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LOCKHEED MISSILE & SPACE CO. v. HUGHES AIRCRAFT CO

June 7, 1995

LOCKHEED MISSILE & SPACE COMPANY, INC., Plaintiff,
v.
HUGHES AIRCRAFT COMPANY; GM HUGHES ELECTRONICS, Defendants.



The opinion of the court was delivered by: SPENCER WILLIAMS

 Plaintiff Lockheed Missiles & Space Company, Inc. ("Lockheed") brought this action against Hughes Aircraft Company and GM Hughes Electronics (collectively, "Hughes"), alleging that Hughes refused to honor a promise to supply Lockheed with a component that Lockheed needs to bid on a missile warning system contract for the United States government. Lockheed has applied for a temporary restraining. order. For the reasons expressed below, Lockheed's application is DENIED.

 BACKGROUND

 In 1984, as part of the Strategic Defense Initiative, better known as "Star Wars," the United States government established the Boost Surveillance and Tracking System ("BSTS") program to develop a replacement for the existing system used to detect missile attacks. The following year, Lockheed and Hughes entered into a "Memorandum Teaming Agreement" ("Teaming Agreement") and offered a joint proposal to the government for deploying a replacement system. The Teaming Agreement defined the roles and responsibilities of both companies. In particular, it designated Lockheed as the prime contractor and gave Lockheed responsibility for designing and assembling the system. Hughes was designated as a subcontractor and was responsible for developing a satellite-mounted infrared sensor to gather information about incoming missile attacks.

 The government awarded development contracts to Lockheed for certain phases of BSTS work, and Lockheed in turn awarded development subcontracts for that work to Hughes in accordance with the Teaming Agreement. According to Lockheed, the two companies worked together on the sensor and Lockheed contributed significant technical expertise as well as substantial funding towards its development.

 In 1990, the United States government terminated the BSTS program, eventually replacing it with the Follow-on Early Warning System ("FEWS"). Lockheed and Hughes agreed to work together on FEWS and entered into Amendment Number One to the Teaming Agreement ("Amended Teaming Agreement"). The Amended Teaming Agreement provided that (1) it applied to FEWS as well as successor programs of FEWS, and (2) Hughes would provide its sensor to Lockheed on an exclusive basis. The government awarded a FEWS contract to Lockheed, which subsequently awarded a subcontract to Hughes to continue the development of the sensor.

 Three years after its initiation, the United States cancelled the FEWS program and launched the Space Based Infrared ("SBIRS") program. Lockheed alleges that the SBIRS program, which has an estimated $ 10 billion procurement contract, is a successor to the FEWS program as defined by the Amended Teaming Agreement.

 On November 29, 1994, the government announced that it was seeking bids on the SBIRS program. A few days later, the FTC asked Lockheed to enter into a consent order whereby Lockheed would relinquish its rights to the exclusive use of the Hughes sensor. Over the next few weeks, several of Hughes' corporate officers, including its Chairman and Chief Executive Officer allegedly gave Lockheed verbal and written assurances that the company was willing to supply Lockheed with its sensor. Lockheed further alleges that it signed the consent order on December 22, 1994 in reliance on these assurances.

 Shortly after Lockheed signed the consent order, the parties began to quarrel over the sensor. Specifically, Lockheed alleges that on February 6, 1995, Hughes attempted to condition its supply of the sensor on Lockheed's agreement to procure the ground elements of the SBIRS program from Hughes. Lockheed claims that Hughes did so only after learning that Lockheed had established an exclusive teaming arrangement with Aerojet-General Corporation ("Aerojet") and Loral Corporation ("Loral") concerning the ground elements of the SBIRS program. When Lockheed formalized its agreement with Loral and Aerojet, Hughes allegedly withdrew its February 6, 1995 proposal and advised Lockheed that it would provide the sensor to Lockheed only if Lockheed permitted Aerojet to offer ground elements to Hughes. Lockheed refused, informing Hughes that Hughes agreed to supply the sensor unconditionally and that the condition Hughes demanded would require Lockheed to breach its contract with Aerojet and Loral.

 Lockheed, Hughes and a third contractor submitted competing SBIRS proposals to the government on March 24, 1995. Relying on the commitments Hughes allegedly made in the Amended Teaming Agreement and in December 1994, Lockheed's proposal included the Hughes sensor as a component. Lockheed claims that it notified Hughes of the Lockheed proposal and that Hughes did not respond in any way.

 On June 9, 1995, the government is expected to decide which of the three contractors are qualified to be selected for the next phase of the project. The final selection of two contractors will be announced in mid-July, 1995.

 The Air Force began reviewing Lockheed's proposal and on May 27, 1995, asked Lockheed to submit, by June 7-8, 1995, a letter from Hughes confirming that Hughes would furnish Lockheed with its sensor. Lockheed requested Hughes to provide that confirmation, but on May 30, 1995, Hughes refused to so and advised Lockheed that it would not supply the sensor.

 Lockheed alleges that Hughes' refusal to provide the sensor jeopardizes Lockheed's chances of being chosen to serve as the prime contractor on the SBIRS program. Lockheed further alleges that it cannot incorporate another sensor into its system because the Hughes technology is superior to others and for certain applications, has no substitute.

 Lockheed's complaint asserts the following claims: (1) Declaratory Relief; (2) Breach of Written and Oral Contract -- December Agreement; (3) Promissory Estoppel; (4) Breach of Written Agreement -- Amended Teaming Agreement; (5) Breach of Covenant of Good Faith and Fair Dealing -- Amended Teaming Agreement and December Agreement; (6) Breach of Covenant of Good Faith and Fair Dealing -- Denial of the Existence of the December Agreement; (7) Violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and the Cartwright Act, Cal. Bus. & Prof. Code § 16700 et seq. -- Refusal to Deal/Intent; (8) Violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and the Cartwright Act, Cal. Bus. & Prof. Code § 16700 et seq. -- Refusal to Deal/Essential Facilities; (9) Violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, and the Cartwright Act, Cal. Bus. & Prof. Code § 1620 et seq. -- Attempted Monopolization; and (10) Breach of Fiduciary Duty.


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