C.A. No. 3099- VCN (Del. Ch. Feb. 3, 2009)
In this case, the Court of Chancery found that terms contained in a Transaction Agreement and Memorandum of Understanding governing the sale of a business unit owned by defendant Lockheed Martin to plaintiff BAE Systems, under which BAE Systems anticipated that the acquired business unit would continue to do business with Lockheed Martin, were definite enough under Delaware contract law to survive defendant’s 12(b)(6) motion to dismiss.
In July 2000, BAE Systems (“BAE”) entered into a Transaction Agreement with Lockheed Martin (“Lockheed”) for the sale of Lockheed’s AES division, including two business units within AES known as the Lockheed Martin STS-Orlando (“LMSTS”) unit and the Sanders (“Sanders”) unit. Prior to the transaction, LMSTS and Sanders executed an original Memorandum of Understanding (“Original MOA”) in June 1996 outlining the manner in which the two business units would negotiate work related to Lockheed’s Automated Test Systems (“ATS”) business. Such MOA’s were consistent with standard Lockheed business practices. The Transaction Agreement executed between BAE and Lockheed for the AES division indicated that LMSTS and Sanders would continue to operate under the terms of the Original MOA. In addition to the Transaction Agreement, BAE and Lockheed entered into a new MOA on the same date the transaction closed (the “MOA”), identical to the Original MOA executed in 1996 with the exception of the substitution of “BAE/Sanders” for “Sanders” in the MOA. In addition to specifying the types of business opportunities BAE would be involved in as a signatory to the MOA, the MOA also required the parties to establish a coordination team that would meet at least four times a year to discuss ATS opportunities.
Although both BAE and Lockheed initially complied with the terms of the MOA, by early 2005 BAE became concerned that work for which BAE was entitled to bid under the MOA was being allocated improperly to other parties. When BAE’s inquiries into violations of the MOA were rebuffed by Lockheed, BAE filed suit seeking specific performance under the terms of the Transaction Agreement and the MOA. In the alternative, BAE sought damages for breach of contract and breach of the implied covenant of good faith and fair dealing. Lockheed in turn filed a 12(b)(6) motion to dismiss. BAE then amended its complaint to include claims for unjust enrichment and declaratory judgment. The court then considered Lockheed’s renewed motion to dismiss.
With regard to BAE’s direct contract claims, the court focused its inquiry on “allegations suggesting an objective manifestation of intent [by the parties] to be bound by the MOA.” Reiterating that Delaware courts follow the objective theory of contracts, the court accepted BAE’s contention that Lockheed demonstrated an intent to be bound by the MOA by continuously performing under the terms of the MOA for four years, and by signing the MOA on the same date as the Transaction Agreement. Although Lockheed argued that terms contained in the MOA, including the absence of pricing terms and vague procedures related to future ATS work, were too indefinite to bind the parties, the court again found in favor of BAE. Citing terms within the MOA granting BAE a right to bid on certain business opportunities, the possibility that the MOA was consistent with industry norms, and the creation of a coordination team required to meet on a quarterly basis, the court found “a rough skeleton of obligations” sufficient to survive defendant’s motion to dismiss. Holding that BAE plead facts sufficient to support a finding of Lockheed’s intent to be bound by the MOA, the court declined to dismiss BAE’s direct contract claims.
Using similar reasoning to infer that BAE’s right to bid could result in an implicit requirement by Lockheed to notify BAE of ATS bidding opportunities, the court also denied defendant’s motion to dismiss BAE’s good faith and fair dealing claim. The court similarly denied defendant’s motion to dismiss BAE’s claim for specific performance, noting that BAE could conceivably show that an enforceable contract existed between the parties upon further factual development. The court then granted defendant’s motion to dismiss BAE’s unjust enrichment claim, citing the legal standard for such claims, under which the court first determines “whether a contract already governs the relevant relationship between the parties.” Finding that both the Transaction Agreement and the MOA represented contracts governing the dispute between BAE and Lockheed, the court found “no independent basis for an unjust enrichment claim because the Amended Complaint contains no facts challenging Lockheed conduct on a basis not comprehensively governed by the MOA.” The court then denied Lockheed’s motion to dismiss based upon federal antitrust laws, and determined that Lockheed pleaded insufficient facts to support a defense of laches. After dismissing BAE’s request for a declaratory judgment in light of additional factual development required to determine the definiteness of the agreement between the parties, the court denied Lockheed’s motion to dismiss on all counts with the exception of BAE’s unjust enrichment claim.
The full opinion is available here.