Northrop Corp. v. McDonnell Douglas Corp.

• Decision Date: 05 September 1980
• Docket Number: Civ. A. No. 79-4145-R.
• Citation: 498 F. Supp. 1112
• Parties: NORTHROP CORPORATION, Plaintiff, v. McDONNELL DOUGLAS CORPORATION, Defendant.
• Court: U.S. District Court — Central District of California

498 F. Supp. 1112

NORTHROP CORPORATION, Plaintiff, v. McDONNELL DOUGLAS CORPORATION, Defendant.

Civ. A. No. 79-4145-R.

United States District Court, C. D. California.

September 5, 1980.

Overton, Lyman & Prince, Peter Brown Dolan, Frederick A. Clark, Los Angeles, Cal., Crowell & Moring, Eldon H. Crowell, W. Stanfield Johnson, Washington, D. C., Sheppard, Mullin, Richter & Hampton, Don T. Hibner, Jr., William M. Elliott, Robert B. Watts, Jr., Northrop Corporation, Los Angeles, Cal., for Northrop.

Bryan, Cave, McPheeters & McRoberts, George S. Hecker, Robert F. Scoular, Charles A. Weiss, Francis M. Gaffney, Los Angeles, Cal., St. Louis, Mo., Kadison, Pfaelzer, Woodard, Quinn & Rossi, John J. Quinn, Richard K. Simon, Ellen B. Friedman, Los Angeles, Cal., for McDonnell Douglas.

OPINION

REAL, District Judge.

Plaintiff NORTHROP CORPORATION (NORTHROP) filed suit complaining in eight causes of action of its First Amended Complaint that defendant McDONNELL DOUGLAS CORPORATION (MDC) has violated an agreement in which NORTHROP would have the exclusive sales rights of the F-18 aircraft of suitable configuration for land operation and MDC would limit its sales to F-18 aircraft that are "carrier-suitable." NORTHROP asks for injunctive relief and damages resulting from MDC's alleged (1) violation of this agreement; (2) misappropriation of NORTHROP's property; (3) fraud in the inducement of a Teaming Agreement and Basic Agreement; (4) attempt to monopolize the F/A-18A and the F-18L fighter aircraft market; and (5) unfair competition. In addition NORTHROP seeks a declaration of the respective rights of the parties under its Basic Agreement of June 27, 1975 with MDC, an accounting of the profits earned by MDC by reason of its fraudulent acquisition of NORTHROP's proprietary technology and breach of trust and recovery in quantum meruit for materials and services rendered to MDC for which NORTHROP has not been compensated.

MDC has moved to dismiss the First Amended Complaint on various grounds and alternatively moves for Summary Judgment. Each ground will be handled separately in this opinion although the lines between dismissal and summary judgment on the various counts may occasionally become somewhat blurred.

The Odyssey into this litigation begins in NORTHROP's Think Tank in 1965. In that year NORTHROP began development of a new lightweight supersonic fighter aircraft for purchase by the United States and sale in the international weapons system market. The design efforts produced a P-530 and P-630 aircraft concept in 1969 prompting the United States Air Force to undertake an Air Combat Fighter, or "ACF," Program for prototype development of lightweight fighter aircraft.

NORTHROP submitted a proposal to the Air Force based upon its P-530 design and in 1972 was given a contract for a prototype ACF aircraft denominated the YF-17. NORTHROP was paid approximately 39 million dollars for its work on two prototype YF-17 aircraft. Simultaneously GENERAL DYNAMICS CORPORATION was awarded a prototype contract for its proposed YF-16. Both of these development contracts were limited to design of an airplane for land-based use. MDC did not enter the competition for Air Force research and development contracts relying on its own assessment that its F-15 and F-4 would adequately fill its competitive needs through the 1980s. Any development by MDC in the meantime was limited to improving the technology embraced within its F-15 design.

The United States Navy in 1973 had decided to develop a new lighter weight aircraft for its carrier fleet. Requested funding for what was to be named as the Navy Air Combat Fighter or NACF program¹ brought Congress to the realization that the development of individual technology between the various armed services utilizing aircraft was not cost efficient. By directive Congress required the Navy to make maximum use of the paid—for technology developed in the ACF program. With that kind of a stricture upon the Navy's development needs the data, technology and hardware of only two aircraft was available for use in the NACF competition i. e., NORTHROP's YF-17 and GENERAL DYNAMICS' YF-16.

In June 1974 the Navy published to the aerospace industry a pre-solicitation notice with a set of requirements for its NACF competition. Congress had severely limited Navy funding to supplementing YF-16 and YF-17 technology and so the Navy was required to look to what a MDC executive described as the only "crap game in town." What the Navy faced was a crap game in which the two potential participants did not know how to play. As a way out of its dilemma the Navy used its persuasive abilities to convince both NORTHROP and GENERAL DYNAMICS to look to a partnership with some aircraft manufacturer that had experience in the design, development and manufacture of carrier-suitable aircraft. This brought on the industrial courtship and marriage of NORTHROP and MDC. Who was the pursued and who the pursuer is disputed by the parties. The undisputed fact is a neutral view that they desperately needed each other if they—jointly and severally—were to succeed in tapping the great potential of the opportunity presented by the Navy's need for a new aircraft to meet the military seapower needs of the nation.

On October 2, 1974 NORTHROP and MDC executed a Teaming Agreement "to team for the purpose of developing, proposing and producing a USAF derivative of the YF-17 (USAF ACF) and a carrier-suitable version of the YF-17 (USN ACF) to satisfy U. S. Navy VFAX requirements." This agreement by its own terms was to terminate on June 30, 1975 unless mutually extended.

The team effort had a dual purpose. It was to be a joint effort of NORTHROP and MDC to successfully design fighter aircraft for both the Navy and Air Force utilizing derivatives of the YF-17 technology developed by NORTHROP. To fulfill the obligations of the Teaming Agreement NORTHROP pursued the Air Force ACF competition while MDC turned its efforts to the design responsibilities involved in the Navy NACF program.

As competition goes there are winners and losers. In January 1975 NORTHROP found itself losing the Air Force ACF competition to GENERAL DYNAMICS. MDC was notified on May 2, 1975 that it had won the Navy NACF competition. This latter event was the birth of the F-18.

In what has been denominated the "Basic Agreement" executed June 27, 1975 the parties agreed:

3. Contract Responsibilities

(a) ... that MDC will be prime contractor in connection with contracts with the U. S. Navy for the development of the F-18 and for the production of those F-18 aircraft purchased by the U. S. Navy for its own use. Furthermore, in the event a foreign customer desires to procure from MDC ... F-18 aircraft of basically the same configuration ... MDC will be prime contractor ...

(b) NOC may elect to be prime contractor on any or all contracts for the development and production of aircraft derived from the NOC YF-17 other than those referred to in paragraph (a) above.

It is this market sharing provision that underlies the present disputes between NORTHROP and MDC.

The Basic Agreement mutually obligated MDC and NORTHROP to exchange design, design analysis and test data on the F-18 and YF-17 technology. The parties made clear that the relationship created was not "in any manner intended to create a joint venture or otherwise incur or imply joint or several liability."

In answer to the award of the Navy NACF competition to the MDC-NORTHROP team the government awarded a prime contract in excess of $1.063 billion dollars to MDC to fully design and develop the aircraft—the F-18. NORTHROP was awarded a subcontract by MDC requiring NORTHROP to provide "personnel, materials, services, facilities, logistics support, data and management required to design and develop, fabricate, qualify, test, document and deliver the ... F-18 major assemblies/equipment in accordance with MACAIR Statement of Work (SOW) No. WS-F-18-27."

New vigor had been infused into the NORTHROP YF-17 effort. In late 1975 and early 1976 it began an effort to interest the Shah of Iran in becoming the first customer of a YF-17 derivative day fighter. The Navy's concern that NORTHROP's Iranian effort might dilute its own F-18 development prompted a new agreement between MDC and NORTHROP on August 26, 1976.

The agreement of August 26, 1976 reaffirmed the June 27, 1975 agreement. It also provided that NORTHROP "has elected to design, develop and produce for sale to the United States and to foreign governments all aircraft designed only for land-based operations which are derived from the YF-17." This election was in answer to the demands of the Navy that the parties agree upon a Foreign Military Sales (FMS) Master Plan. It also assured the Navy that NORTHROP's development of a day fighter would not interfere with the design and development of the now designated Navy's F-18-A.

The design of the F-18 now completed and ready for production, MDC turned to new markets to make sales. These market efforts involve on-going presentations in what NORTHROP claims are violations of the Basic Agreement between the parties to Canada, Israel, Spain and Australia. Perceiving that its claimed exclusive position in furnishing land based F-18s to the world market was about to evaporate with MDC's successful effort in Canada, NORTHROP filed suit and in its First Amended Complaint alleges eight causes of action variously described as acts of fraud, systematic breaches of contract, wrongful economic coercion, concerted refusals to deal, unfair competition and industrial espionage.

Both parties make extravagant claims as to its own contribution to development of the F-18. Although the truth may lie somewhere between these claims, this Court need not make that determination to dispose of the motions before it.

MDC has now moved for dismissal on the grounds that 1.) there is a failure to join an indispensable party i. e., the United States; 2.) the...