Flight Concepts Ltd. Partnership v. Boeing Co.

• Decision Date: 01 November 1994
• Docket Number: No. 93-3158,93-3158
• Citation: 38 F.3d 1152
• Parties: FLIGHT CONCEPTS LIMITED PARTNERSHIP, Russell P. O'Quinn, Gilman A. Hill, and The Skyfox Corporation, Plaintiffs-Appellants, v. The BOEING COMPANY and Boeing Military Airplane Company, A Division, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1152

38 F.3d 1152

FLIGHT CONCEPTS LIMITED PARTNERSHIP, Russell P. O'Quinn Gilman A. Hill, and The Skyfox Corporation Plaintiffs-Appellants, v. The BOEING COMPANY and Boeing Military Airplane Company, A Division, Defendants-Appellees.

No. 93-3158.

United States Court of Appeals Tenth Circuit.

Nov. 1, 1994.

Robert Martin (Paul B. Swartz with him, on the brief) of Martin, Pringle, Oliver, Wallace & Swartz, Wichita, KS, for plaintiffs-appellants.

Gerald Sawatzky (J. Steven Massoni with him, on the brief) of Foulston & Siefkin, Wichita, KS, for defendants-appellees.

Before EBEL and SETH, Circuit Judges, and MECHEM, ^* Senior United States District Judge.

MECHEM, Senior United States District Judge.

This diversity case presents questions of contract interpretation under Kansas law. Plaintiffs appeal the district court's grant of summary judgement to defendants on all counts.

BACKGROUND

A detailed account of the business dealings which give rise to this dispute is provided by the district court in Flight Concepts Ltd. Partnership v. Boeing Co., 819 F.Supp. 1535 After meeting several times the parties entered into a series of agreements. In a Memorandum of Understanding, signed April 2, 1985, the parties agreed to enter into an exclusive teaming arrangement to develop a marketing strategy for the Skyfox. Apl.App.Vol. 3 at 544-46. The memorandum specifically denied the project, to be pursued in phases, was a partnership. The Memorandum terminated by its own terms on July 1, 1985, and on that date the parties entered into another agreement to continue the feasibility study. The parties negotiated a Proprietary Data Exchange Agreement, effective November 1, 1985, to protect the confidentiality of their technical data. That agreement denied the existence of "a joint venture, partnership or other formal business organization" between the parties. Apl.Supp.App.Vol. IV at 1211. The parties negotiated a Patent and Know-How License Agreement (hereinafter "License Agreement"), entered into on November 27, 1985. The License Agreement gave Boeing "an exclusive, worldwide right and license to utilize Licensor's Know-How and the inventions of Licensed Patents in the manufacture, use and sale of licensed product(s) and any and all other substantial rights." Apl.App.Vol. 3 at 525. In addition to the royalty for every Skyfox sold, BMAC contracted to pay all taxes and fees associated with any patent application. Apl.App.Vol. 3 at 533.

(D.Kan.1993), and we will not repeat that here. Briefly, the plaintiffs (hereinafter "the Skyfox group") modified the Lockheed T-33 aircraft to produce a plane, the Skyfox, envisioned as a low-cost, multiple-role aircraft which would meet the military needs of developing countries as well as the United States. Plaintiffs explored potential marketing options, and eventually gave Boeing Military Airplane Company (hereinafter "BMAC") the exclusive right to produce and sell the airplane worldwide. Under the agreement, plaintiffs would receive a royalty of $150,000 for every Skyfox sold. BMAC never produced or sold any aircraft, and terminated the agreement after two years. Plaintiffs brought suit alleging fraud in the inducement, misrepresentation and concealment; breach of the covenant of good faith and fair dealing; and breach of fiduciary duty. Although plaintiffs challenge the validity of the contract, they request damages calculated as their projected royalty earnings from the sale of 450 Skyfox. Plaintiffs also ask the return of various materials and equipment retained by BMAC after the contract terminated. The district court, after a careful analysis of the evidence and the law, granted summary judgment to defendants on all counts, from which plaintiffs appeal. Plaintiffs repeat their claims of fraud, breach of implied duty and breach of fiduciary duty, and assert the district court erred in finding no disputed material facts on those issues. We affirm.

The terms of the Licensing Agreement are central to this dispute. Under Article X, BMAC reserved "the right to terminate this Agreement by giving Licensor sixty (60) days notice in writing of such termination, and upon expiration of said sixty (60) days this Agreement shall automatically be terminated." Apl.App.Vol. 3 at 535. The agreement could also be terminated by mutual written consent of the parties. Id. Article XIII relieves BMAC from any obligation to produce or sell the Skyfox.

Article XIII. NO OBLIGATION TO PRODUCE

It is the intent of the parties hereto, in consideration of the terms and conditions herein, that BMAC shall be under no obligation whatsoever to produce and/or sell Licensed Product(s) and/or any product utilizing Licensor's Know-How during any part of the term of this License Agreement, and the License Agreement shall not be terminated by Licensor for BMAC's failure to produce and/or sell Licensed Products and/or any product utilizing Licensor's Know-How.

Apl.App.Vol. 3 at 536. The final subparagraph of the Agreement, under Article XIV, General Provisions, states:

This Agreement embodies the entire understanding between the parties as to a Patent and Know-How License and there are no prior representations, warranties or agreement between the parties relating hereto except for other agreements in writing entered into or which may be entered Apl.App.Vol. 3 at 538.

into between BMAC and Licensor and this Agreement is executed and delivered upon the basis of this understanding. No alteration, waiver or change in any of the terms hereof subsequent to the execution hereof claimed to have been made by any representative of either party shall have any force or effect unless in writing signed by the parties hereto or their duly authorized agents or representatives.

The Skyfox group charges first that BMAC fraudulently induced them to form the contract by promising to invest $25 to $60 million in the Skyfox program when BMAC never intended to spend its own money converting the aircraft. Plaintiffs also allege that BMAC misrepresented its commitment to the project by failing to inform the Skyfox Group that it had plans to develop Project Vision, a plane projected to have similar uses, and that it had access to classified information on government procurement plans. The claims for breach of implied covenant of good faith and fair dealing and breach of fiduciary duty arise from the same facts.

This court reviews the district court's grant of summary judgment de novo using the same legal standard employed by the lower court. Thrasher v. B & B Chemical Co., Inc., 2 F.3d 995, 996 (10th Cir.1993). Summary judgment is appropriate where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Martin v. Nannie and the Newborns, Inc., 3 F.3d 1410, 1414 (10th Cir.1993). Disputed material facts must be viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The moving party must demonstrate the absence of any material factual issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Once the moving party has met its burden, the non-moving party must bring forth specific facts showing there is a genuine issue for trial as to the essential elements of the non-moving party's claim. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Nannie, 3 F.3d at 1414. The non-moving party may not rely on mere allegations in the pleadings to overcome the summary judgment motion. Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.

DISCUSSION

This court applies the substantive law of the forum state when sitting in diversity. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941); Equifax Services, Inc. v. Hitz, 905 F.2d 1355 (10th Cir.1990). Therefore we apply Kansas law to the facts of this case.

The plaintiffs argue that we should look to defendants' oral promises in determining the terms of the Licensing Agreement which, they contend, is ambiguous. Plaintiffs consider the Licensing Agreement in its entirety as expressing a general purpose and obligation to produce and manufacture Skyfox which is internally contradicted by Article XIII's disavowal of any obligation to produce and sell. Ambiguity exists where contract language lends itself to more than one reasonable interpretation. Albers v. Nelson, 248 Kan. 575, 578, 809 P.2d 1194, 1197 (1991). Whether a contract's provisions are ambiguous is a matter of law to be determined by the court. Mobile Acres, Inc. v. Kurata, 211 Kan. 833, 839, 508 P.2d 889, 895 (1973). We agree with the district court's conclusion that the Licensing Agreement is not ambiguous as a matter of law. In reading through the articles we do not find any which give rise to more than one interpretation. The unambiguous language of the contract controls the rights and responsibilities of the parties in this case. Bank IV Salina, N.A. v. Aetna Cas. & Sur. Co., 810 F.Supp. 1196, 1204 (D.Kan.1992).

A. Fraud in the Inducement, Fraudulent Misrepresentation

Plaintiffs urge this court to look beyond the contract at the verbal assurances defendants Under Kansas law, parties to a contract may define the terms of their agreement and, absent fraud, mistake or duress, the contract is enforceable. Augusta Medical Complex, Inc. v. Blue Cross of Kansas, Inc., 227 Kan. 469, 474-76, 608 P.2d 890, 895 (1980). Where the parties have negotiated and entered into a written contract which addresses the issues negotiated between them, the written contract determines their rights. Albers, 248 Kan. at 578, 809 P.2d 1194; Edwards v. Phillips Petroleum Co., 187 Kan. 656, 659, 360 P.2d 23, 26 (1961)....