General Motors Corp. v. Northrop Corp.

Decision Date12 September 1997
Docket NumberNo. 49A02-9603-CV-146,49A02-9603-CV-146
Citation685 N.E.2d 127
PartiesGENERAL MOTORS CORPORATION and Allison Engine Company, Inc., Appellants-Plaintiffs, v. NORTHROP CORPORATION, Northrop Aircraft Division, Appellees-Defendants.
CourtIndiana Appellate Court
OPINION

SULLIVAN, Judge.

Appellants, General Motors Corporation (GM) and Allison Engine Company, Inc. (Allison) 1 appeal the trial court's order granting summary judgment in favor of the appellees, Northrop Corporation and Northrop Aircraft Division (Northrop). The litigation involves a contract for production of a tactical fighter aircraft component. Allison's complaint, insofar as germane to this appeal, sought recovery for increased costs attributable to changes in the contract, recovery for Northrop's failure to disclose superior knowledge, rescission of the contract premised upon misrepresentations and non-disclosure of material facts, and breach of implied warranty as to the specifications for design and manufacture provided by Northrop.

We affirm in part, reverse in part and remand to the trial court.

The facts of this case are extensive and complicated. This action began with the United States Air Force who, in 1986, chose Northrop and Lockheed Aircraft Company (Lockheed) to build the Air Force's new Advanced Tactical Fighter (ATF) aircraft. Both Lockheed and Northrop were to build two ATF prototypes. The ATFs and their design were to be analyzed by the Air Force, and the company whose aircraft was judged, overall, to be more satisfactory would be awarded all future ATF work. Simultaneously, the Air Force was holding a similar competition between General Electric Corporation (GE) and Pratt & Whitney (P & W) for design of the ATF's engines. Each company would also develop two engines, one to be installed in each of the two aircraft.

The design of Northrop's stealth aircraft was unique in that the aircraft's engines were embedded within the ATF's body. Utilizing this design, the engine's high-temperature exhaust, around 4000 degrees, would flow in a channel over the rear deck of the aircraft, thus reducing radar and infrared observability. A key to the success of the design was the development of an engine exhaust liner (EEL), which is an insulating structure that would allow the aircraft to withstand the heat produced by the ATF's engines.

In mid-1987, Northrop at first contracted with P & W and GE in order to do some design work on the EELs. However, Northrop subsequently felt that it may be better served subcontracting the EEL development work because the engine companies may have been too consumed with the engine competition. On August 17, 1987, Northrop issued requests for proposals (RFP) to Allison and Rohr Industries, Inc (Rohr) 2. This request incorporated product function specification (PFS) and statement of work (SOW) information about the liner environment and work to be performed developing the EEL. The RFP explained that the parties were to submit firm fixed prices for the development of the EEL and any questions regarding errors, ambiguities or inconsistencies in the RFP should be brought to Northrop's attention immediately. Northrop also provided Allison and Rohr with the PFS and SOW. None of the documents included any pressure/shock data nor did either company note the need for such data. Allison and Rohr had nine days to review the data and submit a proposal.

Rohr submitted a proposal to Northrop priced at $4 million, and Allison submitted a proposal priced at over $13 million. Northrop evaluated the two proposals and accepted the Allison bid, finding that Rohr's proposal was "technically unacceptable." Record at 7085. The Rohr proposal called for a liner weighing 308 pounds, which was over twice the weight of the liner proposed by Allison. 3

Northrop and Allison entered into negotiations for development of the EEL. Although Allison had originally proposed a contract with a repricing option, it agreed to develop the EEL at a firm fixed price, regardless of which final design was chosen for the EEL. The contract between Northrop and Allison also contained numerous provisions requiring Allison to provide notice to Northrop of any changes in the scope of the work. The most significant of these provisions incorporated Federal Acquisition Regulation (FAR) 52.249-7, a notification of changes requirement, into the contract.

Allison asserts that Northrop was in the best position to accurately predict the engine exhaust conditions that the liner would have to meet and that Northrop had generated voluminous test data regarding those test conditions which was unavailable to Allison. Allison also asserts that the information which Northrop provided was incomplete and misleading. In fact, according to Allison, Northrop had conducted years of simulations and tests in conjunction with the government, generating extensive data critical to the design and pricing of the EEL. However, Allison claims that when it described an original plan for design of the liner to Northrop in August of 1987, albeit before Allison submitted a bid for the project, Northrop did not inform Allison that it had test data indicating that Allison's perception of the liner environment was wrong.

On October 29, 1987, Allison personnel attended a meeting with GE representatives to discuss the EEL. A GE engineer showed Allison a chart which appeared to be based upon Northrop test data. The chart indicated to Allison that the liner environment would be significantly different than had been indicated by Northrop, and Allison engineers knew that the information would force Allison to develop a heavier and more expensive liner design.

After seeing the chart, Allison immediately asked Northrop for all of the relevant data, emphasizing the importance of the information and the fact that this was a potentially catastrophic situation. Northrop responded a few days later by providing Allison with a few charts, but they contained only a fraction of the information which Allison required. The new information, however, did indicate that Northrop's original specifications were in error and that the GE chart was accurate. Allison continued to pressure Northrop for information, and its understanding of the EEL environment gradually increased. Finally, Allison began to develop a new liner concept, known as a honeycomb-tile design, in order to accommodate the newly-discovered environment. Never, however, did Allison provide Northrop with a written notification of changes in the scope of the contract as required by FAR 52.249-7.

Northrop asserts that the charts which Allison saw at GE were not significant to Allison because of the fact that they showed the pressure levels that the EEL would experience but that the charts indicated that the EEL might be operated in over expanded or under expanded conditions. According to Northrop, Allison believed that this expansion could cause high pressure/shock levels in excess of those that Allison had assumed based upon P & W data. 4 Northrop further asserts that Rohr's engineers, as well as the P & W engineers with whom Allison met, testified that they knew that the ATF engines would operate in such conditions. Finally, Northrop asserts that all supersonic jet engines operate in over and under expanded conditions and therefore have pressure/shock levels in the engine exhaust stream.

This suit ensued in September of 1991. On June 20, 1995, the trial court entered the first of many entries regarding Northrop's various motions for summary judgment. The trial court denied Northrop's motions upon all of the counts with the exception of count five which was a claim against Northrop seeking rescission of the contract. The court reasoned that rescission was not available to Allison because it kept working on the project after it knew about the potential cost for overruns. Upon Northrop's motion to reconsider, the trial court granted summary judgment in favor of Northrop as to the remaining counts.

I Summary Judgment Standard of Review

When reviewing a decision upon a motion for summary judgment, this court applies the same standard as the trial court: summary judgment shall be granted if the designated evidentiary material demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C); Wickey v. Sparks (1994) Ind.App., 642 N.E.2d 262, trans. denied. A genuine issue of material fact exists where facts concerning an issue which would dispose of litigation are in dispute. Kerr v. Carlos (1991) Ind.App., 582 N.E.2d 860, overruled on other grounds, Kennedy v. Murphy (1995) Ind., 659 N.E.2d 506. In other words, for summary judgment purposes, a fact is "material" if it is necessary to facilitate resolution of any issue. Board of Comm'rs of Steuben County v. Angulo (1995) Ind.App., 655 N.E.2d 512. All facts and inferences must be liberally construed in favor of the party opposing a motion for summary judgment. Hendricks County Bank & Trust Co. v. Guthrie Bldg. Materials, Inc. (1996) Ind.App., 663 N.E.2d 1180. A reviewing court must carefully scrutinize an entry of summary judgment to ensure that the non-prevailing party is not denied his or her day in court. Schrum v. Moskaluk (1995) Ind.App., 655 N.E.2d 561, trans. denied. Thus, even if the trial court believes that the non-moving party will not prevail at trial, summary judgment may not be entered where material facts conflict or conflicting inferences arise from undisputed facts. Id. Nevertheless, in order to prevail upon...

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