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February 9, 2004.

ROTEC INDUSTRIES, INC., a Delaware Corporation, Defendant

The opinion of the court was delivered by: WILLIAM J. HIBBLER, District Judge


Fidelity and Deposit Company of Maryland (Fidelity) and American Home Assurance Company (AHAC) received certain assets of the Guy F. Atkinson Company of California and the ATKN Company (collectively, Atkinson) when those companies filed for Chapter 11 bankruptcy. Fidelity and AHAC (collectively, Plaintiffs) claim that among the assets transferred to them was Atkinson's right to receive payment pursuant to a contract between it and Defendant ROTEC Industries, Inc. Fidelity and AHAC claim that ROTEC has since breached the contract, by refusing to pay them what it owed Atkinson. The parties have filed cross motions for summary judgment,

I. Factual Background Page 2

  ROTEC manufactures and supplies concrete delivery and placement equipment for construction projects. In 1994 and 1995, ROTEC sought to contract with the Three Gorges Dam Project Corporation and related entities (collectively, Three Gorges Corporation or TGC) to provide equipment and services to the Three Gorges Dam hydroelectric project on the Yangtze River in China (the Project). In 1995, after ROTEC had already established a relationship with the Project, the TGC decided to invite other companies to bid on future contracts to supply the Project with construction equipment. At that point, ROTEC decided to enlist another company to assist it with its bid preparation and to bolster its bid by providing assurance to the TGC that ROTEC had the resources to complete its work for the Project. Among others, ROTEC contacted the Brazilian Corporation Odebresch, the Bechtel Corporation, Morrison Knutsen, and Atkinson, On January 10, 1996, ROTEC and Atkinson entered into an agreement, referred to as the Memorandum of Understanding (MOU).

  At the beginning of the MOU, Atkinson and ROTEC spell out the contractual relationship between the parties: "ROTEC intends to submit to the Three Gorges Corporation a bid, with Atkinson and Mitsui as subcontractors, . . . and the Parties intend to define and establish through contract their respective rights, responsibilities, duties and obligations pertaining to performance thereunder." (Def. Mem. in Supp. of Mot, Summ. J., Ex. B (Def. Ex. B) § 1.03). The MOU next describes two objectives; "to cooperate in the preparing a proposal for submission to the Three Gorges Corporation in order to obtain the award of a contract . . . and to cooperate in taking all other actions necessary to performance thereunder. . . ." (Def. Ex. B § 2.01). The MOU also outlines Page 3 tasks for Atkinson and ROTEC to complete with regard to the submission of the bid. Atkinson was to: 1) submit to ROTEC responsive cost and technical data related to activities it would perform under the proposal; 2) supply qualified personnel to draft portions of the proposal within its area of responsibility; and 3) ensure the availability of management and technical personnel to assist ROTEC with negotiations with the TGC. (Def. Ex. B § 3.01).

  ROTEC and Atkinson agreed that they could not "sell, assign, mortgage, encumber, or in any way dispose of any of its interests under [the] MOU without the prior written consent of the other Parties." (Def. Ex. B. § 6.02). ROTEC and Atkinson also ensured that the MOU contained an integration clause, expressing the parties' intent that the MOU constituted the entire agreement between the parties. (Def. Ex. B § 6.05).

  On the same date as it entered into the MOU with Atkinson, ROTEC also submitted a bid to the TGC.*fn1 While the TGC reviewed the bid, Atkinson and ROTEC continued negotiate and define the parties' obligations with respect to any potential contract they might secure with the TGC, as § 1.03 of the MOU directed them to do. To this end, Atkinson and ROTEC agreed shortly after submitting the bid to the first of two supplements to the MOU. The First Supplement comments that it was "subject to the award to ROTEC of a contract (the `Contract') for the Main Equipment for Dam and Page 4 Powerhouse Concrete Construction, Stage II, Bid No. TGF-CM/9508 (the `Project')." (PL Mem. in Supp. of Mot. for Summ. J., Ex. 9 (Pl. Ex, 9)). The First Supplement contains four numbered paragraphs that detail ROTEC's and Atkinson's obligations with respect to their efforts to secure a contract with the TGC, the first two of which are relevant to the disposition of this motion. Paragraph One states that Atkinson shall be paid a fee for the use of its name. It reads in relevant part: "It is agreed that Atkinson shall be paid a fee by ROTEC for the use of its name by ROTEC with respect to the Project. The amount of said fee shall be subject to negotiation and may be affected by ROTEC's negotiations with China Yangtze Three Gorges Development Corporation, . . . but constitutes a material part of the Performance Agreement referenced in the MOU and as such must be mutually acceptable." (Pl. Ex. 9, ¶ 1). Paragraph 2 states that Atkinson shall be paid an additional fee "for its involvement in the Project, [which shall] include providing advice and technical support services under subcontract to ROTEC in connection with ROTEC's performance under the Contract." (Pl. Ex. 9, ¶ 2) (emphasis added).

  But ROTEC's and Atkinson's initial attempt to land a contract with the TGC failed. Undaunted, ROTEC submitted a second bid,*fn2 and on November 1, 1996, were awarded a contract with TGC with a value of $30,515,319 (Contract No. 96BU185-S2012). In July 1997, Atkinson and ROTEC executed the Second Supplement to the MOU. The Second Supplement confirms "the discussions and agreement re ached on July 2, 1997 regarding Page 5 Atkinson's participation with ROTEC on the provision of `Main Equipment for Dam and Powerhouse Concrete Construction of Stage II Works for the Yangtze Three Gorges Project,' (Contract No. 96BU185-S2012)" and amends the First Supplement. (Pl. Mem. in Supp. Mot, Summ. J., Ex, 11 (Pl. Ex. 11)). The Second Supplement clarifies that "[t]he fee that ROTEC will pay Atkinson for use of Atkinson's name will be US $1 million based on the present contract value of $30,515,319." (Pl. Ex. 11, 111). ¶ goes on to suggest that ROTEC will attempt to increase the size of the TGC contract and, if successful, pay Atkinson a "further fee of 5% of the approximately US $15 million involved in these additional items [line conveyers and conveyors to Potain Cranes]" and an additional fee for any other contracts that ROTEC might obtain with the TGC. (Pl. Ex. 11, ¶ 1), The Second Supplement also revises Paragraphs Two and Three of the First Supplement, stating that "these provisions will be reviewed when it becomes, clearer as to Atkinson's involvement in the contract." (Pl. Ex. 11, ¶ 2 & 3).

  ROTEC and Atkinson agreed that ROTEC would pay Atkinson the amounts described in Paragraph 1 following the shipment of the items to the Project and the receipt of letters of credit from the TGC. (Pl. Ex. 11, ¶ 1). In fact, shortly after executing the Second Supplement, ROTEC received the first of several letters of credit from the TGC, and, as directed by the MOU and its supplements, sent Atkinson a check for $128,867.93, its pro-rated share of the $1,000,000 described in Paragraph 1 of the Supplements. (Pl. Mem. in Supp. Mot. Summ. J., Ex. 13).

  On August 10, 1997, Atkinson filed for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Northern District of California. After Atkinson filed for Page 6 bankruptcy, it performed no other tasks under the MOU or the Supplements. Atkinson's Amended Joint Plan of Reorganization expressed its intent to reject all executory contracts not specifically identified and listed in an exhibit to the plan. (Def. Mem. in Supp. Mot. Sum. J., Ex H § 6.1(b)), The plan, however, gave Fidelity and AHAC the right to designate, prior to confirmation, that any agreements under which Atkinson formed a joint venture shall be neither assumed nor rejected. (Def. Mem. in Supp. Mot. Summ. J., Ex. H § 6.1(c)). In March 2000, the Bankruptcy Court confirmed Atkinson's plan for reorganization. The order confirming the plan observed that all executory contracts not listed by Atkinson in exhibit A to the plan or by Fidelity and AHAC in exhibit A to the confirmation order were rejected. (Def. Mem. in Supp. Sum. Mot. J., Ex. I at 12).

  During the pendency of Atkinson's bankruptcy, ROTEC received the remaining letters of credit associated with the November 1996 contract with the TGC. In addition, ROTEC secured additional contracts with the TGC. In May 1998, the TGC awarded ROTEC a contract for $21,852,343 to provide line conveyors for the Project. In October 2000, the TGC awarded ROTEC a contract for $640,000. ROTEC received a final contract from the TGC in December 2001. Meanwhile, Atkinson took no steps to assist ROTEC in securing these additional contracts or in performing any remaining obligations under the MOU.

  And even though ROTEC paid Atkinson $128,867.93 when it received the first letter of credit from the TGC, it did not pay Atkinson any more of the $1,000,000 agreed. to by ROTEC and Atkinson in the Second Supplement. In September 1999, Atkinson's Chief Financial Officer, Daniel Ratto, sent a letter to ROTEC President Steven Ledger Page 7 inquiring about whether ROTE C had ever remitted $871,132.07 that Atkinson might have been due under the MOU and whether ROTEC had successfully increased the size of its contract with the TGC, Ledger did not respond to Ratto's letter, and Ratto elected not to pursue the matter any further.

  After acquiring certain assets of Atkinson through the bankruptcy proceedings, Fidelity and AHAC sued ROTEC, alleging that ROTEC owed them $871,132 for the November 1996 contract, $1,050,000 for the May 1998 contract, and 5% of the October 2000 and ...

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