Bi-Tech North Inc v. Lockheed Martin Corp ( 2005 )

Filed: April 12, 2005
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1391
(CA-01-254-AW)
BI-TECH NORTH, INCORPORATED, a New Hampshire
Corporation,
Plaintiff - Appellant,
and
WILLIAM SHERLOCK; BI-TECH, INCORPORATED, a
New Jersey Corporation,
Plaintiffs,
versus
LOCKHEED MARTIN CORPORATION, a Maryland
Corporation acting through its Sanders
Business Unit,
Defendant - Appellee.
O R D E R
The court amends its opinion filed March 10, 2005, as follows:
On the cover sheet, section 8, line 5 -- the names of Juanita
A. Crowley, Paul R. Q. Wolfson, Edward N. Siskel, WILMER, CUTLER,
PICKERING, HALE AND DORR, L.L.P., Washington, D.C., are added as
counsel for Appellee.
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1391
BI-TECH NORTH, INCORPORATED, a New Hampshire
Corporation,
Plaintiff - Appellant,
and
WILLIAM SHERLOCK; BI-TECH, INCORPORATED, a
New Jersey Corporation,
Plaintiffs,
versus
LOCKHEED MARTIN CORPORATION, a Maryland
Corporation acting through its Sanders
Business Unit,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District Judge.
(CA-01-254-AW)
Argued: November 30, 2004 Decided: March 10, 2005
Before WIDENER, MICHAEL, and MOTZ, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Peter David Goldberger, Ardmore, Pennsylvania, for
Appellant. Francis Joseph Gorman, GORMAN & WILLIAMS, Baltimore,
Maryland, for Appellee. ON BRIEF: Neil E. Jokelson, David
Jokelson, Derek Jokelson, NEIL E. JOKELSON & ASSOCIATES,
Philadelphia, Pennsylvania, for Appellant. Juanita A. Crowley,
Paul R. Q. Wolfson, Edward N. Siskel, WILMER, CUTLER, PICKERING,
HALE AND DORR, L.L.P., Washington, D.C. for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM
In this diversity contract and tort action, we affirm the
district court’s grant of summary judgment to Lockheed Martin Corp.
and denial of partial summary judgment to Bi-Tech North, Inc.
(“BTN”).
I.
In March 1998, William Sherlock, the principal in Bi-Tech,
Inc. (“BTI”), a machine shop, began negotiations with a unit of
Lockheed to buy from Lockheed the Manchester Machine Center
(“MMC”).
In late December 1999 and early January 2000, the parties
executed documents that provided, inter alia, that BTN, a New
Hampshire corporation created for the purpose of the purchase,
would buy MMC from Lockheed for $500,000--a $100,000 down payment,
with the remaining $400,000 to be paid in equal monthly
installments for one year, pursuant to the terms of a promissory
note (the “Note”). BTN would pay $310,000 to lease the building
housing MMC for one year, with options to renew at a lower rate or
to purchase for $2.1 million. BTN would continue to employ
designated MMC employees at (at least) the same pay and with (at
least) the same benefits. Also, Lockheed would have a priority
security interest in the assets transferred to BTN, which BTN could
not further encumber; and BTI would guarantee BTN’s payment of the
3
Note and performance of all obligations under the agreement. While
the agreement became effective December 23, 1999, the deal was not
to close until January 3, 2000.
A few provisions of the agreement are important here:
1. Article IX lists “Conditions to Closing.” Section 9.03(a)
conditions Lockheed’s obligations on BTI’s and BTN’s
performance of its obligations under the agreement and
conditioned Lockheed’s performance on the truth and
correctness (in all material respects) of BTI’s and BTN’s
representations and warranties contained in the transaction
documents. Section 9.03(c)(iii) conditions Lockheed’s
obligations on BTN having provided to Lockheed “reasonable
assurances” that BTN had in place “sufficient financial
resources to satisfy the Promissory Note and to satisfy and
perform its other obligations under the Transaction
Documents.”
2. Article IV lists the “Representations and Warranties” of BTN
and BTI. Section 4.01(e) represents and warrants that each
was “capable of performing, in all material respects, each
agreement, covenant and obligation required by the Transaction
Documents” and that at the time of the transactions, BTN would
have “the resources and assets necessary and sufficient to
conduct the [business of MMC] and to perform its obligations
and Contracts that constitute Transferred Assets.” Section
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4.01(h) represents and warrants that BTN had “available to it
cash, marketable securities or other investments, or presently
available sources of credit, to enable it to consummate the
Contemplated Transactions and to pay the Purchase Price.”
3. Article XI governs termination. Section 11.01(b) controls
termination if the deal has not closed by January 15, 2000,
and allows immediate termination by either Lockheed or BTN at
any time prior to closing. The sole exception to this
prerogative is if the closing is not consummated by January 15
because of the terminating party’s breach of any of the
representations or warranties or its failure to perform the
covenants or agreements contained in the Transaction
Documents. Section 11.01(d) is an alternative termination
provision, not dependent on the failure of the deal to close
by January 15. It allows termination because of a breach of
any representation, warranty, covenant, or agreement under the
Transaction Documents, if the effect of the breach “would
cause the closing conditions of the terminating party not to
be capable of being satisfied,” and if the breach is not cured
by the breaching party within 15 days of receiving written
notice of the breach from the terminating party.
The parties agree that Maryland law governs the contract.
BTN began to install new phones and signs at MMC, obtained
insurance coverage, and secured signed acceptances of employment
5
from the designated MMC employees. Sherlock also contacted Joseph
Franchetti about a possible loan of $200,000 or more for working
capital. The terms of the proposed loan were, however, onerous:
the interest rate on the loan would be 20%; Franchetti would be
entitled to 10% of net profit after taxes and would become a board
member with a monthly retainer.
The Lockheed/BTN deal did not close on January 3, 2000, and on
January 5, Lockheed’s in-house counsel sent a handwritten note to
Sherlock listing open action items, including “evidence of
financial capability.” On January 7, 2000, BTN’s attorney
forwarded to Lockheed’s outside counsel materials addressing some
of the open action items. Included was a letter from GE Capital to
Sherlock stating that it was “in the process of completing [the]
review of [Sherlock’s] request for a $750,000 working capital
line.” GE Capital asked for a copy of the executed purchase
agreement, and “[v]erification from Lockheed management as to the
invoicing and payment terms.” It further proposed a January 10
meeting. The meeting did not occur.
On January 12, Sherlock’s consultant calculated that BTN would
require $218,000 in working capital to operate MMC for the first
month. At a meeting with Sherlock on January 12, Lockheed said
that a $600,000 letter of credit would satisfy BTN’s obligations
under § 9.03(c)(iii) of the contract. Sherlock indicated that he
would look into the issue and intended to talk to his attorney
6
about whether he needed to post additional funds.
By January 14, Sherlock had tendered $50,000 of the $100,000
down payment. On January 14, Lockheed sent Sherlock a letter
informing him that, pursuant to the terms of the agreement,
Lockheed would exercise its termination rights unless Sherlock had
provided, by January 15, the remaining $50,000 of the down payment
and “written evidence that [BTN] has access to a minimum of
$600,000” via a signed letter of credit. Sherlock’s attorney
replied that the requirement of proof of access to $600,000
“appears to be a breach of the transaction agreements,” but that
Sherlock was ready, willing, and able to forward by wire transfer
the remaining balance of the downpayment. On January 15, Sherlock
wrote to Lockheed offering to contact banks to get financing and
offering as collateral his vacation home, which he valued at $1.6
million.1 Lockheed terminated the agreement by letter dated
January 18, 2000.
Lockheed later sold MMC to another purchaser, PGM. BTN points
to evidence of phone calls between Lockheed and PGM during early
January 2000 as suggesting that Lockheed was negotiating a deal
with PGM before the termination of the BTN deal.
1
Sherlock’s actual equity in the house appears to have been
significantly less than that. In his April 2000 Petition for
Bankruptcy, Sherlock valued the property at $900,000, and noted a
$750,000 mortgage on the property.
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II.
In January 2001, BTN, BTI, and Sherlock filed suit against
Lockheed in the United States District Court for the District of
Maryland, asserting breach of contract and various tort claims.
Lockheed filed counterclaims against BTN, BTI, and Sherlock. In
May 2001, Sherlock filed a Suggestion of Bankruptcy, and, in August
2001, the district court ordered the case to go forward except as
to the counterclaim against Sherlock.2
By February 2004, BTN’s remaining claims against Lockheed were
for breach of contract, detrimental reliance, breach of
confidential duty, fraud, conspiracy to defraud, and tortious
interference with prospective business relations. On February 25,
2004, the district court granted Lockheed’s motion for summary
judgment on these claims, and denied BTN’s motion for partial
summary judgment on its breach of contract claim. In an order
dated May 5, 2004, the district court dismissed with prejudice
Sherlock’s and BTI’s claims against Lockheed; dismissed without
prejudice Lockheed’s counterclaims against BTI and Sherlock;
designated the February 25, 2004 Order as the final judgment as to
BTN’s claims; and stayed Lockheed’s counterclaim against BTN
pending BTN’s appeal to this court. Only BTN appeals; it appeals
the grant of summary judgment on the breach of contract and tort
2
Sherlock’s Petition for Bankruptcy in the District of New
Jersey has since been voluntarily dismissed.
8
claims, and the denial of its own motion for partial summary
judgment on its breach of contract claim. BTN does not appeal the
grant of summary judgment on the quasi-contract claim of
detrimental reliance.
III.
We review the district court’s grant of summary judgment de
novo, viewing the facts in the light most favorable to the non-
moving party. Blaustein & Reich v. Buckles, 365 F.3d 281, 286 (4th
Cir. 2004).
A.
As the district court correctly noted, Maryland law holds that
no duty arises under a contract if a condition precedent is
unfulfilled. See Laurel Race Course, Inc. v. Regal Constr. Co.,
333 A.2d 319, 327 (Md. 1975). Thus, if BTN did not satisfy the
conditions precedent of §§ 9.03(a) and 9.03(c)(iii), and its
nonperformance is not excused, it cannot recover for breach of
contract, and the district court properly granted summary judgment
to Lockheed. See Hubler Rentals, Inc. v. Roadway Express, Inc.,
637 F.2d 257, 260-61 (4th Cir. 1981).
(1)
The record reveals that BTI and BTN did not satisfy § 9.03(a)
or § 9.03(c)(iii).
As to § 9.03(a), contrary to the representations and
9
warranties in §§ 4.01(e) & (h), neither BTN nor BTI had sufficient
resources and assets at the time of the transactions to conduct
MMC’s business or to consummate the contemplated transactions.
Indeed, BTN had no assets at all when the Transaction Agreement
became effective on December 23, 1999, and would not have had any
until the transfer of MMC’s assets to BTN’s control, which was
supposed to occur on January 6, 2000. Moreover, there was an
outstanding judgment of foreclosure of more than $1 million against
BTI, and BTI’s bank account had a negative balance.
Nor did BTN or BTI satisfy § 9.03(c)(iii). That section of
the contract requires BTN to provide Lockheed with “reasonable
assurances” that BTN had sufficient financial resources available
to satisfy the Note and perform its obligations under the contract.
BTN argues that there are material factual issues as to whether it
satisfied this condition precedent, because (1) the Security
Agreement in and of itself could constitute the required
“reasonable assurances;” or (2) “Sherlock was prepared to complete
the down payment, . . . BTN had already taken major steps toward
assuming the business, . . . Lockheed had discussed the short-term
working capital needs of BTN with Franchetti, who was willing to
meet them . . . , and . . . the MMC deal was otherwise self-
financing.”
But it is a fundamental principle of contract law that a
contract should be construed so that each provision has meaning,
10
and no provision is mere surplusage. See, e.g., JMP Assocs. v. St.
Paul Fire & Marine Ins. Co., 693 A.2d 832, 834-35 (Md. 1997). If
we should construe the Security Agreement (or any other obligation
in the Transaction Documents) to have satisfied the “reasonable
assurances” requirement, then that would render § 9.03(c)(iii)
superfluous. Section 9.03(c)(iii) requires “reasonable assurances”
in addition to the other requirements of the contract.
Moreover, BTN’s signage and potential contracts did not assure
“sufficient financial resources” to meet BTN’s obligations,
especially in the short-term. Similarly, the understanding that
the deal would become self-financing did not assure that BTN had
the working capital to run the shop for the first month or two.
And Sherlock never offered the potential Franchetti loan to
Lockheed as a “reasonable assurance.” Thus, these factors could
not constitute “reasonable assurances.”
The only counterproposal that Sherlock made to Lockheed’s
request for a $600,000 letter of credit was to offer his vacation
home as collateral. According to Sherlock’s bankruptcy petition,
this house was worth $900,000 and was encumbered by a $750,000
mortgage. Even if the bare offer of this house as collateral could
be considered an assurance, the value of that property was
significantly less than the $218,000 that Sherlock’s own consultant
stated would be needed to run the shop for the first month. Thus,
it could not have been a “reasonable assurance” that BTN had
11
sufficient resources to satisfy the $400,000 Note and the other
obligations under the agreement.
Because BTI and BTN did not satisfy the conditions precedent
of §§ 9.03(a) and § 9.03(c)(iii), Lockheed did not have a duty to
perform under the contract.
(2)
Alternatively, BTN argues that Lockheed repudiated the
contract in its January 14, 2000 letter, thus excusing BTI’s and
BTN’s failure to fulfill the conditions precedent, and consequently
allowing BTN to recover for Lockheed’s asserted anticipatory
breach.3 The January 14 letter stated that “per terms of [the]
agreement,” if, by close of business January 15, 2000, Sherlock did
not tender the remainder of the down payment and submit “written
evidence that [BTN] has access to a minimum of $600,000 via a
3
BTN also argues that Lockheed fraudulently concealed material
information and did not negotiate in good faith, because, inter
alia, Lockheed was allegedly simultaneously negotiating with PGM.
BTN asserts that this excused it from performing the conditions
precedent. However, there is no authority for BTN’s suggestion
that there is a generalized fraud exception to the rule that the
failure of a party to perform conditions precedent excuses the
other party from its performance under the contract. Of course, if
a party’s fraud or bad faith causes the other party to be unable to
perform a condition of the contract, then the nonperformance of the
condition is excused. See Williston on Contracts § 39.10 (4th ed.)
(“Although it is not necessary that there be a specific malevolent
intent, the weight of authority holds that in order for prevention
to constitute an excuse for nonperformance of a condition or a
promise, the preventing party must have deliberately taken steps to
impede performance or have arbitrarily impaired the other party's
ability to perform.”). However, BTN fails to show that Lockheed’s
alleged fraud or bad faith caused BTN’s failure to provide
reasonable assurances as required under § 9.03(c)(iii).
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signed Letter of Credit” from a bank, Lockheed would “have no
alternative but to terminate the deal.”
“Ordinarily, in order to constitute anticipatory repudiation,
there must be a definite, specific, positive, and unconditional
repudiation of the contract by one of the parties to the contract.”
C.W. Blomquist & Co. v. Capital Area Realty Investors Corp., 311
A.2d 787, 791 (Md. 1973). A party repudiates a contract if it
demands performance to which it is not entitled, and states
unequivocally that it will not perform unless the demand is
satisfied. WBZE, Inc. v. Arab Network of America, 220 B.R. 568,
572 (D. Md. 1998) (citing Corbin on Contracts § 973 at 910 (1951)).
Section 11.01(b) of the contract entitled Lockheed to
“reasonable assurances” by January 15, 2000; without such
assurances either party could unilaterally and immediately
terminate. Lockheed’s request that BTN establish a $600,000 line
of credit did not amount to a repudiation of the contract if that
request plausibly constituted a request for “reasonable assurances”
under the contract. See LAK, Inc. v. Deer Creek Enters., 976 F.2d
328, 332-34 (7th Cir. 1992) (holding that, in determining whether
there was an anticipatory breach, the court must look to the
provision of the contract under which the dispute arises and
determine whether the allegedly breaching party was “offering to
perform in accordance with its own interpretation” of that
provision and if “that interpretation was plausible”).
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In this case, Lockheed’s determination that a $600,000 line of
credit would satisfy § 9.03(c)(iii) was neither implausible, nor
even unreasonable. The contract required “reasonable assurances”
that BTN could pay the $400,000 Note and satisfy the other
obligations of the contract, which included the running of the
machine shop. As explained above, the Security Agreement, which
secured the Note, could not in itself satisfy the “reasonable
assurances” requirement. Lockheed requested a line of credit that
equaled the amount of the Note, plus $200,000, an approximation of
the amount necessary to run the shop for one month--and it is
undisputed that it would be at least one month before the shop
could realize a profit. Moreover, as evidence of ability to meet
BTN’s financial obligations, Sherlock had proffered a letter
indicating that he had requested a $750,000 line of credit from GE
Capital. Thus, Sherlock himself seems to have contemplated that a
line of credit for $150,000 more than Lockheed eventually demanded
might be necessary to provide “reasonable assurances.”
Finally, Lockheed can only have repudiated the contract if BTN
was ready and willing to provide “reasonable assurances” by the
January 15 deadline. See Wischhusen v. Am. Med. Spirits Co., 163
A.2d 685, 687 (Md. 1933). To provide these assurances, Sherlock
would, at least, have had to accept Franchetti’s loan. However,
not only was Sherlock unwilling to accept the loan, but also both
he and his attorney repeatedly expressed a belief that Sherlock was
14
obligated to do no more under the contract than tender the down
payment. BTN’s contention that Sherlock would ultimately have
accepted the Franchetti loan is belied by the fact that he did not
do so before the close of business on January 15, 2000, although
Lockheed had informed him that it would likely exercise its
termination rights if the deal had not closed by that deadline.
Because Lockheed did not repudiate the contract, repudiation
does not excuse BTN’s failure to satisfy the conditions precedent,
and BTN cannot maintain a suit for breach of contract.4
B.
BTN also appeals the district court’s grant of summary
judgment to Lockheed on BTN’s tort claims. We have reviewed the
record, briefs, and applicable case law, and we have heard oral
argument. We are convinced that the district court properly
resolved these claims. See Sherlock v. Lockheed Martin Corp.,
Civil Action No. AW-01-254 (D. Md. Feb. 25, 2004).
IV.
For these reasons, the judgment of the district court is
AFFIRMED.
4
Our resolution of this issue also disposes of BTN’s appeal of
the district court’s denial of its motion for partial summary
judgment on the breach of contract claim.
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