A US District Court judge has dismissed counterclaims brought against NetJets Aviation (EJA, Columbus John Glenn, OH) by alter egos of a bankruptcy entity called RS Air. US Southern District of Ohio Judge James L Graham handed down his decision on September 25, 2024. The counterclaims were a response to a financial claim made by NetJets for unpaid fees when RS Air became insolvent.

Three NetJet entities - NetJets Aviation, Inc., NetJets Sales, Inc., and NetJets Services - sought a declaration that defendants Stephen G Perlman and the Stephen G Perlman Revocable Trust were the alter egos of RS Air and wanted Perlman's four state and federal counterclaims dismissed.

Perlman is an entrepreneur and inventor of internet, entertainment, multimedia, consumer electronics, and communications technologies and services, including QuickTime, WebTV, OnLive, pCell, and Mova Contour facial capture technologies. He claimed NetJets made misrepresentations about the safety and quality of its private aircraft programme when promoting it, and that those advertising claims injured him as a consumer and as a competitor. Perlman, who has lodged scores of patents in the US, told the court he was an inventor of technologies "in the private aircraft travel space" and that his "technology is competitive with NetJets."

Background to the dispute

According to the ruling, Perlman formed RS Air in 2001, appointing himself its sole member and manager, and used it to purchase a fractional membership in a NetJets aircraft. Later, RS Air acquired shares in two more NetJets aircraft. Under the purchase and management agreements, RS acquired the rights to a certain number of flight hours every year but also had to pay NetJets fees for various management and support services.

The relationship broke down in 2017 when a Cessna Citation X that RS owned a share in was involved in a non-injury incident while out of service for maintenance. The jet was declared a total loss for insurance purposes. However, Perlman said NetJets withheld information from him about the incident and the insurance payment, acted in bad faith by trying to enter into an aircraft substitution agreement, and breached its contractual obligations. NetJets said its offer was fair and that it had abided by its contractual obligations.

Litigation began in Ohio, NetJets' home state, and in California, where Perlman lives and RS Air was based. However, in late 2020, RS Air filed a Chapter 11 bankruptcy petition, and NetJets filed a proof of claim for USD1,767,571.15 in unpaid management fees, seeking recovery plus interest.

In response, Perlman filed four counterclaims, the first brought under the Lanham Act for alleged false representations made by NetJets in advertising its goods and services and the other three brought under state laws, one under the Ohio Deceptive Trade Practices Act and two counterclaims under California law for false advertising and unfair competition. The counterclaims revolve around alleged misrepresentations NetJets made in promoting its private aircraft programme.

Perlman's overarching argument was that any value he derived from his private jet fractional membership was destroyed by the post-2017 litigation. He argued NetJets deployed the resources of its backers, Berkshire Hathaway, to engage in "corporate-scale litigation" to attack RS Air, covered up information, colluded with insurers, and acted in bad faith. "The overall financial value to Perlman of his participation in the NetJets program has been negated by the ongoing disputes which he (Perlman) and RS Air has had with NetJets since 2017," the ruling reads.

Counterclaims fail

Graham readily dismissed Perlman's first counterclaim based on Lanham Act provisions. The legislation, also known as the Trademark Act (1946), deals with activities (such as trademark infringements, cybersquatting, and false advertising) that could cause damage to an individual or entity's commercial interest in reputation or sales. But Graham said NetJets' alleged false advertising had not caused injuries to Perlman’s aviation-related interests in terms of reputation or sales.

The judge was equally quick to dismiss Perlman's counterclaims under state law. He said the first counterclaim based on the Ohio Deceptive Trade Practices Act failed to establish "a plausible inference that NetJets’ false advertising about the safety and financial benefits of its program proximately caused injuries to Perlman’s business interests."

Graham said counterclaims under California's Unfair Competition and False Advertising Laws failed because Perlman could not sufficiently establish that he relied on NetJets’ allegedly false statements about the safety and financial benefits of its scheme or that the reliance caused him financial harm.

NetJets' boasts just advertising “puffery”

Donning a consumer's guise, Perlman also claimed that NetJets falsely promoted the safety of its aircraft and programme and that he relied on 24 misrepresentations in deciding to purchase fractional ownership interests. NetJets argued that many of its product superiority claims were mere “puffery.” In the end, the judge agreed.

Perlman argued that NetJets made various misrepresentations about the condition of its planes, its commitment to aircraft safety, its reputation for safety, and consumer peace of mind. He cited statements by NetJets saying it provides a “perfect plane every time” and has the “cleanest and best-maintained jets in the world.” However, Perlman never alleged that NetJets failed to maintain its fleet, train its staff, or implement safety standards.

"Simply put, the injury alleged, the resources expended in contract and insurance disputes, litigation, and bankruptcy proceedings, is too remote from NetJets’ advertising," the ruling reads. "Perlman does not allege an injury caused by his reliance on the false advertising. [...] The Court finds that all of Perlman’s consumer claims under the UCL and FAL regarding NetJets’s alleged representations about financial benefits fail as a matter of law."

ch-aviation has contact Perlman and NetJets for comment.