UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DUAL, INCORPORATED,

Plaintiff-Appellant,

v. No. 97-1228

SYMVIONICS, INCORPORATED,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

James C. Cacheris, Chief District Judge.

(CA-96-1084-A)

Argued: July 15, 1997

Decided: September 12, 1997

Before MURNAGHAN, Circuit Judge, and BUTZNER and

PHILLIPS, Senior Circuit Judges.

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Affirmed by unpublished opinion. Senior Judge Phillips wrote the

opinion, in which Judge Murnaghan and Senior Judge Butzner joined.

_________________________________________________________________

COUNSEL

ARGUED: Raymond Donald Battocchi, GABELER, BATTOCCHI

& GRIGGS, L.L.C., McLean, Virginia, for Appellant. Michael Joseph

Klisch, MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.,

McLean, Virginia, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PHILLIPS, Senior Circuit Judge:

Dual Incorporated (Dual) sued Symvionics, Inc. (Symvionics),

alleging fraud and breach of contract arising out of unsuccessful

efforts to negotiate for Dual a subcontract under Symvionics's prime

contract to build a flight simulator. The district court granted summary judgment in favor of Symvionics on all counts. Finding no

error, we affirm.

I

In the fall of 1994, the United States Air Force (USAF) solicited

bids to produce a flight simulator for its A-10 attack aircraft. Symvionics decided to pursue the bid, discussed the proposed costs with

USAF, and sought a subcontractor for the cockpit portion of the simulator. After discussing the price constraints with two other potential

subcontractors, Symvionics initially chose Dual to be the proposed

subcontractor for its simulator bid, largely because Dual agreed to

limit its costs for the project to USAF's expectations.

On November 2, 1994, Symvionics and Dual entered into a Teaming Agreement (Agreement). The Agreement provided that Dual

would submit a proposal to Symvionics for the simulator cockpit and

that Symvionics would then submit its proposal to USAF using Dual

as its subcontractor. The Agreement required Symvionics to "exert its

best efforts to the extent practical to produce the proposal . . . which

will cause . . . the acceptance of Dual as the Subcontractor." The

Agreement also provided,

In the event [Symvionics] is awarded the Contract for this

program, [Symvionics] and [Dual] agree to negotiate in

good faith and proceed in a timely manner to conclude a

mutually acceptable subcontract for supply of the aforesaid

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data and support which is to be provided by [Dual], as

described in [Dual's] technical/cost proposal for this effort.

In January 1995, Dual submitted a written cost proposal to Symvionics for its portion of the bid, and Symvionics included Dual's

analysis as part of its bid to USAF in February. Dual's proposed costs

had increased substantially between October 1994 and January 1995,

and USAF informed Symvionics that Dual's proposed costs were

excessive. Symvionics then conducted a "should cost analysis," consisting of an independent check of Dual's costs and an exploration of

the industry to determine whether Dual's proposed costs were

unusual. USAF suggested that Symvionics submit another proposal

using figures from another cockpit subcontractor, and in March 1995

Symvionics submitted a bid using figures for the cockpit subcontract

from Flight Safety International. Symvionics did not, however, withdraw its February bid using Dual as its subcontractor.

In August 1995, in response to USAF's continuing concern about

its costs, Dual agreed to reduce its costs to a"firm fixed price" of

$1,322,722 for the first simulator cockpit and a corresponding smaller

amount for subsequent units. That month, based in part on Dual's

agreement, USAF awarded the prime contract to Symvionics based on

the February 1995 bid that included Dual as the subcontractor.

Dual then asked Symvionics for a preliminary order to allow Dual

to begin its work. Symvionics responded with a long, detailed purchase order. Believing the complexity of the order to be premature,

Dual requested a simpler document and drafted a"Letter Subcontract." After some negotiation and minimal changes offered by Symvionics, the parties signed the Letter Subcontract allowing Dual to

begin work on the project but limiting it from "incur[ring] obligations

exceeding $100,000." The Letter Subcontract specifically contemplated that Dual would meet the $1,322,722 "not to exceed" figure for

the first cockpit. Dual began its work on the project, and at Dual's

request, Symvionics extended Dual's cost ceiling under the Letter

Subcontract to $450,000.

Meanwhile, Symvionics and Dual began negotiating the subcontract. In November 1995 the parties prepared a "Systems Requirement

Review" for USAF, and soon thereafter Symvionics submitted a first

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draft of the subcontract to Dual. Dual did not respond to this draft

until February 1996, but neither Fred Dual, the owner of Dual, nor

Joe Calandrino, Dual's primary negotiator, could identify any evidence of bad faith on the part of Symvionics during these preliminary

negotiations. Dual and Symvionics disagreed substantially as to the

technical requirements of the subcontract, and their negotiators spent

March and April ironing out these disputes. By April 30 all of these

disputes had been resolved.

In early May 1996, Dual informed Symvionics that its costs for the

first unit had increased significantly, in a range between $200,000 and

$400,000 over the "not to exceed" price, due to revised estimates from

Dual's vendors. Symvionics had already agreed to increase this

amount by $50,000, to $1,372,722, due to delays in furnishing Dual

with certain technical information. When Calandrino informed Lawrence Barraza, Symvionics's chief executive, of the new price

increases, Barraza became concerned that Symvionics might lose the

simulator contract because of the difficulties in completing the subcontract. Barraza pointed to USAF's Preliminary Design Review

(PDR), scheduled for June 3-5, and advised Dual that failure to execute the subcontract by that date could jeopardize the project.

On May 17, Dual concluded that its costs would run to approximately $1,750,000, and on May 21 Symvionics declared this to be

unacceptably high. The parties continued to negotiate, however, and

on May 24, Dual informed Symvionics that it could build the cockpit

for $1,500,000. Later that day, Symvionics made a counteroffer of

$1,422,722, an amount $50,000 greater than the highest amount to

which the parties had previously agreed. Symvionics's counteroffer

also included a proposed waiver of any claims by Dual for program

delays through May 24. On May 28, Dual responded by accepting

Symvionics's offer except for the proposal to waive their claims, and

asked Symvionics to accept or reject that offer by the next day.

Symvionics asked Dual to stop its work on the subcontract on May

28, but expressly did not terminate the negotiations. From May 28

until June 3, the date of the PDR, however, Barraza could not contact

any of the Dual officials responsible for the contract. On June 3, Barraza decided to reject Dual's counteroffer and terminate negotiations

with Dual. That same day, Dual tried to inform Symvionics that it

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would accept all of the terms of Symvionics's May 24 offer without

reservation, but Symvionics refused to accept this capitulation. Barraza testified in deposition that he decided to discontinue the negotiations after learning from a USAF official that Dual had gone to USAF

to offer its services on the project regardless of Symvionics's involvement. Barraza testified that he regarded this communication as inappropriate and it cemented his decision to terminate the negotiations.

Symvionics ultimately subcontracted with Armstrong Laboratories,

an arm of USAF, to build the cockpits.

Dual filed suit in the Circuit Court for Arlington County, Virginia,

alleging fraud and breach of contract. Symvionics removed the case

on diversity of citizenship grounds to the United States District Court

for the Eastern District of Virginia. After discovery, Symvionics

moved for summary judgment under Fed. R. Civ. P. 56(e), alleging

there were no genuine issues of material fact and that it was entitled

to judgment on all claims as a matter of law. The district court determined that Symvionics had not acted fraudulently in inducing Dual

to enter into the Teaming Agreement, and that Symvionics had not

breached any of the terms of that Agreement, and therefore granted

Symvionics's motion. This appeal followed.

II

We review a district court's grant of summary judgment de novo.

See Kimsey v. City of Myrtle Beach, S.C., 109 F.3d 194, 195 (4th Cir.

1997). In order to prevail, the moving party must establish that its

opponent cannot "make a showing sufficient to establish the existence

of an element essential to that party's case," and that he or she therefore is entitled to judgment as a matter of law. Celotex Corp. v.

Catrett, 477 U.S. 317, 322-23 (1986). If the non-moving party has the

burden of proof at trial, Fed. R. Civ. P. 56(e) requires him or her to

"go beyond the pleadings" to designate specific facts demonstrating

a genuine issue of material fact for trial. Id. at 324. We view the facts

in the light most favorable to the non-moving party. See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Kimsey, 109 F.3d at

195.

After some initial confusion, the parties have agreed that California

law governs this case. Dual claims first that Symvionics fraudulently

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induced it to enter into the Teaming Agreement, in that at the time the

Agreement was executed, in November 1994, Symvionics had no

intention of honoring its terms. Dual produced no direct evidence to

support its claim, however, pointing only to the fact that Symvionics

did not accept Dual's final offer in June 1996. As Dual acknowledges,

the Teaming Agreement did not require Symvionics ultimately to

enter into the subcontract with Dual, but only to negotiate in good

faith to arrive at such a subcontract. Despite Dual's arguments, nothing in Symvionics's actions until June 1996 even arguably serves as

circumstantial evidence to support a claim of fraud. Rather, Symvionics acted in a manner fully consistent with the teaming agreement: It submitted a proposal to USAF including Dual as a

subcontractor, then allowed Dual to begin work while spending many

months trying to negotiate the final subcontract. Dual points to Symvionics's consultation with Flight Safety International in its second

proposal to USAF, but Symvionics did not at that time withdraw its

bid naming Dual, and ultimately USAF accepted Symvionics's bid

using Dual as the subcontractor. Fred Dual and other Dual representatives also concede that Symvionics was acting in good faith when

they began the subcontract negotiations late in 1995, acknowledging

in effect that at that time Symvionics intended to complete the subcontract. In short, Dual presents nothing to create a question of material fact as to any fraud on the part of Symvionics.

Dual also contends that Symvionics violated the Teaming Agreement in two different ways. First, Dual argues that the Agreement

obligated Symvionics to secure USAF approval of Dual as a subcontractor, an obligation which would have limited Symvionics's ability

not to choose Dual as the subcontractor. The only evidence presented

by Dual to support this critical contention, however, is found in Fred

Dual's assertion to that effect in deposition and it is unsupported by

any official rule or regulation to that effect. In fact, USAF contracting

agents testified in deposition that USAF does not restrict prime contractors in any way in choosing their subcontractors, and therefore

any USAF "approval" would have been entirely ineffective. Consequently this argument cannot support any claim for damages for its

breach, and summary judgment was appropriate.

Finally, Dual claims that Symvionics breached the Teaming Agreement in failing to negotiate in good faith to complete the subcontract.

Symvionics argued before the district court and here that the Teaming

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Agreement terminated by its terms in November 1995, and that the

Teaming Agreement's good faith provision was an unenforceable

"agreement to agree." We agree with the district court that under California law, as stated in Racine & Laramie, Ltd., Inc. v. California

Dep't of Parks and Recreation, 11 Cal. App. 4th 1026, 1032 (Cal. Ct.

App. 1992), parties may contract to create the obligation to negotiate

in good faith with one another, so long as the obligation does not go

so far as to require an agreement on a subsequent contract. See also

Thompson v. Liquichimica of America, Inc., 481 F. Supp. 365, 366

(S.D.N.Y. 1979). Though Dual appears to acknowledge that the

Teaming Agreement expired by its terms in November 1995, Fred

Dual testified that Barraza verbally agreed to extend the Agreement

until the subcontract was signed.

Without considering that possibility, we conclude that Dual has not

created a genuine issue of material fact as to Symvionics's good faith.

Dual acknowledges that Symvionics initiated the negotiations in good

faith, and authorized $450,000 of work for Dual to begin the project.

Even as Dual's proposed costs rose, Symvionics made efforts to

accommodate them. Then, after months of negotiation and agreeing

on virtually every issue, Symvionics made an offer on May 24 that,

if timely accepted, would have bound Symvionics to subcontract with

Dual. Dual does not attempt to argue that the terms of that offer were

extravagant or frivolous; in fact Dual tried to accept that offer several

days later. Rather, the contention is based entirely on the fact that

Symvionics decided to terminate negotiations just before Dual

announced its intention to accept Symvionics's offer. Symvionics has

presented several reasons for terminating the negotiations at that time,

notably the imminent PDR and Dual's independent communication to

USAF, that are fully consistent with its previous efforts to negotiate

in good faith. Dual has not presented evidence to support the crucial

allegation that Symvionics acted in bad faith in spurning Dual, and

not just in its best interests as a government contractor. Summary

judgment was therefore appropriate.

III

In sum, we agree with the district court that Dual failed to create

a genuine issue of material fact as to any of its claims. Accordingly

we affirm the district court's grant of summary judgment.

AFFIRMED

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