Lake Fairfax Seven v. Grumman Aerospace

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
LAKE FAIRFAX SEVEN LIMITED
PARTNERSHIP,
Plaintiff-Appellant,
v.
GRUMMAN AEROSPACE CORPORATION,
No. 96-2027
Defendant-Appellee,
and
GRUMMAN CORPORATION; NORTHROP
GRUMMAN CORPORATION,
Defendants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-95-1684-A)
Argued: June 4, 1997
Decided: July 25, 1997
Before HALL, LUTTIG, and MOTZ, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Richard J. Conway, DICKSTEIN, SHAPIRO, MORIN &
OSHINSKY, L.L.P., Washington, D.C., for Appellant. Edward Jay
Shapiro, LATHAM & WATKINS, Washington, D.C., for Appellees.
ON BRIEF: J. Andrew Jackson, Merle M. DeLancey, Jr., DICK-
STEIN, SHAPIRO, MORIN & OSHINSKY, L.L.P., Washington,
D.C., for Appellant. Thomas L. Patten, John C. Marchese, LATHAM
& WATKINS, Washington, D.C., for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Plaintiff Lake Fairfax Seven Limited Partnership appeals the dis-
trict court's grant of summary judgment to defendant Grumman Aero-
space Corporation on the former's claims of breach of contract and
breach of covenant of good faith and fair dealing. For the reasons
stated herein, we affirm the judgment of the district court.
I.
This dispute arises from a commercial building lease in which
Grumman Aerospace leased a building from Lake Fairfax Seven Lim-
ited Partnership to be used as the company's base while it performed
systems engineering and integration analysis for NASA in connection
with the space station program. Paragraph 58.1 of the lease provided
Grumman with certain termination rights:
(a) Tenant has been awarded a program support contract
by the National Aeronautics and Space Administration
("NASA"), which Contract is referenced as Space Program
Support Contract Number NASW - 4300 ("Program Support
Contract"). If Tenant is notified by NASA that Tenant's Pro-
gram Support Contract has been terminated and if Tenant
desires to terminate this Lease as a result thereof , Tenant
shall provide written notice to Landlord (the "Termination
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Notice") within thirty (30) days after Tenant receives such
notice from NASA. . . .
(b) If NASA materially reduces the scope of the work
to be performed by Tenant pursuant to the Program Support
Contract so that as a result thereof Tenant is required to
reduce manpower then supporting the Program Support
Contract by fifty percent (50%) or more, then Tenant shall
have the right to sublet or assign to NASA or the Jet Propul-
sion Laboratory of the California Institute of Technology
("JPL") a proportion of the Demised Premises that equals
the same percentage of the reduction in manpower, such
subletting or assignment to be in accordance with the provi-
sions of Section 26.2(d) hereof as if NASA or JPL were an
Affiliate of Tenant.
J.A. at 844-45.
Although Grumman was one of four prime contractors for the
space station program at the time it executed its lease with Lake Fair-
fax, NASA restructured the space station program in 1993 and gave
overall responsibility to a single contractor. NASA obtained congres-
sional authorization to restructure the program on a sole source basis
without competition in accordance with a "report and wait" provision
of the Competition in Contracting Act of 1984, 10 U.S.C.
§ 2304(c)(7), and informed Congress through a written "Determina-
tion and Findings" (D&F) that Boeing had been selected as the new
prime contractor. The D&F stated that, rather than conducting an
open competition, "NASA can select a single prime from among the
group of contractors with the knowledge and experience necessary to
minimize the time and waste that could occur during program transi-
tion. Then, with the consent of all parties concerned, NASA can sim-
ply novate the remaining prime contracts to become subcontracts to
the single prime." J.A. at 1526. NASA then directed Boeing to award
Grumman a subcontract, and directed Grumman to reduce its work-
force on the project from 854 employees to 60 employees.
On November 23, 1993, NASA officially informed Grumman that
the contract NASW-4300 would be "terminated" effective December
1, 1993, the same day that Boeing entered into a subcontract with
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Grumman for Grumman to continue some of the same work that it
had been doing under NASW-4300. The letter from NASA stated
unequivocally: "You are notified that Contract NASW-4300 (referred
to as ``the contract') is terminated for the Government's convenience
under the clause entitled Termination (Cost-Reimbursement) (May
1986)." J.A. at 1188. As a consequence of this termination, Grumman
thereafter exercised its right of termination under paragraph 58.1(a)
of its lease with Lake Fairfax, and made an early termination payment
of almost $5 million to Lake Fairfax. Lake Fairfax brought this suit
against Grumman, alleging breach of contract and breach of covenant
of good faith and fair dealing. The district court granted Grumman's
motion for summary judgment, holding that Grumman did not breach
its contract with Lake Fairfax because NASA had terminated the Pro-
gram Support Contract, thereby allowing Grumman to terminate the
lease, and that Lake Fairfax had failed to produce evidence that
Grumman had colluded with NASA to create a sham termination in
order to avoid obligations under the lease.
II.
Paragraph 58.1(a) of the lease gives Grumman the right to termi-
nate the lease if Grumman is "notified" by NASA that the Program
Support Contract has been terminated. The letter from NASA stated
unequivocally: "You are notified that Contract NASW-4300 . . . is
terminated . . . ." J.A. at 1188. Thus, there is no doubt that NASA
notified Grumman that the contract was terminated, and therefore that
Grumman was entitled to terminate the lease under paragraph 58.1(a).
Furthermore, even if the lease did, as the litigants appear to
assume, require NASA to actually "terminate" the Program Support
Contract, it is clear that NASA did so terminate the contract. Para-
graph 58.1(a) of the lease specifically defined the Program Support
Contract as NASW-4300. Thus, Grumman's right to terminate the
lease did not require termination of all business relations between
Grumman and NASA, both direct and indirect, but instead required
only that NASW-4300 be terminated. NASW-4300 is obviously no
longer in effect because it has been replaced by the prime contract
between NASA and Boeing and the subcontract between Boeing and
Grumman. Grumman is now only a subcontractor and does not con-
tract directly with NASA. Furthermore, the terms and conditions of
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the subcontract vary, though slightly, from those of the Program Sup-
port Contract. Therefore, it is clear that NASA terminated NASW-
4300, thereby triggering Grumman's right to terminate its lease with
Lake Fairfax.
Lake Fairfax argues that any termination by NASA was invalid
because the Determination and Findings required that NASA "novate"
the prime contracts into subcontracts. However, the D&F says NASA
"can" novate, and therefore did not create an obligation for NASA to
do so. Furthermore, regardless of the legality of the termination under
the D&F, NASA's December 1, 1993, letter constituted a termination
as required by paragraph 58.1(a) unless and until NASW-4300 was
reinstated.
III.
Lake Fairfax argues that Grumman violated a covenant of good
faith and fair dealing by colluding with NASA to structure a nominal
"termination" in order to allow Grumman to terminate its lease with
Lake Fairfax. Lake Fairfax bases this assertion on, among other
things, communications between NASA and Grumman in which
NASA initially stated that it intended to "partially terminat[e]" Grum-
man's contract and to novate the "unterminated portion" to a subcon-
tract under Boeing. When NASA instructed Grumman to terminate
the lease with Lake Fairfax, Grumman responded on November 2,
1993, that its lease with Lake Fairfax provided that"in order for Sec-
tion 58.1(a) to be effective, Grumman must receive a complete termi-
nation of Contract NASW-4300 from NASA." J.A. at 1090. As
discussed above, on November 23, NASA provided Grumman with
a letter stating that NASW-4300 was "terminated for the Govern-
ment's convenience." J.A. at 1188.
Lake Fairfax has failed to create a genuine issue of material fact
as to whether Grumman violated its duty of good faith and fair deal-
ing. Grumman's extensive efforts to keep NASA from terminating the
Program Support Contract in the first place actually promoted Lake
Fairfax's financial interests. Furthermore Grumman was under a legal
obligation to disclose to NASA information regarding the costs of ter-
mination and to "make . . . all reasonable efforts to terminate, assign,
settle or otherwise reduce the cost of [the] lease" in order to obtain
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reimbursement from NASA for the costs of termination of the Pro-
gram Support Contract. 48 C.F.R. § 31.205-42(e)(2). To the extent
that NASA terminated the contract in order to avoid costs to itself that
would arise from previously existing contracts, that self-interested
action by NASA cannot establish bad faith by Grumman.*
CONCLUSION
For the reasons stated herein, we affirm the judgment of the district
court.
AFFIRMED
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*The extent to which NASA would be forced to pay for the costs of
Grumman's lease with Lake Fairfax in the event of a mere reduction of
work on the Program Support Contract cannot be determined.
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