FILED
United States Court of Appeals
Tenth Circuit
March 17, 2008
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
NAVAIR, INC.,
Plaintiff - Appellant,
v. No. 07-3008
IFR AMERICAS, INC.; IFR
SYSTEMS, INC.; AEROFLEX, INC.,
Defendants - Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. NO. 04-CV-1023-MLB)
Terry L. Mann (David S. Wooding, Greg A. Drumright, Marcia A. Wood, on the
brief) of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., Wichita, Kansas, for
the Plaintiff - Appellant.
Stephen M. Kerwick (Boyd A. Byers, Carolyn L. Matthews, on the brief) of
Foulston Siefkin LLP, Wichita, Kansas, for Defendants - Appellees.
Before TACHA, HARTZ, and McCONNELL, Circuit Judges.
HARTZ, Circuit Judge.
Plaintiff Navair, Inc. was the exclusive Canadian distributor for defendant
IFR, 1 a manufacturer of military communications equipment and other products.
When Navair successfully solicited a customer for an IFR product, IFR would sell
the product to Navair for a discounted price and Navair would earn a profit upon
resale to the customer. On October 8, 2002, IFR informed Navair that it was not
going to renew their distributorship agreement and that the agreement would
expire on October 31. The dispute before us concerns how long after October 31
IFR would still be bound to sell Navair certain products at a discounted price
when Navair had begun negotiating a purchase by the customer before the
agreement ended. In other words, how long would Navair be “protected”?
The purchase in question was one by the Canadian government in early
February 2003. Navair contends that IFR granted an extension of the distribution
agreement specifically to protect it in that transaction. IFR responds that there
was no meeting of the minds to extend the agreement so that it would cover the
February purchase.
The district court granted summary judgment to IFR. Navair appeals. We
vacate the judgment and remand for further proceedings because there is a
genuine dispute whether Navair was protected under an extension agreement with
IFR. In particular, we hold the following: (1) There was sufficient evidence to
1
For simplicity we refer to all three defendants as IFR. The defendants are
(1) Aeroflex, Inc., the parent company of (2) IFR Systems, Inc., which is the
parent company of (3) IFR Americas, Inc., which had the contract with Navair.
-2-
support a finding that IFR and Navair agreed to an extension protecting Navair on
the Canadian purchase even if it closed in 2003. (2) Because the parties did not
agree on an end date for the extension, Kansas law implies that it ended after a
reasonable time. (3) There is sufficient evidence to support a determination that
the reasonable time did not lapse before the purchase closed. And (4) IFR’s view
when the parties agreed to the extension that the extension would end on
January 31, 2003, is irrelevant because there is no evidence that this view was
communicated to Navair.
I. BACKGROUND
Navair was IFR’s exclusive distributor in Canada for almost 30 years. The
final distributorship agreement commenced on October 8, 2001, and expired on
October 8, 2002. On the expiration date IFR wrote Navair that the agreement
would not be extended and would expire on October 31, 2002. Under the terms of
the agreement, Navair was protected for six months from the termination date on
sales arising from outstanding quotations or prospects to be named on a list that
Navair would provide to IFR. On December 12, 2002, however, Navair and IFR
executed an agreement (the December Agreement) protecting Navair only until
December 31, 2002, and only with respect to price quotations listed in an
attachment to that agreement. The agreement also prohibited Navair from
representing IFR’s competitors.
-3-
The dispute between Navair and IFR concerns whether Navair was
protected with respect to a purchase by the Canadian Department of National
Defense (DND) in early February of 2003. In August 2002 the DND had
requested a price quotation from Navair for test sets for the IRIS Program, a radio
information system. On August 28, 2002, Navair faxed the DND a price
quotation for the test sets. On October 23 IFR emailed the DND and Navair that
manufacturing for the test sets was going forward “full throttle.” Aplt. App.
Vol. II at 454. The email said that IFR expected to receive the purchase order
before the end of December. The December Agreement specifically addressed
this transaction. It stated:
For the Iris program, we will provide Navair a 20%
discount for the initial 15 units plus spares. If we need
to offer a discount to the customer, we will provide a
50/50 split. For example, if the customer receives a 4%
discount off the price quoted, we would provide Navair
a 22% discount vs. the 20%.
Id. at 408.
On December 17, 2002, Joe Farrell, the president of Navair, sent IFR
president, Jeff Bloomer, an email that the DND had “requisitioned” 2 the IRIS
2
According to an email from the Canadian government to Navair, the
contract process begins with a “requisition,” which is a request from an agency
for equipment. Expensive equipment is then approved by the Procurement
Review Committee, which takes approximately two weeks, and proceeds to the
Director for approval, which takes approximately one week. After the Director
approves the purchase, an Advance Contract Award Notice (ACAN) is posted
online for at least 15 days. If no one files a protest, the contract can be awarded
(continued...)
-4-
components. The email also said, “Unfortunately, [the paperwork to complete the
sale] will take a few weeks and it will be the New Year before we get the order.
However, it is well advanced in the process and it is only a matter of time.” Id. at
458.
On January 14, 2003, Farrell emailed Bloomer to request that he send the
Canadian government a letter “confirming that we are your sales agent on this
order.” Id. at 459. The next day Bloomer sent the DND the following letter:
Re: IRIS Requirements
Please be advised that Navair is the authorized supplier
for this order. Delivery for systems ordered will be
made no later than 31-Mar-03 as long as order is
received by 31-Jan-03. Any other items may be delayed
as referenced on original quotation.
Id. at 460.
On January 23, 2003, Farrell emailed Bloomer to inform him that the
contracting officer for the Canadian government had predicted an “approximate
timetable” of “5–6 weeks . . . assuming no hick ups.” Id. at 411. Other language
in the email suggests that there had been some discussion of Navair’s
commitment in the December Agreement not to represent IFR competitors.
Farrell wrote: “I can assure you that Navair is not competing with IFR on the
2
(...continued)
within a week of the closing date.
-5-
IRIS product line and we are honoring our agreement. We are actively marketing
competing products for the other product lines as we indicated we would.” Id.
A few minutes later, Bloomer forwarded Farrell’s email to other IFR
employees, writing: “I guess we should discuss! I told Joe [Farrell] yesterday
that if we did not get an order by month end then it was going to be handled
direct by IFR. I called twice today because he promised me an answer. I got this
email as opposed to a phone call.” Id. at 666–67. IFR employee Sam Strang
responded to Bloomer later that day, suggesting that there was nothing to discuss
because the order would not be in by the 31-day extension Bloomer had given
Navair. The next day, Bloomer replied to Strang: “I agree we need to move past
Navair.” Id. at 666.
On January 28, 2003, Strang emailed Bloomer requesting him to write
Navair a letter stating that it no longer represented IFR. The proposed letter,
which was never sent, said:
We have twice extended the NAVAIR distribution
agreement (for the IRIS program) to meet your requests
for a little more time to make the order happen. First
[IFR] was told the order would be in before Christmas.
Then we were asked to extend through 31 January 2003
because the order had hit a small snag but would be in
by the end of January. Now NAVAIR is requesting
another 6 plus weeks.
[IFR] will stand by it’s [sic] last extension but will not
grant another. As of 1 February 2003 Canada DND and
Canada Public Works will be notified (in writing) the
-6-
official [IFR] Representative/Agent for Canada is
Testforce.
Id. at 554.
Farrell emailed Bloomer the following day:
Further to our telephone conversation last evening where
you indicated that a decision had been made to change
the terms of our Agreement dated December 12, 2002. I
await your written confirmation of the decision but I
understand that IFR is proposing effective January 31,
2003, to terminate its support to Navair in the sale of 15
IRIS units to the Canadian Government. I understand
that it is being done on the basis that Navair represents
competing products.
Navair strongly disputes this contention. We do not
represent a competing product to the IRIS. Navair has
aggressively pursued this sale since mid 2002 and
worked what was an original request for two units into
the sizeable order it is today. It is not Navair’s fault that
the wheels of the Government move so slowly and that
the order has not been received yet. It is now only a
matter of time before it happens, unless someone upsets
the process which is well underway. I believe it is in
both our interests to maintain the current arrangement to
ensure a timely completion of the sale.
...
If my understanding is correct, this is nothing more than
an effort on IFR’s part to squeeze Navair out of the
profit it has earned working this sale for many months.
Navair will do everything necessary to protect it’s [sic]
position here.
Id. at 651.
-7-
Also on January 29, IFR sent Navair a letter terminating the agreement
effective immediately on the ground that Navair had violated the noncompete
provision of the December Agreement. The next day, IFR sent Navair a second,
shorter termination letter:
As we discussed on the phone, IFR is discontinuing
representation by Navair for the IRIS program, effective
February 1, 2003. Our reasons are as follows:
! A number of companies now being
represented by Navair are direct
competitors of IFR.
! The IRIS requirement in question will not
be purchased through your support contract.
We will be notifying the DND of this change and that
Testforce Systems Inc. is the official representative/
agent for Canada. We will continue to support Navair
for any open R&O contracts with the DND. Please let
me know if you have any questions regarding this
matter.
Id. at 413.
The content of any oral communications between Navair and IFR regarding
an extension of the December Agreement is unclear. Bloomer testified at his
deposition that “we extended this agreement on the IRIS program after
December 31st to January 31st,” but he did not state when IFR granted the
extension. Id. at 588. He also testified that he was not sure whether he had told
Farrell before January 20 that the agreement extended only until January 31.
-8-
Farrell likewise testified that he and Bloomer had agreed to extend the
December Agreement with respect to the IRIS test sets, but he, too, did not
provide the date when this agreement had been reached, nor did he state that they
had agreed on a termination date. When asked, “Did [Bloomer] indicate to you at
some point in time that whatever protection IFR was going to continue to give
Navair with regard to the IRIS quote was going to be limited to the end of
January?” Farrell answered, “No.” Id. Vol. I at 198. Farrell stated that he
thought that the agreement would continue for “a reasonable time frame, subject
to the process that was being followed by the Government.” Id. at 198.
During the first week of February the DND contract was awarded to
Testforce Systems, Inc., IFR’s new sales representative. On February 6 Farrell
notified Bloomer that he was aware that the contract had been awarded and stated
that “Navair does not intend to protest this award with the Crown but will seek
redress through legal action against IFR.” Id. Vol. II at 560.
As promised, Navair sued IFR on January 27, 2004, in the United States
District Court for the District of Kansas, raising a variety of claims, including
breach of contract. Navair moved for summary judgment on its contract claim on
the ground that IFR had breached the contract by terminating Navair as its
supplier without justification. On the same day, IFR filed a cross-motion for
summary judgment, arguing that it had not breached the December Agreement,
that any alleged oral extension of the agreement was unsupported by
-9-
consideration, and that there was no meeting of the minds because the parties did
not agree on an essential term, the time of performance. In its opposition to
Navair’s motion for summary judgment, IFR also argued that if there was a
contract, Navair had breached the noncompete provision.
The district court granted summary judgment in IFR’s favor, ruling that
“Navair has not shown that the parties contractually agreed to an extension of the
December Agreement beyond the end of January 2003,” and therefore “Navair’s
breach of contract claim fails, because that is when the contract, had one existed,
would have been breached.” Id. Vol. I at 372. It found no “proof that the
[December] Agreement was extended in the manner Navair claims.” Id. at 369.
In particular, it ruled that neither the January 15 letter to the Canadian DND
identifying Navair as IFR’s distributor nor the “evidence that Navair’s president
thought the December Agreement had been extended for a ‘reasonable time’” was
sufficient to create a genuine dispute of material fact. Id. at 370. The court
concluded:
[I]t is undisputed that IFR was willing to protect
Navair’s price quotations until January 31, 2003, but
there is no evidence the parties had any agreement,
understanding, or contract beyond that date. . . . Thus,
despite taking all the facts in the light most favorable to
Navair, it is undisputed that the parties did not have a
meeting of the minds with respect to an extension of the
December Agreement beyond January 31, 2003.
Id.
-10-
On appeal Navair argues that IFR breached a valid oral agreement
supported by consideration, that it did not violate the noncompete provision, and
that it is entitled to summary judgment, damages in Canadian dollars, and
prejudgment interest at 10% per year. IFR denies that there was an agreement
because there was no meeting of the minds regarding the length of the agreement,
and asserts that if an agreement existed, it did not extend beyond January 31,
2003. (For the purposes of appeal, IFR does not contend that the alleged
agreement was unsupported by consideration.) IFR also argues that we should not
consider Navair’s contentions in favor of granting it summary judgment because
the district court did not rule on these contentions and “they are subject to
disputes of material fact.” Aplee. Br. at 21. In particular, IFR states that there
are fact disputes over whether Navair could (and did) represent competitors, what
measure of damages is appropriate, and whether Navair failed to mitigate
damages.
II. DISCUSSION
We review a grant of summary judgment de novo, viewing the evidence “in
the light most favorable to the party that did not prevail.” Jacklovich v. Simmons,
392 F.3d 420, 425 (10th Cir. 2004). Summary judgment is proper when there is
no genuine dispute over any material fact, and a party is entitled to prevail as a
matter of law. See id.; Fed. R. Civ. P. 56(c). The parties agree that the
substantive law of Kansas governs this diversity case. See Hjelle v. Mid-State
-11-
Consultants, Inc., 394 F.3d 873, 877 (10th Cir. 2005) (forum state’s substantive
law governs in diversity action).
Under Kansas law, a plaintiff must prove the following to establish a
breach-of-contract claim:
(1) the existence of a contract between the parties; (2)
sufficient consideration to support the contract; (3) the
plaintiff’s performance or willingness to perform in
compliance with the contract; (4) the defendant’s breach
of the contract; and (5) damages to the plaintiff caused
by the breach.
JP Morgan Trust Co. v. Mid-America Pipeline Co., 413 F. Supp. 2d 1244, 1272
(D. Kan. 2006). On appeal IFR argues only that the first element was not
satisfied.
It is undisputed that the December Agreement provided that Navair would
be protected if the DND transaction closed by December 31, 2002. We conclude
that there is ample evidence that the parties extended this agreement, at least with
respect to the DND purchase, beyond that date. IFR, at Navair’s request, sent the
DND a letter on January 15 stating: “Please be advised that Navair is the
authorized supplier for [the IRIS] order. Delivery for systems ordered will be
made no later than 31-Mar-03 as long as order is received by 31-Jan-03.” Aplt.
App. Vol. II at 460. It would be hard to explain why IFR would write this letter
absent an agreement with Navair covering the transaction. Moreover, Bloomer,
the president of IFR, testified at his deposition that “we extended this agreement
-12-
on the IRIS program after December 31st to January 31st,” id. at 588; and Farrell,
Navair’s president, testified that he and Bloomer had agreed to an extension of
the December Agreement for the IRIS test sets, but he disagreed that the
extension lasted only until January 31st.
The disputes on appeal relate to the end date of the extension of the
December Agreement. Although Bloomer testified that the extension was only to
January 31, there is no written agreement to that effect, and Farrell denied that
Bloomer had set an end date. Among the support for Farrell’s testimony in this
regard is IFR’s letter of January 30 terminating their agreement effective
February 1, 2003; the letter would have been unnecessary if the agreement ended
by its own terms on January 31. Thus, there is a genuine factual dispute
regarding whether the parties agreed to limit the extension to January 31, and IFR
would not be entitled to summary judgment on that ground.
On the other hand, there is no evidence to support any other specific
termination date for the extension. IFR raises two arguments why there was
therefore no enforceable contract covering the DND’s February purchase. First, it
contends that the end date was an “essential term” of any contract extension and
the absence of such a term precluded formation of a contract. Second, it contends
that IFR’s understanding was that the extension would end on January 31, so
there was no meeting of the minds for an extension beyond that date. We reject
both contentions.
-13-
The first contention must be rejected under the authority of Arnold v. S.J.L.
of Kansas Corp., 822 P.2d 64 (Kan. 1991). That opinion said that a “basic
principle of contract construction is that where a contract does not specify the
time of performance or for the occurrence of a necessary event, a reasonable time
will be implied.” Id. at 67. See also Arrowhead Constr. Co. v. Essex Corp., 662
P.2d 1195, 1202 (Kan. 1983) (binding agreement can exist “even though one or
more terms are missing or left to be agreed upon”) (internal quotation marks
omitted), abrogated on other grounds by Wichita Sheet Metal Supply, Inc. v.
Dahlstrom & Ferrell Constr. Co., 792 P.2d 1043 (Kan. 1990); Restatement
(Second) of Contracts § 33 cmt. d (“Valid contracts are often made which do not
specify the time for performance. Where the contract calls for a single
performance such as the rendering of a service or the delivery of goods, the time
for performance is a ‘reasonable time.’”); 1 E. Allan Farnsworth, Contracts Vol. I
§ 3.28 (2d ed. 2001) (“Where no time is specified for performance of a duty such
as that to deliver goods or pay the price, courts have had little difficulty in
supplying a term requiring performance within a ‘reasonable’ time. What is
reasonable in such a case depends on all the circumstances.” (footnote omitted));
5 Margaret N. Kniffin, Corbin on Contracts § 24.29 (Rev. ed. 2007) (“A contract
is not invalid for indefiniteness for the mere reason that it does not specify how
long performance should continue”). According to Arnold, the absence of an
agreed-upon end date does not mean that IFR and Navair had no contract to
-14-
extend protection to Navair for purchases after December 31, 2002. Rather, it
means that Navair would be protected only for a reasonable time. Because the
evidence in the record before us does not require either a finding that such a
reasonable time lapsed before the DND purchase or a finding that it lapsed after
that purchase, we remand for further proceedings on the issue. See Arnold, 822
P.2d at 67 (jury ordinarily determines what is a reasonable time).
IFR attempts to distinguish Arnold on the ground that the parties in that
case intentionally omitted a durational term. In contrast, it continues, any
omission in this case was inadvertent and IFR thought that the extension would
terminate on January 31. As we understand the argument, IFR is contending that
a reasonable-time term can be implied only if the minds of the parties met on this
point—that is, such a term can be incorporated into the agreement only if both
parties thought that the termination date would have to be set by a court in the
event of a dispute. IFR further argues that the minds of IFR and Navair met, if at
all, only to the extent that Navair would be protected until January 31, 2003,
because, as IFR’s internal communications reveal, IFR’s understanding was that
protection would lapse on January 31. We are not persuaded.
To begin with, nothing in Arnold suggests that the court’s decision was
based on a determination that the parties had intentionally omitted a durational
term. For all the opinion indicates, the omission was inadvertent. Moreover, IFR
makes the far-too-common error of construing too literally the phrase “meeting of
-15-
the minds.” Contracts are not formed by comparing mental states; they are
formed by what the parties communicate. As a leading treatise states:
In the formation of contracts . . . it was long ago settled
that secret, subjective intent is immaterial, so that
mutual assent is to be judged only by overt acts and
words rather than by the hidden, subjective or secret
intention of the parties. During the first half of the
nineteenth century, however, there were many
expressions which seemed to indicate a contrary rule.
Chief among these was the familiar statement, still
invoked by many courts today, that a contract requires a
“meeting of the minds” of the parties. However, the
fundamental basis of contract in the common law is
reliance on an outward act (that is, a promise), as may
be seen by the early development of the law of
consideration as compared with that of mutual assent.
1 Richard A. Lord, Williston on Contracts § 4:1 (4th ed. updated 2007) (footnotes
omitted). Similarly, the Restatement (Second) of Contracts explains:
The element of agreement is sometimes referred to as a
“meeting of the minds.” The parties to most contracts
give actual as well as apparent assent, but it is clear that
a mental reservation of a party to a bargain does not
impair the obligation he purports to undertake. The
phrase used here, therefore, is “manifestation of mutual
assent.”
Id. § 17 cmt. c.
These authoritative statements are not inconsistent with Kansas law. IFR
has not cited a Kansas case in which an unexpressed reservation precluded
formation of a contract. Typically, judicial opinions stating the meeting-of-the-
minds principle then point to objective communications and conduct in resolving
-16-
the case. For example, one of the decisions relied upon by IFR concluded, “It
cannot be said that the parties manifested mutual consent to terms of a contract
for sale.” Steele v. Harrison, 552 P.2d 957, 963 (Kan. 1976). We think that
modern Kansas law is accurately reflected by the recent statement by the Kansas
Court of Appeals in Southwest & Associates, Inc. v. Steven Enterprises, LLC, 88
P.3d 1246, 1249 (Kan. Ct. App. 2004) (citations and internal quotation marks
omitted):
In order to find that Southwest and Steven Enterprises
entered into an enforceable contract, Southwest is
required to show a meeting of the minds as to all
essential terms. In determining intent to form a
contract, the test is objective, rather than subjective,
meaning that the relevant inquiry is the manifestation of
a party's intention, rather than the actual or real
intention. Put another way, the inquiry will focus not on
the question of whether the subjective minds of the
parties have met, but on whether their outward
expression of assent is sufficient to form a contract.
Thus, even if IFR understood that the extension would lapse on January 31, 2003,
that understanding is irrelevant because there is no evidence that this
understanding was communicated to Navair when the two parties agreed to an
extension of the December Agreement.
In sum, we hold that there was sufficient evidence to support a finding that
IFR agreed with Navair to extend the December Agreement with respect to the
DND purchase and that the extension would continue for a reasonable time.
Navair would have us go further and hold that it is entitled to summary judgment
-17-
because the sale took place within a reasonable time. We agree with IFR,
however, that it is better practice to have the district court rule in the first
instance on the issues remaining in this case. See R. Eric Peterson Constr. Co.,
Inc. v. Quintek, Inc. (In re R. Eric Peterson Constr. Co.), 951 F.2d 1175, 1182
(10th Cir. 1991).
III. CONCLUSION
We VACATE the district court’s grant of summary judgment in favor of
IFR, and REMAND for further proceedings.
-18-