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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

POLARTEC, LLC v. 180S, LLC

: : : CIVIL NO. CCB-07-2396 : : ...o0o... MEMORANDUM

Now pending before the court are cross-motions for summary judgment filed by the plaintiff, Polartec, LLC ("Polartec"), and the defendant, 180s LLC ("180s").1 The dispute arises from a government contract for the design and manufacture of a garment called the Combat Desert Jacket ("CDJ") for use by United States soldiers serving in desert environments. 180s, a Maryland corporation that designs and develops sporting goods, was the prime contractor on the CDJ project. Polartec, a Delaware corporation, was a subcontractor responsible for providing a specific fabric to be used in the CDJ. The issues in these motions have been fully briefed and no hearing is necessary. For the reasons stated below, the plaintiff's motion will be denied in part and granted in part, and the defendant's motion will be denied.

BACKGROUND In November 2004, the United States Marine Corps ("USMC") issued a solicitation for production of the CDJ, requiring that contractors manufacture the garment in Desert MARPAT

Prior to March 2007, the plaintiff corporation was known as Malden Mills. The court will refer to the plaintiff as Polartec throughout. 1

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("MARPAT"), one of USMC's patented camouflage prints. The solicitation included information regarding the color and infrared reflectance ("IR") values that the fabric of the CDJ should approximate. In January 2005, 180s submitted a detailed proposal in response to the solicitation. 180s proposed that the CDJ would be manufactured under a subcontract with Tennessee Apparel Company ("TAC"), using fabrics procured from four fabric suppliers including Polartec and W.L. Gore & Sons ("Gore"), both of whom were licensed to print in the MARPAT pattern. (Pl.s' Ex. 4 at 7-8, 19-20.) Specifically, the core of the jacket would be manufactured using Gore fabric, and the sleeves of the jacket would be manufactured using a Polartec fabric known as Powershield. Both fabrics would be printed in the MARPAT print. While not specified in the proposal, Polartec supplied an additional fabric for the CDJ's hood, known as Malden 9471, which was purchased as completed fabric from another company, United Knitting. In late September 2005, USMC selected 180s as a finalist for the CDJ project and instructed 180s to supply 200 sample jackets for field testing. Upon receiving Powershield fabric from Polartec for use in the sample jackets in October 2005, 180s noticed that one of the rolls of fabric had a "distinct pink cast" to it. (Pl.s' Ex. 10.) At this stage in the application process, 180s also knew that Powershield was still in the developmental stages and had not been approved as a shade match by the Natick Soldier Center ("Natick"). (Pl.'s Ex. 9.) Natick is the entity responsible for developing, testing, and managing clothing worn by U.S. soldiers. Despite some color variation in the sample jackets, USMC awarded the CDJ contract to 180s in May 2006. As part of the production process, TAC submitted purchase orders for the Polartec, Gore, and other fabrics directly to the suppliers (see, e.g., Pl.'s Ex. 16), and 180s placed purchase orders with

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TAC for the completed CDJs (see, e.g., Pl.'s Ex. 13). As early as spring 2004, Polartec began developing the Powershield fabric specifically for use in the CDJ and had submitted samples of its fabric to Natick for shade evaluations. As part of the shade evaluation, Natick would compare the shading of the Powershield to a standard nylon-cotton fabric maintained at Natick that is the desired shade for all MARPAT printed fabric. The goal of the shade evaluations was to get the newly developed fabric as close a match as possible to the shading in the target fabric. Because the fabrics were made of different materials, it was not expected that Powershield would perfectly match the standard fabric; rather, it was expected that the fabric would eventually prove an acceptable match. As such, even fabric deemed to be a negligible shade failure compared to the target fabric was still acceptable for use in the CDJ. It is undisputed that a positive shade evaluation from Natick did not, in itself, constitute formal acceptance of the fabric by the USMC. After 180s was awarded the CDJ contract, all fabric suppliers were instructed to submit their samples to Rosemary Lomba ("Lomba"), a Natick employee, to work with her toward establishing final shade standards. It is undisputed that Polartec had some difficulties creating an acceptable shade match. Specifically, Powershield was deemed to be too pink. (Def.'s Ex. 79.) Natick evaluations also revealed that Powershield had failing IR values. (Id.) In an effort to get the CDJ into the field, knowing that the jacket was more likely to be worn around the compound than in combat, Lomba told Polartec to focus on matching the color before focusing on meeting IR values. (Pl.s' Ex. 7 at 25-26.) After months of working with Natick and causing some delay to the CDJ production, Polartec was able to develop an acceptable shade match in the fall of 2006. In two emails sent in October 2006, Lomba informed Polartec that, based on the most

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recent sample evaluation, its fabric was "acceptable for shipment" (Pl.s' Ex. 26), and she recommended that Polartec "use the existing dye formulations to get a steady flow of goods" to fill TAC's orders (Def.'s Ex. 105). She also informed TAC via email that Powershield passed its most recent shade requirement and Polartec would be shipping out the material "in the near future and beyond" to fill its purchase orders. (Pl.'s Ex. 26.) Subsequent to these emails, Polartec used the approved dye formulation to print Powershield through the rest of 2006 until midJanuary 2007 when problems with the fabric re-emerged. The shipments made during this period contained certificates of compliance, in which Polartec certified the goods delivered complied with contract requirements. At a January 10, 2007 meeting, Lomba informed Polartec and Gore that the USMC was dissatisfied with the CDJs due to color issues. An internal Polartec email summarizing the meeting acknowledged that the Powershield and Gore fabrics did not match and that Powershield had a "red/pink" cast and metamerism, a condition that causes the fabric to change color under different light sources. (Def.'s Ex. 106.) Approximately two weeks later, on January 26, the USMC ordered TAC to cease all production on the CDJ. (Def.s' Ex. 128.) The parties dispute the reason for the halt in production, with Polartec suggesting the color variations between its and Gore's fabrics were the cause, and 180s contending that the halt was caused solely by the defective Powershield fabric. On or around February 6, 2007, the USMC rejected all 6,700 of the CDJs in its possession, due to the shading of the sleeves. (Pl.'s Ex. 66.) The USMC's dissatisfaction with the CDJ placed a renewed emphasis on testing the fabrics. In early February, Natick again tested samples of Powershield taken from TAC's supply and from Polartec, and both samples were

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deemed an unacceptable shade match for being either "too red" or "too pink," particularly when compared to Gore's fabric, which tended toward the greener side of the shade spectrum. (Pl.s' Ex. 59.) Upon learning of the failing test results on February 13, 2007, an internal Polartec email acknowledged its current production of Powershield had been rejected by Natick and should not be shipped to TAC. (Def.s' Ex. 140.) Tests performed on updated Powershield in late February revealed similar problems. While testing in March showed improvements in the Powershield fabric, on April 24, 2007, the USMC modified the contract with 180s to replace Powershield with a Gore fabric. In her deposition, Lomba testified that, in addition to the shading issues, the USMC opted to go with the Gore fabric because it was closer to satisfying the military's IR requirements. (Pl.s' Ex. 7 at 72-73.)

180s's Purchase Order 4448 with Polartec Meanwhile, in the fall of 2006, during the beginning stages of the CDJ production process, 180s learned that the USMC expected to increase its demand for the CDJs. In response, 180s decided to bring another manufacturer, Propper International ("Propper"), into the production process to perform the same functions as TAC. While still negotiating the terms of an anticipated contract with Propper, 180s approached Polartec about the anticipated increase in fabric that would be required for the additional CDJs. On October 11, 2006, 180s submitted a purchase order to Polartec for 49,950 yards of Powershield at $33 per yard and 14,700 yards of Malden 9471 at $8 per yard, for a total cost of $1,765,950. The terms of the purchase order included a provision permitting 180s to terminate the order at any time and, in the event of a non-default termination, obligating 180s to compensate Polartec for any completed or

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uncompleted items or raw, semi-processed or completed materials for use in fulfilling the order. (Pl.s' Ex. 38 "Order 4448"

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