Opinion ID: 3010664
Heading Depth: 1
Heading Rank: 2

Heading: Was There a Valid and Enforceable Contract?

Text: The first issue, raised in defendant's cross-appeal, is whether there existed a valid and enforceable contract between the parties. Defendant argues on appeal that any agreement intended between the parties cannot, as a matter of law, constitute an enforceable contract because of the failure to agree on essential terms of the contract. In particular, defendant emphasizes that the parties never 9 reached a final agreement on the price of plaintiffs' subcontract and the absence of such a term must prove fatal to contract formation. Defendant further asserts that the teaming agreement at issue in this case is aptly characterized, at best, as an agreement to agree, which is incapable of enforcement under Pennsylvania law. Plaintiffs dispute defendant's analysis and vigorously maintain that the agreement between the parties constituted a valid and enforceable contract. Here, plaintiffs assert that defendant's conduct through the negotiation of subcontracts demonstrates an acceptance of their price officer, and therefore the agreement cannot fail for lack of definiteness. Moreover, plaintiffs contend that regardless of the pricing terms of the subcontract, defendant breached its agreement to work exclusively with them in negotiating a subcontract and this constituted a breach of the teaming arrangement which itself is a binding agreement. This issue of contract formation invokes a mixed standard of appellate review. The district court's factual findings, especially with respect to the parties' intentions, will not be reversed unless the record demonstrates that they are clearly erroneous. See Fed. R. Civ. P. 52(a). Similarly, the interpretation of contractual language to discern contractual intent is a factual question, which we will accordingly review under a clearly erroneous standard. See Painewebber Inc. v. Hartmann, 921 F.2d 507, 510 (3d Cir. 1990). Conclusions drawn with respect to the legal effect of any agreement, however, are questions of law and therefore subject to plenary review. See Linder v. Inhalation Therapy Servs., Inc., 834 F.2d 306, 310 (3d Cir. 1987).
Teaming Agreements It is by now hornbook law that the test for enforceability of an agreement is whether both parties have manifested an intention to be bound by its terms and whether the terms are sufficiently definite to be specifically enforced. Channel Home Ctrs. v. Grossman, 795 F.2d 291, 298-99 (3d Cir. 1986) (citing Lombardo v. Gasparini Excavating Co., 123 A.2d 663, 666 (Pa. 1956); Linnet v. Hitchcock, 471 A.2d 10 537, 540 (Pa. Super. Ct. 1984)). Consideration is, of course, a required element of contract formation. Id. at 299. While typically analyzed in terms of offer and acceptance, see 1 Arthur L. Corbin, Corbin on Contracts S 12, at 27 (1963), the decisive inquiry in contract formation is the manifestation of assent of the parties to the terms of the promise and to the consideration for it . . . . 1 Samuel Williston, A Treatise on the Law of Contracts S 23, at 51 (Walter H. E. Jaeger ed., 3d ed. 1957); Restatement (Second) of Contracts S 22 (1981) (Restatement). Thus, applying Pennsylvania law, we look to: (1) whether both parties manifested an intention to be bound by the agreement; (2) whether the terms of the agreement are sufficiently definite to be enforced; and (3) whether there was consideration. See Channel Home Ctrs., 795 F.2d at 299; Johnston the Florist, Inc. v. Tedco Constr. Corp., 657 A.2d 511, 516 (Pa. Super. Ct. 1995). In the attempt to ascertain the outward manifestation of intention expressed by the parties, it is often helpful to consider the general usage or custom prevailing in a given market. See 5 Samuel Williston, supra, S 648, at 1-2 nn.1- 2. We therefore consider teaming agreements, as that term is normally understood within the context of government contracting. Typically, a teaming agreement is an arrangement whereby a subcontractor will team with a company intending to bid on a government contract as a prime contractor in order to pool financial and technical resources. See Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1037 n.1 (9th Cir. 1983); Experimental Eng'g v. United Tech. Corp., 614 F.2d 1244, 1245 (9th Cir. 1980); Air Tech. v. General Elec. Co., 199 N.E.2d 538, 547 (Mass. 1964); see also Colsa Corp. v. Martin Marietta Servs., Inc., 133 F.3d 853, 854 (11th Cir. 1998). The subcontractor would ordinarily provide technical expertise and assist in the prime contractor's bid submission in return for the prime contractor's promise to award the subcontract. Parties to such a teaming agreement benefit from the arrangement not only as a means of sharing resources, but also as a hedge against the many uncertainties involved in government contracting. In many cases, the finalized subcontract between the parties to a teaming agreement will specifically enumerate 11 the scope of obligations for each party contingent upon the prime contractor winning the RFP so that there is usually little need to enforce the teaming arrangement itself. Often, however, the parties may reach an understanding to team, but fail to execute a subcontract as anticipated in the teaming agreement. See McDonnell Douglas, 705 F.2d at 1037; Experimental Eng'g, 614 F.2d at 1245; Air Tech., 199 N.E.2d at 548. As with most other preliminary agreements precedent to an executed contract, see generally E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. 217 (1987), the question arises whether the teaming agreement itself, absent an executed subcontract, may constitute the basis for contractual liability. Courts have generally allowed such a cause of action in contract based solely on the teaming agreement, see Brent E. Newton, Note, The Legal Effect of Government Contracting Teaming Agreements: A Proposal for Determining Liability and Assessing Damages in Event of Breach, 91 Colum. L. Rev. 1990, 2010-13 (1991) (collecting cases), but not without overcoming two major obstacles: (1) the intent of the parties to enter into a binding contractual relationship; and (2) the existence of sufficiently objective criteria to enforce. See, e.g., Allen & Co. v. Occidental Petroleum Corp., 382 F. Supp. 1052, 1057 (S.D.N.Y. 1974), aff'd, 519 F.2d 788 (2d Cir. 1975). These two factors for consideration closely track the general elements of contract formation. For instance, it is well established that evidence of preliminary negotiations or a general agreement to enter a binding contract in the future fail as enforceable contracts because the parties themselves have not come to an agreement on the essential terms of the bargain and therefore there is nothing for the court to enforce. See Goldman v. McShain, 247 A.2d 455, 458 (Pa. 1968); Reich v. Vegex, Inc., 51 F. Supp. 99, 103 (E.D. Pa. 1942) (applying Pennsylvania law); 1 Joseph M. Perillo, Corbin on Contracts S 2.8(a), at 131-34 (Rev. ed. 1993). Conversely, it is equally well established in contract law that an agreement with open terms may nevertheless constitute an enforceable contract. See Carlos R. Leffler, Inc. v. Hutter, 696 A.2d 157, 163 (Pa. Super. Ct. 1997); 1 Joseph M. Perillo, supra, S 2.8, at 138-39; cf. Uniform 12 Commercial Code S 2-311(1) (An agreement for sale which is otherwise sufficiently definite . . . to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one the parties.). With teaming agreements, courts are particularly sensitive to what the parties intended in agreeing to team -- that is, searching for sufficiently definite terms for enforcement other than the simple promise to enter into a subcontract at a later date -- and whether that teaming agreement was intended to bind the parties during the various stages of government contract procurement. See, e.g., Occidental Petroleum, 382 F. Supp. at 1057; Air Tech., 199 N.E.2d at 547-58. The fact that the parties never finalized an implementing subcontract is usually not fatal to enforcing the teaming agreement on its own -- if the parties intended the teaming agreement itself to constitute a binding agreement that enumerated definite terms of behavior governing the parties during, or even after, the bidding process. See, e.g., Air Technology Corp., 199 N.E.2d at 547-58; Experimental Eng'g, 614 F.2d at 1246-47; but see W.J. Schafer Assocs., Inc. v. Cordant, Inc., 493 S.E.2d 512 (Va. 1997) (teaming agreement standing alone did not create any binding obligations). Such terms might include the subcontractor's assistance in the prime contractor's proposal in return for the prime contractor's delivery of an agreeable subcontract. See Experimental Eng'g, 614 F.2d at 1246. Or, the parties might promise to work exclusively with each other in preparing the bid for the government contract. See McDonnell Douglas, 705 F.2d at 1038-38. Of course, if the parties to a teaming agreement do not wish to create binding obligations before executing an ultimate subcontract, they need only say so. See 1 Joseph M. Perillo, supra, S 2.9. Pennsylvania law has not to date explicitly recognized the validity of teaming agreements as enforceable contracts, and the defendant argues that Pennsylvania law would not recognize such an arrangement without a finalized subcontract because of the absence of an essential term. We disagree. Pennsylvania courts have long since recognized that the paramount goal of contractual 13 interpretation is to ascertain and give effect to the intent of the parties. Greene v. Oliver Realty, Inc. , 526 A.2d 1192, 1194 (Pa. Super. Ct. 1987) (citing Burns Mfg. Co. v. Boehm, 356 A.2d 763, 766 (Pa. 1976)). Indeed, the omission of an essential term in a contract, such as price, does not vitiate contract formation if the parties otherwise manifested their mutual assent to the agreement and the terms of that agreement are sufficiently definite. See, e.g., Kuss Mach. Tool & Die Co. v. El-Tronics, Inc., 143 A.2d 38, 40 (Pa. 1958); Greene, 526 A.2d at 1193; cf. Restatement, supra, S 204 (When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.). Analyzing Pennsylvania law, for example, we have previously concluded that a letter of intent between parties to a transaction created a mutually binding obligation, even though the parties never reached a final agreement on the terms of the bargain. Channel Home Ctrs. v. Grossman, 795 F.2d 291, 298-99 (3d Cir. 1986). Given that the letter of intent possessed sufficient specificity as to the underlying transaction, the critical inquiry under Pennsylvania law was simply whether the parties had intended to be bound by the terms of such a preliminary agreement. Id. We conclude that Pennsylvania law would recognize a teaming agreement as an enforceable contract provided that the parties intended to be bound by the teaming arrangement and the agreement contains sufficient terms for enforcement.
With these principles in mind, we consider whether the teaming agreement itself, as expressed in the parties' correspondences, constitutes an enforceable contract notwithstanding the parties' ultimate failure to execute a subcontract for the Greek project. Because no party on appeal asserts as a defense a lack of consideration, we look to: (1) whether both parties manifested an intention to be bound by the teaming agreement; and (2) whether the terms of that agreement are sufficiently definite. 14 The district court concluded that the parties manifested their mutual assent to be bound by the terms of the teaming arrangement, as outlined in the various letters circulated between plaintiffs and defendant. Wefind nothing clearly erroneous with this factual finding. The record contains numerous correspondences by both parties clearly indicating their inten[t] to team and work exclusively with each other in preparation for the Greek RFP. App. at 1671. Defendant itself represented to the Greek government that plaintiffs constituted part of the team that would undertake the project under defendant's auspices as prime contractor. As a result, we conclude, as did the district court, that the plaintiffs have met their burden in establishing the intention to be bound by the terms of the teaming agreement during the negotiations for a subcontract to be executed by the parties. Even if plaintiffs have established evidence of the parties' mutual assent to be bound by the teaming agreement, that agreement must contain sufficiently definite terms for enforcement or else, as explained above, there is no basis for the court to fashion a suitable remedy. After a thorough review of the relevant correspondences, the district court concluded that the plaintiffs established sufficiently definite terms of the teaming arrangement. In particular, the district court held that plaintiffs had promised to assist in defendant's bid for the Greek RFP, introduce defendant to their Greek agent, and work exclusively with defendant in return for good faith and exclusive negotiations with plaintiffs toward executing a subcontract. We agree that the letters of intent and draft subcontracts exchanged between the parties clearly outline the terms of this transaction as an expression of the parties' intent. This is not, as defendant argues on appeal, nothing more than a simple agreement to agree given the specificity of the duties carefully described in the draft subcontracts and letters of intent. Nor did the parties indicate that the terms of their teaming agreement were subject to final execution of the subcontract. See Schermer v. Wilmart, 127 A. 315, 315-16 (Pa. 1925). Thus, because the plaintiffs have successfully proved the elements of contract formation as applied to teaming agreements, we conclude that the teaming agreement between plaintiffs and defendant constitutes a 15 valid and enforceable contract with the terms found by the district court. Accordingly, to the extent that defendant's cross-appeal challenges the district court's finding that the teaming arrangement was an enforceable contract, we will affirm.