Solitron Devices, Inc. v. Honeywell, Inc.
| Decision Date | 12 April 1988 |
| Docket Number | No. 86-5793,86-5793 |
| Citation | 842 F.2d 274 |
| Parties | 34 Cont.Cas.Fed. (CCH) 75,477 SOLITRON DEVICES, INC., Plaintiff-Appellee, Cross-Appellant, v. HONEYWELL, INC., Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
David V. Anthony, Pettit & Martin, Paul C. Fuener, Washington, D.C., for Solitron Devices, Inc.
David A. York, Latham & Watkins, Chicago, Ill., James M. Tuthill, Christianson, Jacknin & Tuthill, West Palm Beach, Fla., for Honeywell, Inc.
Appeals from the United States District Court for the Southern District of Florida.
Before TJOFLAT and ANDERSON, Circuit Judges, and ROETTGER *, District Judge.
In this diversity case, we must interpret an agreement between a government contractor and a subcontractor. We conclude that the district court misinterpreted a release in the agreement and consequently erred in granting the subcontractor summary judgment on the contractor's counterclaim. We affirm the district court in all other respects.
In October 1978 Honeywell, Inc., a Delaware corporation, entered into a contract with the National Security Agency (NSA) pursuant to which Honeywell agreed to deliver to NSA certain cryptographic equipment. Honeywell then entered into a subcontract with Solitron, Inc., a New York corporation, for the delivery of hybrid microcircuits Honeywell needed in the production of the cryptographic equipment. The subcontract provided that the microcircuits were to conform to specifications and drawings supplied by NSA.
NSA sent the specifications to Honeywell, and Honeywell passed them on to Solitron. In July 1982 Solitron notified Honeywell that the NSA-supplied specifications had proven defective. Solitron advised Honeywell that it had incurred extra costs because of the defective specifications and that it intended to submit a claim for reimbursement.
Honeywell and Solitron concluded that the best way to handle Solitron's claim would be for Solitron to negotiate directly with NSA, the source of the defective specifications. Solitron, however, was not in privity of contract with NSA. Honeywell and Solitron therefore entered into a contract (the "Sponsorship Agreement") in September 1982 authorizing Solitron to pursue the claim against NSA in Honeywell's name. Under the terms of the Sponsorship Agreement, Solitron was to negotiate directly with NSA. Any settlement by NSA would be paid to Honeywell, and Honeywell would transfer the payment to Solitron. The Sponsorship Agreement contained mutual release clauses whereby Honeywell and Solitron each released the other from "all liabilities, obligations, claims, and demands whatsoever, known or unknown, incurred or anticipated, under or arising from the ... Subcontract or performance thereunder."
Approximately nineteen months passed before Solitron concluded negotiations with NSA. On May 9, 1984, Solitron and NSA signed a "Memorandum of Agreement" whereby NSA agreed to pay $575,000 in settlement of the defective specifications claim. NSA proceeded to make arrangements to have that amount transferred to Honeywell, with the understanding that Honeywell would then transfer the money to Solitron as specified by the Sponsorship Agreement.
Meanwhile, Solitron had fallen behind in its deliveries to Honeywell, and Honeywell had become increasingly dissatisfied with Solitron's performance of the subcontract. Solitron approached Honeywell in February 1984 with a request that the two parties reach some form of negotiated closeout of the subcontract. Honeywell agreed to meet with Solitron at the end of July to negotiate a mutually acceptable agreement of that nature. On July 27, 1984, however, Solitron wrote Honeywell a letter repudiating "all outstanding contractual obligations Solitron has to Honeywell." On the same day, Solitron filed a suit in the district court against Honeywell. 1
Solitron's complaint contained two counts. In Count I, Solitron requested specific performance of the Sponsorship Agreement, alleging that Honeywell had received the $575,000 settlement from NSA and had refused to transfer it to Solitron. In Count II, Solitron requested $2,000,000 in damages under the subcontract, alleging that Honeywell had breached the subcontract by supplying Solitron with defective specifications.
Solitron moved the district court pursuant to Fed.R.Civ.P. 56 for summary judgment on Count I, and the court granted the motion. 2 Honeywell subsequently moved the court pursuant to Fed.R.Civ.P. 12(c) for judgment on the pleadings as to Count II. In support of its motion, Honeywell argued that Solitron, having obtained specific performance of the Sponsorship Agreement's provision requiring Honeywell to pay over the NSA settlement, could not also recover under the subcontract on the very claim that was the subject matter of the settlement. The court agreed and granted Honeywell's motion, emphasizing that the Sponsorship Agreement expressly released Honeywell from any liability in connection with Solitron's defective specifications claim.
Solitron then moved the court for summary judgment on a counterclaim Honeywell had filed. Honeywell's counterclaim alleged that Solitron had materially breached the subcontract in four ways: (1) by failing to make deliveries on schedule and by ceasing performance with over 95,000 microcircuits undelivered, (2) by delivering over 12,800 nonconforming microcircuits, (3) by failing to notify Honeywell when it commenced negotiations with NSA, as required by the Sponsorship Agreement, and (4) by repudiating the subcontract. The court granted Solitron's motion for summary judgment, holding that the counterclaim was barred by the release in the Sponsorship Agreement. Honeywell appeals this ruling, and Solitron cross appeals the court's order granting Honeywell judgment on the pleadings as to Count II.
We first address Honeywell's appeal of the district court's order granting Solitron summary judgment on Honeywell's counterclaim. Honeywell argues that the district court misinterpreted the scope of the general release contained in the Sponsorship Agreement. The disputed release reads as follows:
Subject to the terms of this agreement ... [Honeywell] does hereby forever remise, release, and discharge [Solitron] of and from all liabilities, obligations, claims, and demands whatsoever, known or unknown, incurred or anticipated, under or arising from the above-described Subcontract or performance thereunder, provided however, that such remise, release, and discharge shall not become effective until [Solitron's] release of [Honeywell] under [the preceding paragraph] becomes effective.
The district court apparently interpreted the release as barring any claim by Honeywell that related to events occurring before Solitron and NSA concluded their settlement of the defective specifications claim. Under this interpretation, Honeywell's counterclaim would be barred because it related to alleged breaches by Solitron occurring before May 9, 1984, the date Solitron and NSA signed the "Memorandum of Agreement."
To determine the scope of a release, we look to the parties' intent as expressed in the contract. See Alliance Oil & Refining Co. v. United States, 13 Cl.Ct. 496 (1987). 3 The purpose of the Sponsorship Agreement was a narrow one: to facilitate the resolution of Solitron's defective specifications claim by enabling Solitron to negotiate directly with NSA. The parties expressly represented in the contract that all of the agreements set out therein were directed at achieving that specific end:
[Solitron] desires to submit a claim for an upward equitable adjustment for the additional expenses it incurred in the performance of the Subcontract which expenses [Solitron] believes resulted from the [NSA's] actions. Such claims are to be presented to the [NSA] pursuant to the terms and conditions of the agreement set forth below.
This representation is followed by twenty-three numbered paragraphs. Paragraph 19 contains the release at issue here. We find no indication in the contract that paragraph 19 for some reason departs from the subject matter of the Sponsorship Agreement, namely, Solitron's pursuit of the defective specifications claim. We therefore must conclude that the parties' intent was for the release to apply solely to claims...
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