Lombard v. Booz-Allen & Hamilton, Inc.

• Decision Date: 06 February 2002
• Docket Number: Docket No. 00-7516.
• Citation: 280 F.3d 209
• Parties: George LOMBARD and Lomar, Inc., Plaintiffs-Appellants, v. BOOZ-ALLEN & HAMILTON, INC. ("BAH"), and W. Frank Jones, Individually and as an Employee of BAH, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

280 F.3d 209

George LOMBARD and Lomar, Inc., Plaintiffs-Appellants, v. BOOZ-ALLEN & HAMILTON, INC. ("BAH"), and W. Frank Jones, Individually and as an Employee of BAH, Defendants-Appellees.

Docket No. 00-7516.

United States Court of Appeals, Second Circuit.

Argued December 5, 2000.

Decided February 6, 2002.

Jeffrey M. Duban, Law Offices of Jeffrey M. Duban, New York, NY, for Plaintiffs-Appellants.

Bennett H. Last, Gilbride, Tusa, Last & Spellane LLC, New York, NY, for Defendants-Appellees.

Before: NEWMAN, KEARSE, and WINTER, Circuit Judges.

WINTER, Circuit Judge.

George Lombard and his wholly-owned corporation, Lomar, Inc. (collectively "Lombard" or "he"),¹ appeal from Judge Jones' grant of summary judgment dismissing claims for the intentional interference with prospective economic advantage and for negligence.

Briefly stated, Lombard is a former senior executive of Lockheed Aeronautical Systems Company ("Lockheed"), who hoped to build and operate an aerostructures manufacturing plant in Puerto Rico. The venture was to be titled NEWCO, and Lomar was to serve as the corporate owner. Lombard sought assistance from several Puerto Rican officials, including the Administrator of the Economic Development Administration of Puerto Rico ("EDA") and the President of the Puerto Rico Industrial Development Company ("PRIDCO"). These officials appear to have expressed interest in the project and recommended that Lombard approach the Government Development Bank of Puerto Rico ("GDB") to obtain debt financing. However, GDB was skeptical and retained a consulting firm, Booz-Allen & Hamilton, Inc. ("BAH"), to do a feasibility study of the proposed loan. Concluding that the NEWCO project was risky, BAH proposed various changes in the financial structure of the venture that Lombard was either unwilling or unable to make. GDB thereafter turned down Lombard's loan application. Lombard was unable to obtain financing elsewhere, and the NEWCO venture never got off the ground.

Lombard then brought the present action, seeking over $100 million in damages. The issues on this appeal involve claims against BAH and its employee W. Frank Jones for intentionally interfering with Lombard's business relationship with EDA, PRIDCO, and GDB, and, alternatively, for negligently preparing the feasibility study. We hold that Lombard did not meet his burden of proffering evidence sufficient to create a genuine issue of material fact on his intentional interference claim. We also hold that, under New York law, a loan applicant may not recover for negligence by a consulting firm retained by a potential lender to review the merits of a loan application. We therefore affirm.

BACKGROUND

We of course view the record in the light most favorable to Lombard, who is appealing from an adverse grant of summary judgment. See Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir.1990) ("We assess the record in the light most favorable to the non-movant and we draw all reasonable inferences in its favor.").

In 1991, Lombard, then a Vice President of Lockheed, conducted a feasibility study regarding the establishment of a Lockheed aerostructures manufacturing plant at a facility in Puerto Rico. The study recommended such a venture, but Lockheed decided not to proceed, apparently for reasons unrelated to profitability. However, authorities at EDA were hoping to attract such a business to Puerto Rico and entered into discussions with Lombard regarding his undertaking the project. To that end, Lombard quit his job at Lockheed after obtaining the rights to the Lockheed feasibility study. Lombard appears to have expected to secure a long-term contract with EDA, but EDA refused to offer more than transitional funds and a short-term consulting contract, which a disappointed Lombard accepted. PRIDCO also may have agreed to lease an available facility should NEWCO get under way.

Needless to say, the management and financial plan for NEWCO had to be altered once Lockheed declined to participate. Absent Lockheed management, Lombard would serve as the venture's founder and chief executive, although his twenty-five years of aircraft manufacturing experience did not include the running of a company. Also, financing would not be provided by Lockheed. Lombard's financing plan, which is at the heart of the present dispute, required $22-25 million in capital. Of that total, $17 million was to be raised through an unsecured, fully up-front bank loan. The remaining $5-8 million was to be raised through sales of common shares to a number of outside investors, but only after the $17 million loan had been secured.² The outside investors would hold 49% of the shares. A controlling bloc of 51% of the common shares would be held by Lombard and other senior executives of the NEWCO project, who would make no financial investment of their own. Lombard's business plan anticipated five years of operation, after which the venture would be sold at a price of $225 million — a 2600% to 4160% return to the equity — according to Lombard's "conservative" estimate.

The plan appears not to have attracted private lenders with regard to the $17 million loan, and the venture's supporters at EDA and PRIDCO suggested that Lombard take it to GDB, an agency of the Puerto Rican government that provides loans to projects helpful to the Commonwealth's economic development. GDB's initial reaction was negative. It had previously made loans to other aerospace manufacturers to use the same PRIDCO facility proposed for NEWCO, but they had defaulted, causing GDB to lose $40 million. Furthermore, GDB did not share Lombard's optimism about the general state of the pertinent market or NEWCO's ability to capture a large percentage of that market. Finally, GDB's President noted that the proposed financing structure, with little equity or collateral, ensured that GDB would bear most of the downside risk without any of the potential upside benefits.

Nevertheless, GDB did not reject the loan application outright but suggested that a third-party acceptable to the GDB evaluate the proposal, the cost of the study to be paid by Lombard. When Lombard declined to fund such a study, GDB retained BAH, with which the Puerto Rican government had dealt in the past. GDB paid half the costs of the study; another half was paid by EDA from the incentives fund set up for the venture. (Lombard does not argue that BAH has breached a contractual duty owed to him. Instead, as detailed infra, he argues that he has a "near-privity" relationship with BAH, permitting him to sue BAH for negligence.)

Lombard claims that GDB's retaining of BAH was a collusive arrangement, designed solely to echo GDB's existing skepticism towards the loan application. Lombard does not claim that GDB had any legal obligation to make the requested loan or even to provide a reason to decline to do so. However, he insists that a pretext was necessary for Puerto Rican political reasons. He has not, however, produced any evidence to support this allegation, apart from his own speculation, and there is no evidence that the relationship between GDB and BAH was anything but arms-length. Lombard also claims that a prior but favorable feasibility study was surreptitiously concealed or destroyed by high officials at GDB. Again, apart from his speculation, there is no evidence of any such study, and a senior executive of GDB testified that no such study ever existed. Even viewing the evidence in the light most favorable to Lombard, therefore, we cannot credit his claims of a collusive arrangement between GDB and BAH or of the existence of a prior favorable study.

The BAH report was supervised by appellee Jones. It depicted NEWCO as a risky project but did not recommend an outright rejection of the NEWCO loan. Rather, it recommended modifications of NEWCO's financial plan including: (i) spreading the loan, and risk, among a syndication of lenders; and (ii) requiring a substantial equity investment by management, or, absent such a management investment, staging GDB's loan as series of smaller loans, thereby allowing the lender(s) to monitor NEWCO's progress and to cut losses if progress did not in fact occur. Lombard was either unwilling or unable to accept these modifications.

Again, but for Lombard's speculation, there is no evidence that BAH deliberately falsified any parts of its report or that it acted in an illegal or fraudulent manner. However, Lombard claims that the preparation of the report was flawed because BAH did not contact executives at the McDonnell Douglas Corporation and the Boeing Company, whose names were provided by Lombard, concerning NEWCO's likelihood of getting "outsourcing" contracts. He also faults the content of the report principally: (i) for failing to mention a tour of a Northrop facility by BAH staff during which Northrop executives allegedly made statements favorable to the NEWCO project; (ii) for criticizing Lombard's estimates of Puerto Rican labor costs; and (iii) for declining generally to adopt Lombard's highly optimistic view of NEWCO's prospects. He is also critical of Jones' ability to make such a study.

The GDB Board unanimously rejected Lombard's loan application. In doing so, it considered various factors other than the report. Nevertheless, we believe that, on the present record, a trier could find that the report was a substantial factor motivating GDB's decision. BAH was commissioned for the very purpose of affording guidance to the GDB Board; the Board's decision was consistent with BAH's recommendations; and even the EDA Administrator, an early NEWCO cheerleader, voted against the loan in his capacity as a member of the GDB Board after the BAH report was received.

After GDB rejected Lombard's application, one of EDA's executives sent BAH's report to the only other potentially interested lender, General Electric Corporation, which did not extend a loan. The record does not amplify the role...