Opinion ID: 628969
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 4 This appeal concerns two related contractual disputes between appellee Harris Corp. and its Sweden-based dealer, appellant Harriscom. RF Systems, a division of Harris Corp., manufactures radio communications products in Rochester, New York. It appointed Harriscom in 1983 as its exclusive distributor of RF Systems' products in Iran. 5 On December 6, 1985 U.S. Customs Service officials detained a shipment of RF Systems' model 2301 radio spare parts ordered by Harriscom and bound for Iran. The shipment was worth $663,869. According to a 1982 determination by the United States Department of Commerce, the model 2301 radio could be exported under a general license to almost any country. But upon detaining the model 2301 radio in December 1985, the government decided to reevaluate it. State Department officials began a commodity jurisdiction proceeding, authorized by the Arms Export Control Act, 22 U.S.C. Secs. 2751-2796d (1988 & Supp. III 1991), to decide whether this particular radio was a military product that should be on the Munitions List and subject to more stringent export controls. For more than six months, RF Systems managers negotiated with officials from the Departments of Commerce, State and Defense in an effort to speed up these administrative proceedings. The extensive negotiations, RF Systems tells us, revealed that the government, particularly the Defense Department, was not concerned so much with the model 2301 radio itself as with its export to Iran. RF Systems eventually negotiated a compromise in late July 1986 under which it agreed to voluntarily withdraw from all further sales to the Iranian market. The company asserted that by so doing it would lose $5.9 million in already contracted-for orders and $10 million in potential orders to Iran. In exchange, the government ruled in September 1986 that the model 2301 radio was not subject to the stringent export controls of Munitions List products. 6 The State Department proceedings and resulting compromise that RF Systems and the government reached directly impacted on Harriscom's business. First, while negotiations were ongoing RF Systems could not fill any Harriscom orders to Iran. Second, the government, as a result of the compromise, allowed RF Systems to fill only three of eight outstanding Harriscom orders to Iran. These orders involved the disputed model 2301 radio and the model 301 radio. Harriscom's third alleged injury concerned performance bonds. In July 1986 RF Systems had performance bond guarantees of $240,000 in favor of Harriscom, but these bonds expired with shipment of the three outstanding orders. At the same time Harriscom itself had $550,000 of unconditional bond guarantees in favor of its customer, the Iranian government, and it lost $270,000 of these bonds as a result of RF Systems' failure to fill the five pending orders. Fourth, Harriscom sustained lost profits on those unfilled contracts. 7 The first of the two contractual disputes stems from the government's permitting RF Systems to fill only three of the eight outstanding Harriscom orders. Harriscom alleges RF Systems breached the contract between them with respect to the five remaining unfilled orders and also breached its dealership agreement because RF Systems did not apply for an export permit provided for in a November 1987 Commerce Department regulation, 15 C.F.R. Sec. 785.4(d)(1)(xiii). Harriscom also claims breach based on RF Systems' failure to use its Indian licensee, Punjab Wireless Systems Ltd., to supply radios to Iran. Harriscom finally alleges RF Systems made its decision not to fill the five outstanding orders voluntarily. 8 The second contractual dispute involves a 1984 agreement between the parties under which Harriscom promised to purchase RF Systems' entire inventory of model 301 radios and spare parts for $3 million for resale in Iran. RF Systems warranted, in exchange, that it would not manufacture any more model 301 radios. This contract is contained in a September 12, 1984 Memorandum of Understanding and an October 12, 1984 side letter. Although the contract called for two shipments of the model 301 radios in December 1984 and April 1985 and payments for the same, the parties agreed in writing that the second date was somewhat flexible. Harriscom had some difficulty in meeting these contract deadlines, but did place its order. 9 Then the State Department controversy over the model 2301 radio intervened, suspending all of RF Systems' Iranian business. In June 1986 RF Systems shipped one order of the model 301 radios to Harriscom, as part of its compromise with the government. Harriscom disputes several aspects of the model 301 radio contract, contending that subsequent negotiations changed its terms. Primarily, Harriscom challenges RF Systems' retention of a $150,000 deposit it paid in September 1984 and characterized by the agreement as non-refundable.