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Grumman Allied Industries Inc. v. Rohr Industries Inc.

October 31, 1984

GRUMMAN ALLIED INDUSTRIES, INC. AND GRUMMAN CORPORATION, PLAINTIFF-APPELLANTS,
v.
ROHR INDUSTRIES, INC., DEFENDANT-APPELLEE



Grumman appeals from a judgment of the United States District Court for the Eastern District of New York (Misher, Judge) granting Rohr's motion for summary judgment and directing that Grumman's complaint be dismissed. Affirmed.

Author: Kaufman

Before: KAUFMAN and WINTER, Circuit Judges and WYZANSKI, Senior District Judge.*fn*

KAUFMAN, Circuit Judge:

On January 3, 1978, Grumman Allied Industries (Grumman), a subsidiary of the Grumman Corporation, acquired all the plants, books, records, and other assets of The Flxible Company (Flxible), a subsidiary of the Rohr Corporation. The price paid was $55 million, and among the assets purchased were two hand-built prototypes -- Proto I and Proto II -- of a new bus known as the Model 870, and the right to use the design for these prototypes. After the sale was consummated, and after Flxible had sold more than 2,600 Model 870 buses, structural defects arose, and these buses were removed from operation. The dispute before us concerns the propriety of granting Rohr's motion for summary judgment and the dismissal of Grumman's complaint alleging Rohr's misrepresentation and failure to disclose material facts relating to the testing of the Model 870. We affirm the lower court's holding because Grumman contractually disclaimed reliance upon the representations at issue and enjoyed absolute access to all relevant information necessary to confirm the validity of those representations. In so concluding, we merely give effect to what we perceive to be a clear manifestation of the parties' intentions concerning the allocation of risks in the purchase of Flxible's business. Furthermore, we believe that our result comports with modern precepts regarding freedom of contract and limited judicial intervention into private contractual relationships.

Because the intricate factual setting of this case is critical to its resolution, we set forth the facts in some detail.

I.

The Sale of Flxible

The roots of this dispute can be traced to May of 1976, at which time Rohr experienced serious financial difficulties and considered selling one of its subsidiaries, Flxible. To determine the feasibility of selling a bus manufacturing company, Rohr retained the investment banking firm of White Weld & Co., which prepared and circulated to a number of potential buyers a memorandum describing Flxible. Grumman received a copy of this memorandum, and in mid-1976 expressed an interest in acquiring Flxible.

The following fifteen months (May 1976 to September 1977) saw Grumman affirmatively pursue that interest. Armed with an arsenal of seasoned negotiators, sophisticated engineers, experienced executives and capable attorneys and accountants, Grumman sought to uncover all information relevant to its potential acquisition. To this end, Grumman representatives repeatedly toured the Flxible plants and, while there, were accorded unrestricted access to all personnel and records. During this period, Grumman representatives were shown a promotional film containing representations, some of which related to the testing of the Model 870.*fn1

On September 29, 1977, and for the following three months, Grumman and Rohr engaged in formal negotiations. In these negotiations, both sides were represented by experienced businessmen, engineers and attorneys. Both parties formulated, reviewed and modified the several draft agreements that were exchanged and discussed during this period. Indeed, Grumman appointed an acquisition team and a negotiating team to review engineering and financial matters and negotiate a contract that would protect Grumman's best interests. Grumman's acquisition team was comprised of fourteen persons, including three lawyers and at least four trained engineers. The "acquisition" personnel traveled to Flxible's facilities, interviewed its employees and reviewed its documents and products. Grumman's negotiating team was led by Robert Loar, a former Chairman of the Board of Grumman; Robert Landon, who was to become President of Grumman Flxible; Robert Somerville, an experienced engineer who was President of Grumman; and Thomas Genovese, General Counsel to Grumman.

Grumman's negotiating team and Rohr's negotiating team held four formal meetings between September 29, 1977 and December 1, 1977. On September 29, 1977, the rear A-frame of the Proto II cracked during endurance testing and all testing was suspended. Although Grumman had learned that the testing of the Model 870 design was not complete as of July 1977, and that a 10,000 mile endurance test was scheduled, neither the negotiating team nor the acquisition team requested the results of the testing.

After the negotiating teams had agreed on the general terms of sale, Genovese, Grumman's counsel, prepared the initial draft of what ultimately was to become the Final Agreement. Thereafter, revisions were made in a series of drafts, the drafts were subjected to extensive and intensive internal review by Grumman, and their content was discussed by Grumman and Rohr representatives at face-to-face meetings convened in various locations throughout the United States. Genovese acknowledged he had read all seven drafts of the contract, some of them more than once; Somerville, who executed the contract on behalf of Grumman, stated he had read "through all of its iterations" before signing the Agreement.

The Agreement

The fruition of these extensive negotiations and investigations was an 85 page Agreement that was signed on December 15, 1977, executed on December 23, 1977 and closed on January 3, 1978. In this Agreement, the parties set forth the representations they had made to each other and disclaimed representations as to specific matters. In particular, the Agreement provided that (i) Grumman has "made a lengthy, detailed, and independent investigation regarding . . . [Rohr's] Model 870 bus design and specifications," [§ 4.3 (b)];*fn2 (ii) "neither the Construction in Progress nor the Model 870 manufacturing techniques have yet been tested by [Rohr], and accordingly no representations and warranties concerning such have been or are hereby made, implied or given" [§ 4.3 (b)]; (iii) "except for the warranties and representations set forth in this Agreement . . . no other statement, warranty, representation or information, verbal or written, shall be legally binding upon any party or shall be the basis for reliance by the other party" [§ 4.3 (b)]; (iv) Rohr shall continue to accord Grumman access to all Flxible facilities and records and "do everything reasonably necessary to enable [Grumman] to make a complete examination of the assets and properties of [Rohr] and the condition thereof" [§ 3.4 (b)];*fn3 (v) "neither party is relying upon any warranty or representation of the other not fully set forth herein" [§ 6.11];*fn4 (vi) Rohr's "sole representation and warranty regarding the know-how" (defined in § 1.1(i) to include "design") was that Rohr "has the right to use such" [§ 4.1(h)];*fn5 and (vii) Rohr disclaims "any warranty, guarantee or liability expressed by law or otherwise, specifically including a disclaimer of the implied warranties of title, merchantability and fitness for intended use" [§ 2.1(b)].*fn6

Post-Acquisition Activities

At the time the sale was closed on January 3, 1978, the endurance testing of the Model 870 remained incomplete, and records accurately disclosing the defects that surfaced during testing were turned over to Grumman. The endurance testing of Proto II was completed under the auspices of Grumman in April of 1978.

Upon completion of the testing, the Chief Engineer of Grumman, Edward Kravitz, apprised Somerville of the A-frame's failure during the endurance runs. Somerville did nothing. Indeed, between April 1978 and November 1980, he authorized the manufacture and sale of the Model 870 without any additional testing. After more than 2,600 Model 870 buses were produced and sold to transit agencies throughout the United States, a widely publicized ...


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