UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DUAL, INCORPORATED,
Plaintiff-Appellant,

v.                                                                   No. 97-1228

SYMVIONICS, INCORPORATED,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
James C. Cacheris, Chief District Judge.
(CA-96-1084-A)

Argued: July 15, 1997

Decided: September 12, 1997

Before MURNAGHAN, Circuit Judge, and BUTZNER and
PHILLIPS, Senior Circuit Judges.

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Affirmed by unpublished opinion. Senior Judge Phillips wrote the
opinion, in which Judge Murnaghan and Senior Judge Butzner joined.

_________________________________________________________________

COUNSEL

ARGUED: Raymond Donald Battocchi, GABELER, BATTOCCHI
& GRIGGS, L.L.C., McLean, Virginia, for Appellant. Michael Joseph
Klisch, MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.,
McLean, Virginia, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PHILLIPS, Senior Circuit Judge:

Dual Incorporated (Dual) sued Symvionics, Inc. (Symvionics),
alleging fraud and breach of contract arising out of unsuccessful
efforts to negotiate for Dual a subcontract under Symvionics's prime
contract to build a flight simulator. The district court granted sum-
mary judgment in favor of Symvionics on all counts. Finding no
error, we affirm.

I

In the fall of 1994, the United States Air Force (USAF) solicited
bids to produce a flight simulator for its A-10 attack aircraft. Sym-
vionics decided to pursue the bid, discussed the proposed costs with
USAF, and sought a subcontractor for the cockpit portion of the simu-
lator. After discussing the price constraints with two other potential
subcontractors, Symvionics initially chose Dual to be the proposed
subcontractor for its simulator bid, largely because Dual agreed to
limit its costs for the project to USAF's expectations.

On November 2, 1994, Symvionics and Dual entered into a Team-
ing Agreement (Agreement). The Agreement provided that Dual
would submit a proposal to Symvionics for the simulator cockpit and
that Symvionics would then submit its proposal to USAF using Dual
as its subcontractor. The Agreement required Symvionics to "exert its
best efforts to the extent practical to produce the proposal . . . which
will cause . . . the acceptance of Dual as the Subcontractor." The
Agreement also provided,

          In the event [Symvionics] is awarded the Contract for this
          program, [Symvionics] and [Dual] agree to negotiate in
          good faith and proceed in a timely manner to conclude a
          mutually acceptable subcontract for supply of the aforesaid

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          data and support which is to be provided by [Dual], as
          described in [Dual's] technical/cost proposal for this effort.

In January 1995, Dual submitted a written cost proposal to Sym-
vionics for its portion of the bid, and Symvionics included Dual's
analysis as part of its bid to USAF in February. Dual's proposed costs
had increased substantially between October 1994 and January 1995,
and USAF informed Symvionics that Dual's proposed costs were
excessive. Symvionics then conducted a "should cost analysis," con-
sisting of an independent check of Dual's costs and an exploration of
the industry to determine whether Dual's proposed costs were
unusual. USAF suggested that Symvionics submit another proposal
using figures from another cockpit subcontractor, and in March 1995
Symvionics submitted a bid using figures for the cockpit subcontract
from Flight Safety International. Symvionics did not, however, with-
draw its February bid using Dual as its subcontractor.

In August 1995, in response to USAF's continuing concern about
its costs, Dual agreed to reduce its costs to a"firm fixed price" of
$1,322,722 for the first simulator cockpit and a corresponding smaller
amount for subsequent units. That month, based in part on Dual's
agreement, USAF awarded the prime contract to Symvionics based on
the February 1995 bid that included Dual as the subcontractor.

Dual then asked Symvionics for a preliminary order to allow Dual
to begin its work. Symvionics responded with a long, detailed pur-
chase order. Believing the complexity of the order to be premature,
Dual requested a simpler document and drafted a"Letter Subcon-
tract." After some negotiation and minimal changes offered by Sym-
vionics, the parties signed the Letter Subcontract allowing Dual to
begin work on the project but limiting it from "incur[ring] obligations
exceeding $100,000." The Letter Subcontract specifically contem-
plated that Dual would meet the $1,322,722 "not to exceed" figure for
the first cockpit. Dual began its work on the project, and at Dual's
request, Symvionics extended Dual's cost ceiling under the Letter
Subcontract to $450,000.

Meanwhile, Symvionics and Dual began negotiating the subcon-
tract. In November 1995 the parties prepared a "Systems Requirement
Review" for USAF, and soon thereafter Symvionics submitted a first

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draft of the subcontract to Dual. Dual did not respond to this draft
until February 1996, but neither Fred Dual, the owner of Dual, nor
Joe Calandrino, Dual's primary negotiator, could identify any evi-
dence of bad faith on the part of Symvionics during these preliminary
negotiations. Dual and Symvionics disagreed substantially as to the
technical requirements of the subcontract, and their negotiators spent
March and April ironing out these disputes. By April 30 all of these
disputes had been resolved.

In early May 1996, Dual informed Symvionics that its costs for the
first unit had increased significantly, in a range between $200,000 and
$400,000 over the "not to exceed" price, due to revised estimates from
Dual's vendors. Symvionics had already agreed to increase this
amount by $50,000, to $1,372,722, due to delays in furnishing Dual
with certain technical information. When Calandrino informed Law-
rence Barraza, Symvionics's chief executive, of the new price
increases, Barraza became concerned that Symvionics might lose the
simulator contract because of the difficulties in completing the sub-
contract. Barraza pointed to USAF's Preliminary Design Review
(PDR), scheduled for June 3-5, and advised Dual that failure to exe-
cute the subcontract by that date could jeopardize the project.

On May 17, Dual concluded that its costs would run to approxi-
mately $1,750,000, and on May 21 Symvionics declared this to be
unacceptably high. The parties continued to negotiate, however, and
on May 24, Dual informed Symvionics that it could build the cockpit
for $1,500,000. Later that day, Symvionics made a counteroffer of
$1,422,722, an amount $50,000 greater than the highest amount to
which the parties had previously agreed. Symvionics's counteroffer
also included a proposed waiver of any claims by Dual for program
delays through May 24. On May 28, Dual responded by accepting
Symvionics's offer except for the proposal to waive their claims, and
asked Symvionics to accept or reject that offer by the next day.

Symvionics asked Dual to stop its work on the subcontract on May
28, but expressly did not terminate the negotiations. From May 28
until June 3, the date of the PDR, however, Barraza could not contact
any of the Dual officials responsible for the contract. On June 3, Bar-
raza decided to reject Dual's counteroffer and terminate negotiations
with Dual. That same day, Dual tried to inform Symvionics that it

                    4
would accept all of the terms of Symvionics's May 24 offer without
reservation, but Symvionics refused to accept this capitulation. Bar-
raza testified in deposition that he decided to discontinue the negotia-
tions after learning from a USAF official that Dual had gone to USAF
to offer its services on the project regardless of Symvionics's involve-
ment. Barraza testified that he regarded this communication as inap-
propriate and it cemented his decision to terminate the negotiations.
Symvionics ultimately subcontracted with Armstrong Laboratories,
an arm of USAF, to build the cockpits.

Dual filed suit in the Circuit Court for Arlington County, Virginia,
alleging fraud and breach of contract. Symvionics removed the case
on diversity of citizenship grounds to the United States District Court
for the Eastern District of Virginia. After discovery, Symvionics
moved for summary judgment under Fed. R. Civ. P. 56(e), alleging
there were no genuine issues of material fact and that it was entitled
to judgment on all claims as a matter of law. The district court deter-
mined that Symvionics had not acted fraudulently in inducing Dual
to enter into the Teaming Agreement, and that Symvionics had not
breached any of the terms of that Agreement, and therefore granted
Symvionics's motion. This appeal followed.

II

We review a district court's grant of summary judgment de novo.
See Kimsey v. City of Myrtle Beach, S.C., 109 F.3d 194, 195 (4th Cir.
1997). In order to prevail, the moving party must establish that its
opponent cannot "make a showing sufficient to establish the existence
of an element essential to that party's case," and that he or she there-
fore is entitled to judgment as a matter of law. Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). If the non-moving party has the
burden of proof at trial, Fed. R. Civ. P. 56(e) requires him or her to
"go beyond the pleadings" to designate specific facts demonstrating
a genuine issue of material fact for trial. Id. at 324. We view the facts
in the light most favorable to the non-moving party. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Kimsey, 109 F.3d at
195.

After some initial confusion, the parties have agreed that California
law governs this case. Dual claims first that Symvionics fraudulently

                    5
induced it to enter into the Teaming Agreement, in that at the time the
Agreement was executed, in November 1994, Symvionics had no
intention of honoring its terms. Dual produced no direct evidence to
support its claim, however, pointing only to the fact that Symvionics
did not accept Dual's final offer in June 1996. As Dual acknowledges,
the Teaming Agreement did not require Symvionics ultimately to
enter into the subcontract with Dual, but only to negotiate in good
faith to arrive at such a subcontract. Despite Dual's arguments, noth-
ing in Symvionics's actions until June 1996 even arguably serves as
circumstantial evidence to support a claim of fraud. Rather, Sym-
vionics acted in a manner fully consistent with the teaming agree-
ment: It submitted a proposal to USAF including Dual as a
subcontractor, then allowed Dual to begin work while spending many
months trying to negotiate the final subcontract. Dual points to Sym-
vionics's consultation with Flight Safety International in its second
proposal to USAF, but Symvionics did not at that time withdraw its
bid naming Dual, and ultimately USAF accepted Symvionics's bid
using Dual as the subcontractor. Fred Dual and other Dual representa-
tives also concede that Symvionics was acting in good faith when
they began the subcontract negotiations late in 1995, acknowledging
in effect that at that time Symvionics intended to complete the sub-
contract. In short, Dual presents nothing to create a question of mate-
rial fact as to any fraud on the part of Symvionics.

Dual also contends that Symvionics violated the Teaming Agree-
ment in two different ways. First, Dual argues that the Agreement
obligated Symvionics to secure USAF approval of Dual as a subcon-
tractor, an obligation which would have limited Symvionics's ability
not to choose Dual as the subcontractor. The only evidence presented
by Dual to support this critical contention, however, is found in Fred
Dual's assertion to that effect in deposition and it is unsupported by
any official rule or regulation to that effect. In fact, USAF contracting
agents testified in deposition that USAF does not restrict prime con-
tractors in any way in choosing their subcontractors, and therefore
any USAF "approval" would have been entirely ineffective. Conse-
quently this argument cannot support any claim for damages for its
breach, and summary judgment was appropriate.

Finally, Dual claims that Symvionics breached the Teaming Agree-
ment in failing to negotiate in good faith to complete the subcontract.
Symvionics argued before the district court and here that the Teaming

                     6
Agreement terminated by its terms in November 1995, and that the
Teaming Agreement's good faith provision was an unenforceable
"agreement to agree." We agree with the district court that under Cali-
fornia law, as stated in Racine & Laramie, Ltd., Inc. v. California
Dep't of Parks and Recreation, 11 Cal. App. 4th 1026, 1032 (Cal. Ct.
App. 1992), parties may contract to create the obligation to negotiate
in good faith with one another, so long as the obligation does not go
so far as to require an agreement on a subsequent contract. See also
Thompson v. Liquichimica of America, Inc., 481 F. Supp. 365, 366
(S.D.N.Y. 1979). Though Dual appears to acknowledge that the
Teaming Agreement expired by its terms in November 1995, Fred
Dual testified that Barraza verbally agreed to extend the Agreement
until the subcontract was signed.

Without considering that possibility, we conclude that Dual has not
created a genuine issue of material fact as to Symvionics's good faith.
Dual acknowledges that Symvionics initiated the negotiations in good
faith, and authorized $450,000 of work for Dual to begin the project.
Even as Dual's proposed costs rose, Symvionics made efforts to
accommodate them. Then, after months of negotiation and agreeing
on virtually every issue, Symvionics made an offer on May 24 that,
if timely accepted, would have bound Symvionics to subcontract with
Dual. Dual does not attempt to argue that the terms of that offer were
extravagant or frivolous; in fact Dual tried to accept that offer several
days later. Rather, the contention is based entirely on the fact that
Symvionics decided to terminate negotiations just before Dual
announced its intention to accept Symvionics's offer. Symvionics has
presented several reasons for terminating the negotiations at that time,
notably the imminent PDR and Dual's independent communication to
USAF, that are fully consistent with its previous efforts to negotiate
in good faith. Dual has not presented evidence to support the crucial
allegation that Symvionics acted in bad faith in spurning Dual, and
not just in its best interests as a government contractor. Summary
judgment was therefore appropriate.

III

In sum, we agree with the district court that Dual failed to create
a genuine issue of material fact as to any of its claims. Accordingly
we affirm the district court's grant of summary judgment.

AFFIRMED

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