Harriscom Svenska, AB v. Harris Corp.

• Decision Date: 23 August 1993
• Docket Number: D,Nos. 1443,1444,s. 1443
• Parties: HARRISCOM SVENSKA, AB, Plaintiff-Appellant, v. HARRIS CORPORATION and R.F. Systems, A Division of R.F. Communications Group of Harris Corporation, Defendants-Appellees. ockets 93-7043, 93-7057.
• Court: U.S. Court of Appeals — Second Circuit

Page 576

3 F.3d 576

HARRISCOM SVENSKA, AB, Plaintiff-Appellant, v. HARRIS CORPORATION and R.F. Systems, A Division of R.F.

Communications Group of Harris Corporation,

Defendants-Appellees.

Nos. 1443, 1444, Dockets 93-7043, 93-7057.

United States Court of Appeals, Second Circuit.

Argued May 20, 1993.

Decided Aug. 23, 1993.

Mark D. Shuman, Boston, MA, for plaintiff-appellant.

Richard A. Feinstein, Washington, DC (Alison L. Doyle, Lori L. Jackson, Jonathan L. Diesenhaus, McKenna & Cuneo, of counsel), for defendants-appellees.

Before: LUMBARD, CARDAMONE, and McLAUGHLIN, Circuit Judges.

CARDAMONE, Circuit Judge:

Before us on this appeal are two companies that contracted with one another for the sale of radios and spare parts. One is the radios' domestic manufacturer, the other is a Swedish organization, the manufacturer's distributor to the Islamic Republic of Iran. Having some doubt as to the continued viability of such trade, a force majeure clause, which is the subject of this litigation, was inserted into the parties' written agreement. What began as a doubt ripened into a certainty when the United States government prohibited all sales to Iran of goods it categorized as military equipment. A shipment of the contracted-for radio spare parts enroute to Sweden, but destined for Iran, was later detained by U.S. Customs.

One of the issues before us is whether the manufacturer's refusal to ship the spare parts was a voluntary act on its part, subjecting it to liability to its distributor for damages for breach of contract. We think it a foregone conclusion that a government bureaucracy determined to prevent what it considers military goods from leaving this country and with the will to compel compliance with its directives is an irresistible force, one that cannot reasonably be controlled. The government in these circumstances may be likened to the wife of "Rumpole of the Bailey," John Mortimer's fictional barrister, who describes his wife as "she who must be obeyed."

Harriscom Svenska, AB (Harriscom) appeals from two December 18, 1992 judgments

of the United States District Court for the Western District of New York (Telesca, C.J.) granting defendant Harris Corp.'s (RF Systems) motion for summary judgment and dismissing Harriscom's second complaint against Harris Corp. on res judicata grounds.

FACTS

This appeal concerns two related contractual disputes between appellee Harris Corp. and its Sweden-based dealer, appellant Harriscom. RF Systems, a division of Harris Corp., manufactures radio communications products in Rochester, New York. It appointed Harriscom in 1983 as its exclusive distributor of RF Systems' products in Iran.

On December 6, 1985 U.S. Customs Service officials detained a shipment of RF Systems' model 2301 radio spare parts ordered by Harriscom and bound for Iran. The shipment was worth $663,869. According to a 1982 determination by the United States Department of Commerce, the model 2301 radio could be exported under a general license to almost any country. But upon detaining the model 2301 radio in December 1985, the government decided to reevaluate it. State Department officials began a commodity jurisdiction proceeding, authorized by the Arms Export Control Act, 22 U.S.C. Secs. 2751-2796d (1988 & Supp. III 1991), to decide whether this particular radio was a military product that should be on the "Munitions List" and subject to more stringent export controls. For more than six months, RF Systems managers negotiated with officials from the Departments of Commerce, State and Defense in an effort to speed up these administrative proceedings. The extensive negotiations, RF Systems tells us, revealed that the government, particularly the Defense Department, was not concerned so much with the model 2301 radio itself as with its export to Iran. RF Systems eventually negotiated a compromise in late July 1986 under which it agreed to "voluntarily withdraw from all further sales to the Iranian market." The company asserted that by so doing it would lose $5.9 million in already contracted-for orders and $10 million in potential orders to Iran. In exchange, the government ruled in September 1986 that the model 2301 radio was not subject to the stringent export controls of Munitions List products.

The State Department proceedings and resulting compromise that RF Systems and the government reached directly impacted on Harriscom's business. First, while negotiations were ongoing RF Systems could not fill any Harriscom orders to Iran. Second, the government, as a result of the compromise, allowed RF Systems to fill only three of eight outstanding Harriscom orders to Iran. These orders involved the disputed model 2301 radio and the model 301 radio. Harriscom's third alleged injury concerned performance bonds. In July 1986 RF Systems had performance bond guarantees of $240,000 in favor of Harriscom, but these bonds expired with shipment of the three outstanding orders. At the same time Harriscom itself had $550,000 of unconditional bond guarantees in favor of its customer, the Iranian government, and it lost $270,000 of these bonds as a result of RF Systems' failure to fill the five pending orders. Fourth, Harriscom sustained lost profits on those unfilled contracts.

The first of the two contractual disputes stems from the government's permitting RF Systems to fill only three of the eight outstanding Harriscom orders. Harriscom alleges RF Systems breached the contract between them with respect to the five remaining unfilled orders and also breached its dealership agreement because RF Systems did not apply for an export permit provided for in a November 1987 Commerce Department regulation, 15 C.F.R. Sec. 785.4(d)(1)(xiii). Harriscom also claims breach based on RF Systems' failure to use its Indian licensee, Punjab Wireless Systems Ltd., to supply radios to Iran. Harriscom finally alleges RF Systems made its decision not to fill the five outstanding orders voluntarily.

The second contractual dispute involves a 1984 agreement between the parties under which Harriscom promised to purchase RF Systems' entire inventory of model 301 radios and spare parts for $3 million for resale in Iran. RF Systems warranted, in exchange, that it would not manufacture any more model Then the State Department controversy over the model 2301 radio intervened, suspending all of RF Systems' Iranian business. In June 1986 RF Systems shipped one order of the model 301 radios to Harriscom, as part of its compromise with the government. Harriscom disputes several aspects of the model 301 radio contract, contending that subsequent negotiations changed its terms. Primarily, Harriscom challenges RF Systems' retention of a $150,000 deposit it paid in September 1984 and characterized by the agreement as "non-refundable."

                301 radios.  This contract is contained in a September 12, 1984 Memorandum of Understanding and an October 12, 1984 side letter.  Although the contract called for two shipments of the model 301 radios in December 1984 and April 1985 and payments for the same, the parties agreed in writing that the second date was "somewhat flexible."   Harriscom had some difficulty in meeting these contract deadlines, but did place its order
                

PROCEDURAL BACKGROUND

Appellant commenced the present suit against RF Systems on June 27, 1988 and filed an amended complaint on September 21, 1988. Three months later Harriscom's actions sounding in negligence and fraud were dismissed, leaving only contract claims to be litigated. In December 1990 the district court granted RF Systems' motion for summary judgment and dismissed the remainder of appellant's complaint. But several months later in a decision dated February 21, 1991 the trial court amended its judgment to revive Count X of the complaint, one that sought return of Harriscom's $150,000 deposit on the model 301 radio contract. The district court also reserved for trial RF Systems' counterclaim that alleged a breach of the model 301 radio contract by Harriscom because the dealer did not purchase the entire radio inventory. At the same time, it granted Fed.R.Civ.P. 54(b) certification.

Both parties appealed. We dismissed for lack of appellate jurisdiction over the certified claims because the related Count X claim and counterclaim remained for trial. See Harriscom Svenska AB v. Harris Corp., 947 F.2d 627, 630-31 (2d Cir.1991). Harriscom thereupon filed a second complaint against RF Systems on November 26, 1991 alleging that RF Systems agreed to resume its Iranian business with Harriscom when conditions permitted, but had failed to make application under the November 1987 Commerce Department regulation.

On May 13, 1992 the district court granted RF Systems' motion for summary judgment on Count X of the first action. The district court also denied as moot...