Two firms work together to prepare a complex bid for a buyer. One firm (Company

Question

Two firms work together to prepare a complex bid for a buyer. One firm (Company A) dropped the other (Company B) before getting the bid. After working for some time on specifications, negotiating with the buyer, and being chosen as a final candidate for the job, Company A told Company B that it was disappointed with Company B's behavior and obtained the contract on its own, with minor modifications from the joint proposal submitted previously. Company B sued Company A for breach after Company A subcontracted the work to another firm. Since there was no formal subcontract, what theory of recovery can Company B allege? What types of damages, if any, may Company B claim?

Explanation / Answer

The above questions is based on a case law

Company A name ATACS

Company B name Trans world communication

United States Court of Appeals,Third Circuit.

ATACS CORPORATION; AIRTACS Corporation, Appellants in 97-1812, v.

TRANS WORLD COMMUNICATIONS, INC., Appellant in 97-1813.

    Decided: September 08, 1998

Before: SCIRICA, NYGAARD and SEITZ, Circuit Judges.Mark A. Dombroff (Argued), Courtney R. Bateman, Dombroff & Gilmore, Washington, DC, for Appellants/Cross Appellees. Barbara W. Mather (Argued), Robert L. Hickcok, L. Suzanne Forbis, Matthew J. Hamilton, Pepper Hamilton LLP, Philadelphia, PA, for Appellee/Cross Appellant.

OPINION OF THE COURT

This appeal and cross-appeal primarily present two novel issues for review. The first question is whether the parties entered into a legally enforceable “teaming agreement.” If the answer is in the affirmative, we must address how to calculate, if at all possible, the damage resulting from a breach of that agreement. The district court exercised diversity jurisdiction pursuant to 28 U.S.C. §1332, and our jurisdiction arises under 28 U.S.C. §1291 to consider the district court's final orders. The parties agree that the substantive contract law of Pennsylvania governs the issues raised in this case.

I.Factual Background

A.The Parties and Related Entities

For the most part, the parties do not dispute the relevant facts as described by the district court in its detailed findings of fact set forth on May 28, 1997 after a bench trial. To summarize, ATACS Corporation and AIRTACS Corporation (“plaintiffs”) engaged in the business of integrating or customizing mobile enclosures with communications or other equipment for military use. Trans World Communications (“defendant”) is a subsidiary of Datron, Inc., a publicly traded company. Defendant engages in designing, manufacturing, and selling of high frequency radio equipment into communications shelters and for other uses.

B.The Greek Request for Proposal and the Parties' Agreements

The history underlying the transactions subject to dispute in this case begins in October of 1989, when the Greek government opened bidding to manufacture 61 communication shelters for the Hellenic Army General Staff. A Request for Proposal (“RFP”) prepared by the Greek government outlined various specifications for the communications shelters as well as certain financial requirements for all bidders. Plaintiffs considered bidding on the contract as the prime contractor, but they lacked the requisite assets to meet the financial obligations enumerated in the Greek RFP. Defendant also investigated bidding on the project as prime contractor, but it did not command significant technical experience in this particular field and generally lacked foreign government contracting knowledge to bid and perform the contract on its own.

Given the comparative strengths of the parties, a strategic alliance was born on February 26, 1990, where defendant wrote plaintiffs stating that “[t]his letter will serve as confirmation that Trans World Communications intends to team with ATACS Corporation on the Greek Shelter program.” App. at 1671. While defendant professed that the “details need[ed] to be worked out,” and that “this [letter] is only a preliminary look at our various responsibilities,” defendant sought a commitment from plaintiffs before any quotations were issued. Id. Further discussions proved fruitful, and the parties agreed that defendant would bid for the Greek RFP as the prime contractor and plaintiffs would be the major subcontractor. App. at 1913. By April 25, 1990, defendant communicated to plaintiffs a basic outline for the new arrangement whereby defendant agreed to assume the role of prime contractor, assume complete responsibility for the financial requirements of the Greek RFP, and give plaintiffs a subcontract for the shelter and generator systems. In return, plaintiffs were expected to “assist in the final proposal preparation,” submit a price quotation on their portion of the program, and introduce defendant to their Greek agent who would facilitate the bid. App. at 1913. The parties agreed to circulate a draft contract and initiate the process of formalizing this agreement.

For the next three months, the parties circulated draft subcontracts, none of which were executed. In the exchange of drafts, however, the parties had substantially agreed to the basic understanding of the transaction. In particular, the parties agreed that:

1. Transworld will be the Prime Contractor and will assume complete responsibility for the Program including any Letters of Credit which may be required. ATACS will be a sub-contractor to Transworld and will be responsible for the shelters and generators.1

2. Axon Inc. will be the sole agent for this program. ATACS will introduce Transworld to Axon May 1, 19902

3. ATACS has accomplished significant work developing a Technical Proposal. In addition, ATACS has also reviewed the agent's Consulting Agreement and the Offset Agreement. This information will be made available to Transworld. Transworld will reimburse ATACS for their cost associated with our Technical Proposal and for legal expenses associated with the review of Offsets and Consulting Agreements.3

4. ATACS will submit a quotation to Transworld for the shelters and generators. It is agreed that Transworld will flow down to ATACS no less favorable payment terms and conditions than it receives from the Greek Government. ATACS will in turn flow down these same terms and conditions to its Prime vendors.

5. ATACS agrees to work exclusively with Transworld on this project. Transworld agrees to work exclusively with ATACS relative to the ATACS Scope of Work set forth in paragraph 1 above.

7. ATACS agrees to assist Transworld as needed in the final proposal preparation.

App. at 1914-15; see also App. at 1948-49, 1966-69, 2047-50, 2059-62. In accordance with their understanding, plaintiffs introduced defendant to their Greek agent who ultimately proved to be influential in getting defendant the final contract.

After more draft subcontracts and price quotations, none of which were executed by the parties, plaintiffs submitted their final price proposal to defendant, which totaled approximately $3.8 million. On July 16, defendant submitted its own proposal to the Greek government. As the prime contractor bidding for the Greek RFP, defendant represented that plaintiffs would be “the primary subcontractor in our proposal,” as well as a member of the “team” working on the project. App. at 2144-45. It is not disputed on appeal that defendant included in its bid plaintiffs' final prices plus a 30% profit margin.

C.Post-Submission Conduct

Several months after the submission of the bid for the Greek RFP, defendant learned that its proposal for the project remained competitive. Nevertheless, in early December of 1990, defendant contacted Craig Systems (“Craig”), a manufacturer of bare shelters, shelter integrator, and competitor to plaintiffs. When Craig expressed an interest in performing the shelter integration work on the Greek project-the same work that had been promised to plaintiffs-defendant sent to Craig all of the information, design notes, general correspondence, and plaintiffs' technical proposal regarding the Greek RFP. Defendant then asked Craig to submit a bid for the shelter work, and Craig ultimately submitted its final proposal and price quotation in late January of 1991.

On January 24, 1991, plaintiffs' Greek agent forwarded defendant the results of the Greek government's review of the various bids, which indicated that the defendant's bid was the lowest among the competitors. Although defendant at this point was confident that it would win the contract, it realized that the final award would require further negotiations with the Greek government.4 For the next several months, defendant negotiated with Greek authorities to determine the final technical specifications and price concessions. Then, on May 13, 1991, defendant sent all its potential subcontractors, including plaintiffs, a form letter which stated:

We have recently been called by the Greek government to negotiate the final terms and conditions for this shelter contract. Therefore, we ask that your firm please REQUOTE YOUR OFFER to us as soon as possible, and extend the quote validity date to at least August 31, 1991.

All outside vendor equipment and service is being bid in a competitive environment and Trans World will chose the supplier, based on the price of goods, quality, service and technical/manufacturing capabilities.

App. at 2413 (emphasis in original). On the same date, defendant sent plaintiffs another letter which, “encourage[d] you to make your bid as competitive as possible. While we were encouraged in our earlier preliminary discussions by the cost estimates you provided us for planning purposes, your later formal proposal was disappointingly high and was not competitive with other proposals which we have received.” App. at 2412. This letter was the first communication to plaintiffs by defendant indicating that defendant had in fact been soliciting other proposals for the shelter integration and air conditioning portions of the project. It was also the first time plaintiffs had learned that defendant considered plaintiffs' proposal “disappointingly high,” even though defendant's bid for the Greek RFP was the lowest of all bidders.

Shocked at defendant's position, plaintiffs responded to these letters by confirming the validity of their price proposals submitted on June 28, 1990. Although plaintiffs indicated that they were “not and never have been unwilling to discuss with you an equitable adjustment to our proposed pricing if such an adjustment is required in obtaining the award,” App. at 2432, they emphasized that “[t]here was an agreement between Trans World and ATACS that ATACS would be the sole source shelter integrator and supplier, and AIRTACS [would be the] sole source provider of air conditioners” App. at 2414. Defendant did not respond to plaintiffs' letters or other attempts at communication.

By December 11, 1991, defendant completed negotiations with the Greek government and executed a contract in the amount of $23,006,319, which closely corresponded to the original bid from defendant, absent minor adjustments to hardware, training, and technical specifications. Nearly a month later, defendant sent another letter to potential subcontractors, including plaintiffs, explaining the technical changes and requesting an updated quote on the revised shelter design specifications. While plaintiffs did not respond, defendant received quotations from three other companies, including Craig, for the shelter integration work. These proposals quoted prices significantly lower than plaintiffs' final price quote, and included proposals for bare shelters, which was not included in the plaintiffs' package. Defendant ultimately executed subcontracts with Craig for the shelter integration work and Airflow for the air conditioner portion of the project. The total price difference between the Craig/Airflow contracts and the plaintiffs' proposals totaled $1,887,104.

D.The District Court's Disposition

In response to these events, plaintiffs sued defendant in the district court, alleging breach of contract, detrimental reliance, misrepresentation, wrongful interference with prospective contractual relations, and unjust enrichment. After a bench trial, the district court found that the “teaming arrangement” between defendant and plaintiffs constituted an enforceable contract with sufficiently definite terms for enforcement, notwithstanding the absence of a final executed document evincing the parties' agreement. The district court relied on the outward manifestation of the parties' intent to conclude that the terms of the legally binding agreement between defendant and plaintiffs entailed a promise by defendant to work exclusively with plaintiffs in its bid for the Greek RFP, and to further negotiate in good faith the final subcontract prices if the Greek government awarded defendant the prime contract. In return, plaintiffs promised defendant to assist in the preparation of its bid, to work exclusively with defendant, and to introduce defendant to its Greek contacts. The district court further found that the parties did not agree on the price of the subcontract, nor did they come to an agreement regarding any fees plaintiffs would receive for their services.

Given these terms of the contract, the district court found defendant in breach of contract when it did not work exclusively with plaintiffs in arriving at a final price agreement for the subcontract. Moreover, the court found that defendant's conduct after the Greek government awarded it the project did not constitute good faith negotiations with plaintiffs. This, the could held, also constituted a breach of the teaming agreement between the parties.

Accordingly, the district court next considered what form of damages would appropriately compensate plaintiffs. While the district court recognized that expectation damages, measured in lost profits, ordinarily applies under Pennsylvania law, it found that such a calculation, if attempted, would lead to mere speculation because the parties never agreed on a price for plaintiffs' subcontract. Similarly, the district court felt unable to compute lost opportunity damages because the plaintiffs had not submitted sufficient evidence showing that the parties would have come to an agreement on price given the different positions on various financing fees, and the enormous difference between plaintiffs' final price and the ultimate bid submitted by Craig. It therefore held that plaintiffs could not receive lost profits as a remedy for breach of contract.

Next, the district court considered whether restitution or reliance damages were appropriate, and submitted the question to the parties for further briefing. With respect to restitution, plaintiffs argued that the value of its services rendered to defendant roughly approximate the $1,288,349 defendant had paid in consulting fees to plaintiffs' Greek agent. The district court rejected that argument because it found the consulting services provided by plaintiffs' own Greek agent differed substantially from the technical services provided by plaintiffs. Because the district court felt that it had no reasonable basis in calculating the value of plaintiffs' service and assistance rendered to defendant, it rejected a restitutionary theory as a basis for damages and entered into judgment nominal damages of only $1.

Plaintiffs appeal the district court's calculation of damages at $1. Defendant cross-appeals the district court's findings to the extent it found the teaming agreement an enforceable contract under Pennsylvania law. We address these issues in turn.

II.Was There a Valid and Enforceable Contract?

The first issue, raised in defendant's cross-appeal, is whether there existed a valid and enforceable contract between the parties. Defendant argues on appeal that any agreement intended between the parties cannot, as a matter of law, constitute an enforceable contract because of the failure to agree on essential terms of the contract. In particular, defendant emphasizes that the parties never reached a final agreement on the price of plaintiffs' subcontract and the absence of such a term must prove fatal to contract formation. Defendant further asserts that the teaming agreement at issue in this case is aptly characterized, at best, as an “agreement to agree,” which is incapable of enforcement under Pennsylvania law.

Plaintiffs dispute defendant's analysis and vigorously maintain that the agreement between the parties constituted a valid and enforceable contract. Here, plaintiffs assert that defendant's conduct through the negotiation of subcontracts demonstrates an acceptance of their price offer, and therefore the agreement cannot fail for lack of definiteness. Moreover, plaintiffs contend that regardless of the pricing terms of the subcontract, defendant breached its agreement to work exclusively with them in negotiating a subcontract and this constituted a breach of the teaming arrangement which itself is a binding agreement.

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