NORDAM sues Cessna over cabinetry in sole-source contract


April 29--NORDAM Group, the Tulsa aerospace manufacturer, has filed a lawsuit against Cessna Aircraft Co. for alleged breach of contract and seeks an injunction to prevent the Wichita-based firm from transferring intellectual property to a competitor, court documents say.

The lawsuit, filed in U.S. District Court in Tulsa, says unless Cessna is stopped from offering to a competitor intellectual property related to NORDAM's production of interior cabinetry for a Cessna business jet, NORDAM will incur more than $30 million in damages.

U.S. Chief District Judge Claire Eagan on Thursday denied Cessna's motion to dismiss or transfer the case to U.S. District Court in Wichita.

Eagan granted Cessna's motion to stay the proceedings pending its resolution before the American Arbitration Association and set a hearing for May 5 on NORDAM's request for a preliminary injunction.

NORDAM Chairman Ken Lackey said negotiations between the two companies to resolve the matter have not been successful.

"It's a commercial dispute between Cessna and NORDAM related to the purchase of cabinetry for the Cessna CJ4 business jet," Lackey said. "Obviously, we have been unable to amicably resolve the dispute. It's our position that both parties must continue to perform under the contract until the dispute is resolved: Nordam must continue to sell the cabinetry, and Cessna must continue to buy the cabinetry while the dispute is arbitrated."

Cessna spokesman Doug Oliver said the company won't comment on pending litigation.

In its lawsuit, NORDAM alleges Cessna breached a 2001 sole-source Master Agreement between the companies as well as a 2007 amendment to the agreement related to NORDAM's production of CJ4 furniture and related components.

"The Master Agreement requires Cessna to place purchase orders with NORDAM (and no other source) to fulfill all of Cessna's requirements for the 'Goods' covered by the Master Agreement during its term," NORDAM says in its lawsuit. "For certain Goods (the 'CJ4 cabinetry'), the term is a 'life of program' term.

"On March 4, 2011, Cessna informed NORDAM that the CJ4 cabinetry portion of the Master Agreement had been 'shopped around' and that if NORDAM did not agree right away to lower its price for such CJ4 cabinetry by 20 percent from the price stated in the Master Agreement, Cessna would not place any more purchase orders with NORDAM for CJ4 cabinetry and would instead procure such CJ4 cabinetry from a source other than NORDAM. Such source proved to be a competitor of NORDAM."

NORDAM executives declined to name the competitor.

The Tulsa firm's lawsuit alleges that Cessna justifies its placement of CJ4 cabinetry purchase orders with NORDAM's competitor through "a tortured reading" of Amendment 16 to the Master Agreement.

Amendment 16, which took effect on Jan. 8, 2009, arose out of NORDAM's request that the parties negotiate a price increase on certain aircraft components unrelated to the CJ4 cabinetry, the company alleges in its lawsuit.

"These discussions on price relief stemmed from significant changes within the industry which resulted in significant cost increases that NORDAM had been bearing without any increase in prices for these non-CJ4 goods," NORDAM says in its complaint. "At no time during the 2008 negotiations of Amendment No. 16 did the parties discuss, negotiate or contemplate either removing or modifying the requirements that Cessna use NORDAM as a sole source of all goods (and in particular the CJ4 cabinetry) covered by the Master Agreement.

"In other words, Amendment No. 16 shortened the term for some of the goods (that is, for the non-CJ4 goods), but Amendment No. 16 did not affect the 'life of program' term for the CJ4 cabinetry."

At the March 4 meeting between the companies, Cessna said it now interprets Amendment 16 as completely removing Cessna's obligation to buy from NORDAM any CJ4 cabinetry, the Tulsa company says in its lawsuit.

"Amendment No. 16 does not mention, was not intended to cover, and does not affect the CJ4 cabinetry," NORDAM says in its complaint. "The parties had no intention to apply the Dec. 31, 2013 expiration date to the CJ4 cabinetry. Amendment No. 17, signed into effect over a full year later, not only added the CJ4 cabinetry but also established firm fixed pricing for the CJ4 cabinetry through Dec. 31, 2017."

NORDAM's lawsuit reveals that Cessna exacted a stiff price from the Tulsa company in awarding it the sole-source CJ4 cabinetry contract.

Under the CJ4 contract, NORDAM was required to purchase a CJ4 aircraft at a price of $8.49 million and to contribute $560,000 for "CJ4 program development," NORDAM says in its complaint. In addition, NORDAM was required to deliver to Cessna 11 shipsets of consigned parts without cost to the Wichita firm, NORDAM's brief alleges.

NORDAM's CJ4 cabinetry is manufactured at its plant in Wichita, although some raw materials are produced in Tulsa, company executives said.

NORDAM's Wichita facility employs 77 people.

D.R. Stewart 918-581-8451