Atacs Corp v. Trans World Comm Inc

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit

9-8-1998

Atacs Corp v. Trans World Comm Inc
Precedential or Non-Precedential:

Docket 97-1812,97-1813

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Recommended Citation
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Filed September 8, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 97-1812 & 97-1813

ATACS CORPORATION; AIRTACS CORPORATION,

Appellants in 97-1812

v.

TRANS WORLD COMMUNICATIONS, INC.,

Appellant in 97-1813

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 92-cv-05064)

Argued: June 5, 1998

Before: SCIRICA, NYGAARD and SEITZ, Circuit Judges

(Opinion filed: September 8, 1998)

Mark A. Dombroff (Argued)
Courtney R. Bateman
DOMBROFF & GILMORE
1025 Thomas Jefferson Street, NW
Suite 300 West
Washington, DC 20007
Attorneys for Appellants/Cross
Appellees
 Barbara W. Mather (Argued)
Robert L. Hickcok
L. Suzanne Forbis
Matthew J. Hamilton
PEPPER HAMILTON LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Attorneys for Appellee/Cross
Appellant

OPINION OF THE COURT

SEITZ, Circuit Judge.

This appeal and cross-appeal primarily present two novel
issues for review. The first question is whether the parties
entered into a legally enforceable "teaming agreement." If
the answer is in the affirmative, we must address how to
calculate, if at all possible, the damage resulting from a
breach of that agreement. The district court exercised
diversity jurisdiction pursuant to 28 U.S.C. S 1332, and our
jurisdiction arises under 28 U.S.C. S 1291 to consider the
district court's final orders. The parties agree that the
substantive contract law of Pennsylvania governs the issues
raised in this case.

I. Factual Background

A. The Parties and Related Entities

For the most part, the parties do not dispute the relevant
facts as described by the district court in its detailed
findings of fact set forth on May 28, 1997 after a bench
trial. To summarize, ATACS Corporation and AIRTACS
Corporation ("plaintiffs") engaged in the business of
integrating or customizing mobile enclosures with
communications or other equipment for military use. Trans
World Communications ("defendant") is a subsidiary of
Datron, Inc., a publicly traded company. Defendant engages
in designing, manufacturing, and selling of high frequency

2
radio equipment into communications shelters and for
other uses.

B. The Greek Request for Proposal and
the Parties' Agreements

The history underlying the transactions subject to
dispute in this case begins in October of 1989, when the
Greek government opened bidding to manufacture 61
communication shelters for the Hellenic Army General
Staff. A Request for Proposal ("RFP") prepared by the Greek
government outlined various specifications for the
communications shelters as well as certain financial
requirements for all bidders. Plaintiffs considered bidding
on the contract as the prime contractor, but they lacked the
requisite assets to meet the financial obligations
enumerated in the Greek RFP. Defendant also investigated
bidding on the project as prime contractor, but it did not
command significant technical experience in this particular
field and generally lacked foreign government contracting
knowledge to bid and perform the contract on its own.

Given the comparative strengths of the parties, a
strategic alliance was born on February 26, 1990, where
defendant wrote plaintiffs stating that "[t]his letter will serve
as confirmation that Trans World Communications intends
to team with ATACS Corporation on the Greek Shelter
program." App. at 1671. While defendant professed that the
"details need[ed] to be worked out," and that "this [letter] is
only a preliminary look at our various responsibilities,"
defendant sought a commitment from plaintiffs before any
quotations were issued. Id. Further discussions proved
fruitful, and the parties agreed that defendant would bid for
the Greek RFP as the prime contractor and plaintiffs would
be the major subcontractor. App. at 1913. By April 25,
1990, defendant communicated to plaintiffs a basic outline
for the new arrangement whereby defendant agreed to
assume the role of prime contractor, assume complete
responsibility for the financial requirements of the Greek
RFP, and give plaintiffs a subcontract for the shelter and
generator systems. In return, plaintiffs were expected to
"assist in the final proposal preparation," submit a price
quotation on their portion of the program, and introduce

3
defendant to their Greek agent who would facilitate the bid.
App. at 1913. The parties agreed to circulate a draft
contract and initiate the process of formalizing this
agreement.

For the next three months, the parties circulated draft
subcontracts, none of which were executed. In the
exchange of drafts, however, the parties had substantially
agreed to the basic understanding of the transaction. In
particular, the parties agreed that:

1. Transworld will be the Prime Contractor and will
assume complete responsibility for the Program
including any Letters of Credit which may be
required. ATACS will be a sub-contractor to
Transworld and will be responsible for the shelters
and generators.1

2. Axon Inc. will be the sole agent for this program.
ATACS will introduce Transworld to Axon May 1,
1990 . . . .2

3. ATACS has accomplished significant work
developing a Technical Proposal. In addition,
ATACS has also reviewed the agent's Consulting
Agreement and the Offset Agreement. This
information will be made available to Transworld.
Transworld will reimburse ATACS for their cost
associated with our Technical Proposal and for
legal expenses associated with the review of Offsets
and Consulting Agreements.3

4. ATACS will submit a quotation to Transworld for
the shelters and generators. It is agreed that
Transworld will flow down to ATACS no less
favorable payment terms and conditions than it
_________________________________________________________________

1. The later documentation reflects that the parties had agreed to give
defendant an option to purchase the generators directly. Defendant
exercised this option and accordingly plaintiffs' eventual proposal did
not
include generators.

2. Axon Inc. is plaintiffs' agent in Greece that would facilitate
defendant's
bid for the Greek RFP.

3. The parties agreed that any reimbursement for ATACS' services under
this provision would be built into the proposal submitted to defendant.

4
 receives from the Greek Government. ATACS will in
turn flow down these same terms and conditions to
its Prime vendors.

5. ATACS agrees to work exclusively with Transworld
on this project. Transworld agrees to work
exclusively with ATACS relative to the ATACS
Scope of Work set forth in paragraph 1 above.

. . . .

7. ATACS agrees to assist Transworld as needed in
the final proposal preparation.

App. at 1914-15; see also App. at 1948-49, 1966-69, 2047-
50, 2059-62. In accordance with their understanding,
plaintiffs introduced defendant to their Greek agent who
ultimately proved to be influential in getting defendant the
final contract.

After more draft subcontracts and price quotations, none
of which were executed by the parties, plaintiffs submitted
their final price proposal to defendant, which totaled
approximately $3.8 million. On July 16, defendant
submitted its own proposal to the Greek government. As
the prime contractor bidding for the Greek RFP, defendant
represented that plaintiffs would be "the primary
subcontractor in our proposal," as well as a member of the
"team" working on the project. App. at 2144-45. It is not
disputed on appeal that defendant included in its bid
plaintiffs' final prices plus a 30% profit margin.

C. Post-Submission Conduct

Several months after the submission of the bid for the
Greek RFP, defendant learned that its proposal for the
project remained competitive. Nevertheless, in early
December of 1990, defendant contacted Craig Systems
("Craig"), a manufacturer of bare shelters, shelter
integrator, and competitor to plaintiffs. When Craig
expressed an interest in performing the shelter integration
work on the Greek project -- the same work that had been
promised to plaintiffs -- defendant sent to Craig all of the
information, design notes, general correspondence, and
plaintiffs' technical proposal regarding the Greek RFP.

5
Defendant then asked Craig to submit a bid for the shelter
work, and Craig ultimately submitted its final proposal and
price quotation in late January of 1991.

On January 24, 1991, plaintiffs' Greek agent forwarded
defendant the results of the Greek government's review of
the various bids, which indicated that the defendant's bid
was the lowest among the competitors. Although defendant
at this point was confident that it would win the contract,
it realized that the final award would require further
negotiations with the Greek government.4 For the next
several months, defendant negotiated with Greek
authorities to determine the final technical specifications
and price concessions. Then, on May 13, 1991, defendant
sent all its potential subcontractors, including plaintiffs, a
form letter which stated:

We have recently been called by the Greek government
to negotiate the final terms and conditions for this
shelter contract. Therefore, we ask that your firm
please REQUOTE YOUR OFFER to us as soon as
possible, and extend the quote validity date to at least
August 31, 1991.

. . .

. . . All outside vendor equipment and service is being
bid in a competitive environment and Trans World will
chose the supplier, based on the price of goods,
quality, service and technical/manufacturing
capabilities.

App. at 2413 (emphasis in original). On the same date,
defendant sent plaintiffs another letter which,"encourage[d]
you to make your bid as competitive as possible. While we
were encouraged in our earlier preliminary discussions by
_________________________________________________________________

4. Apparently, negotiations between the government and contractors even
after the unsealing of the bids are typical in thisfield of government
contracting. See Air Tech. Corp. v. General Elec. Co., 199 N.E.2d 538,
543 (Mass. 1964); Brent E. Newton, Note, The Legal Effect of Government
Contractor Teaming Agreements: A Proposal for Determining Liability and
Assessing Damages in Event of Breach, 91 Colum. L. Rev. 1990, 1995
n.25 (1991); W. Noel Keyes, Government Contracts in a Nutshell 137-69
(2d ed. 1990).

6
the cost estimates you provided us for planning purposes,
your later formal proposal was disappointingly high and
was not competitive with other proposals which we have
received." App. at 2412. This letter was thefirst
communication to plaintiffs by defendant indicating that
defendant had in fact been soliciting other proposals for the
shelter integration and air conditioning portions of the
project. It was also the first time plaintiffs had learned that
defendant considered plaintiffs' proposal "disappointingly
high," even though defendant's bid for the Greek RFP was
the lowest of all bidders.

Shocked at defendant's position, plaintiffs responded to
these letters by confirming the validity of their price
proposals submitted on June 28, 1990. Although plaintiffs
indicated that they were "not and never have been unwilling
to discuss with you an equitable adjustment to our
proposed pricing if such an adjustment is required in
obtaining the award," App. at 2432, they emphasized that
"[t]here was an agreement between Trans World and ATACS
that ATACS would be the sole source shelter integrator and
supplier, and . . . AIRTACS [would be the] sole source
provider of air conditioners . . . ." App. at 2414. Defendant
did not respond to plaintiffs' letters or other attempts at
communication.

By December 11, 1991, defendant completed negotiations
with the Greek government and executed a contract in the
amount of $23,006,319, which closely corresponded to the
original bid from defendant, absent minor adjustments to
hardware, training, and technical specifications. Nearly a
month later, defendant sent another letter to potential
subcontractors, including plaintiffs, explaining the
technical changes and requesting an updated quote on the
revised shelter design specifications. While plaintiffs did not
respond, defendant received quotations from three other
companies, including Craig, for the shelter integration
work. These proposals quoted prices significantly lower
than plaintiffs' final price quote, and included proposals for
bare shelters, which was not included in the plaintiffs'
package. Defendant ultimately executed subcontracts with
Craig for the shelter integration work and Airflow for the air
conditioner portion of the project. The total price difference

7
between the Craig/Airflow contracts and the plaintiffs'
proposals totaled $1,887,104.

D. The District Court's Disposition

In response to these events, plaintiffs sued defendant in
the district court, alleging breach of contract, detrimental
reliance, misrepresentation, wrongful interference with
prospective contractual relations, and unjust enrichment.
After a bench trial, the district court found that the
"teaming arrangement" between defendant and plaintiffs
constituted an enforceable contract with sufficiently definite
terms for enforcement, notwithstanding the absence of a
final executed document evincing the parties' agreement.
The district court relied on the outward manifestation of the
parties' intent to conclude that the terms of the legally
binding agreement between defendant and plaintiffs
entailed a promise by defendant to work exclusively with
plaintiffs in its bid for the Greek RFP, and to further
negotiate in good faith the final subcontract prices if the
Greek government awarded defendant the prime contract.
In return, plaintiffs promised defendant to assist in the
preparation of its bid, to work exclusively with defendant,
and to introduce defendant to its Greek contacts. The
district court further found that the parties did not agree
on the price of the subcontract, nor did they come to an
agreement regarding any fees plaintiffs would receive for
their services.

Given these terms of the contract, the district court
found defendant in breach of contract when it did not work
exclusively with plaintiffs in arriving at a final price
agreement for the subcontract. Moreover, the court found
that defendant's conduct after the Greek government
awarded it the project did not constitute good faith
negotiations with plaintiffs. This, the could held, also
constituted a breach of the teaming agreement between the
parties.

Accordingly, the district court next considered what form
of damages would appropriately compensate plaintiffs.
While the district court recognized that expectation
damages, measured in lost profits, ordinarily applies under

8
Pennsylvania law, it found that such a calculation, if
attempted, would lead to mere speculation because the
parties never agreed on a price for plaintiffs' subcontract.
Similarly, the district court felt unable to compute lost
opportunity damages because the plaintiffs had not
submitted sufficient evidence showing that the parties
would have come to an agreement on price given the
different positions on various financing fees, and the
enormous difference between plaintiffs' final price and the
ultimate bid submitted by Craig. It therefore held that
plaintiffs could not receive lost profits as a remedy for
breach of contract.

Next, the district court considered whether restitution or
reliance damages were appropriate, and submitted the
question to the parties for further briefing. With respect to
restitution, plaintiffs argued that the value of its services
rendered to defendant roughly approximate the $1,288,349
defendant had paid in consulting fees to plaintiffs' Greek
agent. The district court rejected that argument because it
found the consulting services provided by plaintiffs' own
Greek agent differed substantially from the technical
services provided by plaintiffs. Because the district court
felt that it had no reasonable basis in calculating the value
of plaintiffs' service and assistance rendered to defendant,
it rejected a restitutionary theory as a basis for damages
and entered into judgment nominal damages of only $1.

Plaintiffs appeal the district court's calculation of
damages at $1. Defendant cross-appeals the district court's
findings to the extent it found the teaming agreement an
enforceable contract under Pennsylvania law. We address
these issues in turn.

II. Was There a Valid and Enforceable Contract?

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).

A. Elements of Contract Formation and
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.

B. The Teaming Agreement as Contract

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.

III. Damages

We now turn to plaintiffs' primary appeal -- that the
district court erred in assessing nominal damages of $1.
Plaintiffs press several arguments in their cause. First, they
contend that the district court erred in looking to calculate
damages with "reasonable certainty." Plaintiffs maintain
instead that defendant must shoulder the burden of any
uncertainty caused by its breach of contract. In the
alternative, plaintiffs assert that they had proved damages
with reasonable certainty. Here, plaintiffs claim that they
should receive approximately $2.3 million in lost profits,
which they calculate as their 35% profit margin of their
final price quote in addition to costs and variousfinancing
fees. Plaintiffs suggest that if this court is unwilling to
award such an amount in expectation damages, then the
appropriate remedy would be a remand for furtherfindings
with respect to reasonable profits or the parties' willingness
to negotiate the terms of the subcontract.

In support of the district court's assessment of nominal
damages, defendant emphasizes that the parties never
agreed on the price of the contemplated subcontract.
Because the district court could not evaluate lost profits
without the agreed upon subcontract price, any expectation
damages would be based solely on speculation. Defendant
also objects to plaintiffs' request for a remand for factual
findings with respect to an alternative measure of damages.
It notes that plaintiffs have pursued their lost profits theory
of damages before the district court to the exclusion of
other possible remedies, and now they must be bound by
that decision. We face these issues in turn.

A. Theories of Contract Enforcement by
an Award of Damages

In general, contract law espouses three distinct, yet
equally important, theories of damages to remedy a breach

16
of contract: "expectation" damages, "reliance" damages, and
"restitution" damages. See Trosky v. Civil Serv. Comm'n,
652 A.2d 813, 817 (Pa. 1995); Restatement, supra,S 344.
The preferred basis of contract damages seeks to protect an
injured party's "expectation interest" -- that is, the interest
in having the benefit of the bargain -- and accordingly
awards damages designed to place the aggrieved in as good
a position as would have occurred had the contract been
performed. See Trosky, 652 A.2d at 817; Restatement,
supra, SS 344(a), 347. Toward that end, expectation
damages are measured by "the losses caused and gains
prevented by defendant's breach, to the extent that are in
excess of any savings made possible by nonperformance."
American Air Filter Co. v. McNichol, 527 F.2d 1297, 1299
(3d Cir. 1975) (citations omitted).

While the traditional law of contract remedies implements
the policy that goods and services should be consumed by
the person who values them most highly, and hence the
preference for expectation damages, other theories of
damages provide alternative avenues for contract
enforcement. This is especially so where an injured party is
entitled to recover for breach of contract, but recovery
based on traditional notions of expectation damages is
clouded because of the uncertainty in measuring the loss in
value to the aggrieved contracting party. See Restatement,
supra, S 349 cmt. a; 5 Arthur L. Corbin, supra, S 1031, at
188. Thus, where a court cannot measure lost profits with
certainty, contract law protects an injured party's reliance
interest by seeking to achieve the position that it would
have obtained had the contract never been made, usually
through the recovery of expenditures actually made in
performance or in anticipation of performance. See DePaolo
v. DeRomo, 31 A.2d 158, 161 (Pa. 1943); In re Kellet Aircraft
Corp., 191 F.2d 231, 236 (3d Cir. 1951); 5 Arthur L.
Corbin, supra, S 1031, at 188.

Finally, damages under a theory of restitution provides
an appropriate form of relief in many contract cases. Its
objective is not the enforcement of contracts through the
protection of an injured party's expectation or reliance
interests, but is instead rooted in common notions of equity
through the protection of the injured's restitution interest.

17
See Fidelity Fund, Inc. v. DiSanto, 500 A.2d 431, 438 (Pa.
Super. Ct. 1985); 5 Arthur L. Corbin, supra, S 1101, at 548;
Restatement, supra, Ch. 16, Topic 4, intro. note, at 199.
Accordingly, restitution damages will require the party in
breach to disgorge the benefit received by returning it to the
party who conferred it. See Trosky, 652 A.2d at 817.
Pennsylvania courts will look to traditional principles of
equity, such as unjust enrichment or forfeiture, in
considering the propriety of restitution damages. See
DiSanto, 500 A.2d at 438-39.

1. The Standard of Proof

With these principles in mind, we now address plaintiffs'
first contention on appeal -- that they need not
demonstrate damage flowing from breach to a "reasonable
certainty." Although mathematical certainty is not typically
required, the general rule in Pennsylvania, as in most
jurisdictions, is that if damages are difficult to establish, an
injured party need only prove damages with reasonable
certainty. See Scobell, Inc. v. Schade, 688 A.2d 715, 719
(Pa. Super. Ct. 1997); Sobers v. Shannon Optical Co., 473
A.2d 1035, 1039 (Pa. Super. Ct. 1984); see also
Restatement, supra, S 352; 5 Arthur L. Corbin, supra,
SS 1020, 1022. Doubts are construed against the breaching
party. See Delahanty v. First Pennsylvania Bank, 464 A.2d
1243, 1257 (Pa. 1983); Restatement, supra, S 342 cmt. a.

"Reasonable certainty," as with most other standards of
proof, is a difficult concept to quantify, but Pennsylvania
courts have provided guidance as to what the term entails
for purposes of assessing damages. At a minimum,
reasonable certainty embraces a rough calculation that is
not "too speculative, vague or contingent" upon some
unknown factor. See Spang & Co. v. United States Steel
Corp., 545 A.2d 861, 866 (Pa. 1988). Conversely, applying
the reasonable certainty standard does not preclude an
award of damages because of "some uncertainty as to the
precise amount of damages incurred." Pugh v. Homes, 405
A.2d 897, 909 (Pa. 1979). Pennsylvania jurisprudence
governing the issue is summarized in Aiken Indus., Inc. v.
Estate of Wilson, 383 A.2d 808 (Pa. 1978), where the
Pennsylvania Supreme Court ultimately concluded "that

18
compensation for breach of contract cannot be justly
refused because proof of the exact amount of loss is not
produced, for there is judicial recognition of the difficulty or
even impossibility of the production of such proof. What the
law does require in cases of this character is that the
evidence shall with a fair degree of probability establish a
basis for the assessment of damages." Id. at 812.

Plaintiffs' cited authority is not to the contrary. See
Spang & Co. v. United States Steel Corp., 545 A.2d 861 (Pa.
1988); Delahanty v. First Pennsylvania Bank, 464 A.2d
1243 (Pa. 1983); Pugh v. Holmes, 405 A.2d 897 (Pa. 1979);
Standard Pipeline Coating Co. v. Solomon & Teslovich, Inc.,
496 A.2d 840 (Pa. Super. Ct. 1985). None of these cases
establish a more relaxed standard of proof than that
required by reasonable certainty. The Restatement itself,
which promulgates a reasonable certainty standard, states
that "[d]amages need not be calculable with mathematical
accuracy and are often at best approximate." Restatement,
supra, S 352 cmt. a. Thus, we conclude that the district
court correctly applied Pennsylvania law in attempting to
ascertain damages with reasonable certainty.

2. Damages Appropriate to the Breach of
the Teaming Agreement

Having established the necessary standard of proof to
recover damages as a consequence to breach of contract,
we now address whether plaintiffs have met such a burden.
The district court held that it could not assess expectation
damages measured in lost profits because the parties never
agreed to a price on plaintiffs' subcontract. While the
district court considered the possibility of restitution
damages, it concluded that it could not place a definite
value on the benefit realized by defendant as a result of
plaintiffs' performance. Plaintiffs do not claim reliance
damages on appeal, nor did the district court address that
possibility as an alternative measure of damages.

a. Expectation Damages

Plaintiffs maintain on appeal that they have met their
burden of proving expectation damages to a reasonable

19
certainty. Although courts have applied expectation
damages to remedy the breach of a teaming agreement, see
Air Tech., 199 N.E.2d at 548-49, we find the requisite proof
of plaintiffs' expectation interest, measured in reasonably
certain lost profits, lacking in this case. Even when
discounted to reflect uncertainty, there would be absolutely
no basis for the district court to place a value on plaintiffs'
subcontract. As the record clearly demonstrates, the parties
were far from agreeing on a contract price, financing fees,
and other terms of the subcontract. Indeed, the district
court found through ample support in the record that
"significant obstacles" stood in the way of an agreement on
the subcontract's price, and that the plaintiffs had not
presented sufficient evidence that further negotiations
would likely have proven fruitful. It is true, as plaintiffs
note, that the Pennsylvania law of contracts allows for some
uncertainty in calculating damages -- perhaps even a
significant amount of uncertainty -- but a lost profits
calculus based solely on unsubstantiated speculation and
conjecture cannot form the basis of recovery. See Spang &
Co., 545 A.2d at 866. Such a vague and speculative
determination would have been necessary in this case if the
district court assessed lost profits as damages, and
accordingly the district court correctly declined to award
expectation damages. See E. Allan Farnsworth, supra, 87
Colum. L. Rev. at 264 (lost profits not appropriate with a
breach of a preliminary agreement because there is"no way
of knowing what the terms of the ultimate agreement would
have been, or even whether the parties would have arrived
at an ultimate agreement"); Brent E. Newton, supra, 91
Colum. L. Rev. at 2028 (same).

b. Restitution

Notwithstanding any uncertainty in assessing lost profits
as a measure of expectation damages, contract law does not
preclude an otherwise appropriate remedy under a
restitution theory of damages. This is especially the case
where, as here, unknown variables cloud a reasonably
certain calculation of lost profits stemming from the breach
of the teaming agreement. See Air Tech., 199 N.E.2d at 549.
Thus, we agree that it would be appropriate for the district

20
court to measure "the fair value of [the subcontractor's]
contribution to [the prime contractor's] agreement," in order
to protect the subcontractor's restitution interest. Id.

As the district court properly concluded in this case,
plaintiffs contributed valuable services to defendant's Greek
RFP bid and significantly enhanced its chances of winning
the project. However, the court ultimately held that"it is
not clear how to quantify the value of those services," and
therefore denied restitution as a measure of damages. While
we share the district court's appreciation of the difficulties
in measuring the benefit conferred on defendant, we believe
the court's denial of restitution as a possible remedy
premature without an evidentiary hearing. The district
court, with characteristic courtesy, did invite the parties to
further brief the issue of restitution, but it did not offer
them an opportunity to present additional evidence that
might shed light on the quantification of restitution
damages. Such evidence might include the testimony of
knowledgeable experts in the field who would testify as to
the reasonable value of plaintiffs' technical and consulting
services in this market of government contracting.
Furthermore, as the plaintiffs claimed before the district
court, defendant saved approximately $2 million by
subcontracting with Craig and Airflow. See App. at 835. If
this is indeed the case, the district court may then consider
how much of that savings reflected preliminary services
rendered by the plaintiffs that ultimately benefitted the
Craig proposal. Thus, given the possibility of the plaintiffs'
proving reasonable restitution damages, we will vacate the
district court's entry of judgment against defendant for
nominal damages in the amount of $1. In arriving at this
conclusion to remand, we believe that equitable
considerations must predominate over a parochial
approach to the number of issues properly before us.

IV. Conclusion

For the foregoing reasons, the judgment of the district
court will be affirmed except as to the award of nominal
damages. The entry of judgment against defendant in the
amount of $1 will be vacated and the matter remanded to

21
the district court in accordance with the directions in this
opinion.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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