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Arabian Support & Services Company, Ltd. v. Textron Systems Corporation

United States District Court, D. Massachusetts

March 19, 2019





         This is a dispute arising out of the sale of cluster bombs - also known as sensor fuzed weapons (“SFWs”) - to the Saudi Arabian government. Plaintiff Arabian Support & Services Co. (“ASASCO”), a Saudi Arabian company, brings this action against Defendant Textron Systems Corporation (“Textron” or “TSC”), a Massachusetts-based defense contractor, alleging that it is entitled to six percent of the value of TSC's sale of bombs to Saudi Arabia as compensation for its efforts to help TSC secure the contract. ASASCO seeks compensation from TSC based either on the promise of additional compensation for securing the sale of the cluster bombs or on the promised opportunity to provide offset services related to the sale. In the First Amended Complaint (Docket No. 107) (“Compl.”), ASASCO asserts claims of fraudulent inducement (Count I), intentional misrepresentation (Count II), negligent misrepresentation (Count III), quasi contract/implied contract/promissory estoppel (Count IV), quasi contract/unjust enrichment/quantum meruit (Count V), and violation of the Massachusetts Consumer Protection Act, M.G.L. c. 93A (“Chapter 93A”) (Count VI). The parties have engaged in extensive discovery.

         Before the Court is TSC's motion for summary judgment on all counts (Docket No. 190) and three motions to strike certain witness statements and opinions (Docket Nos. 194, 196, and 221). TSC also renews its motion for judgment on the pleadings (Docket No. 193).[1] After hearing, the Court ALLOWS TSC's motion for summary judgment on all counts. The Court DENIES AS MOOT all three motions to strike because resolution of the motion for summary judgment does not depend on any of the disputed testimony or expert opinions. The Court also DENIES TSC's renewed motion for judgment on the pleadings on the ground the Court has ruled on the motion for summary judgment.


         Unless otherwise noted, the following facts are undisputed.

         I. The Beginning of the TSC-ASASCO Relationship

         In order to sell munitions and other defense items to the government of Saudi Arabia, TSC needed a consultant in Saudi Arabia who could provide it with access to Saudi government officials and convince those officials to budget funding towards TSC-specific products. The relationship between TSC and ASASCO largely developed through interactions between Avedis (Avo) Boyamian, TSC's Director of Middle East Business Development, and Mansour Al-Tassan, ASASCO's President and founder. At the recommendation of General Abdullah Hamdan, considered the “father” of the modern Saudi Arabian air force, Boyamian and Al-Tassan began to discuss working together in 2001. By 2003, the men were discussing the market potential of selling cluster bombs to the Royal Saudi Air Force. In the spring of 2004, TSC began to discuss internally how best to structure a business relationship with ASASCO.

         One key hurdle to the relationship was ensuring that any agreement and compensation scheme was lawful under U.S. and Saudi law. To that end, Robert Kemp, TSC's General Counsel, sought legal advice from the International Law Firm in Riyadh on how to structure the relationship. On March 24, 2004, he emailed attorney Yusuf Giansiracusa, asking about the permissibility of engaging a marketing consultant on a fixed monthly fee basis and the feasibility of ASASCO's serving as a service center provider in Saudi Arabia. Giansiracusa advised that “[e]mploying a marketing consultant for one or many different projects and/or products is, in general, permissible as a matter of Saudi law.” Pl. Ex. 27.[2] But he cautioned that if a consultant's “fixed fee is merely a commission re-styled as a fixed fee, it will not be permissible if the commission would not be permissible.” Id. Giansiracusa approved of the idea of using ASASCO as a service center provider and suggested that there is “no reason in principle that Asasco [sic] couldn't act as a marketing consultant as well as a Service Centre operator under separate contracts.” Id. Finally, he noted that “[a]s a lethal product, the SFW cannot be sold through an agent.” Id.

         On April 30, 2004, Boyamian forwarded a letter to ASASCO, which stated: “The Textron Systems' management team would appreciate your advocacy support for the [Royal Saudi Air Force] procurement of SFW. In recognition of your advocacy, TSC is prepared to appoint ASASCO as a service center for support to the [Royal Saudi Air Force] SFW program.” Pl. Ex. 32.

         Kemp emailed Giansiracusa again on July 8, 2004 requesting advice on the possibility of paying ASASCO via a commission for securing the sale of the bombs. Kemp wrote:

[W]e do not have a business case for a joint venture with ASASCO because of the nature of this weapon . . . . In addition, because of the potentially great expense of engaging a consultant on a fixed, periodic, non-contingent fee basis, we have been asked to determine whether it would be possible to engage an advocate of the type described above on a commission basis, i.e. with the amount of the payment based on the size of the ultimate order received and contingent upon the receipt of an order.
Avo [Boyamian] has identified ASASCO as the likely advocate for Textron Systems, and he anticipates that they will expect a fee in the range of four percent (4%) of a sale.

Pl. Ex. 37. On September 1, 2004, Vernon Cassin of the International Law Firm advised Kemp that the sale of munitions in Saudi Arabia is governed by the Council of Ministers Resolution No. 1275 (“Resolution 1275”). Resolution 1275 states, in relevant part:

No firm holding a contract with the Saudi Government for the supply of arms or equipment required by the Saudi Government may pay any sum as a commission to any intermediary, sales agent, representative or broker. This prohibition shall apply regardless of the nationality of the firm or the nationality of the intermediary, sales agent, representative or broker. It shall apply also whether the contract was concluded directly between the Saudi Government and the firm or through a third-party State.

Pl. Ex. 39. Cassin advised Kemp that the proposed TSC-ASASCO relationship had “a significant risk of falling within the scope of the relationships prohibited under Resolution 1275.”[3] Id.

         On September 15, 2004, Boyamian emailed Al-Tassan, asking to meet in person to discuss the legal opinion provided by Cassin. When Boyamian and Al-Tassan met in Cairo a week later, Boyamian confirmed that TSC was prepared to pay ASASCO an amount equal up to five percent of the total value of the SFW contract, but that the agreement had to comply with U.S. and Saudi law. Boyamian told Al-Tassan that based on Resolution 1275, offsets were the “only way” ASASCO could receive such payments.[4] Pl. Ex. 3 at 330:5-9. In 2004, both TSC and Al-Tassan believed that ASASCO could not receive a commission on the sale of SFWs under Saudi Arabian law.

         II. The Consulting Agreements (2005-2009)

         TSC and ASASCO executed four consulting agreements between 2005 and 2009. On November 10, 2004, Boyamian formally nominated ASASCO to be TSCs consultant in Saudi Arabia, with a focus on selling SFWs to the Royal Saudi Air Force. Boyamian explained in his nominating email to TSC leadership that “[t]he use of commissioned representatives for sale of weapons in Saudi Arabia is not authorized under local Royal Decree. General consulting agreements to support foreign companies are acceptable.” Pl. Ex. 44. In late February 2005, TSC and ASASCO executed the first consulting agreement. Al-Tassan understood at that time that ASASCO's role as a consultant was “to advocate the SFW sale.” Def. Ex. 1 at 45:14-17. ASASCO entered into this first consulting agreement (and all other consulting agreements) because of promises from TSC that ASASCO would receive additional compensation via the offset requirements for its efforts to assist TSC in selling SFWs.

         Al-Tassan negotiated, read, and understood the terms of the agreement before signing on behalf of ASASCO. The first agreement was for a year-long term during which ASASCO would be compensated $10, 000/month. Section 4(b) of the 2005 consulting agreement stated:

It is expressly agreed by the parties hereto that any and all services rendered by [ASASCO] to [TSC] shall be deemed to have been given pursuant to this Agreement and no additional payments (with the exception of reimbursement for international travel approved in advance by [TSC]) shall be due to or paid to [ASASCO].

Def. Ex. 4 § 4(b). Importantly, in § 4(c) of the agreement, the parties expressly agreed that ASASCO “shall not receive any compensation or commission based in any manner whatsoever on the volume of sales of the [TSC] products and/or services procured or received under this Agreement.” Id. § 4(c). The agreement also contained a statement of work which remained, in all relevant respects, the same throughout the parties' business relationship. The statement of work included several tasks ASASCO was expected to complete as a consultant, including “[a]dvocat[ing] at the Saudi [Ministry of Defense and Aviation] or at any other concerned Saudi Authority which is involved in approval of funds, to secure allocation of funds for [TSC's] potential programs.” Def. Ex. 4 sched. A.

         TSC and ASASCO periodically renewed and extended the consulting agreements. On January 1, 2006 and January 1, 2007, TSC and ASASCO executed the second and third consulting agreements, respectively. Each of these agreements contained substantially similar terms as the first consulting agreement.

         After three years of paying ASASCO $10, 000 per month, TSC considered terminating the consulting relationship with ASASCO. On July 1, 2008, Tom Saling from TSC sent Al-Tassan a letter explaining that TSC would only extend the 2007 consulting agreement on its original terms of $10, 000/month through August 31, 2008. Saling explained to TSC officials in July 2008 that, “[TSC] will be terminating the consulting services of ASASCO of Saudi Arabia effective August 31, 2008. The ASASCO agreement was specifically structured to support the sale of SFW to the Kingdom. The sale of SFW to the Kingdom of Saudi Arabia is pending U.S. Government export approval.” Pl. Ex. 81. Boyamian followed-up with Al-Tassan on August 15, 2008, writing in part, “[t]his is in ref to our recent telecom regarding the expiration of the Textron Systems-ASASCO consulting contract on August 31st, 2008 and I regret to confirm that TSC will not be able to renew the Contract beyond August 31st, 2008.” Pl. Ex. 82.

         In early September 2008, Boyamian convinced TSC to renew its consulting agreement with ASASCO under a no-fee arrangement. Boyamian told Kemp that “ASASCO [did] not expect to be compensated, even in 2009.” Pl. Ex. 83. However, Kemp noted in an email to Saling and Boyamian that “this is such a peculiar arrangement that . . . it would make more sense to provide a small month [sic] fee in consideration for [ASASCO's] continuing availability to consult with [Boyamian].” Id.

         On September 4, 2008, TSC and ASASCO executed an extension of the 2007 consulting agreement on a “no-fee basis.” The extension letter to Al-Tassan stated in part that “[a]s you have previously discussed with Avo Boyamian, effective September 1, 2008, ASASCO will not receive the monthly consultancy fee for the extended term of the agreement.” Def. Ex. 9. A few days later, Boyamian sent an email to colleagues at TSC explaining the no-fee arrangement: “Effective September 1st, 2008, TSC stopped paying ASASCO the monthly consultancy fee because, TSC through Blenheim, an offset service provider company based in UK, has an offset service providing agreement with ASASCO for TSC business offset requirements in Saudi Arabia.” Pl. Ex. 93. Boyamian forwarded this email to Al-Tassan the next day. At the time, TSC, ASASCO, and Blenheim Capital Partners, Ltd. (“Blenheim”) were still negotiating the terms of pending offset services agreements, discussed further below. The “no-fee” consulting agreement was extended through August 31, 2009, when TSC and ASASCO entered into a fourth consulting agreement. The fourth agreement was effective September 1, 2009 through August 31, 2011, and paid ASASCO a consulting fee of $500 per month as Kemp suggested.

         III. The Separate Offset Agreements

         A. Offsets in Saudi Arabia

         According to ASASCO's expert Leslie Janka, [5] Saudi Arabia generally requires offsets on foreign sales to the Saudi Ministry of Defense and Aviation. A defense contractor's offset requirement is set by establishing a percentage of the total value of the sale that must be earned in “offset credits.” For the relevant time period, the Saudi government required offsets of 35% of the total purchase price - until 2012 when it increased to 40% of the purchase price - for all defense contracts in excess of 400 million Saudi riyals (approximately U.S. $104 million). Saudi regulations appear to require a defense contractor to have an approved offset plan in place before a supply contract can be signed. However, a defense contractor is not obligated to perform the offsets itself but can subcontract the obligation to a third-party offset services provider. The provider is obligated to develop and get approval for offset projects to earn the defense contractor the required offset credits. For reasons of expediency or politics, Saudi Arabia may waive an offset requirement. The waiver would usually occur through a written document.

         B. TSC-ASASCO Offset Conversations (2006)

         While executing the first consulting agreement, Boyamian and Al-Tassan continued to discuss additional compensation for ASASCO via offsets. Boyamian explained that by May 2006, TSC and ASASCO “had a consultancy agreement, which is a standing alone agreement. Now, we were starting - [Al-Tassan] was talking about joint venture activities or offset-providing activities. That was a totally separate subject.” Pl. Ex. 2 at 138:16-139:1.

         In May, Al-Tassan emailed Boyamian a proposed structure for the offset arrangement and invited TSC to respond and comment. The proposal detailed how TSC would pay $35 million to Aerosource Inc., a company fully owned and operated by ASASCO. Aerosource would invest $5 million in economic offset projects in Saudi Arabia and retain the remaining $30 million as a “consultancy fee.” One of Al-Tassan's stated objectives of the proposal was “[t]o facilitate consultancy fees to ASASCO.” Pl. Ex. 50.

         TSC responded to Al-Tassan's proposal shortly afterwards. TSC mentioned investing five percent of the value of the SFW contract into offset projects, but it noted that “[a]ll such activity must result in Saudi Gov't approval of offset projects, grant credits/or waive requirement.” Pl. Ex. 51. “Next steps” would be for TSC and ASASCO “to review potential project portfolio and develop strategy to gain Saudi approval as offset, ” and for TSC “to provide ASASCO with ‘offset provider' agreement as means to begin to solidify approach.” Id.

         In June 2006, Boyamian emailed Al-Tassan a draft offset provider agreement between ASASCO and TSC. The agreement was prepared by Neil Rutter, TSCs Offset Manager. The draft provided that ASASCO would be “entitled to receive a fee of X percent (X%) of the value of an Offset Waiver provided that TSC is satisfied that any potential Offset Obligation has been waived irrevocably.”[6] Pl. Ex. 53 § 2.1. Alternatively, ASASCO would be “entitled to receive a fee of X percent (X%) of the value of an Offset Credit obtained through successful execution of an Offset Project.”[7] Pl. Ex. 53 § 3.1. For ASASCO to be compensated for any offset credits, the draft provided that TSC had to advise ASASCO in writing that it had approved the offset project. Pl. Ex. 53, § 3.2. This draft agreement was never finalized or signed by the parties.

         On June 26, 2006, Boyamian forwarded Al-Tassan an email chain containing a series of internal TSC emails discussing ASASCO as a consultant and an offset services provider. The email chain contained instructions for a compliance analyst at TSC to prepare “two books: one for a new offset agreement with ASASCO, and one for a renewal of the consultant agreement.” Pl. Ex. 54. Boyamian forwarded the emails to Al-Tassan to motivate him. Boyamian understood the consulting agreements and the proposed offset agreement as “two separate things.” Pl. Ex. 2 at 155:23-156:1. Al-Tassan also understood that any arrangement under which payment would be made for offset related services would be a separate fee from the fee paid to ASASCO under the consulting agreements.

         C. Blenheim Capital (2006-2007)

         On September 12, 2006, Rutter advised TSC leadership that because of certain legal limitations on foreign military sales, TSC needed to engage a third party, Blenheim Capital, to manage the investing and coordination of offset services in Saudi Arabia. ASASCO would continue to develop offset projects, but Rutter noted that ASASCO did “not ha[ve] much experience with offset [sic] in the Kingdom (or anywhere else).” Pl. Ex. 56. Rutter suggested that TSC needed to “[c]ome to an agreement with Blenheim Capital to support [TSC's] offset activities in the Kingdom, at a cost not to exceed 2%, with payments again being contingent on a sale.” Id. Later in September, Boyamian emailed Al-Tassan to request that Al-Tassan meet with a representative from Blenheim to further discuss offset projects. By June 2007, TSC had decided to create a TSC-Blenheim agreement and then a separate Blenheim-ASASCO agreement instead of directly contracting with ASASCO for offset services.

         D. TSC-Blenheim Offset Agreement (2008)

         In February 2008, TSC entered into an Offset Services Agreement (“OSA”) with Blenheim. The agreement established a relationship between the companies in which Blenheim would help TSC either avoid any offset requirements or meet any formal offset obligations that arose from the sale of SFWs. The OSA provided that, in the event that Blenheim was able to acquire a waiver, TSC agreed to pay Blenheim a fee of two percent or six percent of the value of the SFW supply contract, depending on whether the sale was completed as a government-to-government sale or as a direct commercial sale, respectively. The OSA provided that if there was a waiver of the offset obligation, it must be completed within six months of the sale. In the event that TSC entered into an offset contract with Saudi Arabia, the OSA provided Blenheim would receive a fee of six percent of the value of the supply contract for any offset credits actually received. Blenheim could enter into a subcontract with ASASCO to fulfill its duties under the OSA but could not enter into a subcontract with any other third party without the written consent of TSC.

         E. ASASCO-Blenheim Agreement (2009)

         During the summer and fall of 2007, before the OSA between TSC and Blenheim was finalized, Al-Tassan continued to negotiate ASASCO's compensation under an offset agreement. Boyamian sent Al-Tassan a draft of the OSA between TSC and Blenheim on June 14, 2007. The OSA draft included a fee to Blenheim of six percent. On June 21, 2007, Al-Tassan met with Boyamian, Rutter, and Grant Rogan (from Blenheim) at the Paris Air Show to further discuss offsets. At that meeting, Al-Tassan alleges that Boyamian promised him ASASCO would receive six percent of the value of the supply contract for offset services, and Blenheim's fee would be two percent.

         Throughout the fall of 2008 and spring of 2009, Al-Tassan continued to negotiate ASASCO's exact fee with TSC and Blenheim. On September 8, 2008, Al-Tassan emailed Boyamian with edits to the proposed Blenheim-ASASCO agreement. He stated: “What is unacceptable is the fee structure. . . . To receive ‘75% of such fee paid by “TSC” to the Escrow Agreement' is not as we have agreed in Abu Dhabi and Paris.” Pl. Ex. 91. Al-Tassan emailed Boyamian again on November 11, 2008 to get his input on the payment structure between the three companies. Boyamian replied that Al-Tassan should look back at the TSC-Blenheim agreement, but that it was his understanding that “Textron will be paying 8% of the contract value” to an escrow account with Blenheim to meet its offset obligations, of which ASASCO would be entitled to seven-eighths. Pl. Ex. 98. This ...

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