Raytheon Company v. BAE Systems Technology Solutions & Services, Inc.
NN17C-02-079 PRW CCLD
| Del. Super. Ct. | Oct 30, 2017Background
- South Korea sought to upgrade 134 F-16s; BAE was selected as systems integrator and Raytheon as radar supplier; work flowed into the U.S. Foreign Military Sales (FMS) process.
- Raytheon engaged consultant John Bean during its bid; Bean later joined BAE and Raytheon alleges he disclosed Raytheon confidentials and influenced bids to benefit BAE.
- BAE and Raytheon executed an "Undefinitized Contract Action" subcontract (UCA) in Dec. 2013: incrementally funded, awaiting definitization and full funding under LOA-2; it included a customer-communications clause, FAR termination-for-convenience incorporation, and a negligence-based indemnity clause.
- The U.S.–South Korea LOA negotiations stalled; LOA-1 was executed but LOA-2 never finalized; work was stopped and the U.S. later terminated LOA-1; Raytheon spent internal funds and alleges partial reimbursement only.
- Raytheon sued BAE in multiple counts (breach of contract; implied covenant; indemnification; unjust enrichment; negligent misrepresentation; tortious interference; damaged trade/profession). Chancery dismissed equitable claims; action transferred to Superior Court where BAE moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract — funding, reimbursement, termination, lost profits | Raytheon: UCA and funding schedule obligated BAE to secure full funding and reimburse Raytheon; termination was improper; lost future profits recoverable | BAE: UCA was undefinitized and incrementally funded; Limitation of Buyer's Obligation caps liability; termination for convenience permitted; FAR bars lost profits | Dismissed — contract unambiguous: no promise of full payment pre-definitization; termination permissible; lost profits barred by FAR and speculative |
| Breach of implied covenant of good faith and fair dealing (customer communications) | Raytheon: communication clause imposed an obligation on BAE to liaison/accurately report and not mislead; BAE breached by concealing negotiation problems | BAE: Clause merely restricted Raytheon from direct communications, did not impose affirmative duties on BAE | Survives — pleading sufficiently alleges BAE had an obligation to liaise and may have breached implied covenant |
| Indemnification for South Korea suit | Raytheon: BAE’s misrepresentations caused South Korea to sue Raytheon; indemnity clause covers third-party claims | BAE: Indemnity clause limited to third-party claims "directly caused" by negligence and related to contract performance; South Korea’s suit is not premised on BAE negligence | Dismissed — indemnity clause strictly construed; Raytheon did not plead South Korea’s suit was directly caused by BAE negligence related to subcontract work |
| Unjust enrichment for extra-contractual work | Raytheon: performed work outside scope (e.g., certification assistance) and was uncompensated | BAE: the subcontract governs and precludes quasi-contract recovery | Survives (Claim retained) — Raytheon plausibly alleges extra-contractual benefits conferred and restitution is equitable |
| Negligent misrepresentation | Raytheon: relied on BAE’s affirmative statements about funding/LOA-2 status | BAE: parties were sophisticated, arms-length; mislabeling and Chancery has jurisdiction over similar claims | Dismissed — commercial arms-length dealings lack the special relationship; claim sounds in negligence and is within Chancery’s exclusive domain |
| Tortious interference with prospective contracts & damaged trade/profession | Raytheon: BAE’s conduct prevented future contracts (e.g., Singapore) and harmed reputation | BAE: alleged conduct does not meet New York’s "unlawful means" requirement; claims speculative; overlapping with dismissed torts | Both dismissed — prospective-interference too speculative and lacks unlawful means; damaged-trade claim is duplicative of other failed tort claims |
Key Cases Cited
- G.L. Christian & Assocs. v. United States, 312 F.2d 418 (Ct. Cl.) (incorporation of termination policy and its effect on recovery)
- Ashland Mgmt., Inc. v. Janien, 624 N.E.2d 1007 (N.Y.) (standard for contractual interpretation and good-faith duty)
- Am. List Corp. v. U.S. News & World Report, Inc., 549 N.E.2d 1161 (N.Y.) (lost-profits recovery principles for prematurely terminated multi‑year contracts)
- Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89 (2d Cir.) (limitations on speculative damages and lost profits)
- Greenfield v. Philles Records, Inc., 780 N.E.2d 166 (N.Y.) (plain‑meaning rule for unambiguous written contracts)
- Guard‑Life Corp. v. S. Parker Hardware Mfg. Corp., 406 N.E.2d 445 (N.Y.) (elements and limits on tortious interference with prospective business advantage)