreover, it is a prohibited form of Aircraft maintenance, since Northwest would never replace longer life disks with shorter life disks in engines that it owned outright and expected to retain in its fleet. Northwest’s primary response is straightforward but, as we shall see in the context of Section 8.3 (discussed below), of doubtful validity. Northwest says simply that, even though this provision applies to Engines (since Engines are included within the definition of Aircraft), it has no application whatsoever to engines which, at the time the maintenance is taking place, Northwest owns outright and have not yet become Engines (and are therefore not yet included within the definition of Aircraft). Therefore, according to Northwest, this so-called anti-discrimination provision surely does not prevent it from removing disks from engines that it owns outright and are not subject to the Lease, replacing the removed disks with less valuable ones, and then using the rebuilt engines tp replace Engines at the end of the Lease term.

Section 7.2.2, entitled “Replacement of Parts,” provides, in pertinent part, that Northwest, as Lessee, “at its own cost and expense, will promptly replace ... all Parts which may from time to time be incorporated or installed in or attached to the Airframe or any Engine and which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever.... In addition, Lessee ... may, at its own cost and expense, remove in the ordinary course of maintenance, service, repair, overhaul or testing, any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use, provided that Lessee ... will at its own cost, and expense replace such Parts as promptly as practicable. All replacement Parts shall ... be in as good operating condition as, and shall have a value and utility at least equal to, the Parts replaced .... All Parts at any time removed from the Airframe or any Engine shall remain the property of Lessor, no matter where located, until such time as such Parts shall be replaced by Parts which have been incorporated or installed in or attached to the Airframe or such Engine and will meet the requirements for replacement parts specified above. Immediately upon any replacement part becoming incorporated or installed in or attached to the Airframe or any Engine as above provided, without further act ... (i) title to such replacement Part shall thereupon vest in Lessor, (ii) such replacement Part shall become subject to this Lease and be deemed part of the Airframe or such Engine for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine, and (iii) title to the replaced Part shall thereupon vest in Lessee.” (Id. at 21-22.)

Comment: This is another critical provision. It is this provision which, at a minimum, prohibited Northwest from doing directly (removing high-value disks from Engines and replacing them with disks of lesser value) what it did indirectly (replacing high-value Engines with engines of lesser value, rebuilt specially for such purpose). Depending on how certain of its terms are interpreted, it may also prohibit Northwest from doing just what it did here.

There are other respects in which this provision has significance, not the least of which is its implication for Northwest’s argument, considered further below, that plaintiffs would receive a “windfall” if Northwest were not permitted to replace high value disks with low value disks in engines slated for use as replacements for Engines at the end of the Lease term. This provision clearly makes the Lessor the owner of all replacement Parts, notwithstanding that it imposes on Northwest the obligation to replace all worn out, lost, stolen, destroyed, damaged, or otherwise unfit Parts at Northwest’s own expense. For example, if seat fabric happened to wear out four years and six months into the five-year term of the lease, Northwest' would be obligated to replace the fabric at its own expense, but the replacement fabric would become the property of the Lessor immediately upon installation. Moreover, though it would hardly have been used and would have been paid for by Northwest, the new seat fabric would remain the property of the Lessor when the Lease term ended six months later. The same would be true with respect to any of the countless other Parts of the Airframe or Engines that could be expected to wear out or otherwise need replacement sometime during the term of the Lease, including Engine disks. Northwest may characterize this provision as a “windfall” for the Lessor, but use of that term does not change the fact that Parts routinely wear out and need to be replaced and that one party or the other must necessarily obtain the benefit of whatever useful life remains in the replacement Part at the end of the Lease term. This provision makes clear that such benefit belongs to the Lessor, regardless of the value of the replacement Part and notwithstanding that it is Northwest that must replace all worn out Parts at its own expense.

Section 7.2.4, entitled “Alterations, Modifications and Additions,” provides, in pertinent part, that Northwest, as Lessee, “at its own expense, may ... make such alterations and modification in and additions to the Airframe or any Engine as Lessee ... may deem desirable in the proper conduct of its business, including, without limitation, removal of Parts which Lessee ... deems obsolete or no longer suitable or appropriate for use on the Airframe or such Engine (such parts being herein referred to as ‘Obsolete Parts’); provided that no such alteration, modification or addition shall diminish the Fair Market Sales Value or utility of the Airframe or such Engine ... below the value [or] utility ... thereof immediately prior to such alteration, modification or addition ... except that the value ... of the Airframe or any Engine may be reduced by the value of Obsolete Parts which shall have been removed so long as the aggregate original cost of all Obsolete Parts which shall have been removed and not replaced shall not exceed $40,000.” (Id. at 23.)

Comment: This provision is not as directly relevant to the dispute as the others previously discussed, in the sense that the outcome does not turn on the interpretation of any of its terms. Nevertheless it is important in the sense that it is one of several provisions that, in whole or in part, would be rendered all but meaningless if Northwest’s interpretation of the Lease were adopted. Under Northwest’s interpretation of the Lease, engines, as distinguished from Engines, are not at all subject to the Lease. Therefore, under such interpretation, Northwest can scrupulously comply with what was obviously a carefully considered limitation of $40,000 on the original cost of Obsolete Parts that it may remove from an Engine, while at the same time removing and retaining unlimited quantities of obsolete parts from a shadow engine it knows it is going to return to the Lessor at the end of the Lease in lieu of the Engine. One may legitimately ask of what conceivable benefit the $40,000 limitation would be to the Lessor if, as interpreted by Northwest, it restricted Northwest’s right to remove and retain parts from Engines that were to remain in Northwest’s own fleet at the end of the Lease term but not from the ones that were to be returned to the Lessor. Of course, the same question may be raised regarding Section 7.2.2, if the Lease is construed to permit Northwest, having scrupulously complied throughout the Lease term with the requirement that it replace all Engine Parts with Parts of equal value and utility, to retain at the end of the Lease term the Engine whose value and utility it so meticulously preserved and to return in its place a less valuable engine it deliberately rebuilt with parts of lesser value and utility than the corresponding Parts of the retained Engine.

SECTION 8. Return of the Aircraft

The provisions of Section 8 apply “only to the return of the Aircraft.” (Lease at 30, Docket No. 78.) Section 8.2, entitled “Return of Other Engines,” provides, in pertinent part, as follows: “In the event that any engine not owned by Lessor shall be delivered with the returned Airframe (a ‘Replacement Engine’), Lessee, concurrently with such delivery, will, at no cost to Lessor, furnish ... to Lessor a ... bill of sale with respect to each such engine ... and Lessor shall execute a bill of sale evidencing the transfer. Upon transfer of title to Lessor, such Replacement Engine shall be deemed to be an Engine for all purposes hereof and thereupon Lessor will transfer to Lessee ... all of Lessor’s right, title, and interest in and to any engine not installed on such Airframe at the time of the return thereof.” (Id. at 30-31.)

Comment: This provision sets forth the procedures applicable to the return by Northwest of an engine other than, and in place of, an original Engine. At the time of return, there must be. a formal exchange of title documents, through which title to the substitute engine, now called a “Replacement Engine,” is transferred to the Lessor and title to the original Engine, now reduced to the status of a mere engine, is simultaneously transferred to Northwest. At that point, such “Replacement Engine shall be deemed to be an Engine for all purposes hereof.” (Id. at 31.) The question at the heart of this case is whether this means, among other things, that the parts (now indisputably Parts) of the Replacement Engine, having functionally replaced the corresponding Parts (now parts) of the original Engine (now an engine), constitute “replacement Parts” within the meaning of Section 7.2.2. If they do, then their value and utility must be equivalent to the value and utility of the corresponding Parts (now parts) of the original Engine (now an engine), measured as of the point at which title was exchanged.

Northwest’s answer to this core question is that, while the Parts of the Replacement Engine may functionally have replaced the former Parts of the original Engine when the exchange occurred, such Parts nevertheless do not constitute “replacement Parts” within the meaning of Section 7.2.2, because a Section 7.2.2 replacement of Parts is not triggered by the wholesale swap of an engine for an Engine, but only by the physical removal of one or more Parts from an Engine due to their having become physically incapable of performing their intended functions or otherwise in the ordinary course of maintenance. Here, according to Northwest, the only physical removal of a part that occurred was the removal of the disks (before they became Parts) from the engines that Northwest owned outright (before they became Engines). Under this logic, Section 7.2.2 was never triggered; the Parts of the Replacement Engine therefore never became “replacement Parts” within the meaning of Section 7.2.2, even though, at the moment of exchange, they functionally replaced each of the corresponding former Parts of the original Engine; and the Parts of the Replacement Engine therefore need not satisfy the equal value and utility standard of Section 7.2.2, relative to those corresponding former Parts of the original Engine. This is certainly one conceivable interpretation of certain isolated words and phrases found within Section 7.2.2. The question to be decided is whether that interpretation is sufficiently plausible to warrant summary judgment for Northwest or even to raise an issue of fact sufficient to defeat summary judgment in favor of plaintiffs, when those isolated words and phrases are read in context and an attempt is made to give meaning to the Lease as a whole.

Section 8.3, entitled “Condition of the Aircraft,” provides, in pertinent part, that “[t]he Aircraft at the time of return to Lessor shall have been maintained and repaired in accordance with the Maintenance Program and this Lease.” (Id.)

Comment: In broad outline, plaintiffs contend that there are two independent reasons why Northwest may not replace longer life disks with shorter life disks in engines slated to become Replacement Engines. First, as discussed, plaintiffs contend that this practice violates the requirement of Section 7.2.2 that Parts be replaced with Parts of equal value and utility. As to such argument, Northwest responds that (1) it may do anything it wishes with engines and parts before they become Engines and Parts, because engines and parts, as distinguished from Engines and Parts, are not subject to the Lease, and (2) Parts that functionally replace Parts as the result of the exchange of an engines for an Engine are not “replacement Parts.” Second, as also discussed, plaintiffs contend that this practice constitutes a form of discriminatory maintenance, in violation of Section 7.2. Again, Northwest’s response is that, since the Lease applies only to Engines, the maintenance provisions of Section 7.2 (as distinguished from FAA regulations) do not at all restrict its right to maintain engines (as distinguished from Engines) any way it sees fit. The phrase “shall have been maintained” in Section 8.3 calls into serious question Northwest’s argument insofar as it applies to the maintenance branch of plaintiffs’ argument. The tense in which such phrase is written would appear to require that, at the time the Aircraft (which includes Engines and Replacement Engines) is returned, the parties make a retrospective determination as to how that Aircraft, including any Replacement Engines, was maintained. If Replacement Engines were not maintained “in accordance with the Maintenance Program and this Lease,” then, as I read the phrase “shall have been maintained,” there would be a breach of the Lease “at the time of return,” even if the maintenance was done (or not done) at a time before the engines became Replacement Engines, or, in other words, before the “time of return.” Of course, even if all that were true, it would still remain to be seen whether the replacement of long life disks with short life disks for the purpose of readying an engine for return to the Lessor is a form of “maintenance and repair” at all and, if it is, whether it is a form that violates the Maintenance Program or the Lease. For reasons discussed below, such issues become moot if the alternative interpretation of Section 7.2.2 first proposed at the October 1997 hearing is adopted.

Section 8.3 goes on to set forth at least one particular requirement that has a bearing on the parts replacement issue. Section 8.3.3, entitled “Deferred Maintenance,” provides that Northwest “will not defer scheduled maintenance or service with respect to the Aircraft in contemplation of return of the Aircraft and will maintain the Aircraft in accordance with the Maintenance Program.” (Id.)

Comment: Section 8.3 would appear to have one or both of two related purposes. The first purpose would be to assure that the Aircraft, including Engines, is not physically damaged and thus rendered less valuable as a result of Northwest’s decision to defer maintenance “in contemplation of return of the Aircraft;” the second is to assure that Northwest does not fail to replace worn out Parts, which failure, wholly apart from concerns about physical damage to the Aircraft, would deprive Lessors of the economic benefits conferred by Section 7.2.2. In either case, this is one of several provisions of the Lease that would be rendered essentially meaningless under Northwest’s view that maintenance provisions have no application to engines, as distinguished from Engines, and that Section 7.2.2 has no application to Parts of Replacement Engines that functionally replace corresponding former Parts of original Engines. Specifically, the protection seemingly offered by Section 8.3.3 would become at best illusory and at worst a cruel hoax if Northwest could defer maintenance with respect to a shadow engine and then, at the time of Lease expiration, exchange the shadow engine, whose maintenance had been deferred and whose Parts had therefore deteriorated in value, for the perfectly-maintained original Engine, which original Engine (now an engine) would then become the property of Northwest.

Section 8.6, entitled “Engine Condition,” provides, in pertinent part, that “[u]pon return of the Aircraft, the number of Hours and Cycles of operation remaining until the next scheduled engine removal, under the Maintenance Program, shall not be less than 2,000 remaining Hours and 2,000 remaining Cycles for any one Engine.” (Id. at 32.) The section goes on to impose requirements for “across the Wing” averages for all three Engines. (See id.)

Comment: This is one of the sections on which Northwest relies most heavily. Northwest contends that Section 8.6 sets forth the only requirements regarding the number of Hours and Cycles that returned Engines must satisfy. Northwest further contends that this specific provision does not conflict with any general provision of the Lease dealing with maintenance or Parts replacement, but that, even if it does, the specific must prevail over the general, pursuant to familiar principles of contract construction. Plaintiffs contend that this section merely establishes a floor below which the Hours and Cycles remaining on the returned Engines must not under any circumstances fall, but that it does not supercede any general provision dealing with maintenance or Parts replacement. Construed in this manner, there would be no conflict between Section 8.6 and any other provision of the Lease and no need to invoke the principle of contract construction on which Northwest relies as a fallback position. Section 8.6 does not, by its terms, favor one side’s interpretation over the other. If Northwest’s interpretation is correct, however, Northwest would be entitled to summary judgment on all issues, since it is undisputed that the Replacement Engines returned by Northwest did meet all the Hours and Cycles requirements set forth in this section.

Section 8.9, entitled “Inspection,” provides, in pertinent part, that “[djuring the last six months of the Term ... Lessee will cooperate ... with the efforts of Lessor to sell or lease the aircraft, including, without limitation, permitting prospective purchasers or lessees to inspect the Aircraft.” (Id. at 33.)

Comment: This is another provision whose interpretation has no direct bearing on the outcome but which would be rendered essentially meaningless, as applied to Engines, if Northwest’s interpretation of the Lease were correct. Under Northwest’s interpretation, prospective purchasers or lessees would be permitted to inspect the Engines for the evident purpose of determining their condition and value, but the Lessor would be utterly incapable of giving assurances to the inspectors that the quality of the Engines they would be acquiring at the end of the Lease term, or of any of the Parts of such Engines, would be comparable to the quality of the Engines and Parts they had inspected. The inspections would thus serve no conceivable purpose, and any benefit Section 8.9 seemingly conferred on the Lessor would be illusory.

Section 8.20, entitled “Configuration and Condition,” provides, in pertinent part, that “[t]he Aircraft shall be returned in ... the same condition with all Parts installed therein as on the Delivery Date, excepting only modifications, additions, replacements and substitution of Parts as may have been property made by Lessee pursuant hereto and as specifically otherwise set forth in Section 7 or or [sic] this Section 8.” (Id. at 36.)

Comment: It is undisputed that the Parts installed on the Aircraft, at least to the extent the term “Aircraft” is defined to include Engines, are not the same Parts that were “installed therein as on the Delivery Date,” at least to the extent that Parts include disks. It would appear, therefore, that Northwest is in breach of the Lease unless it can point to some provision within Section 7 or Section 8 that “specifically” permits it to return the Aircraft with non-original Engine Parts. Section 7.2.2 of course expressly permits Northwest to replace Parts, including Engine Parts, and it is therefore the first section that comes to mind as conceivably authorizing Northwest to return the Aircraft with non-original Engine Parts. But if Northwest were to invoke Section 7.2.2 here, it would be taking a fatal leap from the frying pan into the fire, because Parts replaced pursuant to Section 7.2.2 are unquestionably “replacement Parts” and must therefore be of equal value and utility to the Parts they replaced. This of course would completely undercut Northwest’s position here. In the alternative, Northwest can attempt to argue that since Section 8.2 expressly permits it to return Replacement Engines in place of original Engines, then it must be implicit in Section 8.2 that it may return non-original Engine Parts. But Section 8.20 permits only such Parts replacements as are “specifically ... set forth in Section 7 or ... Section 8,” and there would appear to be no such specific authorization within Section 8.2 to return non-original Engine Parts. For that, Northwest might still have to rely on Section 7.2.2, which plaintiffs would argue was obviously drafted to serve just such purpose. Moreover, even if Section 8.2 were construed to confer specific authorization of the type that Section 8.20 expressly requires, the non-original Engine Parts comprising the Replacement Engine might still plausibly be characterized as “replacement Parts” within the meaning of Section 7.2.2, since Section 7.2.2 does not, by its terms, purport to restrict the term “replacement Parts” to parts replaced pursuant to Section 7.2.2. This interpretation, of course, would put Northwest right back into the fire.

Section 10, entitled “Loss, Destruction, Requisition, etc.,” deals with certain circumstances that cause the Aircraft to become unuseable, including destruction, theft, condemnation, confiscation, official grounding, or requisition by the government. All such events are referred to generically as “Event[s] of Loss.” Section 10.1, entitled “Event of Loss with Respect to the Aircraft,” provides, in pertinent part, that “[u]pon the occurrence of an Event of Loss with respect to the Airframe or the Airframe and the Engines and/or engines then installed thereon ... Lessee shall pay ... to Lessor ... the Stipulated Loss Value of the Aircraft .... [and that at] such time as Lessor shall have received [such] sum,” Northwest’s obligation to pay rent ceases, the Lease terminates, and the Lessor transfers title to the Airframe and the three Engines to Northwest. (Id. at 38-39.) The “Stipulated Loss Value” is defined as the original acquisition cost of the Airframe and Engines, discounted in accordance with a depreciation schedule attached to the Lease as Exhibit C. (Id. at 8.)

Comment: If any event causes the Airframe to become unuseable, the Lease immediately terminates and Northwest must involuntarily purchase both the Airframe and the Engines from the Lessor for a price based on their original acquisition cost. ' Significantly, where the Lease terminates under these circumstances, the purchase price does not vary depending on whether engines less valuable than Engines are installed on the Airframe at the time of Lease termination. Indeed. Northwest must purchase the original Engines for their then fair value, wherever they may be located at the time the Airframe becomes unuseable, and it must do so even if the Engines are completely unaffected by the Event of Loss. The value that the Lessor receives under these circumstances of an unscheduled termination and forced sale should be contrasted with the value that the Lessor receives under Northwest’s interpretation of the Lease if the Lease runs its full term and Northwest returns the Airframe with engines other than the original Engines attached to it. Under those circumstances, if Northwest’s interpretation is correct, the Lessor must be content with whatever the value is of the engines that 'Northwest unilaterally chooses to return, which may be substantially lower than the then fair value of the original Engines. Northwest suggests no explanation 'for this seemingly arbitrary disparity, in which the value that the Lessor receives can vary substantially depending on whether the Lease happens to expire at the end of its full term or, instead, terminates as little as a day earlier as the result of the fortuitous occurrence of an Event of Loss.

Section 10.2, entitled “Event of Loss with Respect to an Engine,” provides, in pertinent part, that “[u]pon the occurrence of an Event of Loss with respect to an Engine under circumstances in which there has not occurred an Event of Loss with respect to the Airframe, Lessee shall ... convey ... to Lessor, as replacement for the Engine with respect to which such Event of Loss occurred, title to another engine of the same type as the Engine ... and having a value and utility at least equal to, and being in as good operating condition as, the Engine with respect to which such Event of Loss occurred,” at which point the Lessor will convey to Northwest the Engine as to which the Event of Loss occurred and such Engine will cease to be an Engine under the Lease. (Id. at 39-40.)

Comment: Here again, if an Engine becomes unuseable as the result of an Event of Loss, Northwest must replace such Engine with one having at least equal value and utility. Two related observations may be made concerning this provision. First, Northwest suggests no reason why the parties would have wanted to treat differently the voluntary exchange of a Replacement Engine for an original Engine at the end of the Lease term and the involuntary exchange of a Replacement Engine for an original Engine that suffered an Event of Loss during the Lease term. Second, if Northwest’s interpretation is correct, then any benefit seemingly conferred upon the Lessor by this provision, like so many others, would be illusory. The Replacement Engine of equal value and utility that Section 10.2 requires Northwest to convey to the Lessor during the Lease term to replace the Engine that suffered the Event of Loss would ultimately become the property of Northwest at the end of the Lease term and be replaced by a different Replacement Engine that Northwest specially built with Parts of lesser value and utility.

Section 10.5, entitled “Requisition for Use of an Engine by the United States Government or the Government of Registry of the Aircraft,” incorporates by reference the provisions of Section 10.2 in the event a governmental agency requisitions the use of an Engine, “to the same extent as if an Event of Loss had occurred with respect thereto.” (Id. at 41.) Therefore, the comments concerning an Event of Loss with respect to an Engine apply here as well.

Section 10.7, entitled “Repairable Damage; Use of Insurance Proceeds,” concerns the situation in which insurance proceeds are paid to the Lessor in respect of the occurrence of either (1) repairable damages to an Aircraft or any of the Engines or (2) an Event of Loss with respect to an Engine that does not also involve an Event of Loss to the Airframe. (Id. at 42.) In the former case, the Lessor must pay the proceeds over to Northwest upon its “furnishing evidence ... that such damage has been made good or repaired ... such that the condition of the Aircraft shall be at least equivalent to its condition immediately prior to the event of damage.” (Id.) In the latter case, the Lessor may itself “utilize the relevant insurance proceeds in the purchase of a Replacement Engine.” (Id.)

Comments: For all the reasons previously given, the protection these provisions would seem to provide to the Lessor regarding the use of insurance proceeds to repair or replace damaged or unuseable Engines would be illusory under Northwest’s interpretation of the Lease, because the Engines that had been restored to their original condition or replaced with Replacement Engines purchased by the Lessor would ultimately become the property of Northwest, while Replacement Engines of inferior value and utility would ultimately be returned to the Lessor at the end of the Lease term.

Section 15, entitled “Remedies,” sets forth various remedies to the Lessor in the event of a default by Northwest. It provides, in pertinent part, that “[u]pon the occurrence of any Event of Default ... Lessor may [inter alia ] ... cause Lessee to return promptly ... an