Secretary of State for Defence v. Trimble Navigation Limited

• Decision Date: 10 May 2007
• Docket Number: No. 06-1062.,06-1062.
• Citation: 484 F.3d 700
• Parties: SECRETARY OF STATE FOR DEFENCE, as represented by the United Kingdom Ministry of Defence, Defence Procurement Agency, Plaintiff-Appellant, v. TRIMBLE NAVIGATION LIMITED, Defendant-Appellee. United States of America, Amicus Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

484 F.3d 700

SECRETARY OF STATE FOR DEFENCE, as represented by the United Kingdom Ministry of Defence, Defence Procurement Agency, Plaintiff-Appellant, v. TRIMBLE NAVIGATION LIMITED, Defendant-Appellee United States of America, Amicus Supporting Appellee.

No. 06-1062.

United States Court of Appeals, Fourth Circuit.

Argued: January 31, 2007.

Decided: May 10, 2007.

ARGUED:

Mark Douglas Colley, Holland & Knight, Washington, D.C., for Appellant. Alan Arnold Pemberton, Covington & Burling, Washington, D.C., for Appellee. Thomas Mark Bondy, United States Department of Justice, Civil Division, Appellate Section, Washington, D.C., for Amicus Supporting Appellee.

ON BRIEF:

Richard O. Duvall, Jennifer A. Short, David B. Dempsey, Eric L. Yeo, Holland & Knight, McLean, Virginia, for Appellant. Eugene D. Gulland, Derron J. Blakely, Covington & Burling, Washington, D.C., for Appellee. Peter D. Keisler, Assistant Attorney General, Chuck Rosenberg, United States Attorney, Douglas N. Letter, Sushma Soni, United States Department of Justice, Civil Division, Appellate Section, Washington, D.C., for Amicus Supporting Appellee.

Before WIDENER, TRAXLER, and GREGORY, Circuit Judges.

Affirmed by published opinion. Judge Gregory wrote the majority opinion, in which Judge Widener joined. Judge Traxler wrote a dissenting opinion.

OPINION

GREGORY, Circuit Judge:

The question before the Court is whether a foreign government is a third-party beneficiary of a contract for military goods between the United States and a domestic military contractor, where the foreign government agreed to purchase those goods from the United States under the Foreign Military Sales program. Because affording the foreign purchaser such extraordinary third-party beneficiary rights is contrary to the structure and intent of the Foreign Military Sales program, we affirm the district court's dismissal of the foreign government's complaint.

I.

We recounted the facts of this case in an earlier decision involving this dispute. See U.K. Ministry of Defence v. Trimble Navigation Ltd. (Trimble I), 422 F.3d 165 (4th Cir.2005) (holding that Contract Disputes Act of 1978 did not apply to suit by foreign purchaser against domestic contractor).

A.

The Arms Export Control Act ("AECA") controls the sale of military goods and services to foreign governments. See 22 U.S.C. §§ 2751-2796d (2000). There are two primary methods through which a foreign government may purchase military equipment manufactured by U.S. contractors: Direct Commercial Sales ("DCS") and Foreign Military Sales ("FMS"). DCS transactions are effectuated via a direct contract between the foreign government and a domestic contractor. In an FMS transaction, the United States and the foreign government purchaser enter into a contract for the goods, which the United States then provides from its own inventory or purchases from a domestic contractor through a separate agreement. An FMS purchase involves two contracts: one between the foreign government and the United States, termed the Letter of Agreement ("LOA"), and one between the United States and the domestic contractor. The United States allows friendly foreign governments to purchase most items through either FMS or DCS and is generally neutral regarding the choice between the two methods. See Def. Sec. Cooperation Agency, U.S. Dep't of Def., Security Assistance Management Manual, DoD 5195.38-M, ("SAMM") §§ C4.5.8, C4.5.9.1, at 111.¹ Some items, however, because of their sensitive nature can only be purchased through the FMS program. See, e.g., id. § C.4.5.9. The items at issue in this case are FMS-only items. See Trimble I, 422 F.3d at 167.

This case involves auxiliary output chips ("AOCs") manufactured by Trimble Navigation Limited ("Trimble") for use in certain global positioning satellite ("GPS") devices. These GPS devices work by accessing a satellite network deployed by the United States. The United Kingdom, as represented by the United Kingdom Ministry of Defence ("UK MOD"), along with other members of the North Atlantic Treaty Organization, entered into a Memorandum of Understanding ("MOU") with the United States allowing them to use the GPS satellite network. The MOU required those governments "to buy certain GPS-related equipment, including the auxiliary output chips at issue here, through the [FMS] Program and a[n] [LOA.]" Trimble I, 422 F.3d at 167. Accordingly, UK MOD and the United States entered into an LOA in July 1998, whereby the United States agreed to furnish AOCs manufactured by Trimble. Id. at 167. The United States then entered into four contracts with Trimble for production and delivery of the AOCs (the "U.S.-Trimble agreements" or "U.S.Trimble contracts"); by the terms of the FMS program, UK MOD was not a party to these contracts. Id.

B.

The U.S.-Trimble contracts incorporate standard federal acquisition regulation clauses on terms related to shipping, disputes, termination for convenience, pricing, and the like. See, e.g., J.A. 35, 39-40. Although UK MOD was not a party to the contract, the contract specifies the UK MOD FMS case number and provides for direct delivery to a freight forwarding service for shipment to a United Kingdom address. See, e.g., J.A. 33-34. The U.S.-Trimble contracts do not specify that Trimble would be producing AOCs for any party in addition to UK MOD—such as for the United States' inventory stock—and the contracts do not contain an express disclaimer of any third-party beneficiary rights of UK MOD.

The LOA between UK MOD and the United States was based on the standard LOA model used in the FMS program. See SAMM, supra, at 138-42 fig.C5.F3 (setting forth LOA standard terms and conditions). Section 1.2 of the LOA provides that the United States could sell UK MOD AOCs out of its inventory stock or "procure them under terms and conditions consistent with D[o]D regulations and procedures." J.A. 132. If an LOA is fulfilled through procurement, the acquisition procedures will be in accordance with normal DoD regulations, thus "afford[ing] the foreign purchaser the same benefits and protection that apply to DoD procurement." SAMM, supra, § C.6.3.1. Section 1.2 of the LOA also provides that the United States is "solely responsible for negotiating the terms and conditions of contracts necessary to fulfill the requirements [of the] LOA." J.A. 132. Section 1.4 allows the United States to terminate or take other action with respect to the contracts between the United States and its suppliers without these actions affecting the LOA. J.A. 132.

Section 5 of the LOA addresses transportation and delivery logistics. Section 5.4 provides that deficiencies in the items covered by the LOA must be reported through the Supply Discrepancy Report ("SDR") process. J.A. 134; SAMM, supra, § C.6.4.10. These discrepancies include discrepancies caused by the manufacturer, such as "defects or nonconforming conditions, which limit or prohibit the item from fulfilling its intended purposes," whether from faulty materials, manufacturing, or workmanship, and include situations in which the United States has not acted erroneously. Defense Institute of Security Assistance Management, Online Green Book: The Management of Security Assistance ("Green Book") 10-34, http://disam.osd. mil/pubs/DR/greenbook.htm; see SAMM, supra, § C6.4.10.3.²

Section 6 of the LOA addresses warranties and notes that, except for warranty of title, the items received by UK MOD under the LOA would carry no additional warranties unless specifically requested by UK MOD. The Green Book explains that the customer is not without recourse, however, "if an item . . . does not operate properly." Green Book, supra, at 8-11. "Customers with defective items from procurement should submit a supply discrepancy report to the [United States]. The [United States] may be able to resolve the problem by seeking resolution through the contractor under the provisions of the [U.S.] procurement contract." Id. In Section 6 of the LOA, the United States agreed to exercise, "upon the Purchaser's request, rights (including those arising under any warranties) the [United States] may have under contracts connected with procurement." J.A. 134. Finally, Section 7 of the LOA addresses dispute resolution. It provides that the LOA is subject to federal procurement law and that any disagreement regarding the LOA between UK MOD and the United States be resolved through bilateral consultations and not through referral "to any international tribunal or third party for settlement." J.A. 134.

C.

The first delivery of the AOCs to UK MOD did not conform to specifications. Trimble I, 422 F.3d at 167. Trimble repaired or replaced these AOCs, but not to UK MOD's satisfaction. Id. Problems with the chips persisted even after replacement. Id. "UK MOD looked to the United States for assistance in recovering its costs from Trimble," but the United States investigated and concluded that it would not take any action against Trimble. Id. at 168. UK MOD brought the instant action, claiming that Trimble breached its contract with the United States and that this breach harmed UK MOD as a third-party beneficiary, who could sue to enforce rights under the U.S.-Trimble contracts.

Trimble filed a motion to dismiss, arguing that the district court lacked subject-matter jurisdiction because the Contract Disputes Act applied. This Court held in Trimble I that subject-matter jurisdiction was proper in the district court and remanded the case for consideration of whether UK MOD was, in fact, a third-party beneficiary of the U.S.-Trimble contracts. 422 F.3d at 173.

On remand, the district court granted Trimble's motion to dismiss on the basis that UK MOD was not a third-party beneficiary to the U.S.-Trimble agreements and thus had no right to sue upon those agreements. Reasoning that there were no material facts in dispute, finding that UK MOD was a mere known downstream customer of the U.S.-Trimble contracts and...