Bladeroom Grp. Ltd. v. Emerson Elec. Co.

Decision Date30 August 2021
Docket NumberNo. 19-16583, No. 19-16584, No. 19-16585, No. 20-15760, No. 19-16730, No. 20-15759, No. 20-15758,19-16583
Citation11 F.4th 1010
Parties BLADEROOM GROUP LIMITED; Bripco (UK) Limited, Plaintiffs-Appellees, v. EMERSON ELECTRIC CO., Defendant-Appellant, and Facebook, Inc. ; Emerson Network Power Solutions, Inc. ; Liebert Corporation, Defendants. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellees, v. Emerson Network Power Solutions, Inc., Defendant-Appellant, and Facebook, Inc. ; Emerson Electric Co. ; Liebert Corporation, Defendants. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellees, v. Liebert Corporation, Defendant-Appellant, and Facebook, Inc. ; Emerson Electric Co. ; Emerson Network Power Solutions, Inc., Defendants. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellants, v. Facebook, Inc., Defendant, and Emerson Electric Co. ; Emerson Network Power Solutions, Inc. ; Liebert Corporation, Defendants-Appellees. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellees, v. Emerson Electric Co., Defendant-Appellant, and Emerson Network Power Solutions, Inc. ; Liebert Corporation, Defendants. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellees, v. Emerson Network Power Solutions, Inc., Defendant-Appellant, and Emerson Electric Co. ; Liebert Corporation, Defendants. BladeRoom Group Limited; Bripco (UK) Limited, Plaintiffs-Appellees, v. Liebert Corporation, Defendant-Appellant, and Emerson Electric Co. ; Emerson Network Power Solutions, Inc., Defendants.
CourtU.S. Court of Appeals — Ninth Circuit

Carter G. Phillips (argued), Sidley Austin LLP, Washington, D.C.; Christopher M. Egleson, Sidley Austin LLP, La Jolla, California; Constantine L. Trela Jr., Jillian S. Stonecipher, and Taurean K. Brown, Sidley Austin LLP, Chicago, Illinois; for Defendant-Appellant/Cross-Appellee Emerson Electric Co.

Rudolph A. Telscher Jr., Steven E. Holtshouser, Kara R. Fussner, and Michael C. Martinich-Sauter, Husch Blackwell LLP, St. Louis, Missouri, for Defendants-Appellants/Cross-Appellees Emerson Network Power Solutions Inc., and Liebert Corporation.

Stephanie P. Skaff (argued), Jeffrey M. Fisher, Carly O. Alameda, Erik C. Olson, J. Alexander Reese, Nadia C. Arid, and Ashley Roybal-Reid, Farella Braun & Martel LLP, San Francisco, California, for Plaintiffs-Appellees/Cross-Appellants BladeRoom Group Limited and Bripco (UK) Limited.

Before: Johnnie B. Rawlinson and Patrick J. Bumatay, Circuit Judges, and Stephen J. Murphy, III,* District Judge.

Concurrence by Judge Rawlinson

S. MURPHY, III, District Judge:

In these appeals, we consider how English law interprets a non-disclosure agreement ("NDA"). The district court's interpretation misapplied English law because it conflicts with the NDA's natural reading. We therefore vacate the district court's judgment and remand for a new trial.

I.

BladeRoom and Emerson are competitors in modular data center design and building industry. In August 2011, the two began negotiating a sale of BladeRoom to Emerson. To start the process, BladeRoom drafted an NDA and both parties signed it. The parties agreed that English law governed the NDA.

The NDA's second paragraph included a dozen subparagraphs that detailed Emerson's confidentiality obligations. One subparagraph, for example, barred Emerson from disclosing information about BladeRoom that it shared with Emerson "at any time." Another subparagraph stressed that any disclosed information "shall remain the property of" BladeRoom and "shall not confer" "any rights or license whatsoever" to Emerson. The NDA's third paragraph stated that the confidentiality obligations did not apply to information that was in "or hereafter comes into[ ] the public domain, otherwise than by reason of breach of" the NDA. With all that in mind, the NDA's twelfth paragraph is most pertinent to our review.

Paragraph twelve says:

The parties acknowledge and agree that their respective obligations under this agreement shall be continuing and, in particular, they shall survive the termination of any discussions or negotiations between you and [BladeRoom] regarding the Transaction, provided that this agreement shall terminate on the date 2 years from the date hereof .

(emphasis added).

Eventually, the acquisition fell through. And around the same time that the deal fell through, Facebook began plans to build a large data center in Northern Sweden. BladeRoom hoped its technology would catch Facebook's eye, so BladeRoom pitched a design for the data center in July 2012. Several months later, Emerson also pitched a data center design to Facebook.

On October 30, 2012, Facebook verbally approved Emerson's design. At the time, Emerson's design was only ten percent done. Despite the approval, Facebook contacted BladeRoom almost a year later to ask about updates to BladeRoom's proposal.

In the end, only BladeRoom and Emerson competed to design and build the data center. In November 2013, Facebook selected Emerson's proposal and the two signed a design-build contract in March 2014.

Meanwhile, BladeRoom knew nothing until March 2014 about the data center's design Emerson pitched. A year later, BladeRoom sued Facebook and alleged that the data center's design copied BladeRoom technology. BladeRoom ended up filing an amended complaint that asserted claims against Emerson and its subsidiaries.1 The second amended complaint lodged several claims against Emerson, notably, breach of contract and trade secret misappropriation. In 2018, the parties tried the case before a jury.

Halfway through the trial, BladeRoom settled with Facebook; its case against Emerson went on. Before closing arguments, Emerson proposed a jury instruction that would have excluded any information disclosed or used after August 17, 2013 from its liability for breach of contract—which was, as Emerson argued, the date of the contract's expiration.2 The district court denied the instruction but allowed Emerson to make the same legal argument to the jury.

The next day, BladeRoom moved in limine to overturn that ruling. BladeRoom specifically moved to prohibit Emerson from arguing that, as a matter of law, the NDA's twelfth paragraph allowed Emerson to use BladeRoom's confidential information two years after signing the NDA.

The district court granted the motion and agreed that the NDA's confidentiality obligations did not expire under paragraph twelve. To interpret the NDA, the district court first examined its "purpose and context." Because "the purpose of the contract [was] to protect information, not provide for its release after 2 years," the district court found that "a reasonable businessperson in either party's position would not have contemplated Emerson's [reading]." And because "Emerson's [reading] would lead to an absurd result and would create some inconsistency with the rest of the [NDA,]" the district court found that the NDA's confidentiality obligations survived beyond two years.

After the trial evidence closed, the jury issued a special verdict. The jury found that Emerson breached the NDA and willfully and maliciously misappropriated BladeRoom's trade secrets. The jury also found that both actions harmed BladeRoom or unjustly enriched Emerson. For damages, the jury found that BladeRoom sustained $10 million in lost profits and $20 million in unjust enrichment. But the jury's verdict did not separate damages for breach of contract from misappropriation of trade secrets or future lost profits from past lost profits.

The district court later awarded BladeRoom $30 million in punitive damages. The district court chose $30 million because "[t]he trial evidence show[ed] that either [the breach of contract or misappropriation] claim for which the jury found liability could support the [full] amount of compensatory damages." Yet, in two post-verdict orders, the district court admitted that "there is no way for the parties or the court to know how much was awarded for breach of contract and how much was awarded for misappropriation of trade secrets."

The district court also awarded BladeRoom prejudgment interest starting from October 30, 2012, the date when the district court found that BladeRoom suffered its "injury ... [and] its loss." The district court chose the date because it was then that BladeRoom "was notified" that "it had lost the opportunity to obtain Facebook's data center contract." And last, the district court awarded BladeRoom roughly $18 million in attorneys’ and expert witness’ fees. On appeal, Emerson challenged the orders discussed above, along with several other district court orders that do not affect our holding.3

II.

We review de novo the district court's order interpreting the NDA. Trs. of S. Cal. IBEW-NECA Pension Tr. Fund v. Flores , 519 F.3d 1045, 1047 (9th Cir. 2008). We first explain why the district court's interpretation erred. After, we explain why the legal error prejudiced Emerson and why we remand for a new trial.

A.

English courts interpret contracts to discern the contracting parties’ intent. Arnold v. Britton [2015] UKSC 36, 2015 WL 3555408, [15]. English courts determine intent based on "what a reasonable person having all the background knowledge which would have been available to the parties would have understood" the contract's terms to have meant. Id. (quotation omitted); see also Rainy Sky S.A. v. Kookmin Bank [2011] UKSC 50, 2011 WL 5077782, [14]. English courts therefore "focus[ ] on the meaning of the relevant [contractual] words ... in their documentary, factual, and commercial context." Arnold v. Britton .

The focus is a "unitary exercise" that "balance[s]" textual and contextual analyses. Wood v. Capita Ins. Servs. Ltd. [2017] UKSC 24, 2017 WL 01084489, [12]. To analyze text, English courts read contract terms as a whole, and in their "natural and ordinary meaning." Arnold v. Britton . To analyze context, English courts examine "the overall purpose" of a contract and its clauses. Id. They also...

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    ...the district court held that plaintiff could not state a claim for misappropriation. In Bladeroom Group, Ltd. v. Emerson Elec. Co., 11 F.4th 1010 (9th Cir. 2021), the Ninth Circuit reversed a $60 million verdict on the grounds that the district court should not have ignored the plain langua......
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