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December 4, 1992

WHITTAKER CORPORATION, as successor in interest to Lee Telecommunications Corporation, Plaintiff,


The opinion of the court was delivered by: LESLIE G. FOSCHIO


 This matter was referred to the undersigned by the Hon. Richard J. Arcara, on December 30, 1991, for report and recommendation on any dispositive motions. The action is presently before the undersigned on Plaintiff's motion for summary judgment, dated February 14, 1992, and Defendants' cross-motion for summary judgment, dated March 16, 1992.


 Plaintiff, Whittaker Corporation ("Whittaker"), a Delaware corporation with a principal place of business in California, filed this diversity action on March 15, 1990. Defendant, Calspan Corporation ("Calspan"), is an Ohio corporation with a principal place of business in New York. Defendant, Calspan Field Services, Inc. ("CFS"), a wholly owned subsidiary of Calspan, is a New York corporation. Defendant Dynaspan Services Company ("Dynaspan") is a joint venture, located in New Mexico, formed by Calspan, through CFS, and DynCorp, a non-party to this action.

 Plaintiff raised two causes of action in its complaint. Each cause of action relates to the alleged breach of a contract between Whittaker and Dynaspan. In response, Defendants asserted two counterclaims against Whittaker for breach of contract and for breach of warranty.

 Following discovery, which was extended twice by motion, Whittaker, on February 14, 1992, filed a motion for summary judgment against Defendants on both causes of action, on the issues of liability and damages. On March 16, 1992, Defendants filed a cross-motion for summary judgment against Whittaker, dismissing all Whittaker's claims as against Calspan and CFS. Oral argument on the motion was held on April 23, 1992, and supplemental memoranda were filed in May, 1992 by the parties.

 For the reasons as set forth below, Plaintiff's motion for summary judgment should be DENIED; Defendants' cross-motion for summary judgment should be GRANTED.


 On May 4, 1987, Plaintiff Whittaker entered into a contract with Defendant Dynaspan in which Whittaker was obligated to provide Dynaspan with computer hardware, computer software, consulting services, and other deliverables for a military project at the White Sands Missile Range in New Mexico. *fn1" Specifically, Whittaker's computer technology was to enable a radar control unit to track and communicate all data it detected to a computer for further processing as part of a defense system. For these services, Dynaspan agreed to pay $ 742,785. At the time of this contract, Dynaspan had a government contract with the United States Army to provide consulting and engineering services on the military project. A second contract, or a modification of the first contract, *fn2" was entered into between Whittaker and Dynaspan on August 14, 1987 for the provision of computer hardware, software, and consulting services in conjunction with the same project for a price of $ 368,903. The items provided for in the first contract became known as the Forward Area Air Defense System ("FAADS") Data Link ("FDL"). The subsequent contract provided for the development of a FAADS Instrumentation Data Link ("FIDL"). The contract was awarded on a sole-source basis, i.e., without competitive bidding, as the government believed only Whittaker capable of producing the deliverables within the time period it required. Dynaspan's contract with the government was a cost-plus contract under which Dynaspan would be reimbursed for its actual costs in completing the contract, plus an agreed amount of profit.

 Pursuant to the terms of the contract, Whittaker was required to execute a Systems Acceptance Test of the FDL system by July 31, 1987, with delivery to Dynaspan by August 10, 1987. Included in the contract was a liquidated damages provision which provided that, if Whittaker failed to deliver the hardware, software, and supplies, or to perform the services within the time frame specified in the contract, Whittaker, in place of actual damages, would pay to Dynaspan a sum of $ 1000 per day for each calendar day of delay of performance. See, Article IX of Contract, Exhibit A, Plaintiff's Notice of Motion, dated February 14, 1992.

 After repeated failures to pass agreed upon acceptance tests and to provide other important deliverables, including source codes, the FDL system was delivered by Whittaker and conditionally accepted by Dynaspan 197 days after the scheduled date for delivery and acceptance. As a result, Dynaspan withheld as payment to Whittaker $ 197,000 of the first contract price, based on a calculation of 197 days at $ 1000 per day. The period of 197 days is the difference between the August 10, 1987 contract delivery date and February 24, 1988, the date Dynaspan conditionally accepted the FDL system. See, Affidavit of Rebecca L. Williams, Contract Administrator for Dynaspan, dated March 11, 1992, at page 6. The Whittaker software did not pass required on-site field tests until June 2, 1988. See, Affidavit of Rebecca L. Williams, at page 6. As to the second contract or modification, Dynaspan contends that the FIDL system which was provided did not have the capacity pursuant to the specifications provided for in the contract, and operated at only a thirty percent capacity level. Specifically, the contract called for a system with a one hundred track capacity, and at the time of the conditional acceptance in 1988, the system only functioned at a thirty to thirty-two track capacity. See, Affidavit of Rebecca L. Williams, at page 7. Accordingly, Dynaspan withheld $ 68,500 from the payment due to Whittaker for the FIDL system. Prior to initiation of this action, a proposed settlement offer of $ 57,083 was offered to resolve any and all disputes surrounding the FIDL system, however, Plaintiff rejected the offer and initiated this lawsuit. Except for the disputed amount of $ 197,000 and $ 68,500, Whittaker has been paid in full by Dynaspan pursuant to the terms of the contract.

 As to Defendants Calspan and CFS, affidavits provided to the court indicate that CFS was merged into Calspan, effective January 1, 1985, prior to the execution of the contracts at issue. See, Affidavit of David M. Main, Counsel for Arvin Industries, Inc., parent corporation of Calspan, dated March 5, 1992. Neither Calspan nor CFS was a party to the contracts in issue in this action. See, Affidavit of David M. Main, dated March 5, 1992.


 1. Choice of Law

 Plaintiff contends that New York law applies to this action as, since this court has diversity jurisdiction, it is obligated to apply the law of New York as the forum state. Defendants, however, argue that, as a federal court sitting in a diversity case, the court should apply New York's choice-of-law rules, and, under these rules, the significant contacts favor New Mexico. Therefore, Defendants contend, New Mexico law should apply to Whittaker's summary judgment motion. In the alternative, Defendants argue that federal common law as to government contracts should apply. Whittaker objects to the application of New ...

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