Cyberchron Corp. v. Calldata Systems Development, Inc.

• Citation: 47 F.3d 39
• Decision Date: 01 February 1995
• Docket Number: Nos. 1203,D,1527,s. 1203
• Parties: 28 UCC Rep.Serv.2d 80 CYBERCHRON CORPORATION, Plaintiff-Appellant/Cross-Appellee, Counter-Defendant, v. CALLDATA SYSTEMS DEVELOPMENT, INC., Defendant-Appellee/Cross-Appellant, Counter-Claimant. ockets 93-9034, 93-9076.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 39

47 F.3d 39

28 UCC Rep.Serv.2d 80

CYBERCHRON CORPORATION, Plaintiff-Appellant/Cross-Appellee, Counter-Defendant, v. CALLDATA SYSTEMS DEVELOPMENT, INC.,

Defendant-Appellee/Cross-Appellant, Counter-Claimant.

Nos. 1203, 1527, Dockets 93-9034, 93-9076.

United States Court of Appeals, Second Circuit.

Argued March 17, 1994.

Decided Feb. 1, 1995.

Jeffrey G. Gilmore, Vienna, VA (Michael A. Gatje, Wickwire Gavin, P.C., Vienna, Virginia, Michael F. Maschio, Cowan, Liebowitz & Latman, P.C., New York City, of counsel), for Plaintiff-Appellant/Cross-Appellee, Counter-Defendant.

Richard L. Spinogatti, New York City (Darlene Fairman, Joanne Moore Howell, Shea & Gould, of counsel), for Defendant-Appellee/Cross-Appellant, Counter-Claimant.

Before: MAHONEY, WALKER, and SPROUSE, ^* Circuit Judges.

MAHONEY, Circuit Judge:

Plaintiff-appellant/cross-appellee, counter-defendant Cyberchron Corporation ("Cyberchron") appeals from a judgment entered September 1, 1993 after a bench trial in the United States District Court for the Eastern District of New York, Arthur D. Spatt, Judge, that awarded Cyberchron $162,824.19 for direct labor and materials costs incurred in reliance upon statements and conduct of Calldata Systems Development ("Calldata") which gave rise to a claim of promissory estoppel.

Cyberchron's amended complaint asserted claims for breach of contract, quantum merit, and promissory estoppel. Calldata pled a contractual counterclaim. The district court denied recovery on the contractual claim and counterclaim and the claim for quantum meruit but ruled that certain representations by Calldata had prompted reasonable reliance by Cyberchron and provided a basis for recovery under a theory of promissory estoppel. The court further ruled that no compensation was owed for expenditures made by Cyberchron prior to the time when Calldata's promises generated sufficient reliance by Cyberchron to cause an estoppel, and that Cyberchron's damages should not include overhead expenditures, lost profits, or shutdown expenses.

We affirm the district court's ruling that Cyberchron was entitled to recover for promissory estoppel, but vacate the judgment of the district court and remand for a redetermination of damages.

Background

A. The Events at Issue.

The factual background of his case is extensively outlined in Cyberchron Corp. v. Calldata Systems Development, 831 F.Supp. 94 (E.D.N.Y.1993), the opinion of the district court supporting the judgment from which this appeal is taken, familiarity with which is assumed. We summarize only the facts material to this appeal. Subject matter jurisdiction in this case is premised upon diversity of citizenship. The parties have plausibly assumed that this case is governed by the law of New York, and we accept that understanding.

Cyberchron is engaged in the business of providing customized computer hardware for military and civilian use. Calldata is a subsidiary of Grumman Data Systems Corp. ("Grumman"). Grumman had a contract with the United States Marine Corps to provide a combat command control system for a Marine Corps defense program known as the Advanced Tactical Air Command Central ("ATACC"). The equipment at issue in this case is a "rugged computer work station," consisting of a video processor, a work station, and a color monitor (the "Equipment") that was to be provided for the ATACC program.

During the years 1989 and 1990, the parties were involved in extended negotiations as a result of which Cyberchron attempted to produce the Equipment. Although Cyberchron ultimately produced some Equipment, none was ever delivered to Calldata or Grumman, and no payment for it was ever made to Cyberchron, resulting in this lawsuit. The key problem precluding contractual agreement was the inability of the parties to agree upon the weight of the Equipment, and the penalties to be assessed against Cyberchron for the delivery of Equipment that exceeded the contractually agreed weight.

The tortuous course of the negotiations between the parties is detailed in the opinion of the district court, see 831 F.Supp. at 96-107, and only the most salient events will be described here. After protracted preliminary negotiations, Grumman delivered a purchase order dated May 15, 1990 to Cyberchron (including subsequent amendments, the "Purchase Order") that set forth a total weight per three-component unit of Equipment of 145 pounds and specified severe penalties for exceeding that weight.

Cyberchron never agreed to the terms of the Purchase Order, but had previously commenced production of the Equipment despite the absence of any agreement regarding the matter. Grumman and Calldata encouraged Cyberchron in that course. Indeed, in a letter to Cyberchron dated June 26, 1990, Grumman "insist[ed]" that Cyberchron continue to perform its "contractually binding obligations" under the Purchase Order.

The Purchase Order included a termination liability provision (the "TLP"), which provided that:

The maximum amount for which Grumman shall be liable if this purchase order is terminated is $200,000 including termination expenses and change order costs. Any expenditure or obligation by the seller in excess of that amount shall be at the seller's own risk. Seller will not be bound to continue performance hereunder if such performance would cause the amount to be expended, together with a reasonable allowance for profit, to exceed such limitation. Not less than (30) days prior to the time that seller's projected total cost, together with a reasonable allowance for profit, will equal or exceed the said limitation, seller will notify Grumman in writing and will advise its estimate of additional funding required for the next succeeding 30, 60, and 90 day period[s]. Grumman may, by written notice to the seller, unilaterally (i) increase said amount from time to time (in which event the preceding portions of this clause will apply to such increased amount), and/or (ii) delete this clause in its entirety. Nothing herein contained shall authorize an increase in the price or prices in this purchase order.

By letter dated May 24, 1990, Cyberchron notified Grumman, inter alia, that the $200,000 maximum termination liability (the "MTL") had been exceeded and that an additional $500,000 guarantee was needed for the next thirty-day period. In response, Grumman issued a revised Purchase Order on June 15, 1990 that increased the MTL to $700,000. A July 27, 1990 request to increase the MTL to $1,000,000 was denied on the basis that the requested "increase would nearly fully fund the subject Purchase Order and is therefore not justified in light of the proximity of the pending negotiations [scheduled for August 8, 1990]." Grumman's manager of procurement, Calvin Wilhelm, explained that the proximity of the negotiations mattered because "[o]nce the price is determined to be fair and reasonable through negotiation, the purchase order is then converted to firm fixed price purchase, purchase order. The clauses with regard to termination liability and price negotiation are then deleted through the definitization amendment that firms that pricing up." At oral argument, however, Calldata's counsel denied that the TLP becomes irrelevant upon agreement to a firm fixed price purchase order, pointing out that the TLP would thereafter apply in the case of a termination for convenience (if, for example, the Marine Corps terminated the ATACC program).

Cyberchron's director of program management, Howard Paul, testified that it was his understanding that Cyberchron would be entitled to reimbursement in accordance with the TLP "in case the contract comes to an end at the actions of the issuer." Calldata presented testimony that the purpose of the provision was to compensate Cyberchron in the event of a termination for convenience, but not in the case of a cancellation due to default. Paul, on the other hand, claims to have believed that Cyberchron would be reimbursed regardless of how the purchase order was terminated.

The district court made a factual determination, in which we perceive no clear error, that in mid-July 1990 a Grumman representative directed Cyberchron to proceed with production of the Equipment as if there had been agreement on the weight issue, asserting that the terms of the purchase order would be resolved later. In addition, on or about July 30, 1990, Cyberchron submitted a progress payment request in the amount of $495,207.58, representing eighty percent of claimed costs, including overhead charges, incurred by Cyberchron through July 20, 1990. Grumman's business manager, Gerald Glinka, testified that although the purchase order was undefinitized, Grumman would have paid the full amount of this progress payment but for a court order, issued in a suit brought by Digital Equipment Corporation against Grumman and Cyberchron which was eventually dismissed, that barred any payments to Cyberchron by Grumman. The order was subsequently vacated.

Ultimately, agreement between the parties was never achieved. By letter dated September 6, 1990, Calldata directed Cyberchron to show cause within ten days why the Purchase Order should not be terminated. Cyberchron's detailed response dated September 13, 1990 was rejected by Calldata in a letter dated September 25, 1990, in which Calldata "terminate[d] the [Purchase Order] for default effective immediately."

The district court determined, in findings that are not clearly erroneous, that Grumman had commenced negotiations with alternate suppliers of the Equipment in August 1990, and entered into a contract with Codar Technology, Inc. dated September 26, 1990 for equipment "which Grumman conceded was inferior to the Cyberchron equipment and weighed more, according to [a Grumman witness] (Tr. at pp. 1100, 1131)." 831 F.Supp. at 106.

B. The Ruling of the District Court.

The district court found that no enforceable agreement ever existed because there was no agreement on "two of...