Air Technology Corp. v. General Elec. Co.

• Decision Date: 10 June 1964
• Citation: 347 Mass. 613,199 N.E.2d 538
• Parties: AIR TECHNOLOGY CORPORATION v. GENERAL ELECTRIC COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 538

199 N.E.2d 538

347 Mass. 613

AIR TECHNOLOGY CORPORATION v. GENERAL ELECTRIC COMPANY.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 8, 1964.

Decided June 10, 1964.

Edward H. Bennett, Jr., Boston (Joseph H. Choate, III, New York City, with him), for the plaintiff.

Warren F. Farr Boston (George T. Finnegan, Boston, with him), for the defendant.

Before SPALDING, WHITTEMORE, CUTTER, SPIEGEL and REARDON, JJ.

CUTTER, Justice.

The plaintiff (AT) brought this bill in equity (1) to restrain the defendant (GE) from using information supplied to it by (AT in connection with an Air Force project (the 477L project), (2) to obtain a declaration that GE has committed breaches of a fiduciary relation to AT, and (3) for damages. A master's report was confirmed by an interlocutory decree from which GE appealed. Both AT and GE appealed from a final decree which awarded to AT $128,734 plus interest and costs, but denied injunctive relief.

At some time after 1957, the Air Force undertook the 477L project to establish installations in North America for detecting and determining the direction and yield of nuclear detonations by methods including the use of electromagnetic (EM) sensors.

In 1960, Dresser Industries (Dresser) discussed the program with the Air Force, and in February, 1961, Dresser and GE agreed in writing to submit a 'team proposal' to the Air Force. GE was to have 'prime responsibility of the overall contract.' Dresser was to have 'responsibility for the sensory system area and participation in the overall system engineering * * * as a subcontractor.'

GE established within its Defense Systems Department a group, charged with presenting the proposal, under one Hynes, an engineer, as program manager, and one Carp. Hynes had engineering and financial control and 'was responsible for success of all [its] aspects * * * and * * * for seeing * * * that the purchasing department was doing its job on the program. He had no actual authority to enter into contracts' for supplies or services. This was 'a function of the purchasing department.'

AT and its predecessor corporations had considerable experience in the detection of EM radiation. Dr. Hillger and Dr. Clapp of its staff were experts in electronics research and design. On April 21, 1961, AT discussed the 477L project with the Air Force and learned of eight companies which had done some preliminary work. AT wrote to all but one of these expressing willingness to contribute toward any proposal which the addressee might submit. ¹

On May 23, 1961 (following a telephone call from Hynes to one Cunningham, contract representative of AT), Dr. Hillger and Dr. Clapp met in Syracuse with Carp and scientific representatives of GE. ² Dr. Hillger outlined the system which AT proposed for the EM sensor portion of the 477L project. GE's representatives indicated interest. It then was agreed that Dr. Clapp would do more research to demonstrate the accuracy of the AT approach. Carp stated that if AT could satisfy the Air Force accuracy requirements, GE would be interested in having AT join in submitting a proposal.

A further meeting was held on June 7, 1961. At Hynes's suggestion Cunningham was present. Carp furnished to Dr. Clapp 'a detailed outline of the GE proposal' and 'asked him to cover a portion of the section entitled electromagnetic sensory subsystem.' Carp also described how best to present the data to the Air Force. Hynes and Cunningham separately discussed 'how AT was going to fit into the program on the sensor end. This was all subject to what the Air Force might want.' Hynes stated that Dresser 'was part of the team, and * * * that if Dr. Clapp and Carp had a satisfactory meeting, AT would be a team member, subject to Air Force approval.'

Later that day Hynes and Cunningham talked with the scientists. At some stage Carp said they were 'all set.' Cunningham asked how 'the two companies could get together * * * 'on a team membership basis.' * * * Hynes then wrote out a proposed course of action, and * * * Cunningham copied it verbatim. This provided that AT was to submit a proposal to GE * * * justifying the scientific basis for use of the * * * [EM] sensor; to assist in the preparation [and presentation] of the * * * proposal * * * and, in response to * * * [a] request for quotation [RFQ] * * * from GE for the design, development, and fabrication of a prototype system, to prepare a technical proposal for overall EM sensory equipment and support requirements * * * and cost quotations.'

On June 26, Carp visited Dr. Clapp. Dr. Hillger and other AT employees were present. They reviewed the work Dr. Clapp had done since the June 7 meeting. Carp said 'that it looked as if AT would get the results GE was looking for' but that Air Force accuracy requirements still had not been met. Methods of achieving greater accuracy were discussed.

During June and July, Dr. Clapp did further research. ³ Carp was also collecting data. During this period AT representatives continued (see fn. 1) to confer with, and to submit proposals to, other companies. ⁴

By August 11, 1961, GE had AT's technical proposal. Hynes had asked Cunningham for information about AT personnel, especially those associated with a contract between AT and Defense Atomic Support Agency (DASA) awarded on July 15. On August 9, AT sent a letter of interest to GE setting forth the qualifications of AT and its personnel and stating that AT 'will serve as a member of the * * * [GE] team in the preparation of the planned proposal * * * and in the accomplishment of the work required.' GE then submitted to the Air Force its letter of interest, which contained references to GE's 'industry team, including Dresser.' The letter pointed out that GE's capability had been 'augmented by * * * such team members as * * * Dresser * * * (specializing in seismic sensors)' and AT (specializing in EM sensors). ⁵

The Air Force then sent to thirty-six companies, including GE, a request for a proposal. ⁶ GE promptly sent RFQs to its potential vendors. Hynes mentioned AT and Dresser to GE's purchasing department as competent in the sensor field. A printed form of cost-plus-fixed-fee (CPFF) subcontract was sent to AT with the RFQ.

On September 26, Hynes showed Cunningham GE's letter of interest, and 'Cunningham called attention to the apparent inconsistency between the listing of AT as a second tier subcontractor [fn. 5] * * * and the description of AT as a team member elsewhere in the document. Hynes said, 'Forget it. That is a mistake,' and told Cunningham that AT was shown as a team member * * * on the cover of the proposal.'

On October 5, GE submitted a proposal to the Air Force bearing on its covers the names of GE, AT, Dresser, and two other companies. The biographies of AT's personnel were identical with those attached to GE's letter of interest. The Em sensor was shown as an item which GE proposed to buy rather than to manufacture and the only potential source given was AT. ⁷

Dr. Clapp and Dr. Hillger participated in an oral presentation of the GE proposal to the Air Force on October 18. One Air Force written question concerning the EM sensor was answered by Dr. Clapp for GE. During the presentation references were made to the DASA contract.

Early in November, GE was selected as prime contractor by the Air Force, provided a suitable contract could be negotiated. This selection was not on the basis of GE's proposal (which was not completely acceptable technically) but rather on a statement of its expected performance. After two months of negotiations a contract became effective February 5, 1962. The specifications were not formally approved until June, 1962, and these 'differed drastically in * * * technical respects from the system originally proposed by GE.' Hynes told Cunningham at the time of the award, '[Y]ou people had * * * a lot to do with our getting it.'

On November 28, after failing to find Hynes and Carp in Syracuse, Dr. Hillger and Ekstrom, manager of AT's contract department (see fn. 2), ⁸ talked with some GE procurement people about possible subcontract terms. Dr. Hillger stated 'that AT considered itself a team member and expected a subcontract for the EM sensor.' The GE people said that GE could not give AT a subcontract until GE obtained the prime contract.

Late in December, Cunningham of AT learned that Dresser ⁹ had theretofore submitted a quotation on the EM sensor. He called Carp at GE and inquired why Dresser had bid on this. 'Carp said that he didn't know * * * that he didn't see how anyone but AT could do the EM sensor and justify it to the Air Force.' He was, however, critical of some of AT's prices.

On January 2, one Taplow of GE's procurement unit 'told Dr. Hillger that Dresser had been asked * * * for a proposal on the entire sensory system, and that it would be appropriate for AT to quote to Dresser on the EM portion.' Dr. Hillger replied that 'AT expected a sole source procurement from GE on the EM sensor, and that there was no reason for AT to submit a bid to Dresser.' This was the first use by AT or GE of the words 'sole source procurement.' Taplow stated 'that he regarded this as a competitive situation.' That day, Dr. Hillger restated his 'position to * * * Hynes and asked for his understanding. Hynes replied that GE was then negotiating with the Air Force and that it was * * * [GE's] intention * * * that AT would receive a sole source procurement for the EM sensor. He outlined the necessary steps: (1) that definite specifications must be approved by the Air Force, (2) that AT must be approved as a sole source contractor by the * * * Air force,' and (3) that the GE purchasing department would issue a purchase order to AT.

On January 5, 1962, representatives of Dresser asked Cunningham of AT for information concerning the EM sensor aspect of the GE proposal, so that Dresser could reply to GE's RFQ of December 20, and asked also if AT would quote to...