United States District Court, D. Arizona
ORDER
James
A. Teilborg Senior United States District Judge.
At
issue is Plaintiff/Counter-Defendant MD Helicopters
Inc.'s (“MDHI”) Motion for Summary Judgment
(Doc. 146) and Defendant/Counter-Claimant the Boeing
Company's (“Boeing”) Motion for Partial
Summary Judgment on MDHI's Force Majeure Defense
(Doc. 123). The Court now rules on these Motions.
I.
FACTUAL BACKGROUND
MDHI
manufactures helicopters for commercial, military, and law
enforcement markets. (Doc. 9 at 2 ¶ 7).[1] Boeing is an
aerospace business that, among other product offerings,
designs, develops, produces, sells, and offers support for
military helicopters. (Docs. 9 at 3 ¶ 9; 16 at 2 ¶
9). In July 2010, MDHI and Boeing entered into a Memorandum
of Agreement (“2010 MOA”), (Doc. 138-3 at 41-67),
providing that “MDHI and Boeing will cooperatively
produce and support the AH-6i Aircraft in the worldwide
market[, ]” (id at 43). On October 6, 2011,
MDHI and Boeing signed a Long Term Requirements Contract
(“LTRC”), (Doc. 127-1 at 8-53), whereby MDHI
agreed to build and sell, and Boeing agreed to buy, airframes
and related components for use in the manufacture of
Boeing's AH-6i helicopters, (id. at 10).
(See also Docs. 138 at 3-4 ¶ 1; 147 at 2 ¶
1). The LTRC incorporated the Boeing Company General
Provisions 1 (“GP1”), (Docs. 127-1 at 43-51),
which sets forth various terms governing the parties'
relationship over the course of the AH-6i program. (See
Id. at 24-25 (stating that GP1 is “attached hereto
and incorporated by reference” into the LTRC)).
On July
26, 2012, Boeing placed a purchase order for 24 airframes and
related components for the AH-6i from MDHI by issuing
Purchase Contract No. 648538 (“Purchase
Contract”) pursuant to the LTRC. (Doc. 127-1 at 55-82).
MDHI signed this Purchase Contract in September 2012. (Docs.
16 at 15 ¶ 40; 29 at 5 ¶ 40; 57 at 7 ¶ 40).
Under the Purchase Contract, the airframes and related
components were to be delivered to Boeing on a rolling basis
pursuant to a schedule set forth therein. (Docs. 127-1 at 56;
147 at 2 ¶¶ 2-3). The Purchase Contract and the
LTRC provided that Boeing would make performance-based
payments and delivery payments to MDHI after MDHI met certain
production milestones. (Doc. 127-1 at 42, 81). Specifically,
MDHI would receive a 15% payment after long-lead material
orders were placed, 25% upon the loading of the airframe on
the production line, 30% upon receipt of the airframe from
MDHI's Monterrey, Mexico facility, and the final 30% upon
delivery of the airframe to Boeing. (Id.). The
Purchase Contract was also subject to the provisions set
forth in the GP1, which the LTRC incorporated. (See
Id. at 43-51).
Although
the Purchase Contract obligated MDHI to deliver all 24
airframes by December 11, 2014, (id. at 56), MDHI
did not deliver the first airframe until June 25, 2015,
(Docs. 127-10 at 68; 147 at 13). Thereafter, on August 14,
2015, MDHI and Boeing entered into a Memorandum of Agreement
(“2015 MOA”), (Doc. 127-1 at 84-88), to resolve
the parties' disputes regarding the scope of work,
pricing, and delivery schedule for the AH-6i airframes that
had arisen under the LTRC and the Purchase Contract. (Docs.
127-1 at 84; 138 at 4-5 ¶¶ 4-5; 147 at 3
¶¶ 4-5). The 2015 MOA established a revised
delivery schedule and new purchase price for each airframe,
while retaining the performance-based milestones. (Doc. 127-1
at 84-85). The 2015 MOA also specified that the parties
“agree that the Boeing Company General Provisions
currently detailed on the Purchase Order will continue to
apply according to the Purchase Order.” (Id.
at 85).
On
March 7, 2016, the parties agreed to Purchase Contract Change
32 (“PCC-32”), which again modified the delivery
schedule for Airframes 8 through 24. (Doc. 125-1 at 1- 34;
see also Docs. 125 at 1; 136 at 1). PCC-32
incorporates GP1 by reference. (Docs. 125-1 at 29; 125 at 2;
136 at 2). MDHI did not deliver Airframes 8 through 24 by the
deadlines established in PCC-32. (Docs. 125 at 4; 125-1 at
37; 136 at 2). The following table shows the delivery
deadlines to which the parties agreed in PCC-32, the actual
dates on which MDHI delivered the airframes, and the delivery
delay for each airframe:
-
Airframe
|
Contract Date
|
Actual Delivery Date
|
Days Late
|
8
|
April 29, 2016
|
June 27, 2016
|
59
|
9
|
May 19, 2016
|
September 14, 2016
|
118
|
10
|
June 3, 2016
|
October 6, 2016
|
125
|
11
|
June 17, 2016
|
October 20, 2016
|
125
|
12
|
July 1, 2016
|
October 27, 2016
|
118
|
13
|
July 18, 2016
|
December 8, 2016
|
143
|
14
|
August 1, 2016
|
January 9, 2017
|
161
|
15
|
August 15, 2016
|
January 24, 2017
|
162
|
16
|
August 29, 2016
|
January 24, 2017
|
148
|
17
|
September 13, 2016
|
March 21, 2017
|
189
|
18
|
September 27, 2016
|
March 21, 2017
|
175
|
19
|
October 11, 2016
|
March 21, 2017
|
161
|
20
|
October 25, 2016
|
March 27, 2017
|
153
|
21
|
November 8, 2016
|
April 18, 2017
|
161
|
22
|
November 22, 2016
|
May 2, 2017
|
161
|
23
|
December 7, 2016
|
May 18, 2017
|
162
|
24
|
December 21, 2016
|
June 28, 2017 (short shipped)
|
189
|
(Id.).
On June
28, 2017, MDHI delivered Airframe 24 to Boeing without
certain components, (Docs. 125 at 5; 136 at 3), as authorized
by an agreement regarding the short shipment dated that same
day, (Doc. 125-1 at 76-77). This June 28, 2017 agreement
further required MDHI to install those missing components at
Boeing's facility when they became available,
(id. at 77), but MDHI never did so, (Docs. 125 at 5;
136 at 3). MDHI claims that it was “relieved from any
obligation to install the ‘short' parts on Airframe
24 when Boeing failed to pay the monies it owed under the
terms of the contract.” (Doc. 136 at 3). As a result of
MDHI's refusal to install the missing components on
Airframe 24, Boeing contends it was “required to
purchase and retrofit the requisite parts itself to complete
Aircraft 24, requiring Boeing to extend the AH-6i program
beyond its anticipated end date.” (Doc. 125 at 6).
MDHI
alleges that it has since produced and delivered all 24
airframes to Boeing, but Boeing has “failed and refused
to make performance-based payments for line-loading airframes
14, 23, and 24; has failed and refused to make final delivery
payments for airframes 14, 22, 23, and 24; and has failed and
refused to pay MDHI's invoice for Pressure Switches that
MDHI supplied at Boeing's request.” (Doc. 147 at
3-4 ¶ 7). In total, MDHI claims that Boeing owes $3,
808, 775.00 for these invoices, (id. at 4 ¶ 8),
which are set forth below:
-
Date
|
Invoice #
|
Event
|
Amount Due
|
3/30/17
|
194375
|
Item 71 - PSR Switch
|
$18, 275.00
|
4/26/17
|
7926715
|
Delivery of Airframe 22
|
$541, 500.00
|
4/27/17
|
8019451
|
Line-loading Airframe 14
|
$541, 500.00
|
4/27/17
|
8019453
|
Line-loading Airframe 23
|
$541, 500.00
|
5/23/17
|
7953638
|
Delivery of Airframe 23
|
$541, 500.00
|
5/31/17
|
7988197
|
Delivery of Airframe 14
|
$541, 500.00
|
6/20/17
|
8066389
|
Line-loading Airframe 24
|
$541, 500.00
|
6/28/17
|
8070519
|
Delivery of Airframe 24
|
$541, 500.00
|
Total
|
Invoice Amount Due
|
$3, 808, 775.00
|
While
Boeing “admits that it is in possession of the AH-6i
airframes MDHI delivered, ” Boeing states that these
invoices are not due and payable because MDHI's delivery
of Airframe 24 was incomplete and nonconforming. (Docs. 16 at
4 ¶ 29; 138 at 5 ¶ 7). Boeing claims that it only
accepted delivery of Airframe 24 “upon MDHI's
promise to complete the installation of those missing
components at Boeing's facility when they became
available, ” but MDHI never did so. (Doc. 138 at 5
¶ 6). Boeing further contends that it has incurred costs
resulting from MDHI's delayed and defective airframes
which are substantially greater than the payments MDHI claims
are owed and which are recoverable from MDHI as either an
“equitable price reduction” or “credit
against any amounts that may be owed.” (Id. at
5 ¶ 7).
Using
the 24 airframes and kits which MDHI had built, in addition
to other kits and systems built by Boeing and other
suppliers, Boeing ultimately assembled the 24 Ah-6i
helicopters. (Docs. 138 at 6 ¶ 9; 147 at 5 ¶ 9).
Boeing sold these 24 helicopters for $234, 700, 000.00 to the
U.S. Government who, in turn, sold them to the Saudi Arabian
National Guard (“SANG”). (Docs. 138 at 6
¶¶ 9-10; 147 at 5 ¶¶ 9-10).[2] The U.S.
Government did not assess any monetary penalty on Boeing for
the late delivery of these helicopters. (Doc. 128-5 at
375-76, Woody Dep. 19: 3-24, 22: 11-21).
II.
PROCEDURAL BACKGROUND
On
August 3, 2017, MDHI filed suit against Boeing, (Doc. 1), and
thereafter filed an Amended Complaint on September 11, 2017,
(Doc. 9). MDHI seeks damages for breach of contract in an
amount not less than the amount of its outstanding invoices,
alleging that Boeing's refusal and failure to pay the
invoices MDHI issued constitutes a material breach of the
parties' contract for the sale of AH-6i airframes and the
terms of the 2015 MOA. (Doc. 9 at 6-7 ¶¶
31-38).[3] In the alternative, should any required
provision of the parties' agreement be ambiguous or
undefined, MDHI seeks damages for breach of the implied
covenant of good faith and fair dealing. (Id. at 8
¶ 45).
On
October 3, 2017, Boeing filed an Answer denying that MDHI is
entitled to judgment in its favor or to any of the relief it
has demanded. (Doc. 16 at 5 ¶ 50). That same day, Boeing
also asserted nine counterclaims against MDHI, including: (1)
Breach of the Asset Acquisition Agreement
(“AAA”); (2) Breach of the Cross License; (3)
Breach of the LTRC; (4) Breach of the GP1; (5) Breach of the
2015 MOA and PCC-32; (6) Breach of the Implied Covenant of
Good Faith and Fair Dealing; (7) Conversion; (8) Tortious
Interference with Contract and Business Expectancy; and (9)
Declaratory Judgment. (Id. at 29-36
¶¶ 121-65). On October 24, 2017, MDHI
moved to dismiss all of Boeing's counterclaims except its
Fifth Counterclaim. (See Doc. 21). In its April 23,
2018 Order ruling on MDHI's Motion to Dismiss
Boeing's Counterclaims 1-4 and 6-9 (Doc. 21), the Court
dismissed without prejudice Boeing's First and Second
Counterclaims, and dismissed with prejudice Boeing's
Fourth Counterclaim. (Doc. 50 at 17). However, the Court did
not dismiss Boeing's Third, Sixth, Seventh, Eighth, or
Ninth Counterclaims, (id), and Boeing's Fifth
Counterclaim also remains.[4] MDHI filed an Answer and Defenses to
Boeing's Counterclaims. (Docs. 29; 57).
On
February 28, 2019, Boeing filed a Motion for Partial Summary
Judgment on MDHI's Force Majeure Defense (Doc.
123) and a supporting Statement of Facts (Doc. 125).
Thereafter, MDHI filed its Response to Boeing's Motion
(Doc. 135) and corresponding Controverting Statement of Facts
and Statement of Additional Facts (Doc. 136) on April 1,
2019. On April 16, 2019, Boeing filed a Reply in Support of
Its Motion for Partial Summary Judgment (Doc. 141).
On
February 28, 2019, MDHI filed redacted versions of a Motion
for Summary Judgment (Doc. 126) and accompanying Separate
Statement of Material Undisputed Facts in Support of its
Motion for Summary Judgment (Doc. 127).[5] In compliance
with the Court's May 21, 2019 Order, Plaintiff filed
updated versions of its Motion for Summary Judgment (Doc.
146) and supporting Statement of Facts (Doc. 147) on May 28,
2019. The Court deemed the later filed versions of MDHI's
Motion (Doc. 146) and Statement of Facts (Doc. 147) timely,
and struck the earlier versions filed at Doc. 126 and Doc.
127. (Doc. 145 at 7). Although the Court struck the redacted
version of MDHI's Separate Statement of Material
Undisputed Facts in Support of Its Motion for Summary
Judgment (Doc. 127), the Court did not strike the exhibits
filed therewith at Doc. 127-1-127-10. Further, for purposes
of resolving the parties' Motions, the Court will
consider the versions of MDHI's “Exhibits 35, 40,
41, 42, 45, 47, 50, 52, 53, 60, 64, 70, 71, and 74 filed at
Docs. 144-1 and 144-2, and the versions of Exhibits 33 and 57
filed at Docs. 127-8, 127-9, and 128-2.” (Doc. 145 at
7).
On
April 1, 2019, Boeing filed a timely Response to MDHI's
Motion for Summary Judgment (Doc. 137) and Controverting
Statement of Facts in Support of its Response (Doc.
138).[6] For purposes of resolving the parties'
Motions, the Court will consider the versions of Exhibits C,
T, Y and Z to Boeing's Controverting Statement of Facts
filed at Doc. 144-3. (Doc. 145 at 7). On April 16, 2019, MDHI
filed its Reply in Support of its Motion for Summary Judgment
(Doc. 142). The Court heard oral argument on the parties'
Motions on July 24, 2019. (Doc. 149).
II.
LEGAL STANDARD
Summary
judgment is appropriate when “the movant 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). “A party asserting that a fact
cannot be or is genuinely disputed must support that
assertion by . . . citing to particular parts of materials in
the record, including depositions, documents, electronically
stored information, affidavits, or declarations, stipulations
. . . admissions, interrogatory answers, or other materials,
” or by “showing that materials cited do not
establish the absence or presence of a genuine dispute, or
that an adverse party cannot produce admissible evidence to
support the fact.” Id. 56(c)(1)(A-B). Thus,
summary judgment is mandated “against a party who fails
to make a showing sufficient to establish the existence of an
element essential to that party's case, and on which that
party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Initially,
the movant bears the burden of demonstrating to the Court the
basis for the motion and the elements of the cause of action
upon which the non-movant will be unable to establish a
genuine issue of material fact. Id. at 323. The
burden then shifts to the non-movant to establish the
existence of material fact. Id. A material fact is
any factual issue that may affect the outcome of the case
under the governing substantive law. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant
“must do more than simply show that there is some
metaphysical doubt as to the material facts” by
“com[ing] forward with ‘specific facts showing
that there is a genuine issue for trial.'”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e)). A
dispute about a fact is “genuine” if the evidence
is such that a reasonable jury could return a verdict for the
non-moving party. Liberty Lobby, Inc., 477 U.S. at
248. The non-movant's bare assertions, standing alone,
are insufficient to create a material issue of fact and
defeat a motion for summary judgment. Id. at 247-48.
However, in the summary judgment context, the Court construes
all disputed facts in the light most favorable to the
non-moving party. Ellison v. Robertson, 357 F.3d
1072, 1075 (9th Cir. 2004).
At the
summary judgment stage, the Court's role is to determine
whether there is a genuine issue available for trial. There
is no issue for trial unless there is sufficient evidence in
favor of the non-moving party for a jury to return a verdict
for the non-moving party. Liberty Lobby, Inc., 477
U.S. at 249-50. “If the evidence is merely colorable,
or is not significantly probative, summary judgment may be
granted.” Id. (citations omitted).
III.
BOEING'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON
MDHI'S FORCE MAJEURE DEFENSE
A
force majeure clause is “[a] contractual
provision allocating the risk of loss if performance becomes
impossible or impracticable, especially as a result of an
event or effect that the parties could not have anticipated
or controlled.” Force-Majeure Clause,
Black's Law Dictionary (11th ed. 2019). Article
13 of GP1 is a force majeure clause, which states:
FORCE MAJEURE. Seller shall not be liable for excess
reprocurement costs pursuant to the “Cancellation for
Default” article of this contract, incurred by
Buyer because of any failure to perform this contract under
its terms if the failure arises from causes beyond the
control and without the fault or negligence of Seller.
Examples of these causes are (a) acts of God or of the public
enemy, (b) acts of the Government in either its sovereign or
contractual capacity, (c) fires, (d) floods, (e) epidemics,
(f) quarantine restrictions, (g) strikes, (h) freight
embargoes and (i) unusually severe weather. In each instance,
the failure to perform must be beyond the control and without
the fault or negligence of Seller. If the delay is caused by
delay of a subcontractor of Seller and if such delay arises
out of causes beyond the reasonable control of both, and if
such delay is without the fault or negligence of either,
Seller shall not be liable for excess costs unless the goods
or services to be furnished by the subcontractor were
obtainable from other sources in sufficient time to permit
Seller to meet the required delivery schedules. Seller shall
notify Buyer in writing within 10 days after the beginning of
any such cause.
(Doc. 125-1 at 69 (emphasis added)).
Boeing
moves for partial summary judgment on MDHI's force
majeure defense to Boeing's counterclaims, stating
that “the Court can easily rule, based on the language
of the contract and the undisputed facts, that MDHI has no
force majeure excuse for its delayed
performance.” (Doc. 123 at 1). Boeing claims that
Article 13's force majeure clause does not apply
because Boeing is not seeking excess reprocurement costs
after a cancellation of default. (Id. at 8).
Notably, MDHI does not dispute that the force
majeure clause is inapplicable. (See Doc. 135
at 2 (“Boeing admittedly did not cancel the contract
for default, and thus neither Article 15-nor Article 13-are
at issue here. Boeing also concedes . . . that it is not
seeking any excess reprocurement costs in this case. Article
13 is therefore irrelevant.”), 4 (“In sum, Boeing
filed a meaningless motion asking the Court to enter a ruling
on a provision of Boeing's GP1 (Article 13) that is not
at issue in this case.”)).[7]
Despite
the parties' agreement that the force majeure
clause of GP1 does not apply, MDHI asks that the Court deny
Boeing's Motion for Partial Summary Judgment because MDHI
has “never invoked” the force majeure
clause “in connection with its claims or defenses in
this case.” (Id. at 1). Nevertheless,
MDHI's denial that it ever invoked the force
majeure clause proves disingenuous given that MDHI has
explicitly asserted a force majeure defense on
multiple occasions in this litigation, including: (1) in its
position statement in the Joint Proposed Case Management Plan
filed on November 3, 2017, (Doc. 24 at 3); (2) in its Answer
and Defenses to Boeing's Counterclaims filed on November
27, 2017, (Doc. 29 at 15 (“The counterclaims are
barred, in whole or in part, under the doctrine of force
majeure.”)); (3) in its Responses to Boeing's First
Set of Interrogatories dated April 18, 2018, (Doc. 141-1 at
38); (4) in its Second Supplemental Response to the
Court-Ordered Mandatory Initial Discovery dated May 8, 2018,
(id. at 16, 18, 21-22); and (5) in its Supplemental
Responses to Boeing's First Set of Interrogatories dated
July 10, 2018, (id. at 58). Although MDHI did not
set forth the defense of force majeure in the Answer
to Boeing's remaining Counterclaims which it filed on May
7, 2018 after the Court ruled on MDHI's Motion to
Dismiss, (Doc. 57 at 17-18), MDHI continued to assert a
force majeure defense on two occasions thereafter.
(See Doc. 141-1 at 16, 18, 21-22, 58 (setting forth
a force majeure defense in its Second Supplemental
Response to the Court-Ordered Mandatory Initial Discovery
dated May 8, 2018 and in its Supplemental Responses to
Boeing's First Set of Interrogatories dated July 10,
2018)).
Given
that MDHI has repeatedly raised force majeure, the
Court agrees with Boeing that “MDHI cannot credibly
claim that Boeing is ‘wast[ing] the Court's and
parties' time' by seeking summary judgment on that
defense.” (Doc. 141 at 3 (quoting Doc. 135 at 1)).
Indeed, it is MDHI who has unnecessarily and unreasonably
wasted the Court's time by inaccurately representing its
actions in this litigation, and by presenting arguments
irrelevant to Boeing's Motion rather than forthrightly
abandoning the defense in its Response after admitting that
the force majeure clause of Article 13 is not at
issue.[8]However, at oral argument MDHI conceded
that it is appropriate for the Court to grant Boeing's
Motion for Partial Summary Judgment.[9] Therefore, the Court will
treat this concession, in conjunction with MDHI's failure
to assert the affirmative defense of force majeure
in its later-filed Answer to Boeing's remaining
Counterclaims, (see Doc. 57), and its assertions in
its Response to Boeing's Motion for Partial Summary
Judgment that Article 13 is inapplicable, (see Doc.
135), as a withdrawal or waiver of that
defense.[10]Accordingly, Boeing's Motion for
Partial Summary Judgment is granted to the extent that MDHI
will not be permitted to assert Article 13's force
majeure excuse in connection with its claims or defenses
in this case.
IV.
MDHI'S MOTION FOR SUMMARY JUDGMENT
MDHI
asks that the Court grant summary judgment in favor of MDHI
on all claims and remaining counterclaims, specifically
MDHI's Breach of Contract claim (or, in the alternative,
its Breach of the Implied Covenant of Good Faith and Fair
Dealing claim), and Boeing's Third, Fifth, Sixth,
Seventh, Eighth and Ninth Counterclaims. (Doc. 146 at 3). In
opposition, Boeing asks that the Court deny MDHI's Motion
for Summary Judgment in its entirety. (Doc. 137 at 2). The
Court now considers each of the parties' claims, and all
related arguments, in turn.
A.
Breach of Contract Claims
“To
establish a breach of contract, a [claimant] must prove by a
preponderance of the evidence (i) ‘the existence of the
contract,' (ii) ‘breach of an obligation imposed by
that contract,' and (iii) ‘resultant damage to the
[claimant].'” Air Prod. & Chems., Inc. v.
Wiesemann, 237 F.Supp.3d 192, 213 (D. Del. 2017)
(quoting VLIW Tech., LLC v. Hewlett-Packard Co., 840
A.2d 606, 612 (Del. 2003)).[11] “[I]n order to recover
damages for any breach of contract, [the claimant] must
demonstrate substantial compliance with all the provisions of
his contract.” Emmett S. Hickman Co. v. Emilio
Capaldi Developer, Inc., 251 A.2d 571, 573 (Del. Super.
Ct. 1969) (citing Carroll v. Cohen, 91 A. 1001, 1003
(Del. Super. Ct. 1914)); see also Frunzi v. Paoli Servs.,
Inc., C.A. No. N11A-08-001 MMJ, 2012 WL 2691164, at *7
(Del. Super. Ct. July 6, 2012) (“It is established
Delaware law that in order to recover damages for a breach of
contract, the plaintiff must demonstrate substantial
compliance with all of the provisions of the
contract.”).
“A
breach of contract may be caused by nonperformance,
repudiation, or both.” Preferred Inv. Servs., Inc.
v. T & H Bail Bonds, Inc., C.A. No. 5886-VCP, 2013
WL 3934992, at *10 (Del. Ch. July 24, 2013) (citing
Restatement (Second) of Contracts § 236 (1981)).
“[A] slight breach by one party, while giving rise to
an action for damages, will not necessarily terminate the
obligations of the injured party to perform under the
contract.” E. Elec. & Heating, Inc. v. Pike
Creek Prof'l Ctr., No. 85C-MR-79, 1987 WL 9610, at
*4 (Del. Super. Ct. Apr. 7, 1987), aff'd, 540
A.2d 1088 (Del. 1988) (citing 11 Williston on
Contracts § 1292, at 8 (3d ed. 1968)). Stated
differently, “[n]on-performance by the injured party
under such circumstances will operate as a breach of
contract” by the injured party. Id. A breach
is of sufficient importance to justify non-performance by the
non-breaching party where the breaching party fails “to
do something that is so fundamental to a contract that the
failure to perform that obligation defeats the essential
purpose of the contract or makes it impossible for the
other party to perform under the contract.”
eCommerce Indus., Inc. v. MWA Intelligence, Inc.,
C.A. No. 7471-VCP, 2013 WL 5621678, at *13 (Del. Ch. Sept.
30, 2013) (citing E. Elec. & Heating, Inc., 1987
WL 9610, at *4). “In other words, for a breach of
contract to be material, it must ‘go to the root'
or ‘essence' of the agreement between the parties,
or be ‘one which touches the fundamental purpose of the
contract and defeats the object of the parties in entering
into the contract.'” Id. (citation
omitted); see also 23 Williston on
Contracts § 63:3 (4th ed.). Whether a breach is
material is ordinarily a question of fact. Norfolk S. Ry.
Co. v. Basell USA Inc., 512 F.3d 86, 92 (3d Cir. 2008)
(citations omitted).
Before
the Court can determine whether there is a genuine dispute of
material fact as to whether either or both parties breached
the contracts at issue, however, it must first interpret the
provisions of the contracts to determine the parties'
respective obligations. “If the terms of the contract
‘are clear on their face, . . . the court must apply
the meaning that would be ascribed to the language by a
reasonable third party.'” Comrie v. Enterasys
Networks, Inc., 837 A.2d 1, 13 (Del. Ch. 2003) (quoting
True N. Commc'ns Inc. v. Publicis S.A., 711 A.2d
34, 38 (Del. Ch. 1997)). “If, however, the court
concludes that a contract's terms are ambiguous or
‘fairly susceptible of different interpretations,'
the court may consider extrinsic evidence to uphold, to the
extent possible, the reasonable shared expectations of the
parties at the time of contracting.” Id.
(citing Eagle Indus., Inc. v. DeVilbiss Health Care,
Inc., 702 A.2d 1228, 1232 (Del. 1997)). However,
“[a] contract is not rendered ambiguous simply because
the parties do not agree upon its proper construction.
Rather, a contract is ambiguous only when the provisions in
controversy are reasonably or fairly susceptible of different
interpretations or may have two or more different
meanings.” Rhone-Poulenc Basic Chemicals Co. v. Am.
Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992).
The
parties agree that the LTRC, the 2015 MOA, and PCC-32
incorporate GP1, which sets forth various terms governing the
parties' relationship over the course of the AH-6i
program. (Docs. 16 at 31 ¶ 137; 29 at 12 ¶ 137
(“MDHI admits the LTRC and the 2015 MOA incorporate
GP1.”); 125 at 2 ¶¶ 2-3; 136 at 2 ¶ 2).
Of note, Article 2(a) of GP1 provides that “Seller
shall strictly adhere to the shipment or delivery
schedules” and requires MDHI, as the Seller, to
“promptly notify” Boeing in writing of any actual
or anticipated delays, including delays attributed to labor
disputes. (Doc. 127-1 at 44).
Article
7(b) of GP1 states that if MDHI “delivers
non-conforming Goods, ” Boeing “may at its option
and at Seller's expense (i) return the Goods for credit
or refund; (ii) require Seller to promptly correct or replace
the Goods; (iii) correct the Goods; or (iv) obtain
replacement Goods from another source.” (Id.
at 45). Under Article 7(c), “[r]epair, replacement and
other correction and redelivery shall be completed within the
original delivery schedule or such later time as Buyer's
Authorized Procurement Representative may reasonably
direct.” (Id.). Moreover, Article 7(d)
provides that “[a]ll costs and expenses and loss of
value incurred as a result of or in connection with
nonconformance and repair, replacement or other correction
may be recovered from Seller by equitable price reduction or
credit against any amounts that may be owed to Seller under
this contract or otherwise.” (Id.).
GP1's
warranty clause in Article 8(a) states:
Seller warrants that all Goods furnished under this contract
shall conform to all specifications and requirements of this
contract and shall be free from defects in materials and
workmanship. To the extent Goods are not manufactured
pursuant to detailed designs and specifications furnished by
Buyer, the Goods shall be free from design and specification
defects. This warranty shall survive inspection, test and
acceptance of, and payment for, the Goods. This warranty
shall run to Buyer and its successors, assigns and customers.
Such warranty shall begin after Buyer's final acceptance.
Buyer may, at its option, either (i) return for credit or
refund, or (ii) require prompt correction or replacement of
the defective or non-conforming Goods. Return to Seller of
defective or nonconforming Goods and redelivery to Buyer of
corrected or replaced Goods shall be at Seller's expense.
Goods required to be corrected or replaced shall be subject
to this article and the “inspection” article of
this contract in the same manner and to the same extent as
Goods originally delivered under this contract, but only as
to the corrected or replaced part or parts thereof. Even
if the parties disagree about the existence of a breach of
this warranty, Seller shall promptly comply with Buyer's
direction to: (i) repair, rework or replace the Goods, or
(ii) furnish any materials or parts and installation
instructions required to successfully correct the defect or
nonconformance. If the parties later determine that
Seller did not breach this warranty, the parties shall
equitably adjust the contract price.
(Id. (emphasis added)).
The
dispute provision of GP1, Article 12 provides that,
“[p]ending final resolution of any dispute, Seller
shall proceed with performance of this contract according to
Buyer's instructions so long as Buyer continues to pay
amounts not in dispute.” (Id. at 46). Article
15(a), GP1's provision regarding cancellation for
default, states that Boeing “may, by written
notice to [MDHI], cancel all or part of this contract”
if MDHI “fails to deliver the Goods within the time
specified by this contract or any written extension[.]”
(Id. (emphasis added)). Further, Article 15(b)
states that “Seller shall continue work not canceled[,
]” (id.), while Article 15(d) states that
“Buyer shall pay the contract price for Goods
accepted[, ]” (id. at 47).
The
rights and remedies provision of GP1, Article 26, specifies:
Any failures, delays or forbearances of either party in
insisting upon or enforcing any provisions of this contract,
or in exercising any rights or remedies under this contract,
shall not be construed as a waiver or relinquishment of any
such provisions, rights or remedies; rather, the same shall
remain in full force and effect. Except as otherwise limited
in this contract, the rights and remedies set forth herein
are cumulative and in addition to any other rights or
remedies that the parties may have at law or in equity. If
any provision of this contract is or becomes void or
unenforceable by law, the remainder shall be valid and
enforceable.
(Id. at 49).
Finally,
the LTRC incorporates various Boeing Standard Clauses,
including Boeing's H900 Additional General Provisions
Clause (“H900 Clause”). (See Doc. 127-1
at 22-23). Section 20 of the H900 Clause concerns delivery
payment terms, and states:
Payment will be made in accordance with the Invoice and
Payment article of this Contract. Notwithstanding the
foregoing, in the event Seller's average monthly delivery
rating under this purchase contract drops below 96% On-Time,
as measured over the three most recent months in Buyer's
BEST System, Buyer and Seller will first work together to
resolve the delivery performance issues, which efforts will
include the timely, progressive escalation of the delivery
performance issues through the management of both Parties, as
necessary. If after a reasonable time the Parties are unable
to come to a mutually agreeable resolution that results in
the improvement of Seller's average monthly delivery
ratings, as measured in accordance with the foregoing, the
Parties agree that Buyer shall then have the right to adjust
the delivery payment terms of this Contract. Such adjustment
to the delivery payment terms will be calculated by adding
Seller's average days late, as recorded over the three
most recent months in Buyer's BEST System, rounded up to
a multiple of 30 days, to the standard net 30 days delivery
payment term. Seller agrees the payment due date for Seller
invoices may remain extended by Buyer by the average number
of days late until Seller's average days late, as
measured in accordance with the foregoing, is improved to no
less than 96%.
(Doc. 16-3 at 53).
With
this background of the relevant terms and provisions, the
Court now considers the ...