October 5, 2024
After NetJets sued a former customer for $1.7 million in unpaid fees, the share owner countersued claiming false advertising.
The Federal District Court in Columbus, Ohio, has dismissed a lawsuit by a former fractional owner of NetJets. It alleged false advertising.
District Judge James L. Graham handed down the decision last week.
According to Vital Law, the court held that advertising terms like “peace of mind” for safety were vague and subjective.
The lawsuit against NetJets was a counterclaim after the world’s largest private jet flight provider sued the former fractional owner.
It was seeking over $1.7 million in allegedly unpaid fees.
The litigation involved Stephen G. Perlman, the Stephen G. Perlman Revocable Trust, and RS Air, LLC, a now-bankrupt entity.
The former fractional owner had been a NetJets customer since 2001.
Vital Law writes:
NetJets Aviation, Inc. filed suit in the federal district court of Ohio against Silicon Valley entrepreneur and inventor Stephen G. Perlman, and the Stephen G. Perlman Revocable Trust alleging that they are the alter egos of RS Air, LLC, a bankrupt entity. NetJets seeks recovery on an allowed bankruptcy claim, plus interest, from Perlman and the trust for more than $1.7 million. Perlman filed a counterclaim against NetJets under federal and state law alleging false advertising and related claims. The aviation company claimed that ‘Flying with NetJets Means Peace of Mind.’ The counterclaim also asserts that NetJets claimed that it was ‘the safest name’ and had the ‘finest fleet’ in private aviation, ‘prioritized safety above all else,’ and led the industry in setting safety standards. In addition, NetJets touted the financial benefits of its fractional ownership program. The entrepreneur brought a federal claim under the Lanham Act claim, the Ohio Deceptive Trade Practices Act, and California law for false advertising and unfair competition. NetJets moved to dismiss.
Court documents show that the long-term relationship broke down in 2017.
The opinion from Judge Graham notes:
The parties’ relationship deteriorated in July 2017 when a Cessna Citation X aircraft in which RS Air owned a share was involved in a non-injury incident. The aircraft was damaged and declared a total loss for insurance purposes. Perlman believed that NetJets concealed information about the incident and the insurance proceeds, breached its contractual obligations, and acted in bad faith in attempting to enter into an aircraft substitution agreement with RS Air. NetJets maintained that it had fully complied with its contractual obligations to RS Air and that its substitution offer was fair.
The Citation X incident occurred while the aircraft was out of service for maintenance.
It happened at Henderson Airport outside Las Vegas on July 21, 2017.
A report in Aviation Safety Network states, “The airplane was moved for maintenance, but the brakes were not set. The aircraft rolled down an embankment and through a fence. The aircraft was not repaired and was written off.”
Earlier court documents show a third-party provider was performing the maintenance.
No other litigation related to the tail – N903QS – could be readily found.
Perlman and other owners were able to continue accessing the NetJets’ fleet.
Perlman’s countersuit came after NetJets filed a claim for the $1,767,571.15 in unpaid management fees.
Court documents show that Perlman countersued with four causes of action.
One of the counterclaims was brought under the Lanham Act. It was alleged that NetJets made false representations when advertising its goods and services.
Vital Law notes, “Under the Lanham Act, a plaintiff must allege some non-speculative commercial injury to their reputation or sales proximately caused by the false advertising.”
The three additional counterclaims were brought under state law.
One Counterclaim was under the Ohio Deceptive Trade Practices Act.
Two counterclaims were under California law for false advertising and unfair competition.
Perlman took issue with various advertising claims by NetJets.
Per last week’s opinion from the court, Perlman cited various claims:
NetJets claimed that it was ‘the safest name’ and had the ‘finest fleet’ in private aviation, ‘prioritized safety above all else,’ and led the industry ‘in setting safety standards,’ among other similar statements. NetJets also touted the financial benefits of its fractional ownership program, stating that a participant would experience ‘investment security from a financially stable business model’ and would enjoy valuable tax benefits.
However, Perlman, per the document, alleged that was not the case:
Perlman alleges that in reality NetJets has a ‘long history of accidents and incidents involving aircraft in its fractional ownership plan.’ This made NetJets’ claims about the safety of its program false. Customers allegedly suffered injury because NetJets was able to charge higher fees than it would have if the truth about its safety record had been known. And competitors allegedly were harmed because NetJets competed unfairly by making false claims to attract customers.
Perlman claimed, “[O]ver a period of 24 years, NetJets had 34 aircraft-related incidents, which it failed to disclose to consumers.”
It continued, “The nature of the incidents included malfunctioning landing gear, runway excursions, an equipment bay fire, an improperly secured service door, and failure to activate a seat belt sign in a timely manner.”
(Editor’s Note: NetJets operates over 425,000 flights per year. If you never want to fly again, The Aviation Herald publishes a comprehensive daily report of incidents and accidents. The past week includes United, American, Delta, JetBlue, Cathay Pacific, Lufthansa, Qantas, KLM, and others.)
At the same time, the court documents note, “Perlman does not allege that NetJets failed to maintain its fleet, train its staff, or implement safety standards…Again, Perlman does not allege that NetJets actually lacked safety programs, procedures, or policies. Rather, he contends that the claims produced the misleading impression that NetJets was committed to safety (arguing that the gist of NetJets’ claims was ‘you can trust us with your life’). In the same vein, the Counterclaim’s allegation that NetJets’ safety record was ‘not as advertised’ refers to the impression NetJets created of its commitment to safety. Perlman does not allege that NetJets claimed it had never experienced an incident with one of its planes.”
READ: Fractional operators have ‘exceptional safety record’
The court document continues:
NetJets’ representations about the financial benefits of its program also were allegedly false. According to the Counterclaim (and echoing RS Air’s position in other proceedings), after the 2017 plane incident, NetJets colluded with insurance companies, brought burdensome litigation against RS Air, and dealt in bad faith in regard to its contractual obligations. Perlman alleges that the representations were false because the financial resources he has expended to deal with the disputes has outweighed the financial benefits he received from NetJets.
Regarding the false advertising claims, “NetJets argues that any omission-based false advertising claim must fail because the Counterclaim does not set forth allegations supporting an inference that NetJets had a duty to disclose.”
The Court’s opinion noted, “NetJets is not alleged to have represented that it had an incident-free record or that its planes had never experienced a mechanical issue.”
It added, “NetJets made generalized, subjective statements about its commitment to safety, which no reasonable consumer would have taken to mean that NetJets had a problem-free history of operations.”
NetJets has never had a fatal accident.
READ: Private Jet Safety: Key questions to ask
Regarding the financial benefits of its fractional program, the opinion stated, “The Counterclaim does not set forth how any of these statements were actually false.”
In fact, the opinion noted that Perlman received “a depreciation tax benefit of over $1.3 million between 2007 and 2017,” and NetJets does enjoy Berkshire Hathaway’s financial backing.
It continues, “Simply put, the injury alleged – the resources expended in contract and insurance disputes, litigation, and bankruptcy proceedings – is too remote from NetJets’ advertising. Perlman does not allege an injury caused by his reliance on the false advertising.”
In his opinion, Graham added, “The injury-producing conduct is NetJets’ alleged post-incident behavior, not the pre-transaction false representations on which Perlman relied. Nowhere does the Counterclaim deny that Perlman received the advertised financial and tax benefits from 2001 and 2017. It was not until an alleged breach of contract and the ensuing legal battles that he was in the red with respect to NetJets.”
NetJets argues that several of the marketing statements are nonactionable Puffery.
So, what is Puffery?
The legal origins can be traced back to an 1893 English Court of Appeal case per Venable LLP.
Legal Match notes, “It is important to understand that the difference between Puffery and factual representations is the degree of specificity of the claim. For instance, Puffery contains broad, general claims, such as the motto ‘The Best Coffee in the World.’”
It adds, “Puffery cannot be considered as creating an express guarantee or warranty.”
Venable, LLP, points to a couple of famous examples of Puffery.
It cites Nike’s Air Jordan slogan, “It’s gotta be the shoes!”
Venable also points to another Berkshire Hathaway company, insurance firm GEICO.
It references an ad claiming, “Switching to GEICO is so easy a caveman can do it.”
In the case against NetJets, Judge Graham dismissed the lawsuit, writing the former customer’s claims “fail as a matter of law.”
Representatives of NetJets declined to comment.
Representatives from Perlman did not respond to a request for comment.
So, the question remains: Is switching to NetJets so easy that a caveman can do it?
READ: What is Puffery in advertising?
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