BAE Systems Technology Solution & Services, Inc. v. Republic of Korea's Defense Acquisition Program Administration
Filing
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MEMORANDUM OPINION. Signed by Judge Paul W. Grimm on 12/7/2016. (jf3s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
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BAE SYSTEMS TECHNOLOGY
SOLUTION & SERVICES, INC.,
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Plaintiff,
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v.
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REPUBLIC OF KOREA’S DEFENSE
ACQUISITION PROGRAM
ADMINISTRATION, et al.,
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Defendants.
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Case No.: PWG-14-3551
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MEMORANDUM OPINION
This suit involves Defendant Republic of Korea’s unsuccessful efforts through its
Defense Acquisition Program Administration (“DAPA”)1 to upgrade its F-16 fighter fleet
through the United States Government’s Foreign Military Sales (“FMS”) Program. In a suit filed
in the Seoul Central District Court in South Korea and in Counterclaims brought in this action,
South Korea claims that Plaintiff BAE Systems Technology Solution & Services Inc. (“BAE”)
either (a) breached its obligations under a Memorandum of Agreement (“MOA”) it entered with
DAPA and under related Letters of Guarantee by failing to secure an agreed-upon price for the
FMS transaction; or (b) committed fraud or negligent misrepresentation by giving the impression
1
BAE originally filed suit against DAPA, Compl., ECF No. 1, and then amended to name the
Republic of Korea as a second defendant, Am. Compl., ECF No. 12. I refer to Defendants
together as “South Korea.”
that it could do so. See South Korea Compl., J.R. 1489–95; Defs. Counterclaims, ECF No. 53.2
BAE seeks a declaratory judgment that it is not liable under either contract or tort theories for its
inability to control the FMS transaction’s cost. Having found that this Court possesses and may
exercise jurisdiction over this action, Oct. 24, 2016 Mem. Op. & Order, ECF No. 103, the
pending matter before the Court is BAE’s Motion for Summary Judgment, ECF No. 70. The
parties have fully briefed the Motion, Pl.’s Mem., ECF No. 70-1; Defs.’ Opp’n, ECF No. 75;
Pl.’s Reply, ECF No. 77, and no hearing is necessary, see Loc. R. 105.6 (D. Md.). Because the
FMS Program is designed to prevent litigation between foreign governments and U.S. defense
contractors and because I find that the preliminary contract between BAE and South Korea is not
divisible from the resulting FMS transaction, I will grant BAE’s motion. I will also lift the
preliminary injunction I previously issued against South Korea, July 19, 2016 Mem. Op. &
Order, ECF No. 84, that has prevented it from prosecuting its suit against BAE in the Seoul
Central District Court.
Background
The FMS Program
Military equipment manufacturers in the United States may sell their
equipment to foreign governments through Direct Commercial Sales (“DCS”) or
the Foreign Military Sales (“FMS”) Program. Sec’y of State for Defence v.
Trimble Navigation Ltd., 484 F.3d 700, 703 (4th Cir. 2007). The FMS Program
“provides a mechanism for the United States government to sell defense articles
and services to foreign governments,” where the President finds “that the sale
‘will strengthen the security of the United States and promote world peace.’ ”
Heroth v. Kingdom of Saudi Arabia, 565 F. Supp. 2d 59, 61 (D.D.C. 2008), aff’d,
331 F. App’x 1 (D.C. Cir. 2009) (quoting 22 U.S.C. § 2753(a)(1) (provision of
Arms Export Control Act, 22 U.S.C. §§ 2751 et seq.)). In the FMS Program, “the
United States and the foreign government purchaser enter into a contract for the
goods, which the United States then provides from its own inventory or purchases
from a domestic contractor through a separate agreement.” Trimble, 484 F.3d at
2
Citations to “J.R.” refer to the Joint Record filed by the parties in the case. See ECF Nos. 39–
40, 81.
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703. Thus, “[a]n FMS purchase involves two contracts: one between the foreign
government and the United States, termed the Letter of Agreement (“LOA”), and
one between the United States and the domestic contractor.” Id. “Notably, there
is no contract between the foreign government and the defense contractor” when
a foreign government acquires goods or services through the FMS Program.
Heroth, 565 F. Supp. 2d at 61–62 (emphasis added). In contrast, the foreign
government and the domestic contractor enter into their own agreement in a DCS
transaction. Trimble, 484 F.3d at 703.
Feb. 4, 2016 Mem. Op. 6, ECF No. 43.
As a necessary and, indeed, intended byproduct of this absence of contractual privity
between FMS buyers and sellers, foreign sovereigns forgo significant control over FMS
transactions. See Trimble, 484 F.3d at 707 (“[T]he FMS program requires the intermediation of
the United States and a back-to-back contract structure[, which] reflects the national security
interests of the United States . . . .”). While the FMS Program allows foreign sovereigns “to take
advantage of the United States’ procurement contract experience or ability to obtain discounted
prices,” id. at 706, the Program requires FMS customers to permit the United States to
“determine[] the contract type, select[] the contract source, and negotiate[] prices and contract
terms with the individual contractor.” Def. Inst. of Sec. Assistance Mgmt., The Management of
Security
Assistance
15-4
(27th
ed.
2016)
(emphasis
http://www.disam.dsca.mil/pubs/DR/27th%20Greenbook.pdf.
added),
available
at
In short, the foreign sovereign
must “trust[] the [U.S. Government] to negotiate a contract that meets [its] needs.” Id.
South Korea’s F-16 Fleet Upgrades
This case arises from South Korea’s efforts to participate in the FMS Program while
retaining the level of control that it would exercise in a DCS transaction. In 2011, South Korea
sought to upgrade its F-16 fighter fleet through the FMS Program. South Korea solicited bids
from U.S. defense contractors. Joint Statement of Undisputed Facts ¶¶ 1–2, ECF No. 69. BAE
and Lockheed Martin each submitted bids for the project. Joint Statement ¶ 2; BAE, Proposal
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for KF-16 Upgrade Program (Dec. 2, 2011), J.R. 117–521. In August of 2012, DAPA and BAE
entered into a MOA that designated BAE as the defense contractor that DAPA wished to
perform the upgrades.
See Memorandum of Agreement (MOA) art. 7, J.R. 558.3
This
designation reflected South Korea’s right under the FMS Program regulations to request a
specified contractor for the transaction (but without obligating the U.S. Government to accept its
request). See DFARS 225.7304(a). In exchange for being named as the requested contractor,
BAE promised to “put forth its best effort” to secure enumerated contract terms—including a
predetermined contract price—in an LOA between South Korea and the U.S. Government.
MOA arts. 1–2, 3(2), J.R. 555–56. As part of the bid process, BAE submitted a Letter of
Guarantee to DAPA in which it promised to pay DAPA $43,250,000 if it “fail[ed] to execute the
contract with DAPA after the bid is awarded to [BAE]” or to “respond timely to the evaluation
formalities of the bidder’s qualification if [BAE] is designated as an eligible bidder.” Dec. 5,
2011 Letter of Guarantee for Payment of Bid Bond (Revised), J.R. 813.4 BAE submitted five
additional revised Letters of Guarantee between 2011 and 2014. Joint Statement ¶¶ 4, 14.5
Although the MOA did not reference the Letters of Guarantee, it authorized South Korea to
demand payment of the $43,250,000 promised in the Letters if delays occurred due to BEA’s
failure to secure the contract terms specified in the MOA in the final FMS contract. See MOA
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The MOA’s explicit objective was to document what BAE would propose “for inclusion into
the anticipated FMS LOR [between DAPA and the U.S. Government] . . . regarding . . . the
KF-16 Upgrade Program.” MOA art. 1, J.R. 555. It is beyond dispute that the MOA was not an
ancillary side agreement between DAPA and BAE that was separate from but related to the FMS
agreement to upgrade the Korean F-16 fleet, as South Korea unpersuasively contends. See
Defs.’ Opp’n 5, 8–10.
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This initial Letter of Guarantee revised superseded another Letter that DAPA rejected for
failure to conform with the format it specified. Joint Statement ¶ 3; see also Nov. 22, 2011 Letter
of Guarantee, J.R. 811–12.
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See also Dec. 12, 2011 Letter of Guarantee, J.R. 814; June 21, 2013 Letter of Guarantee J.R.
815; Sept. 19, 2013 Letter of Guarantee, J.R. 816; Apr. 10, 2014 Letter of Guarantee, ECF No.
674; Sept. 30, 2014 Letter of Guarantee, J.R. 1405–06.
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art. 8, J.R. 559.6 The MOA provided that execution of a LOA “automatically terminate[s]” the
MOA, “reliev[ing] [BAE] of all obligations under this MOA and the” Letter of Guarantee. Id.
art. 7, J.R. 558.
In September 2013, the U.S. Government, DAPA, and BAE met to discuss the pricing of
the upgrade program and agreed to divide the upgrade work between two separate LOAs, one
addressing “pre-planning activities and long-lead support” items and the other addressing the
bulk of the upgrade program. KF-16 Upgrade Program Meeting Minutes ¶ 15A (Sept. 5–10,
2013), J.R. 1445–56; Joint Statement ¶ 8. The meeting minutes note that the U.S. Government
and BAE offered diverging estimates of the upgrades’ cost. Id. ¶ 6, J.R. 1439. But the U.S.
Government emphasized “that there is only one cost which is relevant, and that was the FMS
program cost estimate provided by” the U.S. Government.
Id.
Nonetheless, the U.S.
Government agreed to “work with BAE to achieve” South Korea’s “aggressive . . . cost goals,”
while emphasizing that “there are no guarantees that future funding will not be required during
program execution.” Id. ¶ 15C, J.R. 1446.
One month later, the U.S Government and South Korea finalized a LOA for the preplanning components of the F-16 upgrades. Letter of Offer and Acceptance (LOA), J.R. 658–73.
The LOA approved BAE as the contractor to perform the upgrades. LOA 3, Note 1, 6, Note 4,
J.R. 659, 662. It also provided a $1.05 billion estimate for the upgrades, LOA 4, Note 1, J.R.
660, but obligated South Korea “[t]o pay . . . the total cost” of the upgrades “even if the [final]
costs exceed the amounts estimated in the LOA,” id. at 12, § 4.4.1, J.R. 667; see also SAMM
§ C5.F4, Standard LOA Terms § 4.4.1. Importantly, the LOA also required the two sovereigns
“to resolve any disagreement regarding this LOA by consultations” and prohibited referral of any
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South Korea refers to Article 8 of the MOA as a liquidated damages provision in its Complaint
filed in the Seoul Central District Court. South Korean Compl. 1, J.R. 1489.
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“disagreement to any international tribunal or third party for settlement.” LOA 14, § 7.2; see also
SAMM § C5.F4, Standard LOA Terms § 7.2.
About one year later, the U.S. Government informed South Korea that, despite its best
efforts, the costs of the upgrades would exceed $1.705 billion. Letter from Col. David C.
Wright, Acting Dir. Reg’l Affairs, U.S. Air Force, to Col. Kang, Byeong-Ho, Def. Acquisition
Program Admin. (Aug. 21, 2014), J.R. 1448–49 (estimating cost of $2.060 billion); Letter from
Heidi H. Grant, Deputy Under Sec’y, U.S. Air Force, to Brig. Gen. Kim, Won-sik, Def.
Acquisition Program Admin. (Sept. 29, 2014), J.R. 1450–51 (estimating cost between $2.4 and
$2.5 billion). The U.S. Government explained that it arrived at its revised estimate by consulting
“historical data from similar F-16 development programs.” Letter from Heidi H. Grant to Brig.
Gen. Kim, Won-sik, J.R. 1450. In response, South Korea demanded that BAE pay DAPA
$43,250,000 for violating the MOA. DAPA Notice of Claim, J.R. 1452–54; Joint Statement
¶ 13. About one month later, the U.S. Government terminated the Upgrade Program over South
Korea’s inability to agree to the revised price. Memorandum from Air Force Life Cycle Mgmt.
Ctr. to BAE Sys. Tech. Sol. & Servs. Inc., J.R. 1465–1468; Joint Statement ¶ 16. Shortly
thereafter, BAE filed its Complaint in this Court. ECF No. 1.
Both BAE and South Korea acknowledge that a FMS contract governed the intended
F-16 upgrades, see Pl.’s Mem. 1; Defs. Opp’n 10–12, and that the FMS program prohibits a
foreign sovereign from enforcing a FMS contract, see Pl.’s Mem. 2, 4; Defs.’ Opp’n 5. South
Korea argues, however, that the FMS program does not prohibit “FMS customers and U.S.
contractors from negotiating and agreeing to [independent] contracts [such as the MOA] related
to an FMS sale of military equipment or services” and that BAE is liable under the MOA for its
failure to “use its best efforts to reach agreement with the [U.S. Government] to include certain
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contract terms and scope of work in the LOA between [the two sovereigns].” Defs.’ Opp’n 5,
12; see also MOA art. 1, J.R. 555. BAE contends that the MOA is not divisible from the FMS
transaction. See Pl.’s Mem. 16–17, Pl’s Reply 12–13. If, as BAE argues, the FMS program bars
South Korea from suing BAE for its asserted failure to secure South Korea’s preferred contract
price, then South Korea contends that it is entitled to damages for BAE’s allegedly fraudulent or
negligent misrepresentations about the validity and enforceability of the MOA. Defs.’ Opp’n
18–19. BAE argues that the FMS Program also prohibits South Korea’s Counterclaims and, in
the alternative, that they are not cognizable. Pl.’s Mem. 17–19; Pl.’s Reply 13.
Standard of Review
Summary judgment is proper when the moving party demonstrates, through “particular
parts of materials in the record, including depositions, documents, electronically stored
information, affidavits or declarations, stipulations . . . , admissions, interrogatory answers, or
other materials,” that “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a), (c)(1)(A); see also Baldwin v.
City of Greensboro, 714 F.3d 828, 833 (4th Cir. 2013). If the party seeking summary judgment
demonstrates that there is no evidence to support the nonmoving party’s case, the burden shifts to
the nonmoving party to identify evidence that shows that a genuine dispute exists as to material
facts. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–87 & n.10
(1986). The existence of only a “scintilla of evidence” is not enough to defeat a summary
judgment motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Instead, the
evidentiary materials submitted must show facts from which the finder of fact reasonably could
find for the party opposing summary judgment. Id. A “genuine” dispute of material fact is one
where the conflicting evidence creates “fair doubt”; wholly speculative assertions do not create
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“fair doubt.” Cox v. Cnty. of Prince William, 249 F.3d 295, 299 (4th Cir. 2001); see also Miskin
v. Baxter Healthcare Corp., 107 F. Supp. 2d 669, 671 (D. Md. 1999). The substantive law
governing the case determines what is material. See Hooven–Lewis v. Caldera, 249 F.3d 259,
265 (4th Cir. 2001). A fact that is not of consequence to the case, or is not relevant in light of the
governing law, is not material. Id.; see also Fed. R. Evid. 401 (defining relevance).
Discussion
Breach of Contract
In ruling that this case should not be dismissed on forum non conveniens grounds, I held
that the MOA and FMS contract “were inextricably intertwined” and that “enforcement of the
MOA, in isolation from the much larger FMS LOA between South Korea and the United States
would fly in the face of the FMS Program and the U.S. Government’s directive, which implicates
U.S. security interests.” Feb. 4, 2016 Mem. Op. 23–24 (citing Sec’y of State for Defence v.
Trimble Navigation Ltd., 484 F.3d 700, 707 (4th Cir. 2007)). In so ruling, I relied on Trimble,
which held that an FMS customer could not sue a defense contractor as a third-party beneficiary
of a LOA because “it would be contrary to the statutory scheme to imply a direct relationship
between the domestic contractor and the foreign purchaser.” 484 F.3d at 707. BAE contends
that my prior ruling governs the outcome of this case. Pl.’s Mem. 16–17. South Korea raises
two principal arguments for why that ruling does not resolve the matter, neither of which are
availing.
First, South Korea suggests that the regulations governing FMS transactions permit
foreign sovereigns to indirectly control the FMS contract prices through price competitions and
that it can therefore hold BAE liable for its inability to ensure that the price estimated in its bid
became the final contract price. Defs.’ Opp’n 6–8, 12–18. BAE disputes South Korea’s reading
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of the regulations but maintains that South Korea’s claims would be barred even under its
interpretation. Pl.’s Reply 4–11. BAE is correct.
South Korea’s argument rests on two basic assertions about the FMS regulations: (1) that
the regulations permit the FMS customer to “direct the [U.S. Government] to award the [FMS]
contract . . . to a specific contractor”; (2) that they permit “a foreign government to hold a
competition to select a contractor and in that competition, establish the price that should
determine the price that the contractor charges the [U.S. Government] for its equipment and
services.” Defs.’ Opp’n 6, 14–15.
The FMS regulations provide:
FMS customers may request that a defense article or defense service be obtained
from a particular contractor. In such cases, FAR 6.302-4 provides authority to
contract without full and open competition. The FMS customer may also request
that a subcontractor be placed with a particular firm. The contracting officer shall
honor such requests from the FMS customer only if the LOA or other written
directions sufficiently fulfills the requirements of FAR Subpart 6.3.
DFARS 225.7304(a) (emphasis added). The obligatory “shall honor” language appears at odds
with DFARS 225.7304(f), which directs the U.S. Government “not [to] accept directions from
the FMS customer on source selection decisions.” South Korea argues that the discretionary
authority provided by DFARS 225.7304(f) only applies to sole-source requests that do not
comply with the regulations referenced in DFARS 225.7304(a). Defs.’ Opp’n 15–17 (citing In
re: Julie Research Labs., Inc. Reconsideration, No. B-218244, 1985 WL 52865, at *2 (Compt.
Gen. June 12, 1985)). In other words, South Korea views DFARS 225.7304(a) as an “exception”
to the discretionary authority granted in DFARS 225.7304(f). Id. at 17. BAE argues that
DFARS 225.7304(a)’s “shall honor” language applies only to subcontracts, not prime contracts.
Pl.’s Reply 7 & n.3 (citing Hyperion, Inc. v. United States, 120 Fed. Cl. 604 (2015)). Whichever
side’s reading of the FMS regulations is better, there is no dispute that the U.S. Government did
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in fact honor South Korea’s request for BAE to perform the FMS contract, LOA 3, Note 1, 6,
Note 4, J.R. 659, 662; Joint Statement ¶ 11, so the parties’ disagreement over this aspect of the
regulations is immaterial because the dispute at hand centers on the price of the contract, not the
entity intended to perform it.
Once a contractor is selected to perform a FMS contract, the U.S. Government
determines the contract price, see DFARS 225.7303(a) (designating the U.S. Government as the
entity that “[p]rices FMS contracts.”), which it does in the same manner that it prices domestic
defense contracts, id. Before negotiating a domestic military contract, the U.S. Government
“obtain[s] certified cost or pricing data” to assist it in “establish[ing] a fair and reasonable price.”
FARS 15.402(a). The U.S. Government need not obtain such information, however, if an
“adequate price competition” occurs. FARS 15.403-1(b)(1). Similarly, a FMS customer can
avoid an obligation to provide “certified cost or pricing data,” DFARS 225.7303(a), by
“conduct[ing] a competition resulting in adequate price competition,” DFARS 225.7303(b)
(cross-referencing FAR 15.403-1(b)(1)). South Korea contends that the U.S. Government loses
its discretion over the contract price by entering a FMS contract with a contractor selected by an
adequate price competition. Defs.’ Opp’n 7–8 (citing Defense Security Cooperation Agency
(DSCA), Security Assistance Management Manual (SAMM) C.6.3.2 (“When foreign
government conducts a competition for a weapon system . . . that competition should determine
the price to be paid.); Memorandum from DSCA to Deputy Under Sec’y Army (Int’l Affairs) et
al. attach. 1 (Jan. 19, 2000) (“[C]ompetitions run by foreign governments should determine the
price to be paid . . . even if the sale to the foreign government is then processed as a foreign
military sale . . . .”)).
But, as BAE correctly notes, the disputed regulations address the
information the foreign sovereign must provide in order for a price to be determined and do not
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circumscribe the U.S. Government’s ability to adopt a different price based on other information,
Pl.’s Reply 5–6 & n.2, as the U.S. Government did here, Letter from Col. David C. Wright to
Col. Kang, Byeong-Ho, supra, at 1 (“Based upon the most recent USG and contractor data,
extensive analysis, . . . the USG’s current independent cost estimate for program execution is in
excess of $2.06B.”); Letter from Heidi H. Grant to Brig. Gen. Kim, Won-sik, supra, at 1 (“We
now estimate the total program cost at moderate risk to be $2.4B-$2.5B. This cost is based upon
historical cost data from similar F-16 development programs . . . .”); KF-16 Upgrade Meeting
Minutes 2–3 (Sept. 11, 17, 2014), J.R. 1697–98 (describing revised cost estimate methodology
based on “other similar F-16 modifications,” which was prompted by updated price estimates
from BAE due to “the learning curve for both BAE and USG resulting from meeting the LOR
requirements”).
But in making its argument that the U.S. Government lost its right to determine the FMS
contract price once South Korea selected BAE through an adequate price competition, it proves
too much. This is because even if South Korea’s characterization of the FMS regulations were
accurate, its grievance is with the U.S. Government for violating the regulations, not BAE for
breaching its contractual obligations. BAE complied with every step of the FMS process even as
South Korea conceives of it. BAE participated in a price competition and identified the price at
which it was willing to perform the FMS transaction. See Joint Statement ¶ 2; Proposal for KF16 Upgrade Program, supra, § 3.17.8, J.R. 473–74 (providing cost for BAE’s bid to perform
F-16 upgrades).7 Under South Korea’s reading of the regulations, those are the only actions
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The parties dispute whether BAE modified its own price estimate after the submission of the
LOR. See Pl.’s Mem. 10 (“[T]he U.S. Government’s price increase was based on its historical
experience with Lockheed Martin for previous F-16 upgrade programs, not on decisions of, or
actions taken by, BAE TSS.”); Defs.’ Opp’n 4 n.4 (“[I]n September 2014, the USG told
Defendants that part of the price increase was the result of BAE increasing its price by $270
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required for BEA to bind the United States to a predetermined FMS-contract price: After South
Korea selected BAE as the winner of the price competition, the U.S. Government could either
refuse to enter into an FMS agreement with South Korea or contract with BEA at the price
memorialized in its bid. According to South Korea’s interpretation of the regulations, it was the
U.S. Government, not BEA, that ran afoul of its obligations. But because, as South Korea
concedes, the FMS Program prohibits a foreign sovereign from suing the U.S. Government for
violating a LOA, Defs.’ Opp’n 11, South Korea instead seeks to hold BEA liable for the U.S.
Government’s conduct. BEA is not liable—under contract law or any other legal theory—for the
U.S. Government’s regulatory noncompliance. And the remedy for any “disagreement” that
South Korea has with the U.S. Government over the FMS transaction is sovereign-to-sovereign
“consultation,” not “refer[al]” to a “third party” such as this Court or the Seoul Central District
Court. LOA 14, § 7.2; see also SAMM § C5.F4, Standard LOA Terms § 7.2.
Alternatively, South Korea attempts to characterize the MOA between DAPA and BAE
as an “offset agreement.” Defs.’ Opp’n 17. This sleight of hand is unavailing. The FMS
regulations note that the U.S. Department of Defense “does not encourage, enter into, or commit
U.S. firms to FMS offset arrangements,” but they do not prohibit defense contractors from
entering into them. DFARS 225.7306. The term “offset” as used in the regulations is “an
inducement or condition to purchase military supplies or services, including benefits such as
coproduction, licensed production, subcontracting, technology transfer, in-country procurement,
marketing and financial assistance, and joint ventures.” PGI 225.7303-2(a)(3)(A) . Such offsets
encompass:
million.” (citing KF-16 Upgrade Meeting Minutes, supra, at 3)). This factual dispute, however,
is not material because regardless of which entity initiated the price-estimate revisions, there is
no dispute that the U.S. Government was the entity that ultimately increased the estimate.
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(i)
(ii)
A direct offset[, which] involves benefits, including supplies or services that are
directly related to the item being purchased. For example, as a condition of a U.S.
sale, the contractor may require or agree to permit the purchaser to produce in its
country certain components or subsystems being sold. . . .
An indirect offset[, which] involves benefits, including supplies or services that
are unrelated to the item being purchased. For example, as a condition of a sale
the contractor may agree to purchase certain of the customer’s manufactured
products, agricultural commodities, raw materials, or services.
Id. As BAE correctly notes, none of the offset agreements contemplated by the regulations
“govern the terms and conditions of the FMS transaction.” Pl.’s Reply 12.
The MOA made BAE responsible for ensuring that the LOA included predetermined
contract terms, including the contract price. MOA arts. 1–2, 3(2), J.R. 555–56. It did not, as
contemplated by the regulations’ definition of offsets, confer an ancillary benefit to one party or
the other to engage in the FMS transaction. See PGI 225.7303-2(a)(3)(A). For example, the
MOA did not obligate BAE to produce components for the upgrades in South Korea or require
South Korea to purchase unrelated products from BAE. Rather, it sought to shape the scope and
cost of the FMS transaction.
Neither South Korea’s interpretation of the FMS regulations nor its characterization of
the MOA as an offset agreement negates my view that “the crux of the Trimble opinion applies”
here. Feb. Mem. 4, 2016, Op. 23. Enforcement of the MOA as an independent contract divisible
from the FMS transaction would run counter to U.S. national security interests. See id. at 23–24.
Although the instant case and Trimble differ in that South Korea does not seek third-party
beneficiary status, South Korea, like the FMS customer in Trimble, seeks to do indirectly what
the FMS regulations prohibit it from accomplishing directly—namely sue BAE for its
performance on an FMS contract. BAE is entitled to a declaration that the FMS Program and
federal common law bar South Korea from suing BAE for breaching the MOA. I will therefore
grant summary judgment in its favor. Accordingly, I will dismiss as moot Counts I, II, III, and V
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of BAE’s Second Amended Complaint, which all argue that BAE should prevail on the merits of
South Korea’s contract-law claims. See Second Am. Compl. ¶¶ 68–82, 89–96, ECF No. 22.
Tort Counterclaims
Since the FMS Program’s structure bars a breach-of-contract claim against BAE, South
Korea contends that BAE is liable for fraudulently or negligently misrepresenting its capacity to
ensure the adoption and enforcement of South Korea’s preferred contract terms. But South
Korea advances no authority for its argument that it may bring torts arising out of a contract
claim against BAE, and BAE is quick to point out that “a tort claim cannot be based on an
alleged breach of contract.” Pl.’s Mem. 18 (citing Kwang Dong Pharma. Co. v. Han, 205 F.
Supp. 2d 489, 495 (D. Md. 2002)).8 While BAE only cites authority supporting its argument in
the context of the fraud Counterclaim, this Court has taken a similar position in the context of
negligent misrepresentation claims. See Bierman v. United Farm Family Ins. Co., RDB-122445, 2013 WL 1897781, at *7 (D. Md. May 6, 2013) (dismissing negligent misrepresentation
claim that “essentially repeat[ed] Plaintiff’s claim for breach of contract”).
South Korea does not address this argument, apart from noting its perceived need for
“additional discovery concerning BAE’s actual representations about the KF-16 Upgrade
Program.” Defs.’ Opp’n 20. Discovery concluded in this case on November 11, 2016. See Mar.
33, 2016 Paperless Order, ECF No. 59 (approving Motion to Modify Scheduling Order, ECF No.
58). South Korea could have requested an extension of the discovery deadline but has not. If
between filing its Opposition on May 16, 2016 and the discovery deadline South Korea had
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BAE also argues the Counterclaims are non-cognizable because they rely on “representation of
law,” which it argues is “a nonactionable statement of opinion,” and because “as a matter of law,
DAPA could not have reasonably relied on BAE TSS’ alleged representations regarding the
scope, timing, or pricing of KF-16 Upgrade Program.” Pl.’s Mem. 18–19. Because I find that
South Korea did not provide evidence of fraud or negligent misrepresentation outside the MOA
itself, I do not address these arguments.
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discovered evidence of representations made by BEA independent from the MOA itself on
which South Korea relied to its detriment, it could have requested permission to file a surreply.
Again, it did not. Thus, the Court will not speculate about the existence of evidence outside the
record that supports South Korea’s tort Counterclaims. Accordingly, BAE is also entitled to
summary judgment in its favor with respect to those Counterclaims.
Preliminary Injunction
During the pendency of the case, I granted BAE’s Motion for Preliminary Anti-Suit
Injunction “until the resolution of the threshold issue of subject matter jurisdiction and the
pending motion for summary judgment.” July 19, 2016 Mem. Op. & Order 36–37. Having
determined that the Court does have subject-matter jurisdiction over the matter and can exercise
it, Oct. 24, 2016 Mem. Op. & Order, and because I now will grant summary judgment in BAE’s
favor, I will also lift the preliminary injunction. Should South Korea proceed with its claims
against BAE in its own courts, BAE may defend against the claims by asserting any claim or
issue preclusion that this judgment may afford it under Korean law.
Conclusion
The FMS Program is specifically structured to require disagreements that arise during
FMS transactions to be resolved through sovereign-to-sovereign consultation rather than through
litigation. Permitting South Korea to enforce a contract against BAE that holds the contractor
accountable for ensuring that predetermined contract terms govern the FMS transaction would
run contrary to the FSM Program’s structure and the national-security interests that underlie it.
BAE is therefore entitled to a declaration that South Korea’s breach-of-contract claims are
unenforceable.
Moreover, South Korea’s tort Counterclaims fail because a party’s alleged
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breach of contract, by itself, cannot be the basis of fraud or negligent misrepresentation claims.
BAE is entitled to summary judgment.
A separate Order follows.
Dated: December 7, 2016
/S/
Paul W. Grimm
United States District Judge
jlb
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