Experimental Engineering, Inc. v. United Technologies Corp.

• Decision Date: 10 March 1980
• Docket Number: No. 77-3624,77-3624
• Citation: 614 F.2d 1244
• Parties: EXPERIMENTAL ENGINEERING, INC., a California Corporation, and Ellco Engineering, Inc., a California Corporation, Plaintiffs-Appellants, v. UNITED TECHNOLOGIES CORPORATION, a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1244

614 F.2d 1244

EXPERIMENTAL ENGINEERING, INC., a California Corporation and Ellco Engineering, Inc., a California Corporation, Plaintiffs-Appellants, v. UNITED TECHNOLOGIES CORPORATION, a Delaware Corporation Defendant-Appellee.

No. 77-3624.

United States Court of Appeals Ninth Circuit.

March 10, 1980.

Robert L. Thatcher, Woolsey, Angelo & Thatcher, Newport Beach, Cal., for plaintiffs-appellants.

M. Kevin Ryan, Jones, Day, Reavis & Pogue, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before TRASK and KENNEDY, Circuit Judges, and ZIRPOLI, ^* District Judge.

TRASK, Circuit Judge:

This appeal is taken from a dismissal under Fed.R.Civ.P. 12(b)(6) of plaintiff-appellant's contract and related claims for failure to state a claim upon which relief may be granted, or in the alternative for summary judgment. In considering a motion to dismiss under Rule 12(b)(6), the district court must take as true all facts as alleged by the plaintiff. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 740, 96 S.Ct. 1848, 1850, 48 L.Ed.2d 338 (1976); De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978), cert. denied, 441 U.S. 965, 99 S.Ct. 2416, 60 L.Ed.2d 1072 (1979). We make the same assumptions in deciding this appeal.

I

The facts as alleged by appellant Experimental Engineering (EEI), establish that on March 25, 1975, the United States Air Force issued an announcement requesting bids for an Air Force defense project called the Installed Turbine Engine Survivability Criteria (ITESC). Pursuant to this announcement, EEI (then known as Ellco Engineering), sent letters to aerospace firms that would bid on the prime contract informing them of its capabilities as a subcontractor on the project. The letters suggested that EEI enter into a team arrangement with the prime contractor. In a team arrangement, often used in national defense projects, a number of companies join forces and contribute their own particular expertise to be able to do the work on an entire project.

EEI's contacts with respondent United Technologies (United), began in June 1975, when EEI sent its interest letter to the Pratt & Whitney Aircraft Division of United. Thereafter, United asked EEI to submit a proposal of work that EEI was to do on the project. On October 28, 1975, after the Air Force asked United to submit a bid, United formally requested a proposal from EEI. The request stated that all technical information must be in a form suitable for integration into the United proposal to the Air Force. On November 7, 1975, EEI sent its proposal to United. United thereafter submitted its proposal to the Air Force and characterized EEI as a team member. On April 30, 1976, United sent a letter to EEI informing them that the proposal had been submitted and stating that "(u)pon receipt of this prime contract, Pratt & Whitney Aircraft intends to negotiate your proposal and issue a subcontract for the work to be performed by your company under this program."

On June 10, 1976, after United's bid was accepted by the Air Force, United sent an authorization by mailgram to EEI authorizing EEI to begin work on the project. The relevant portions of that wire are as follows: (1) the Authorization reaffirmed United's intention to issue a subcontract to EEI by stating "(t)he definitized cost-plus-fixed-fee subcontract which will supercede this authorization will be negotiated to include terms and conditions consistent with the prime contract;" (2) the Authorization allowed expenditures of up to $20,000 to begin work on the project; (3) the Authorization contained a termination clause which incorporated by a reference a standard "termination for convenience" clause which allows termination "whenever for any reason the Buyer shall determine that such termination is in the best interest of the Buyer;" and (4) the Authorization asked for acknowledgement and acceptance by return telegram.

The proposed Authorization referred to a "termination clause" which was apparently unclear to EEI. Its president therefore requested clarification. On June 14, 1976, the president of EEI talked to Mr. Gaines, counsel for United, and requested an explanation of that phrase together with several other phrases and provisions. Mr. Gaines explained that the termination clause was included only to protect United in case the Air Force were to terminate the prime contract and that United would use the clause only if the Air Force did so first. ¹ That explanation appears to have been satisfactory. On June 17, 1976, EEI formally acknowledged by wire the United mailgram. On August 24, 1976, United, in a letter, authorized additional expenditures of $7,950 and stated that a "formal subcontract . . . shall follow."

Three days later, however, United notified EEI by telephone that the Authorization was being "terminated for convenience." On September 27, 1976, United formally notified EEI by letter of the termination, denied any further obligations to EEI, and subsequently awarded the subcontract to another company. EEI alleges that it had incurred expenses of over $40,000 in assisting United to prepare the ITESC proposal.

On October 19, 1976, EEI filed suit against United in California state court. United removed the case to federal district court on diversity grounds and then moved to dismiss EEI's complaint under Fed.R.Civ.P. 12(b)(6). After a series of complaints were dismissed with leave to amend, EEI's third amended complaint was dismissed with prejudice. EEI appeals from this dismissal. This court has jurisdiction of the appeal under 28 U.S.C. § 1291.

II

The plaintiff's claims should not be dismissed on the pleadings "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Amfac Mortgage Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426, 429 (9th Cir. 1978). Applying the facts as alleged to this standard, dismissal for failure to state a claim was improper.

The district court dismissed the action on the grounds that the only agreement between the parties was the Authorization and that the Authorization was properly terminated under the termination for convenience clause. Suffice it to say that EEI adequately...