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S.G.D Engineering Limited v. Lockheed Martin Corporation Incorporated

United States District Court, Ninth Circuit

December 11, 2013

S.G.D. Engineering Limited, Plaintiff,
Lockheed Martin Corporation Incorporated, Defendant.


DAVID G. CAMPBELL, District Judge.

Plaintiff has filed a motion for summary judgment. Doc. 109. The motion is fully briefed. For the following reasons, the Court will grant in part and deny in part Plaintiff's motion.[1]

I. Background Facts.

Toshiba contracted with the Japanese Ministry of Defense ("JMOD") to provide components for F-15 fighter jets. On August 31, 2007, Toshiba entered into a contract ("Prime Contract") with Defendant Lockheed Martin Corporation, Inc. to design and build a Synthetic Aperture Radar Reconnaissance Pod ("SRP"). The SRP was designed to attach externally to the belly of an F-15 airplane and provide target and intelligence imagery. The Prime Contract provides for liquidated damages measured at a rate of $1 per $1, 000 of the value of undelivered items for each full day that delivery is delayed. Liquidated damages are capped at five percent of the value of the undelivered items. In addition, Defendant can be liable for liquidated damages only to the extent Toshiba is assessed liquidated damages or price reductions by JMOD.

Defendant solicited bids from pod manufacturers, including Plaintiff S.G.D. Engineering, Ltd. Defendant did not include a liquidated damages clause in the bid request or the subcontract. Plaintiff won the subcontract. The parties agreed on a price of $5, 870, 680 for Plaintiff's services, which would be paid in increments upon the completion of "milestones" identified in the statement of work ("SOW"). The subcontract required Plaintiff, among other things, to design, manufacture, acceptance test, and deliver a pod, and to submit extensive engineering reports for review by Defendant. A milestone would be deemed complete only when all deliverables and efforts specified in the SOW were delivered, accepted, verified, and approved by Defendant. Defendant reserved the right to terminate the subcontract for default or convenience. In the case of a termination for default, Defendant was required to compensate Plaintiff for work actually delivered and accepted. All performance on the contract was due on May 8, 2009.

In March 2008, Defendant notified Plaintiff that Boeing would conduct a functional flight test ("BFFT") to determine whether the SRP was operational and to gauge its capabilities. Plaintiff submitted the necessary materials to Boeing. Boeing complained that there were significant deficiencies in the engineering reports submitted by Plaintiff, which delayed the BFFT and resulted in significant expenses for Defendant. Boeing did not approve the SRP for flight and did not conduct the BFFT until August 2010.

The parties modified the subcontract to permit delivery of the SRP in October 2009. Plaintiff delivered the SRP in October 2009, but the SRP was damaged during shipment. Defendant contends that Plaintiff provided grossly deficient engineering reports to accompany the SRP. Defendant asserts that the deficiencies represented a breach of the subcontract which delayed Defendant's ability to satisfy its obligations under the Prime Contract. Plaintiff asserts that other delays unrelated to Plaintiff's performance accounted for Defendant's inability to fulfill its obligations under the Prime Contract. The SRP was eventually shipped to Toshiba in September 2010.

After shipping the SRP, Plaintiff submitted invoices for the final three milestones of the subcontract. Defendant rejected the invoices, claiming that Plaintiff had not fulfilled its obligations under the milestones. The parties met in Goodyear, Arizona in November 2010 and reached an agreement to resolve the dispute and clarify what work Plaintiff needed to complete in order to be paid under the milestones. Plaintiff asserts that Defendant entered into the November 2010 agreement in bad faith because Defendant intended to induce Plaintiff to perform more work without paying. Defendant counters that Plaintiff simply failed to meet the deadlines established in the November 2010 agreement.

In February 2011, JMOD terminated its contract with Toshiba due to delay. Toshiba did not cancel the Prime Contract, however, because it still hoped to sell the SRP to JMOD. Toshiba and Defendant identified a list of items that Defendant needed to perform to qualify for payment under the Prime Contract. Defendant therefore continued work with Plaintiff to reach remaining subcontract milestones. Plaintiff submitted its final engineering reports and drawings in June 2011. Defendant asserts that these reports were still deficient. In fact, Defendant alleges that it was so skeptical about the integrity f the data and quality of the calculations made by Plaintiff that Defendant hired a third-party to analyze the materials. The third-party indicated that the SRP's properties as found and reported by Plaintiff were not substantiated by test data. On September 15, 2011, Defendant terminated Plaintiff for default and refused to pay Plaintiff for the remaining milestones, asserting that Plaintiff still had not fully performed under the subcontract. Despite terminating Plaintiff for default, Defendant has represented to Toshiba that it is entitled to payment under the Prime Contract because the Prime Contract is complete subject to "final update."

Plaintiff asserts claims for breach of contract and breach of the duty of good faith and fair dealing. Plaintiff has been paid for all but three of the subcontract milestones, leaving an unpaid balance of $753, 900. Defendant has counterclaimed for approximately $73 million in damages. These damages include the full price of the Prime Contract, liquidated damages under the Prime Contract, Boeing charges assessed to Toshiba, lost profits, and miscellaneous expenses incurred as a result of Plaintiff's alleged failures.

II. Legal Standard.

A party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

III. Analysis.

A. Defendant's Motion to Supplement its Response.

Plaintiff asserts that the evidence Defendant has offered to oppose summary judgment is inadmissible and may not be considered. Doc. 130 at 1; Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (holding that a court may consider only admissible evidence in ruling on a motion for summary judgment). Defendant has moved to supplement its response and statement of facts. Doc. 133. The Court will grant Defendant's motion. The Federal Rules of Civil Procedure are "to be liberally construed to effectuate the general purpose of seeing that cases are tried on the merits." Rodgers v. Watt, 722 F.2d 456, 459 (9th Cir. 1983). When a party fails to support an assertion of fact or fails properly to address another party's assertion of fact as required by Rule 56(c), a court may afford an opportunity to support or address the fact. Fed.R.Civ.P. 56(e)(1). Defendant does not seek to introduce new facts or make new arguments in its supplement. Instead, it presents ...

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