Babcock & Wilcox Co. v. Areva NP, Inc.

• Decision Date: 30 June 2016
• Docket Number: Record No. 150830
• Court: Virginia Supreme Court
• Parties: The Babcock & Wilcox Company, et al. v. Areva NP, Inc., f/k/a Framatome ANP, Inc.

292 Va. 165

788 S.E.2d 237

The Babcock & Wilcox Company, et al.

v.Areva NP, Inc., f/k/a Framatome ANP, Inc.

Record No. 150830

Supreme Court of Virginia.

June 30, 2016

E. Duncan Getchell, Jr. (Michael H. Brady ; McGuireWoods, on briefs), Richmond, for appellants.

James W. Dabney (Mark J. Peake ; J. Frederick Watson, Lynchburg; Richard M. Koehl ; Caskie & Frost; Hughes Hubbard & Reed, on brief), for appellee.

PRESENT: Lemons, C.J., Goodwyn, Mims, McClanahan, Powell, and Kelsey, JJ., and Lacy, S.J.

OPINION BY JUSTICE D. ARTHUR KELSEY

This appeal concerns a royalty dispute over the use of nuclear technology, which resulted in a jury verdict in favor of Areva NP, Inc. (“Areva”) against Babcock & Wilcox Company (“B & W”) and affiliated companies (collectively, the “B & W defendants”) for breach of contract and violation of the Virginia Uniform Trade Secrets Act, Code §§ 59.1–336

to –343.

The B & W defendants appeal on various grounds, claiming that the trial court misconstrued the governing agreements and that the alleged use of the nuclear technology did not violate these agreements, properly construed, as a matter of law. The B & W defendants also contend that Areva failed to prove a prima facie violation of the Trade Secrets Act. In one of its two assignments of cross-error, Areva contends that, in the event that we reverse and remand for a new trial, we should correct an alleged error in the finding instruction.¹

I. Background

In the trial court, Areva filed a two-count complaint against B & W and three affiliated companies, Babcock & Wilcox Power Generation Group, Inc.; Babcock & Wilcox Nuclear Energy, Inc. (“B & W Nuclear”); and Babcock & Wilcox Canada, Ltd. (“B & W Canada”). This suit was filed on the heels of earlier litigation between the parties in federal court, which the parties settled after the issuance of a preliminary injunction against Areva's parent company in favor of B & W Canada and BWX Technologies, Inc. See Babcock & Wilcox Canada Ltd. v. Framatome ANP, Inc. , No. 6:02CV00049 (W.D. Va. Feb. 13, 2003) (Moon, J.) (unpublished opinion granting the B & W affiliates' motion for a preliminary injunction); 9 J.A. at 3465 (2003 Settlement Agreement's recital referencing the federal suit). The present dispute arose primarily out of one of several agreements related to the settlement of the litigation in federal court.

A. Count I—Breach of Sub–License

Count I of Areva's complaint alleged that B & W and B & W Canada (“B & W sublicensees”) breached a 2004 agreement titled “Sub–License of Nuclear Technology” (“Sub–License”). 19 J.A. at 8507.² According to Areva, the B & W defendants had breached the Sub–License by failing to notify Areva of qualifying contracts under Section II.A and “to pay Areva a [corresponding] royalty of four percent (4.0%) of the gross amount paid under any such contracts.” 1 J.A. at 7.

The parties agreed on the relevant terms of the Sub–License. It included several prefatory clauses acknowledging prior agreements between the parties and defining various terms of the Sub–License by reference to these agreements. The first “WHEREAS” clause stated that, in an agreement titled “Technology Transfer Agreement” entered into in 1989 and restated in 1991 (“1991 License Agreement”), B & W had transferred to B & W Nuclear Service Company, Areva's predecessor in interest, “an exclusive license to apply the Once Through Steam Generator (‘OTSG’) nuclear technology in the field of commercial nuclear services.” 19 J.A. at 8507.³ The second through fourth recitals stated that Areva could sublicense back to the B & W sublicensees “all Nuclear Technology” as that term was understood in the 1991 License Agreement and various other prior contracts between the parties. Id.

Section I of the Sub–License, titled “LICENSE GRANT,” provided that Areva's predecessor granted to the B & W sublicensees “a perpetual, worldwide, sub-license to practice and use the Nuclear Technology which is exclusive to [Areva] ... for all purposes, without restriction, in the field of or relating to the supply of commercial nuclear services to OTSG plants.” Id. at 8508. Section II, designated “ROYALTY OF 4% ON GROSS REVENUES,” stated:

For the use as defined in this Sub–License at OTSG plant sites described in Exhibit “A” by a Grantee of the Nuclear Technology, but excluding the first contract, which is covered under paragraph D, below, the Grantee agrees to pay to [Areva] a royalty of four percent (4.0%) of the Grantee's gross contract amounts to the extent such amounts are actually paid to the Grantee by the Grantee's customer(s) ... as calculated and on the terms and conditions as set out below ....

Id. The “below” terms and conditions included paragraph A, a notice provision, and paragraph B, which clarified that the actual “receipt” of any portion of contract revenue would trigger the obligation to pay “the royalty applicable to such payment.” Id.

In addition, paragraph D recognized a one-time royalty waiver for the “first contract,” which Section II specifically excluded:

[The B & W sublicensees] shall pay [Areva] a one-time only lump sum payment of U.S. $250,000 within thirty days of the first contract to be entered into by either [B & W sublicensee] greater than U.S. $100,000 for commercial nuclear service projects performed using the Nuclear Technology as licensed herein at an OTSG site described in Exhibit “A”, or by December 31, 2004, whichever occurs first. If payment is not received by [Areva] by December 31, 2004, this Sub–License Agreement will be considered and void.

Id.

In their counterclaim for declaratory judgment, the B & W defendants agreed that the Sub–License governed B & W and B & W Canada, see 1 J.A. at 65, 67, but they denied that they had entered into any customer contracts that triggered the royalty obligation. Their customer contracts, they contended, did not require the use of Areva's exclusive technology or constitute the specific type of use specified in the royalty provision.

B. Count II—Trade Secrets

Count II of Areva's complaint alleged that the B & W defendants had misappropriated Areva's trade secrets by using its exclusive technology, which was “subject to” the Sub–License, without obtaining Areva's authorization to do so and “without compensating Areva” for the unauthorized use. 1 J.A. at 9–10. In a bill of particulars, Areva added that B & W Nuclear was “neither a signatory to nor a Grantee under” the Sub–License. Id. at 14; see also id. at 27.

In their answer, the B & W defendants denied Areva's allegation that B & W Nuclear was not a party to the Sub–License. Instead, they claimed, all B & W subsidiaries, including B & W Nuclear, were “authorized under the License and Sub–License Agreements.” Id. at 52; see also id. (“[T]he [Sub–License] allows use of the intellectual property in issue by the referenced parties”).

C. Cross–Motions for Summary Judgment

Both sides of the dispute filed cross-motions for summary judgment. Among the issues in contest was the B & W defendants' assertion that the royalty provisions of the Sub–License were unambiguous and should be interpreted by the court as a matter of law according to their plain meaning. The trial court agreed and found, based on the record available upon summary judgment, that the plain meaning of those provisions precluded any royalty liability for customer contracts involving the off-site design, manufacture, and sale of heavy components known as ROTSGs, an acronym for replacement once-through steam generators installed at nuclear power plants. The court held,

as a matter of law that the four percent (4%) royalty provisions in Art. II of the [Sub–License Agreement] between the parties is unambiguous ; that the royalty applies to gross contract amounts involving the use of nuclear technology exclusive to Areva in the field of commercial nuclear services at OTSG plant sites identified in Exhibit A of the Agreement, whether such use was substantial or “insubstantial”; and that the royalty does not apply to gross contract amounts for off site design, manufacture and sale of ROTSG[s] .

Id. at 234–35 (emphases added). On this ground, the court granted “Defendants' Motion for Summary [J]udgment That The Services Sublicense Does Not Apply To Contracts For The Design, Manufacture And Sale Of ROTSGs.” Id. at 236.

D. Trial

The case proceeded to a jury trial. In Areva's opening argument, counsel stated that this was a “contract case and [that the B & W defendants] should be paying us 4 percent, and that's it in a nutshell.” 2 J.A. at 737 (emphasis added). Areva's counsel later affirmed this position in closing argument, suggesting to the jurors:

“[A]s to every one of these contracts [listed on the verdict form] the answer that you should give in your jury verdict form is yes ....” 8 J.A. at 3239 (emphasis added).⁴ Significantly, Areva had taken this position even though two of these contracts—verdict form contract numbers 10 and 14—involved only B & W Nuclear, which was not specifically identified by name in the Sub–License as a grantee.

The B & W defendants responded by asserting that three of these contracts, which were for the “off site design, manufacture and sale of ROTSG[s],” were excluded from the royalty obligation as a matter of law pursuant to the court's letter opinion on the cross-motions for summary judgment. Id. at 235. All but one of the remaining contracts, they argued, did not involve exclusive technology of Areva and, in any event, did not involve any “use” of such technology “at OTSG plant sites described in Exhibit ‘A,’ ” as the Sub–License required. 19 J.A. at 8508. In their view, the one contract that would trigger the royalty obligation qualified for the “first contract” exclusion under Section II.D of the Sub–License. Id.

At the end of Areva's case-in-chief and again at the close of the evidence, the B & W defendants moved to strike, arguing that the evidence, when reviewed against the unambiguous contractual terms, did not prove Areva's claims as...