Trainum v. Rockwell Collins, Inc.

L. SCOTT TRAINUM, as Sellers' Representative, Plaintiff, v. ROCKWELL COLLINS, INC., Defendant.

ROCKWELL COLLINS, INC., Counterclaim and Third-party Plaintiff, v. L. SCOTT TRAINUM, as Sellers' Representative, Counterclaim Defendant,-and- BRADLEY SMITH, ANN BREWER, and BRYAN TRAINUM, Third-party Defendants.

16-CV-7005 (JSR)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

FILED: May 31, 2017

May 30, 2017

OPINION AND ORDER

JED S. RAKOFF, U.S.D.J.

On August 6, 2015, Rockwell Collins, Inc. ("RCI"), an avionics company, acquired International Communications Group, Inc. ("ICG"), a company that specialized in developing communications systems for aircraft (the "Acquisition"). The terms of the Acquisition were set out in a Stock Purchase Agreement ("SPA") between RCI and L. Scott Trainum ("Scott Trainum"), the Chief Executive Officer and major shareholder of ICG, who also acted on behalf of ICG's other shareholders in the transaction. In the months after the Acquisition, RCI came to believe that ICG officials had made false representations leading up to the signing of the SPA in order to induce RCI to purchase ICG, and that various warranties in the SPA had been breached. After RCI served a notice of claim seeking indemnification for breaches of the SPA, Scott Trainum initiated this action seeking a declaration that, inter alia, ICG did not breach the warranties in the SPA and that the remaining balance of the purchase price, which was held in escrow pending the disposition of RCI's notice of claim, should be disbursed. RCI responded by asserting counterclaims against him and three other ICG officers. Specifically, RCI asserted counterclaims for breach of contract against Scott Trainum; unjust enrichment against Ann Brewer, Bryan Trainum, and Bradley Smith; and fraud and negligent misrepresentation against all four. Bryan Trainum then asserted a counterclaim for breach of contract against RCI.

Following discovery, all parties filed motions for summary judgment. RCI moves for summary judgment on Scott Trainum's declaratory judgment claim, its breach of contract claim in part, its unjust enrichment claim against Bryan Trainum, and Bryan Trainum's counterclaim. Scott Trainum, Brewer, and Bryan Trainum (collectively, the "Seller Defendants") move for summary judgment on RCI's claims for fraud, negligent misrepresentation, and unjustenrichment, and on part of RCI's breach of contract claim. Smith moves for summary judgment on all claims against him.

For the reasons explained below, the Court denies RCI's motion on its contract claim; grants Scott Trainum's motion on the contract claim in part and denies it in part; grants summary judgment to Scott Trainum, Brewer, and Smith on RCI's fraud claim; denies summary judgment to Bryan Trainum on RCI's fraud claim; grants summary judgment to all defendants on the negligent misrepresentation and unjust enrichment claims; denies RCI's motion with regard to Bryan Trainum's breach of contract claim; and grants in part RCI's motion on Scott Trainum's declaratory judgment claim.

The pertinent facts, undisputed except where indicated, are as follows:

RCI is an avionics company headquartered in Cedar Rapids, Iowa. Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 in Supp. of Joint Mot. for Summ. J. of Countercl. Def. L. Scott Trainum, Third-Party Def. Ann C. Brewer, and Third-Party Def. Bryan S. Trainum ("Seller Defs. Rule 56.1 Stmt.") ¶¶ 5-6, ECF No. 59. Prior to its acquisition, ICG was a company based in Newport News, Virginia, that designed and built satellite communications ("satcom") systems used in aircraft. Rockwell Collins Inc.'s Resp. to Countercl. Def. L. Scott Trainum, Third-Party Def. Ann C. Brewer, and Third-Party Def. Bryan S. Trainum's Statement of Undisputed Material Facts and Counter-Statement of Material Facts ("RCI Rule56.1 Resp. to Seller Defs.") ¶ 1 (additional facts¹), ECF No. 82. Ann Brewer was the Chief Financial Officer of ICG, and Bryan Trainum was the Vice President of Programs. Id. ¶ 2.² Bradley Smith assumed the role of Chief Operating Officer at ICG in January 2015. Third-Party Def. Bradley Smith's Statement of Undisputed Material Facts in Supp. of Mot. for Summ. J. Pursuant to Local Civil Rule 56.1 ("Smith Rule 56.1 Stmt.") ¶ 1, ECF No. 63.

Since the early 2000s, RCI and ICG had a business relationship in which ICG supplied RCI with satcom products. RCI Rule 56.1 Resp. to Seller Defs. ¶ 34 (additional facts). RCI's interest in acquiring ICG primarily derived from two of ICG's ongoing programs to develop satcom systems for the cockpits of commercial airplanes (the "Programs"): the Aspire-300 program, which ICG was developing for Honeywell International Inc. ("Honeywell"), and the ICS-300 program, which ICG was developing internally with the assistance of The Boeing Corporation ("Boeing"). Id. ¶ 4.

In late 2014, RCI began conducting due diligence on ICG. Id. ¶¶ 35, 39-40. Smith served as a point of contact for RCI and provided updates on the Programs, as, for example, in a presentation in February 2015. Rockwell Collins Inc.'s Resp. to Third-Party Def.Brad Smith's Statement of Undisputed Material Facts and Counter Statement of Material Facts ("RCI Rule 56.1 Resp. to Smith") ¶¶ 27, 31 (additional facts), ECF No. 80. Bryan Trainum also provided RCI with information on the Programs. See Rockwell Collins Inc.'s Statement of Material Facts ("RCI Rule 56.1 Stmt.") ¶¶ 12, 14, ECF No. 70. However, RCI maintains that it received only very limited information about the Programs throughout most of the due diligence period.

During the lead-up to the Acquisition, the Programs experienced some setbacks. For example, on June 3, 2015, Honeywell notified ICG that some of ICG's performance was behind schedule and expressed concern about the timely completion of the Aspire-300 project. Decl. of Michael Bhargava in Supp. of Counter-Pl. Rockwell Collins, Inc.'s Opp. to Third-Party Def. Bradley Smith's Mot. for Summ. J. ("Bhargava Decl. in Opp. to Smith Mot.") Ex. 17, ECF No. 79. In July 2015, ICG negotiated with Honeywell a six-month extension to the schedule for the Aspire-300 project, and ICG provided RCI with a copy of the Amendment to the Honeywell contract on July 10, 2015. RCI Rule 56.1 Stmt. ¶ 17; Resp. to Rockwell Collins Inc.'s Statement of Material Facts and Statement of Additional Undisputed Material Facts ("Seller Defs. Rule 56.1 Resp.") ¶¶ 17, 17(a), ECF No. 75. In addition, on June 23, 2015, Boeing sent ICG a request for additional payment based on Boeing's efforts to compensate for ICG's poor quality work. Bhargava Decl. in Opp. to Smith Mot. Ex. 19.

In July 2015, RCI sought more comprehensive information on the Programs from ICG. At RCI's request, on July 13 Smith forwarded RCI a master program schedule for the Aspire-300 and ICS-300 programs. Smith Rule 56.1 Stmt. ¶ 38; see Decl. of Mark Cuccaro in Supp. of Third-Party Defendant Bradley Smith's Mot. for Summ. J. ("Cuccaro Decl.") Ex. 6, ECF No. 64. RCI and ICG then convened a two-day series of meetings on the Programs in Newport News on July 20 and 21. RCI Rule 56.1 Resp. to Seller Defs. ¶ 43 (additional facts). The first day of meetings focused on the Aspire-300 program, while the second day focused on the ICS-300 program. See Seller Defs. Rule 56.1 Stmt. ¶ 98; RCI Rule 56.1 Resp. ¶ 98. The leaders of RCI's due diligence team, Jeff Payne and Dion Hayes, attended the meetings, as did members of RCI's engineering team, including Gregg Zupcsics. RCI Rule 56.1 Resp. to Seller Defs. ¶ 43 (additional facts). The Seller Defendants and RCI agree that Smith attended the meeting on July 20 regarding the Aspire-300 program, Id. ¶ 44, and Bryan Trainum attended and presented some material at the meeting on July 21 regarding the ICS-300 program, RCI Rule 56.1 Stmt. ¶ 14. Smith, however, states that he has no recollection of participating in either meeting. Third-Party Def. Bradley Smith's Resp. to Rockwell Collins Inc.'s Counterstatement of Material Facts ("Smith Rule 56.1 Resp.") ¶¶ 38-40, ECF No. 89.

RCI claims that ICG personnel made several representations about the progress of the Programs during those meetings. According to RCI, during the first presentation, the ICG team represented thatthe Aspire-300 program had completed the Critical Design Review ("CDR") phase, had completed the "Red Label 1" stage, and had undergone sufficient "pre-qualification" testing to warrant "high confidence" that the product designed would successfully complete subsequent formal testing. RCI Rule 56.1 Resp. to Seller Defs. ¶¶ 44-46 (additional facts). During the second presentation, RCI asserts that the ICG team also represented that the ICS-300 program had completed the CDR phase, had "essentially full functionality," and had started Minimal Operational Performance Testing ("MOPS"). Id.

Following the meetings, Zupcsics emailed Bryan Trainum his notes from the meetings, which contained various details regarding the programs, and asked Bryan Trainum for suggested additions or revisions. Id. ¶¶ 47-48; Decl. of Michael Bhargava in Supp. of Counter-Pl. Rockwell Collins, Inc.'s Opp. to Countercl. Def. L. Scott Trainum, Third-Party Def. Ann C. Brewer, and Third-Party Def. Bryan S. Trainum's Mot. for Summ. J. ("Bhargava Decl. in Opp. to Seller Defs. Mot.") Ex. 27, ECF No. 83. Bryan Trainum responded that the notes "look[ed] like a good summary of the discussion," and that he was "reviewing all of the ICS-300 details . . . to ensure they were communicated correctly" and would provide clarification if needed. RCI Rule 56.1 Resp. to Seller Defs. ¶ 48 (additional facts).

After the July 20 and 21 meetings, RCI held an internal meeting to discuss the information they had gleaned regarding the Aspire-300 and ICS-300 programs. Id. ¶ 49. Relying on therepresentations in those meetings, RCI decided to acquire ICG. Id. ¶ 50.

On August 6, 2015, Scott Trainum, on behalf of ICG's shareholders, and RCI executed the SPA, pursuant...