Flying High

One company's lofty aspirations of winning a bid to install a new computer system on the B-1 bomber crashed and burned when a teammate shot down the firm's dreams.

In Cable & Computer Technology v. Lockheed Sanders, a jury awarded Computer Technology $65 million in compensatory and punitive damages.

"This case proves that there are limits to how far a company can go in leading someone down the primrose path and then say, `Aha! You don't have anything in writing,'" plaintiffs' attorney Jeffrey S. Davidson of Los Angeles' Kirkland & Ellis says.

Defense counsel for Lockheed, John Quinn of Los Angeles' Quinn, Emanuel, Urquhart, Oliver & Heges, disagrees. Although he did not return Verdicts & Settlements' calls regarding this case, the trial record shows that Lockheed denied that any teaming agreement existed, because the parties never arrived at a meeting of the minds.

"They thought they had ... leverage, because they thought we were in a corner ... They thought they could insist on unreasonable terms," Quinn said in his opening statement, according to court papers.

Davidson is adamant that tiny Computer Technology had a valid and enforceable, though oral, agreement with Lockheed Sanders.

"[This case] is significant in that we can have a contract, even if it's not in writing, especially with big companies and big money," Davidson says.

What eventually became a bitter and hotly contested court battle began, ironically, with visions of togetherness.

In May 1996, the parties agreed to team up on a bid for a mission computer upgrade for the U.S. Air Force's B-1 bomber airplane.

The two companies worked to develop their joint submission on the project for three years, but 11 days before the bid was due, Lockheed Sanders announced it would not team up with Computer Technology on the bid.

According to Davidson, the deal fell through because the parties could not agree on the terms of their partnership agreement.

Too late to find another teammate, Computer Technology thought it had no alternatives. The company withdrew its preliminary bid.

Not surprisingly, Quinn tells a different story.

"They thought [Lockheed] had no choice, no choice at all, but to be their subcontractor," Quinn said in his opening statement, according to court records.

Davidson says the deal's failure did not originate with Computer Technology at all. Rather, he says, the problems flow from Lockheed's own internal conflicts. Computer Technology claimed that Lockheed Sanders was working with Computer Technology's competitor, Lockheed Martin Federal Systems of Owego, on the sly. Lockheed Martin and Lockheed Sanders are two arms of the same company.

Not surprisingly, Computer Technology offers very different facts.

"[When] Lockheed [Sanders] announced that it was walking off the job," Davidson says, "the reason given was that they couldn't meet their price goals."

But Computer Technology refuses to buy that explanation.

"The Computer Technology people knew that was wrong because the Lockheed Sanders people they were working with had met their price goals," Davidson says.

Lockheed Sanders placed the blame on Computer Technology by claiming that the latter's insistence on unreasonable terms ultimately soured the deal. The parties went their separate ways before agreeing to team, so no contract existed.

"They overplayed their hand," Quinn said in his opening statement, according to the court record. "And in the end they offered terms that we simply could not accept."

During the trial, the defense attempted to demonstrate an elaborate scheme of sabotage and deceit by Computer Technology. Lockheed Sanders asserted that Computer Technology's conduct destroyed the relationship between the two companies.

According to Quinn's opening statements, Computer Technology secretly planned to keep Lockheed Sanders from bidding on the project. To that end, he alleged that Computer Technology had planted a mole at Lockheed Sanders to keep it informed of the latter's internal decision making.

Quinn also claimed that no oral teaming agreement ever existed between the parties. Lockheed Sanders pegged its case on the fact that the parties did not draft a formal written agreement to memorialize the relationship between the two companies.

"There wasn't an agreement; we were always offering to team; we offered reasonable terms," Quinn said in his opening statement. "[Computer Technology] only offered unreasonable terms that we had to say `No' to."

Counsel for Computer Technology focused on proving that the oral agreement between the parties existed and was binding and enforceable.

Discovery produced evidence that Lockheed Sanders and Computer Technology were working together in competition with another entity, Lockheed Martin Federal Systems of Owego, a sister company of Lockheed Sanders.

"When this [internal] conflict became a problem within the [Lockheed] corporation, Lockheed [Sanders] was forced to choose which party it was going to work with to capture the B-1 bomber bid," Davidson says, offering what he sees as the real motive behind Lockheed Sanders' last-minute withdrawal from the partnership agreement.

The schism deepened further when internal e-mails, produced in discovery, proved that Lockheed Sanders disclosed confidential matters to Lockheed Martin. Lockheed Martin ultimately won the B-1 bid.

According to Davidson, the two issues before the court at trial were Lockheed Sanders' potential liability to Computer Technology for breach of the oral partnership agreement and the damages flowing from any breach.

First, the jury had to decide whether the agreement was binding. If so, the jury would consider whether Computer Technology would have won the bid.

If the jury cleared both of those initial hurdles, the second and ultimate question was the amount of Computer Technology's lost profits, if any, as a result of Lockheed Sanders' alleged malfeasance.

Davidson took a practical approach with the jury in this regard.

"We had to show that we would have won the bid," Davidson says. "Our approach in establishing that we would have won was to look at the company that did win the bid and prove that our bid was better."

On the issue of whether a binding contract existed, the court looked to industry standards and found that a binding contract can be oral where the parties intend to reduce it to writing at a later date.

In fact, Computer Technology produced a number of documents at trial tending to show that an oral contract existed.

These items included promotional videotapes produced by Lockheed Sanders that named Computer Technology as its partner in the bidding process. In addition, Lockheed Sanders' internal e-mails also mentioned the partnership.

Davidson says that the most critical witness in the case was a former Lockheed Sanders employee, George Woodruff. Woodruff testified that an oral agreement did exist between the two companies.

"In late June 1996, during a meeting in my office, [I was] authorized to tell Computer Technology that no potential conflict of interest existed that would prevent Sanders from putting the oral teaming agreement in writing,"

Woodruff said in a declaration filed with the court as an exhibit in the case. "[Management] also told me to continue moving forward with Computer Technology."

Woodruff also offered damaging testimony regarding Lockheed Sanders' understanding of the agreement between the parties.

"I understood that [management] considered a written teaming agreement as a mere formality," Woodruff said, according to court records.

During the trial, this witness' testimony of the existence of a teaming agreement slowly turned the juror tide in favor of Computer Technology, according to Davidson.

The jury found that Computer Technology was part of a teaming agreement with Lockheed Sanders. The jury further determined that Computer Technology would have won the bid if Lockheed Sanders had not reneged on its teaming agreement at the last minute.

Reprinted by permission of Verdicts & Settlements. c2001 Daily Journal Corp., all rights reserved.