BC Technical, Inc. v. Ensil Int'l Corp.
| Decision Date | 07 February 2012 |
| Docket Number | No. 09-4011 & 09-4019,09-4011 & 09-4019 |
| Parties | BC TECHNICAL, INC., Plaintiff-Counter-Defendant-Appellee/Cross-Appellant, v. ENSIL INTERNATIONAL CORPORATION, a New York corporation, Defendant-Counter-Claimant-Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
(D. Utah)
ORDER AND JUDGMENT*Before MURPHY, SEYMOUR, and O'BRIEN, Circuit Judges.
The jury found Ensil International Corporation (Ensil) (1) breached a contract with BC Technical, Inc. (BC) by failing to repair damaged circuit boards and (2) converted BC's property by unreasonably refusing to return the circuit boards BC hadsent for repair. Before the jury retired for deliberations, Ensil moved for judgment as a matter of law. Following the trial, Ensil again moved for judgment as a matter of law and/or a new trial. The district court denied the motions. Ensil appealed from the court's judgment and the denial of its post-trial motions.1 BC cross-appeals from the district court's denial of its motion for prejudgment interest.
Ensil contends the verdict cannot stand because its contract with BC was illegal and unenforceable under the Copyright Act and Utah law. It also contends BC's conversion claims must fail because, without valid expert testimony establishing the unrepaired circuit boards were, in fact, repairable or, in the alternative, that non-repairable boards had value, there is no evidence of BC's actual losses either from a breach of contract or conversion. Ensil also claims the conversion claim must fail for two other reasons -- it had a lawful justification for retaining the circuit boards and BC's claim was barred by the economic loss rule. In the alternative, Ensil claims it is entitled to a new trial because the jury instructions and verdict form resulted in prejudicial error and the district court improperly admitted the testimony of BC's damages expert. We affirm.
BC Technical was formed by Charles Hale, its President and CEO, to service nuclear medical imaging devices and peripheral devices such as gamma cameras2 andmagnetic resonance imaging (MRI) equipment. As part of its services, BC offered a repair exchange program whereby it would provide its customers with used, but functional, circuit boards in exchange for a fee and the customer's defective circuit boards. The defective circuit boards in some instances contained malfunctioning integrated circuits referred to as PROMs.3 During the relevant time period, 2001-2002, BC did not have the capability to repair all of the defective circuit boards it received from its customers. Its shortcoming was, seemingly, met by Ensil.
Ensil International is a New York corporation with offices in Lewiston, New York. It sought customers needing repair of electronic circuit boards. On February 28, 2001, Ensil emailed BC an advertisement declaring its specialization in "Repair, Rework, Test and Inspection of electronic circuit boards and assemblies for Medical/Clinical, Scientific and Industrial Applications." (Appellant's App'x Vol. VI at 1461.) In response, Hale called Ensil to discuss whether it could repair BC's defective circuit boards. He spoke with Ken McDowell and described the defective circuit boards. McDowell assured Hale that Ensil could make the necessary repairs. McDowell did not mention any limitations on Ensil's repair capabilities or potential software license issues. During the following months, the parties continued to correspond and exchangeinformation about BC's defective circuit boards.
On April 3, 2001, McDowell sent an email to Hale stating Ensil had "all information needed to repair" BC's damaged circuit boards and once Ensil received the boards, it would "generate an estimate for [BC] based on time and materials needed to complete each repair." (Appellant's App'x Vol. VI at 1464). On April 25, 2001, BC sent Ensil 28 circuit boards for inspection. On May 1, 2001, Ensil provided BC with its initial estimate of repair costs. Shortly thereafter, the initial estimate was negotiated down to $27,400. BC paid Ensil $15,000 to begin repairs. Without any express mention of copyright concerns, Ensil agreed to repair BC's twenty-eight circuit boards in a six to ten day turn-around period.
Ensil's repairs did not proceed as planned. The difficulties resulted in a number of circuit boards being shipped back and forth between the parties throughout the remainder of 2001 in an apparent collaborative effort to accomplish the necessary repairs. Ultimately, Ensil successfully repaired five or six circuit boards.
In January of 2002, BC called Ensil and demanded the return of its remaining circuit boards. The parties engaged in discussions through May 2002 regarding the return of the unrepaired circuit boards. On May 9, 2002, Ensil faxed a letter requiring BC to sign for the return of the circuit boards. The letter contained the following language:
I _ on (DATE) _ have instructed Ensil International to return all product to BC Technical in as is condition, as is condition is understood by both parties to be (not re-assembled, not re-verified, as received)
(Appellant's App'x Vol. VI at 1538.) Ensil claimed that due to it being an "ISO qualityorganization" 4 the letter was really a "standard ISO form" which BC was required to sign before Ensil could return the circuit boards. (Appellant's App'x Vol. IV at 1096; Appellant's App'x Vol. VI at 1538.) Upon receipt of this letter, Hale inserted handwritten notations stating:
As an ISO quality organization it must be understood that these units have been in Ensils [sic] possession for well over a year and Ensil has attempted to repair these without any success. These units have been sent to BC Technical to see if their repair was successful many times and to date none have been repaired.
(Appellant's App'x Vol. VI at 1539.)
Hale signed the amended form on behalf of BC and sent it back to Ensil. Due to Hale's notation, Ensil refused to return the circuit boards at that time. As a result, on July 22, 2002, BC brought suit against Ensil. The circuit boards were not returned until December 2005.
Some circuit boards contained malfunctioning PROMs. To repair a damaged circuit board with a defective PROM, the following steps are required: (1) the software of a fully functional PROM of the same type must be copied to a PROM burner; (2) thesoftware can then be burned onto a new blank PROM; and (3) the newly burned PROM can then be installed in place of the defective one.5
The PROM software at issue here was written by the third-party manufacturer of the circuit boards, ADAC Laboratories (later acquired by Philips). The title page of ADAC's manuals for the subject circuit boards stated all "information and drawings set forth in this document and all rights in and to inventions disclosed herein . . . are the exclusive property of ADAC Laboratories . . . No copies of this information or drawings shall be made without the prior consent of ADAC Laboratories." On each additional page, the manuals stated in the lower left-hand corner: Additionally, according to the testimony of ADAC employee Dr. Koops, who wrote the software for the PROMs, the subject software was copyrighted and proprietary and the source code contained a statement to this effect. However, the actual code on the PROMs at issue did not contain this warning.
Although Ensil now claims copying the PROMs would violate federal and state law, no issues arose between the parties regarding copyright concerns in connection with the repair of the circuit boards until the commencement of this litigation.6
On July 22, 2002, BC filed a diversity suit against Ensil in the District of Utah. BC's third amended complaint asserted claims for breach of contract and conversion. The parties filed numerous pre-trial motions. Relevant here, Ensil moved to strike the report from BC's damages expert, L. Scott Kimber, and exclude his testimony. Ensil argued Kimber's failure to use the appropriate time frame for his calculations rendered his methodology unreliable and his conclusions speculative. The court denied the motion.
A five-day jury trial began on July 14, 2008. Over Ensil's objection, BC introduced Kimber's testimony about its lost profits. According to Kimber, BC lost a total of $153,986.
On the fourth day of trial, the judge held an instruction conference. At the conference, Ensil objected to the court's proposed jury instructions regarding the legality of the contract7 and lost profits.8 Ensil also objected to the general verdict form, proposing a special verdict form which included a question as to whether the contract required it to copy software onto PROMs. The court rejected Ensil's proposed special verdict form. As to the legality of the contract, the judge explained it was an issue for him to decide and he would instruct the jury accordingly. Ensil objected to his proposedinstruction. The judge then permitted the parties to revise the wording of the instruction; the result was the final version given to the jury.
Before the case was submitted to the jury, Ensil moved for judgment as a matter of law under Rule 50(a) of the Federal Rules of Civil Procedure. It argued: (1) BC failed to establish Ensil caused it to suffer damages; (2) the contract was illegal and unenforceable; (3) BC's conversion claim was barred by the economic loss rule; and (4) BC failed to provide sufficient evidence for punitive damages. The judge denied Ensil's motion on the first three issues but dismissed BC's claim for punitive damages.
The jury found in favor of BC on both the breach of contract and conversion claims and awarded damages of $159,100. Ensil timely filed a renewed motion for judgment as a matter of law reiterating its position that the...
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