NEW YORK -(Dow Jones)- A federal appeals court on Friday ordered a new trial in a dispute between L-3 Communications Holdings Inc. (NYSE:LLL) (LLL) and OSI Systems Inc. (NASDAQ-NMS:OSIS) (OSIS) over L-3 Communications's (NYSE:LLL) 2002 acquisition of PerkinElmer Inc.'s (NYSE:PKI) (PKI) security detection business.
In an order Friday, the 2nd Circuit Court of Appeals vacated a lower court's findings on OSI's breach of fiduciary duty and constructive fraud claims against L-3 Communications (NYSE:LLL) . In addition, the three-judge panel also ordered a new trial on OSI's actual fraud claim against the New York defense contractor.
In 2002, L-3 Communications (NYSE:LLL) and OSI sued each other after negotiations broke down on selling portions of PerkinElmer's (NYSE:PKI) security detection business to OSI after L-3 Communications (NYSE:LLL) acquired the business.
After initially pursuing a joint bid for the business in fall 2001, L-3 Communications (NYSE:LLL) submitted a bid in its name only and was the sole negotiator with PerkinElmer (NYSE:PKI) at PerkinElmer's (NYSE:PKI) request.
"OSI was in a position to prevent L-3 from submitting the bid in its name alone," the circuit court found. "OSI could have insisted that the parties form a joint venture or one of the other formal legal relationships that carry fiduciary duties as a matter of law. Or OSI could have insisted on explicit contract terms providing that L-3 would act in a fiduciary capacity when submitting the bid on behalf of both companies. But OSI did not do any of those things."
In May 2006, a jury granted OSI compensatory damages of $33 million and punitive damages of $92.6 million on its counterclaim against L-3 Communications (NYSE:LLL) . L-3 Communications (NYSE:LLL) was awarded $1 in its breach-of-contract claim against OSI at the time.
The jury verdict came after U.S. District Judge Paul A. Crotty in Manhattan found that L-3 Communications (NYSE:LLL) owed OSI a fiduciary duty, but that a jury needed to determine the scope and duration of that duty and whether L-3 Communications (NYSE:LLL) breached it.
A L-3 Communications (NYSE:LLL) spokeswoman didn't immediately have a comment when reached Friday. An OSI spokesman didn't immediately return a phone call seeking comment Friday.
-Chad Bray; Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
(END) Dow Jones Newswires 06-27-08 1248 Copyright (c) 2008 Dow Jones & Company, Inc.
