Arabian Support & Services Company, LTD. v. Textron Systems Corporation

Filing 78

Judge Richard G. Stearns: ORDER entered granting 62 Motion for Summary Judgment; finding as moot 22 Motion to Dismiss for Failure to State a Claim. (RGS, law2)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 15-12951-RGS
ARABIAN SUPPORT & SERVICES COMPANY, LTD.
v.
TEXTRON SYSTEMS CORPORATION
MEMORANDUM AND ORDER ON
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
AND RENEWED MOTION TO DISMISS
March 11, 2016
During the relevant times, Arabian Support & Services Company, Ltd.
(ASASCO) was a consulting firm based in Riyadh, Saudi Arabia.1 ASASCO
held itself out as a facilitator of munitions sales to the Saudi government.
Textron Systems Corporation, a major U.S. defense contractor, is a Delaware
corporation with a business presence in Massachusetts. Blenheim Capital
Partners, which is not a party to the lawsuit, is a United Kingdom
consultancy that formulates “offset solutions” – local investments required
of foreign contractors by many arms-procuring countries as a ticket of
admission for doing business locally. The issue in this case is whether
ASASCO can compel a former client (Textron) to pay a commission promised

The contracting documents suggest that ASASCO’s presence in
Riyadh consisted mainly of a post office box.
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by a nonparty (Blenheim) that had agreed to provide Textron with offset
services.2
ASASCO alleges that for nearly a decade it assisted Textron in the
marketing and sale of sensor fuzed weapons (“cluster bombs”) to Saudi
Arabia.3 The relationship between Textron and ASASCO was governed by a
Consulting Agreement entered in March of 2005. The Agreement, which was
subsequently modified and renewed in certain nonmaterial respects, expired

While not an issue raised by the parties, contractual arrangements
involving offset payments, particularly those involving layers of contractors,
are controversial and potentially subject to scrutiny under the U.S. Foreign
Corrupt Practices Act, 15 U.S.C. § 78dd-1. As a respected non-governmental
organization has warned: “Offsets transactions carry potentially high risks
of corruption, not only due to the high level of secrecy within defence
procurement as a whole, but because they usually lack the scrutiny and
monitoring of the corresponding acquisition contract. . . . Besides the risk
of bribery in offsets contracts, there is an additional risk that main supplier
companies may be using the offsets package as a vehicle to offer benefits to
individuals in return for undue influence or access to defence contracts. In
short, offsets may influence the acquisition decision rather than the quality
of the good or service offered.” Louise Fluker, Julia Muravska, and Mark
Pyman, Transparency International UK, Due Diligence and Corruption Risk
In Defence Industry Offset Programmes 10, Tiffany Clarke, ed. (London,
UK: February 2012).
2

The United States and the Kingdom of Saudi Arabia are not
signatories to the Convention on Cluster Munitions banning the use,
transfer, and stockpile of cluster bombs. The Convention, sponsored by the
United Nations, entered into force on August 1, 2010.
http://www.stopclustermunitions.org/en-gb/the-treaty/treaty-status.aspx
(last visited March 7, 2016).
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in 2013. Under the terms of the Agreement, Textron was to pay ASASCO a
fixed consulting fee (which was reduced substantially over the life of the
contract).

Each iteration of the Agreement included a clause limiting

ASASCO’s remuneration to the consulting fee alone.4 In 2011, an integration
clause was inserted into the Agreement stating that “[T]his Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings,
written or oral. Each party hereby waives the right to assert any claim against
the other . . . based on any oral representations, statement, promise or
agreement.” Dkt. #71-3 at 107.
ASASCO alleges that notwithstanding the written Agreement, Textron
promised repeatedly that it would pay it a percentage of any successful sale
in addition to the consulting fee.5 Specifically, ASASCO alleges that Textron

Each edition of the Agreement provided that “no additional
payments” (travel reimbursement excluded) were to be paid to ASASCO, and
that ASASCO “shall not receive any compensation or commission based . . .
on the volume of sales.” Dkt. # 71-1 at 131, Dkt. # 71-3 at 30, Dkt. # 71-3 at
100. In 2011, the parties added language specifying that the consulting fee
was “full and adequate compensation . . . and [the] exclusive remuneration
to be paid” ASASCO by Textron. Dkt. 71-3 at 99.
4

ASASCO cites both oral and written communications from Textron,
including proposed draft agreements for offset services drawn up by Textron,
in support. See Dkt. # 71-1, Exs. 12-14, 22. Of these, ASASCO chiefly relies
on an internal Textron email from 2008, forwarded to ASASCO, which states
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intended to use money generated through the offset obligations to funnel
commission payments to ASASCO. In 2006, Textron engaged Blenheim to
craft an “offset solution” for a sale of cluster munitions to Saudi Arabia.
ASASCO alleges that it collaborated with Textron and Blenheim over the next
two years in drafting two contracts, one between Textron and Blenheim (the
Offset Services Agreement (OSA) finalized in February of 2008), and a
separate subcontracting agreement between ASASCO and Blenheim
(finalized in April of 2009).
Under the OSA, Textron promised Blenheim a percentage of the sale of
munitions in exchange for its servicing of the offset obligations. The OSA
prohibited Blenheim from hiring any subcontractor other than ASASCO
without Textron’s written consent. ASASCO was not a party to the OSA.
Under Blenheim’s subcontractor agreement with ASASCO, to which
Textron was not a party, Blenheim agreed to pay ASASCO 75% of any fee paid
by Textron into “the Escrow Account.” Dkt. # 23-2 at 11. The Agreement
stated that the Escrow Account would be created “as soon as practicable,”
and that the OSA between Blenheim and Textron would be modified to

that Textron had an offset agreement in place with ASASCO “through
Blenheim.” Dkt. # 71-1, Ex. 22.
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channel all payments from Textron directly into the Escrow Account.6 Id. at
12. The Blenheim-ASASCO Agreement also stated that the contract would
expire automatically if the OSA were to be terminated “for any reason.” Id.
at 4. Finally, the Agreement contained an integration clause stating that the
writing “embodies and sets forth the entire agreement and understanding of
the parties and supersedes all prior oral or written agreements,
understandings or arrangements relating to the subject matter of this
Agreement.” Id. at 16.7 In 2008, before the Blenheim-ASASCO Contract
was finalized, Textron ceased paying ASASCO’s monthly consulting fee
without any objection forthcoming from ASASCO.
On January 18, 2011, Textron and Blenheim entered into an Offset
Services Framework Agreement intended to replace the OSA. In January of
2012, Textron and Blenheim formally terminated the OSA, thus triggering

The OSA was in fact never so modified, and no escrow account was
ever created.
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The Agreement provides very few clues as to the nature of the services
ASASCO was to provide to Blenheim. It simply defines the “Sub-contracted
Services” as “all services agreed to be performed by Blenheim for [Textron]
pursuant to the [OSA] including, without limitation, the obligations of
Blenheim under Article 2 thereof.” Dkt. # 71-3 at 5. Article 2 of the OSA
declares that Blenheim would either obtain approval from the Saudi
Kingdom for “offset projects” (which Textron and Blenheim were to
designate in a separate writing) and subsequently implement any such
projects, or would persuade the Saudi government to waive Textron’s offset
obligation.
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the termination of the subcontracting agreement between Blenheim and
ASASCO. Blenheim subsequently ceased communicating with ASASCO,
although ASASCO claims it remained unaware that its contract with
Blenheim had been terminated.
ASASCO alleges that it had continuing discussions with Textron
regarding potential offsets arrangements through 2011, and continued to
lobby Saudi Arabia on Textron’s behalf. In December of 2011, Textron and
Saudi Arabia agreed to the terms of the cluster bomb sale. Textron promptly
notified ASASCO of the agreement. The sale was finalized in August of 2013.
On August 29, 2013, Textron notified ASASCO that the Consulting
Agreement, which was due to expire in two days, would not be renewed.
On July 15, 2015, ASASCO brought this lawsuit against Textron
claiming breach of contract (Count I), tortious interference with contractual
relations (Count II), and violations of the Massachusetts Unfair Business
Practices statute, Gen. Laws ch. 93A (Count III). ASASCO alleges that
Textron “paid Blenheim directly in breach of the Offset Services Agreement’s
requirement that any such payments be made to an escrow account.” Compl.
¶ 42. ASASCO also alleges that Textron breached the OSA by terminating it
without the consent of ASASCO as a third-party beneficiary.

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Finally,

ASASCO claims that Textron, by improperly terminating the OSA, induced
Blenheim to breach its separate contract with ASASCO.
Textron responded with a motion to dismiss for failure to state a claim
upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). Textron further
maintained that ASASCO’s claim for tortious interference with contractual
relations was barred by the statute of limitations. On October 1, 2015, this
court notified the parties of its intent to convert the motion to dismiss
pursuant to Fed. R. Civ. P. 12(d) into a motion for summary judgment under
Fed. R. Civ. P. 56. The court authorized limited discovery pertaining to
ASASCO’s knowledge of the termination of the OSA, the authenticity of the
Consulting Agreement, and the preclusive effect, if any, of its terms,
particularly the integration clauses.
DISCUSSION
Summary judgment is appropriate when “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(c). Summary judgment shall not be granted if the evidence is
“such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party
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bears the initial burden of establishing that no genuine issue of material fact
exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
ASASCO’s claim for breach of contract is based on the allegation that
it was a third-party beneficiary of the OSA between Textron and Blenheim
and that Textron and Blenheim terminated the OSA without notice to it and
without its permission. “[W]hen one person, for a valuable consideration,
engages with another, by simple contract, to do some act for the benefit of a
third, the latter, who would enjoy the benefit of the act, may maintain an
action for the breach of such engagement.” Rae v. Air-Speed, Inc., 386 Mass.
187, 195 (1982) (quoting Brewer v. Dyer, 7 Cush. 337, 340 (1851)). It is also
true that one need not be the intended beneficiary of every provision of a
contract to have a discrete enforceable contractual right as a third party. The
James Family Charitable Found. v. State Street Bank and Trust Co., 80
Mass. App. Ct. 720, 725 (2011). However, the third party may maintain an
action only “for the breach of such engagement,” that is, for the failure of one
of the signatories to perform the contractually promised act. Rae, 386 Mass
at 195.
With respect to the OSA entered by Textron with Blenheim, ASASCO
was the intended beneficiary in only one respect. Blenheim was prohibited
from hiring any subcontractor other than ASASCO to work on the cluster
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bomb sale to Saudi Arabia. There is no dispute of fact but that Blenheim did
hire ASASCO and that no other subcontractor was hired during the life of the
OSA. In other words, Blenheim did for ASASCO all that it was obligated to
do under the terms of its contract with Textron.8
ASASCO’s alternative argument – that Textron breached the “Offset
Services Agreement’s requirement that any such payments be made to an
escrow account,” Compl. ¶ 42 – similarly has no merit. Nothing in the OSA
required Textron to either create an escrow account or to deposit funds into
it.

The escrow account figured only in the subcontracting agreement

between Blenheim and ASASCO, to which Textron was not a party.
Moreover, no facts are alleged under which Blenheim could be deemed the
actual or apparent agent of Textron with regard to any binding promise of a
kickback to ASASCO.9

Any oral representations to ASASCO by Blenheim expanding on its
contractual obligations under the OSA are barred by the integration clause,
and in any event would not be binding on Textron.
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The termination of the OSA triggered the automatic termination of
ASASCO’s contract with Blenheim. This provision, however, was negotiated
by Blenheim and ASASCO without Textron’s participation. To the extent
that Textron had an obligation to notify ASASCO of a successful sale, it is
undisputed that it did so in December of 2011 immediately after the
munitions agreement with Saudi Arabia was reached. While Blenheim may
have promised to give actual notice to ASASCO of the termination of the
OSA, that evidence would be excluded by the agreement’s integration clause,
and moreover, would be of no concern to Textron as a nonparty. Finally,
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ORDER
For the foregoing reasons, Textron’s motion for summary judgment is
ALLOWED. The Clerk will enter judgment for Textron and close the case.
SO ORDERED.
/s/ Richard G. Stearns
UNITED STATES DISTRICT JUDGE

because Textron did all that it was contractually obligated to do, there is no
viable allegation of tortious interference or violations of Chapter 93A. In
sum, ASASCO has picked a quarrel with Textron, when its real nemesis is
Blenheim.
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