Kaman Aerospace Corp. v. Arizona Board of Regents – 8/23/2007

September 7, 2007

Arizona Court of Appeals Division Two Holds That Contract Modifications Agreed to by University of Arizona Engineers, Not Authorized by the University of Arizona Board of Regents, Are Unenforceable.

The University of Arizona’s astronomy department has a research wing called Steward Observatory. The Observatory has a mirror laboratory, and the Arizona Board of Regents (“ABOR”) entered into a contract with Lockheed Martin for ABOR to design, develop, and assemble a “collimator,” a machine described at trial as a “telescope working in reverse.” ABOR partnered with Kaman on the project. ABOR would provide the mirrors, and Kaman was responsible for providing the support and control components of the collimator. Kaman and ABOR entered into a written contract with a fixed price. The contract contained a statement of work describing the tasks Kaman was to perform, as well as “billing milestones” for when Kaman was to be compensated for various tasks.

A dispute ultimately developed wherein ABOR rejected several of the modifications that Kaman claimed were enforceable modifications to the statement of work, for which Kaman was entitled to compensation. After a trial, the jury returned a verdict in favor of Kaman. ABOR appealed, claiming that the trial court erred when it denied ABOR’s motions for judgment as a matter of law because Kaman failed to prove an authorized signatory had executed contract modifications on ABOR’s behalf.

On de novo review, Division Two agreed, holding that the modifications entered into by unauthorized personnel (including some Steward Observatory engineers) were not binding on ABOR, since the University had designated nine officers “as authorized signatories to execute contracts . . . on behalf of the University of Arizona and ABOR.”

The Court noted that anyone entering into an arrangement with the government takes the risk of having accurately ascertained that one who purports to act for the government stays within the bounds of that authority. In connection with contract modifications that included cost changes, until an ABOR officer with contracting authority executed a document embodying both the contract change and its cost, ABOR was not bound. The Court also held that course of conduct by unauthorized state officials cannot bind the state.

ABOR also argued that in the event the Court found judgment was improperly entered for Kaman on Kaman’s breach of contract claim, the Court should direct the trial court to enter judgment for ABOR’s counterclaim for breach of contract. The Court declined to do so, noting that ABOR’s argument on this point was “underdeveloped.” The verdict in favor of Kaman on ABOR’s breach of contract claim was a general one, and the Court’s finding that no authorized agent ever bound ABOR to the modifications “does not necessarily preclude the jury’s factual finding on a separate cause of action that Kaman did not breach the contract.” Because the jury could have concluded ABOR had not proved Kaman breached the contract, that ABOR had itself breached the contract, or could have been unpersuaded by ABOR’s damages evidence, either alternatively or collectively, the Court affirmed the trial court’s denial of ABOR’s motion for a new trial solely as to damages on its counterclaim.

Judge Brammer authored the opinion; Judges Howard and Pelander concurred.