911 F.2d 1447 (10th Cir. 1990), 88-2816, EDO Corp. v. Beech Aircraft Corp.

Docket Nº:88-2816.
Citation:911 F.2d 1447
Party Name:EDO CORPORATION, Plaintiff-Appellant, v. BEECH AIRCRAFT CORPORATION, Defendant-Appellee.
Case Date:August 17, 1990
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 1447

911 F.2d 1447 (10th Cir. 1990)

EDO CORPORATION, Plaintiff-Appellant,



No. 88-2816.

United States Court of Appeals, Tenth Circuit

August 17, 1990

Page 1448

Richard D. Greene of Morris, Laing, Evans, Brock & Kennedy, Wichita, Kan. (Roger L. Theis, Jana Deines Abbott and Mark A. Ohlsen of Morris, Laing, Evans, Brock & Kennedy, Wichita, Kan., John Cibinic, Annandale, Va., with him on the briefs), for plaintiff-appellant.

Paul B. Swartz (Robert Martin and Jeff Kennedy with him on the brief) of Martin, Pringle, Oliver, Wallace & Swartz, Wichita, Kan., for defendant-appellee.

Before BRORBY, BARRETT and WEST, [*] Circuit Judges.

BRORBY, Circuit Judge.

EDO Corporation (EDO) appeals the district court's rulings on the parties' summary judgment motions contained in the court's Memorandum and Order entered June 16, 1988, 1988 WL 167719; all adverse evidentiary rulings made during trial of the matter held August 29 to September 9, 1988; and adverse rulings in the trial court's Memorandum and Order entered October 21, 1988, containing post-trial findings of fact, conclusions of law, and the court's judgment. We affirm.


Beginning in September 1982, Beech Aircraft Corporation (Beech) and EDO entered into a series of research and development contracts related to a new composite aircraft, 2 the Starship. Beech chose EDO's Fiber Science Division (FSD) as a subcontractor on the Starship research and development program because of FSD's experience with composite filament winding. 3 Under the series of contracts, FSD was to design and construct the main wing for the Starship. 715 F.Supp. at 991.

The first contract between FSD and Beech provided that FSD would conduct a design study for the wing structure and propose a design to Beech. The parties entered into this first contract in late 1982. The second, third and fourth contracts provided

Page 1449

for further design, development and construction of the Starship wing. Id.

The contracts incorporated the following "termination for convenience" clause, borrowed from the federal Armed Services Procurement Regulations:

The performance of work under this contract may be terminated, in whole or from time to time in part, by the buyer in accordance with this clause. Termination of work hereunder shall be effected by delivery to the seller of a Notice of Termination specifying the extent to which performance or work under the contract is terminated and the date upon which such termination becomes effective.

Id. The contracts also contained a noncompetition clause that provided:

For a period of six (6) years after the date of execution of this subcontract ... subcontractor shall not, except as authorized by contractor, provide to any third party, aircraft wing structure design consulting, manufacturing techniques, or manufacturing, tooling, or other technical information, or otherwise assist any such third party in the manufacturing of aircraft wing structures as the same relate to fixed wing aircraft having gross weights less than 85,000 lbs. or with respect to inventions, trade secrets, technical information or data which was [sic] developed pursuant to contracts with subcontractor and/or title to the same belongs to contractor per this contract.

Id. at 991-92. (The terms "seller" and "subcontractor" in these provisions refer to EDO; "buyer" and "contractor" refer to Beech.) After entering the December 1982 contract, FSD developed its design concept for the Starship main wing and in April 1983 presented the design study to Beech. Id. at 992.

Work under the contracts proceeded, and in late 1983 FSD began to gear up to produce the Starship main wing. At that time, FSD was presented an opportunity to bid on research and development of a composite aircraft project for an Italian company, Rinaldo Piaggio. FSD was asked to bid on several components of the aircraft, including the forward wing, or canard, and the wing tips and flaps on the main wing, but was not asked to bid on the main wing itself. Id. Although FSD officials were enthusiastic about the Piaggio opportunity, Beech officials were strongly opposed to FSD pursuing the Piaggio opportunity. They believed that FSD's participation in the Piaggio project would be a breach of the noncompetition clause in the contracts between EDO and Beech. Id. FSD ultimately decided to forego the Piaggio opportunity and continued working with Beech. Id.

In early 1984, Beech began to reexamine the Starship project and its progress. Brainerd Holmes, president of Beech's parent company, Raytheon, and several Beech employees were dissatisfied with the progress of the Starship project. They had growing concerns about the feasibility of FSD's proposal and felt there were too many "unknowns" with the project and too many risks in the method by which FSD proposed the main wing be built. Id. On March 20, 1984, Holmes discussed his concerns with the Beech engineering team. The engineering team expressed no confidence in completing the Starship program on schedule or in building the aircraft as originally proposed. Id. at 993. Holmes then decided to order a restructuring of the Starship program, including bringing the construction of the main wing "in house" at Beech and employing an alternative design developed for the main wing at Beech. That same day Beech president Linden Blue notified FSD that Beech was terminating their contracts. Id.

FSD immediately formed a termination team to determine all amounts Beech would owe FSD under the "termination for convenience" clause of the contracts. The parties agreed on some amounts owed FSD, but disagreed as to whether FSD was entitled to receive "unabsorbed overhead." 4 Beech refused to pay any

Page 1450

amounts attributable to unabsorbed overhead. Id.

EDO filed suit, claiming the termination was improper because the original contract did not permit termination absent a change of circumstances or, alternatively, because the contract had been modified to delete the termination clause. EDO also claimed that even if the termination were proper, FSD was entitled to additional compensation (unabsorbed overhead) under the contract. FSD joined claims of detrimental reliance, breach of fiduciary duty, and misappropriation of trade secrets, seeking a recovery of actual and punitive damages in excess of $50 million.

After joint motions for summary judgment, the trial court denied EDO's motion for summary judgment but stated that "unabsorbed overhead may be recoverable under settlement of the terminated contract." Memorandum and Order, June 16, 1988, at 17. The court granted summary judgment to Beech on EDO's claims concerning an orally modified contract, the unavailability of anticipatory profits as a measure of recovery under the settlement of the terminated contract, and breach of fiduciary duty. Id. After a two-week trial on the remaining claims, the trial court determined that EDO failed to meet its burden of proof on any of its claims, and entered judgment for Beech on all pending claims. 715 F.Supp. at 996.

On appeal EDO argues: (1) the trial court erred in refusing to award unabsorbed overhead as a part of termination damages; (2) the trial court erred in finding a change of circumstances sufficient to justify termination; (3) the trial court erred in granting summary judgment against EDO on oral modification of the contracts; and (4) the trial court erred in its application of the elements of promissory estoppel.


EDO argues the trial court erred in refusing to award unabsorbed overhead as a part of the termination costs for a proper termination.

Our review of a trial court's determination of the amount of damages resulting from a breach of contract is governed by the clearly erroneous standard. Fed.R.Civ.P. 52(a); Paramount Pictures Corp. v. Thompson Theatres, Inc., 621 F.2d 1088, 1091 (10th Cir.1980). We are not constrained by the clearly erroneous standard, however, when the trial court's computation of damages is predicated on a misconception of the governing rule of law. Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 501 [104 S.Ct. 1949, 1960, 80 L.Ed.2d 502] (1984).

Chaparral Resources, Inc. v. Monsanto Co., 849 F.2d 1286, 1289 (10th Cir.1988) (citations omitted). Thus, in reviewing challenges to a trial court's determination of damages in a breach of contract case, we must distinguish between the challenge to the computation of the amount from the challenge to the law applied in computing that amount.

EDO argues the trial court misapplied the law and asks this court to "exercise its independent judgment and determine whether the record establishes that the governing rules of law regarding unabsorbed overhead were applied correctly by the trial court." The trial court determined that EDO failed to meet its burden of proof on the issue of unabsorbed overhead. 715 F.Supp. at 994.

In its order on the motions for summary judgment, the trial court stated:

[I]t appears to the court after a review [of the authorities cited by the parties] that unabsorbed overhead supported by proof sufficient to establish a direct link to the termination of the contract is recoverable in certain circumstances. Given the previous analysis by the court concerning the commercial nature of these contracts and the absence in this case of the special consideration normally afforded in government procurement of contracts, the court believes that the present case is an appropriate one for

Page 1451

recovery of unabsorbed overhead, contingent upon proper proof at trial, in the event that the factfinder fails to find a breach of contract.

Memorandum and Order, June 16, 1988, at 12 (emphasis added). The trial court defined unabsorbed overhead as "that amount of 'fixed' costs incurred at FSD which could no longer be allocated to the Starship project as a portion of...

To continue reading