Foster-Miller Inc. v. Babcock & Wilcox Canada

• Decision Date: 04 January 2000
• Docket Number: 99-1228,Nos. 99-1227,FOSTER-MILLE,INC,s. 99-1227
• Parties: (1st Cir. 2000) , Plaintiff, Appellee, v. BABCOCK & WILCOX CANADA, Defendant, Appellant, Plaintiff, Appellant, v. BABCOCK & WILCOX CANADA, Defendant, Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

210 F.3d 1 (1st Cir. 2000)

FOSTER-MILLER, INC., Plaintiff, Appellee, v. BABCOCK & WILCOX CANADA, Defendant, Appellant, FOSTER-MILLER, INC. Plaintiff, Appellant, v. BABCOCK & WILCOX CANADA, Defendant, Appellee.

Nos. 99-1227, 99-1228

United States Court of Appeals for the First Circuit

Heard January 4, 2000

Decided March 31, 2000

[Copyrighted Material Omitted] Peter L. Resnik, with whom Emily E. Smith-Lee and McDermott, Will & Emery, were on brief for appellant/cross-appellee.

James J. Foster, with whom Christopher S. Schultz and Wolf, Greenfield & Sacks, P.C., were on brief for appellee/cross-appellant.

Before Selya, Circuit Judge, Campbell, Senior Circuit Judge, and Stahl, Circuit Judge.

STAHL, Circuit Judge.

At the conclusion of a nine-day trial, a jury determined that defendant Babcock & Wilcox Canada (BWC) had breached a confidentiality and non-disclosure agreement that it had reached with a competitor, plaintiff Foster-Miller, Inc. (FMI). The breach sued upon was BWC's alleged use of confidential FMI technology in the development of a small diameter, high pressure, flexible hose. The jury set FMI's damages at $5,084,587. BWC appeals from an interlocutory order denying one of its discovery motions, the judgment entered pursuant to the jury's verdict, and the judgment entered pursuant to a memorandum and order denying its post-verdict motion for judgment as a matter of law. BWC's principal claim is one of evidentiary insufficiency. FMI cross-appeals from orders sanctioning it for a discovery abuse and denying its motion for a partial new trial on damages. We affirm in all respects.

I.

This case already has been the subject of three published opinions. See 46 F.3d 138 (1st Cir. 1995) (vacating and remanding 848 F. Supp. 271 (D. Mass. 1994)); 975 F. Supp. 30 (D. Mass. 1997). We therefore eschew a comprehensive recitation of the litigation and confine our present focus to matters relevant to these appeals. In doing so, we sometimes defer more detailed descriptions of pertinent events to our discussions of the specific arguments advanced. And as in any case that challenges the sufficiency of the evidence, we present the historical facts as the jury might have found them, consistent with the record but in a light most favorable to the verdict. See, e.g., Grajales-Romero v. American Airlines Inc., 194 F.3d 288, 292 (1st Cir. 1999).

In the 1980s, both FMI and BWC became involved in the business of cleaning nuclear powered steam generators. Impurities in the water boiled off in a nuclear generator leave on the generator's bundled tubes an often extremely hard sediment called "sludge." Over time, sludge deposits corrode and wear away the tubes. Sludge-generated corrosion is a major problem in nuclear generators. If unchecked, it can lead to radioactive leaks and astronomically expensive plant shutdowns needed to effectuate repairs.

In the 1980s, FMI and BWC were the only two companies engaged in the business of "sludge lancing." Sludge lancing flushes away accumulated sludge on a generator's tubes with a thin stream of pressurized water delivered through a high pressure hose encased within a metal water lance. By the late 1980s, BWC had developed a manual sludge lancing system for cleaning the nuclear generators of Ontario Hydro, a Canadian public utility. The relationship between BWC and Ontario Hydro was longstanding; BWC had designed Ontario Hydro's generators. But because the water lance and stainless steel reinforced hose in BWC's system were insufficiently flexible to maneuver into more than half of the many nooks and crannies between and among the tube bundles in Ontario Hydro's generators, the tubes - which are significantly closer together in Canadian generators than in the typical United States commercial generator - were caked with a disconcerting amount of unreachable sludge.

In contrast, by the late 1980s, FMI had developed a robotically controlled "flexlance" sludge removal system. As initially designed, FMI's lance contained a stainless steel braided hose flexible enough to bend 90 degrees. This flexibility permitted the lance to enter the relatively wide gaps between and among the tubes in United States commercial generators for purposes of sludge removal. In 1988, FMI began research into adapting its flexlance system for use on the steam generators used in United States Navy nuclear powered vessels. The adaptation process was not straightforward because, like the Canadian generators, the naval generators had significantly smaller inter-tube gaps than United States commercial generators, and the lance and hose developed for use in the commercial generators would not fit into these narrower spaces. Thus, in August 1988, FMI began research into one of the central problems of the adaption process and the problem at the heart of this lawsuit: acquiring or developing a hose small enough (.125 inch outer diameter) to maneuver into the tube gaps in the naval generators, strong enough to withstand the very high burst pressures (10,000 pounds per square inch) needed for effective sludge removal, and yet flexible enough to bend up to 90 degrees.

Initially, FMI retained an outside consultant, Philip Lichtman, to look into whether such a hose might be available from a commercial hose vendor. Lichtman did not testify at trial, but notes he made in connection with his hose search (which were admitted into evidence over BWC's objection) suggested that his search was unsuccessful. The following is an excerpt from the so-called Lichtman notes that is particularly important to this appeal:

Time after time, other vendors refer to Rogan & Shanley as the prime source for small-diameter high pressure hose. I spoke with Dr. Rogan twice . . . . [T]here are technical problems which Rogan feels may be virtually insuperable at almost any price. In short, Rogan thinks [FMI] is wasting [its] time; that only [insufficiently flexible] metal tube will do the job.

In other sections, the Lichtman notes indicate that a second vendor also had described the project as "insuperable," and that a third vendor had thought developing such a small, strong, and flexible hose would be "very difficult."

In September 1988, an FMI engineer named Chip Babbitt conducted a second commercial hose search. Babbitt used Lichtman's notes as a starting point and followed up with several of the vendors Lichtman previously had contacted. Like Lichtman, Babbitt had no luck finding a commercial hose suitable for the naval application. He then mentioned his problem to another FMI engineer, Jay Boyce. Boyce suggested that a hose with a Kevlar braid reinforcement be used. Kevlar is a strong and flexible fiber, but it is highly susceptible to fraying. Boyce also suggested that Babbitt discuss his problem with Glenn Freitas, an FMI engineer who had experience with fiber braiding. Freitas concurred in Boyce's Kevlar suggestion and further recommended that the braided Kevlar be coated with an elastomeric matrix (i.e., a flexible coating typically made from rubber or plastic) to protect the Kevlar from abrasion.

Subsequently, Babbitt began to look for a company that could manufacture a hose of the size and strength needed for the Navy project. In the fall of 1988, Babbitt wrote to a number of hose manufacturers. In his letters, he set forth the size, flexibility, and pressure requirements of the contemplated hose. Although the letters explicitly mentioned the possibility of using stainless steel to reinforce the hose (the approach advocated by many of the manufacturers Babbitt had contacted during his hose search), the letters also suggested that the hose might be constructed with a flexible nylon core, reinforced with a Kevlar overbraid, and coated with a flexible elastomeric matrix "such as a urethane." One of the companies Babbitt contacted at this time was U.S. Composites, a braiding company that had not previously been involved in designing or manufacturing hoses.

In December 1988, FMI commissioned U.S. Composites and another manufacturer to create some Kevlar hose samples in the event a suitable stainless steel reinforced hose could not be designed. In January 1989, U.S. Composites shipped FMI a set of uncoated Kevlar-braided hose samples, which FMI found to be "among the most promising" of the hose prototypes then available. In February 1989, Daniel Fischbach, another FMI engineer, replaced Babbitt on the hose development project. The following month, although FMI was still experimenting with a stainless steel reinforced hose, FMI and U.S. Composites entered into a contract under which U.S. Composites would continue to manufacture and supply to FMI hose samples with Kevlar overbraids. This contract, along with two other FMI/U.S. Composites contracts covering the emerging naval hose technology, contained a confidentiality agreement designed to protect the emerging technology.

In the spring and summer of 1989, FMI tested a number of Kevlar-wrapped hose samples and experienced problems with bursting. Throughout this time, FMI was still contemplating whether to protect the Kevlar by coating it with a matrix such as urethane or by surrounding it with a separate outside cover. By fall, FMI was leaning towards a coated, coverless hose and had U.S. Composites experimentally coat its samples with various types of urethanes and epoxies. By December 1989, U.S. Composites had generated samples of hose using a number of different coating materials. Eventually, FMI chose for the Navy project a hose with a nylon core, a single layer of Kevlar braid, and a urethane coating.

Meanwhile, back in 1988, after FMI had begun work on the naval project, Ontario Hydro approached FMI about the possibility of applying its flexlance technology to clean the tube bundles within its generators. Shortly thereafter, William Schneider of BWC called FMI and proposed that the two competitors cooperate, as each of the companies had information and technology that...