Foster-Miller, Inc. v. Babcock & Wilcox Canada

United States Court of Appeals
For the First Circuit

No. 99-1227

FOSTER-MILLER, INC.,
Plaintiff, Appellee,

v.

BABCOCK & WILCOX CANADA,
Defendant, Appellant,

No. 99-1228

FOSTER-MILLER, INC.
Plaintiff, Appellant,

v.

BABCOCK & WILCOX CANADA,
Defendant, Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]

Before

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

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.

March 31. 2000

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

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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

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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

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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.

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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,

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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

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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 might prove useful in solving Ontario

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Hydro’s sludge problem. Eventually, the companies submitted to

Ontario Hydro separate proposals for jointly studying and

addressing the problem. The companies did not share their

proposals with each other, as each proposal contained

confidential information. FMI subsequently entered into a

separate agreement with Ontario Hydro to study the feasibility

of using the flexlance system in Canadian generators.

In January 1990, FMI assigned William Leary, an

engineer who had assisted in the completion of the Navy project,

the task of obtaining a flexible hose for a lance to be used in

the Canadian generators. The hose could be slightly larger

(.200 inch outer diameter) than the Navy hose, but it required

a greater pressure retention capacity. Like Lichtman and

Babbitt, Leary first attempted to find a suitable commercial

hose. Using Lichtman’s and Babbitt’s search notes as his

starting point, Leary contacted twenty-five different

manufacturers. His search was unsuccessful. Leary thus turned

to the naval project engineers and asked how the Navy hose might

be adapted to the Canadian application. The engineers agreed

that wrapping a second layer of Kevlar around the hose might do

the trick. Subsequently, FMI contacted U.S. Composites and

asked it to create a hose similar to the Navy hose but with a

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double wrap of Kevlar. In early April 1990, U.S. Composites

shipped samples of the requested hose to FMI.

Leary’s hose work proceeded as FMI was preparing its

feasibility study for Ontario Hydro. On May 11, 1990, an

Ontario Hydro representative agreed to travel to FMI’s research

and development facility in Waltham, Massachusetts, for a

meeting to discuss the progress of the study. Ontario Hydro

requested that a BWC engineer, Daniel St. Louis, also attend the

meeting. St. Louis understood that he had been invited to

provide input with respect to certain water lancing tests

necessary to completion of the study. FMI agreed to St. Louis’

presence but required BWC to execute a confidentiality agreement

to protect confidential information that would be discussed at

the meeting. In relevant part, the agreement provided that, for

a period of five years, BWC would not "use FMI’s [confidential,

proprietary or novel information] for any purpose unless

specifically authorized in writing by FMI." The agreement also

explicitly excluded from the definition of "confidential,

proprietary or novel information" that which, "in its disclosed

combination[s], is in the public domain through no fault of

[BWC]."

The meeting lasted the better part of the day, and St.

Louis was excluded from a number of discussions involving

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sensitive FMI technology and information. But in a brief

presentation towards the end of the meeting, Leary showed St.

Louis a sample of the hose FMI was developing for the Canadian

application. Leary told St. Louis that the hose had a nylon

core, Kevlar-wrap, and urethane coating. Leary also informed

St. Louis that U.S. Composites was manufacturing the hose for

FMI. Unbeknownst to Leary and FMI, St. Louis was at the time

spearheading an effort by BWC to develop a 90-degree flexible

lance of its own. At some point after the meeting, St. Louis

called Leary and obtained from him the address of U.S.

Composites.

Thereafter, St. Louis contacted U.S. Composites and

spoke with its president, Hugo Kruesi. St. Louis asked Kruesi

if U.S. Composites could make for BWC "a similar hose to that .

. . provided for [FMI]." In the course of several subsequent

telephone conversations between Kruesi and St. Louis, Kruesi

provided St. Louis with two price quotations and detailed

information regarding the FMI hose’s construction. St. Louis

also obtained from U.S. Composites a sample of FMI’s hose, which

he subjected to analysis and testing. By the fall of 1990,

however, Kruesi had become concerned that his interactions with

BWC were violative of the confidentiality agreements between FMI

and U.S. Composites. He thus telephoned FMI and asked whether

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there would be a problem if U.S. Composites were to produce a

high pressure flexible hose for BWC. FMI asked Kruesi to hold

off on manufacturing anything for BWC. Subsequently, BWC asked

FMI for permission to develop a high pressure flexible hose

through U.S. Composites, but FMI declined to grant such

permission.

In March 1990, two months prior to the May 11 meeting

at FMI, BWC had still been proposing sludge removal with the

relatively inflexible stainless steel technology it had been

using for years. It was not until April 1990, when Ontario

Hydro suggested to it the need for a more flexible lance, that

BWC even began to contemplate designing its own product capable

of bending up to 90 degrees. And it was not until after the May

11 meeting, during the period of time that St. Louis initiated

contacts with U.S. Composites, that BWC documented any research

into the development of a such a product.

On June 20, 1990, BWC made its first proposal to

Ontario Hydro to develop a water lance of sufficient size and

strength to meet Ontario Hydro’s sludge lancing needs yet

capable of bending up to 90 degrees. The proposal specifically

disclaimed any guarantee of success "in view of the

developmental nature of the work." At some point in the months

that followed, BWC performed its own unsuccessful search for a

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commercial hose suitable for use in Canadian generators. During

this same period of time, St. Louis also subjected the FMI hose

sample to destructive testing. The FMI hose was the only sample

St. Louis ever tested. By November 1990, BWC’s flexible lance

was complete "except for the tubing."

Meanwhile, at some point after its efforts to work with

U.S. Composites had fallen through, BWC contracted with a

Canadian company known as Barrday to manufacture its hose. As

initially designed, the BWC hose, like the FMI hose, had a nylon

core reinforced with a sheathing of urethane-coated and braided

Kevlar. But it was different in many respects. Unlike the FMI

hose, the BWC hose was not "wet braided"; it instead was pulled

through a bucket of urethane (of a different type than that used

by FMI) after the Kevlar had already been braided upon the hose.

Moreover, the BWC hose had an outer abrasion cover. Finally,

the BWC hose used thicker strands of Kevlar weaved onto the core

tube at a somewhat different angle than that employed by FMI.

During the life of the FMI/BWC confidentiality

agreement, Ontario Hydro sought bids on sixteen jobs requiring

the contractor to perform sludge removal with a water lance

flexible enough to bend 90 degrees. FMI successfully bid on one

of these jobs; BWC won the other fifteen. At trial, FMI took

the position that, but for BWC’s wrongful use of confidential

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information regarding the FMI hose disclosed at the May 11, 1990

meeting, FMI would have won all sixteen contracts. FMI’s theory

was that BWC copied and then built upon FMI’s basic hose design,

the basic elements of which (along with the name of the hose’s

manufacturer) BWC ascertained from Leary’s presentation at the

meeting. FMI argued to the jury that this breach of the

confidentiality agreement permitted BWC to enter the relevant

market quickly enough to secure contracts that otherwise would

have gone to FMI. The jury agreed and, as we have stated, set

FMI’s damages at just over five million dollars. These cross-

appeals followed.

II.

BWC’s principal argument, made from various vantages,

is that the district court erred in denying its motion for

judgment as a matter of law based on evidentiary insufficiency.

BWC also contends that the court erred in admitting the Lichtman

notes in evidence and then compounded its error by failing to

give a curative instruction after the notes were misused by FMI

during its closing argument. Finally, BWC asserts that the

court committed reversible error in instructing the jury on the

weighing of expert testimony, in denying its motion in limine

seeking to limit or exclude the testimony of FMI’s damages

expert, and in making certain FMI documents obtained by BWC

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during discovery the subject of a protective order. For its

part, FMI argues that the court erred in declining to award it

a new trial on damages after erroneously precluding it from

introducing lost profits evidence relating to a Canadian

subsidiary FMI established in 1994, and in sanctioning it for

failing to comply with a Fed. R. Civ. P. 30(b)(6) deposition

notice served during discovery by BWC.

A. Standard of Review

We review the district court’s denial of BWC’s motion

for judgment as a matter of law de novo, viewing the evidence in

the light most favorable to FMI and drawing all reasonable

inferences in its favor. See, e.g., Collazo-Santiago v. Toyota

Motor Corp., 149 F.3d 23, 27 (1 st Cir. 1998). Our inquiry is

whether the evidence, when viewed from this perspective, would

"permit a reasonable jury to find in favor of [FMI] on any

permissible claim or theory." Id. (citation and internal

quotation marks omitted).

We review the other district court actions challenged

in these appeals only for an abuse of discretion. See, e.g.,

United States v. Cunan, 152 F.3d 29, 36 (1st Cir. 1998)

(evidentiary rulings); Beatty v. Michael Bus. Machs. Corp., 172

F.3d 117, 121 (1 st Cir. 1999) (decision whether the evidence

warrants a particular jury instruction); Kumho Tire Co., Ltd.

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v. Carmichael, 526 U.S. 137, 141-42 (1999) (decision whether to

admit challenged expert testimony); United States v. Gilbert,

181 F.3d 152, 162 (1st Cir. 1999) (discovery rulings); Puerto

Rico Aqueduct and Sewer Auth. v. Constructora Lluch, Inc., 169

F.3d 68, 77 (1st Cir.) (denial of motion for new trial), cert.

denied, 120 S. Ct. 175 (1999). We will not, however, uphold any

decision within the court’s discretion that has been tainted by

an error of law. See, e.g., United States v. Ticchiarelli, 171

F.3d 24, 31 (1st Cir.), cert. denied, 120 S. Ct. 129 (1999).

Moreover, we may affirm on any independently sufficient ground

supported by the record. See, e.g., Ticketmaster-New York, Inc.

v. Alioto, 26 F.3d 201, 204 (1st Cir. 1994).

B. BWC’s Appeal

1. Denial of Motion for Judgment as a Matter of Law

BWC’s challenge to the district court’s denial of the

motion for judgment as a matter of law is, as we have stated, an

evidentiary insufficiency argument pressed from various angles.

Primarily, BWC contends that, in denying the motion, the court

erroneously and prejudicially conceptualized "confidential"

information more broadly than is permitted under Massachusetts

law, which the parties reasonably have agreed governs this

diversity action. See, e.g., Merchants Ins. Co. of New

Hampshire, Inc. v. U.S. Fidelity and Guar. Co., 143 F.3d 5, 8

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(1st Cir. 1998) (we will give effect to the parties’ reasonable

agreement as to controlling state law without further choice-of-

law analysis). To be specific, BWC argues that the information

disclosed at the May 11, 1990 meeting is not covered by the

confidentiality agreement because it was neither "proprietary"

nor a "trade secret" and because, as a matter of Massachusetts

public policy, confidentiality agreements can protect only trade

secrets and proprietary information. Central to this argument

is a subsidiary claim that the information disclosed at the

meeting was neither a trade secret nor proprietary because it

was an obvious solution to an engineering problem derived from

information in the public domain.

As an initial matter, a review of the Massachusetts

cases BWC has cited leaves us in some doubt about whether and

how the Massachusetts courts differentiate between confidential

information, proprietary information, and trade secrets.

Compare Warner-Lambert Co. v. Execuquest Corp., 691 N.E.2d 545,

547 (Mass. 1998) ("We further have recognized that confidential

and proprietary business information may be entitled to

protection, even if such information cannot claim trade secret

protection."), with Jet Spray Cooler, Inc. v. Crampton, 385

N.E.2d 1349, 1354 (Mass. 1979) ("The essence of an action for

the wrongful use of trade secrets is the breach of the duty not

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to disclose or to use without permission confidential

information acquired from another."). But be that as it may, we

do not in this case measure the sufficiency of FMI’s evidence

against whatever standard Massachusetts law may supply; we

measure it against the relevant jury instructions, which were

not patently erroneous and thus became the law of the case when

BWC failed to object to them. See, e.g., United States v.

Zanghi, 189 F.3d 71, 79-80 (1 st Cir. 1999) (evidentiary

sufficiency is measured against instructions to which no

objection has been lodged, at least where such instructions are

not "patently incorrect"), cert. denied, 120 S. Ct. 839 (2000);

Campos-Orrego v. Rivera, 175 F.3d 89, 97 (1st Cir. 1999)

(similar).

The district court instructed the jury extensively on

the issues implicated in BWC’s challenge to the denial of its

motion for judgment as a matter of law. Because these

instructions are relevant not only to BWC’s primary argument,

set forth above, but also to alternative arguments BWC advances

in support of its challenge to the court’s ruling, described and

addressed infra, we quote the instructions at some length:

Now, this case involves an alleged
breach of contract that hinges on a seminal
event, the client briefing held at [FMI’s]
Waltham, Massachusetts, headquarters on May
11, 1990, which was attended by [BWC’s]
Daniel St. Louis.

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 Mr. St. Louis, as you will recall, was
admitted to portions of the briefing only
after BWC signed an agreement promising that
it would not make any use for five years of
confidential information disclosed by [FMI].
That the agreement was a binding contract is
not in dispute. What is disputed can be
sketched as follows:

[FMI], the plaintiff, alleges that
confidential information regarding the
construction of its flexible lance hose,
specifically, the facts of its Kevlar braid
and urethane coating, [and] the name of the
supplier, U.S. Composites, were disclosed to
Mr. St. Louis at the May 11 meeting.

[BWC], for its part, maintains that
nothing of a confidential nature was
conveyed to Mr. St. Louis at that meeting.
What information was conveyed, [BWC]
contends . . . was information that was in
the public domain.

In deciding this . . . issue, you will
want to consider the testimony that was
offered about the May 11 meeting and about
the information that both preceded the
meeting and those [sic] that occurred
afterward, as well as the reasonable
inferences that can be drawn from the entire
history of the case.

If you find that confidential
information was, in fact, disclosed to Mr.
St. Louis during the May 11 meeting, you
will then move to the second point of
contention.

[FMI] maintains that [BWC] used this
information in developing a flexible lance
of its own. [BWC] contends that its flexible
lance was the brain child of its own
engineers and technicians . . . who, [BWC]
argues, conceived the lance without the

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benefit or use of any confidential
information provided by [FMI].

In resolving this issue, you will have
to look to the testimony that has been
offered as to how [BWC’s] flexible lance
came into being and the testimony that
you’ve heard about the similarities and the
differences between the two lances.

* * *

Let me turn now to a fuller
explanation of the critical aspect of this
case, the confidentiality agreement that
gave rise to this dispute. You remember
that under the terms of the confidentiality
agreement, [BWC] promised not to use for
five years, at least not without [FMI’s]
express written approval, any information
disclosed by FMI at the May 11, 1990 meeting
that was "confidential, proprietary, or
novel."

The kinds of information that could be
considered confidential, proprietary or
novel were, as you will see in the
agreement, very broadly defined. The
agreement, however, allowed for [an]
exception[].

The agreement did not apply to
otherwise protected information . . . if
[BWC] could . . . [s]how that such
information, in its disclosed combinations,
was in the public domain through no fault of
[BWC].

* * *

[T]he parties recognized that
information, if in the form it was
disclosed, was already public knowledge,
even if one or both of the parties was
unaware of the fact, [it] could not be

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deemed confidential even if the agreement
defined it as such.

* * *

[BWC thus could] make use of any
information that was already in the public
domain or became so through no fault of
[BWC].

"Public domain" is a legal term of
art, but it refers to information that is
generally known to the public at large or
the people in a particular trade or business
or could be obtained by an interested person
with reasonable ease from information
publicly available.

* * *

The term "confidential," as used in
the agreement, means information of a
private nature that is entrusted to a third
party with the expectation that it will be
kept secret. "Novel" means something
different from anything ever seen or known
before. "Proprietary" refers to some
protectable ownership interest in
information.

Obviously, the term "confidential" has
a broader meaning in the [sic] than the
terms "novel" and "proprietary," and it is
the term that the parties have focused upon.

The test of whether information is, in
fact, confidential has both an objective and
subjective component.

The test is objective in the sense
that the information must be of the kind
that a reasonable person would recognize as
exclusive or private and likely to be known
or appreciated only by its possession, even
if it does not amount to a "secret" in the
popular sense of the word.

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 Information that is, on the other
hand, readily known or knowable to the
interest of the public cannot, as I have
said, be made confidential simply by
slapping it with a restrictive label.

The test is subjective in the sense
that the party imparting the information
must manifest an expectation that it will be
kept private by the person to whom it is
conveyed.

One obvious measure of whether a party
truly regards information as confidential is
the extent to which it takes diligent
precautions to safeguard the information
from inadvertent dissemination or improper
use by others.

To this point, it be apparent that
[FMI] has the burden of proving by a
preponderance of the evidence, that, one,
confidential information was disclosed to
[BWC] at the May 11, 1990 meeting and, that,
two, [BWC] made use of that information in
developing its flexible lance.

As we have suggested, BWC ignores these instructions

and, citing to Massachusetts trade secrets law, contends that

FMI’s hose was not subject to protection under the agreement

because it was an obvious solution to the engineering problem

posed by the Canadian project. In so arguing, BWC highlights

the following uncontested evidence: (1) the idea of combining

Kevlar and urethane (used as an adhesive but not a coating) was

disclosed in two pre-1988 hose patents, and the same combination

was advertised by another hose company in 1989; (2) FMI engineer

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Boyce acknowledged on cross-examination that "the simple idea of

combining polyurethane as a matrix with Kevlar fibers" was not

a secret; and (3) BWC’s liability expert – the only formally

designated liability expert to testify in the case – asserted

that the FMI hose was based on well-known engineering principles

and materials in common use, and could easily have been designed

by "an engineer using principles available in 1990 and using

well-established technology." BWC also points to the fact that

Leary provided St. Louis with the address of U.S. Composites

after the May 11, 1990 meeting, asking why FMI would so freely

share this information if it were truly a trade secret.

If a properly instructed jury had found that BWC had

misappropriated an FMI trade secret under Massachusetts law, a

sufficiency challenge to the verdict might well present a close

question. But here, the jury was not asked to make such a

finding. Instead, after being told without objection that

"confidential" information has "a broader meaning" than "novel"

or "proprietary" information, the jury merely was asked to

decide whether (1) there had been a disclosure of information

that a "reasonable person would recognize as exclusive or

private and likely to be known or appreciated only by its

possession, even if it does not amount to a ‘secret’ in the

popular sense of the word"; (2) FMI had "manifest[ed] an

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expectation that [such information would] be kept private by

[BWC]"; and (3) the information, "in its disclosed

combinations," was, through no fault of BWC, "known to the

public at large or the people in [the relevant] trade or

business or could be obtained by an interested person with

reasonable ease from information publicly available."

With respect to the first question, the jury reasonably

could have found that, prior to May 11, 1990, there was no

generally available hose small, strong, and flexible enough for

the Canadian application. The jury also reasonably could have

found that, during the May 11, 1990 meeting, FMI disclosed to

BWC that it had developed such a hose; that the hose was

constructed from a unique "recipe" involving a nylon core, a

double-braided sheath of Kevlar, and a polyurethane coating; and

that U.S. Composites had successfully manufactured the hose.

Finally, the jury reasonably could have found that the hose was

the culmination of nearly two years of research and development,

and that the hose would give FMI a significant leg up in bidding

on Ontario Hydro’s sludge removal business, which the utility

clearly regarded as an urgent and time-sensitive problem. If

indeed the jury made these permissible findings, it was entitled

to conclude that a reasonable person would regard FMI’s hose

technology as both likely to be appreciated only by its

-24-
possession and something FMI would have wanted to keep from its

only competitor for the sludge removal contracts.

With respect to the second question, the very fact that

FMI compelled BWC and U.S. Composites to sign confidentiality

agreements prior to making any disclosures allowed the jury to

conclude that FMI had manifested a subjective expectation that

the hose technology would be kept confidential. In so ruling,

we acknowledge that Leary’s openness with St. Louis at and after

the May 11, 1990 meeting seems to undermine FMI’s claim that it

regarded as confidential the information disclosed in the

Leary/St. Louis conversations. But in the end, we think that

the jury reasonably could have regarded Leary’s disclosures as

unusual revelations of protected information during an unusual

period of cooperation between competitors, made more freely

because of Leary’s knowledge of the signed confidentiality

agreement.

Finally, with respect to the third question, we believe

that the jury reasonably could have found that the information

Leary related to St. Louis at the May 11, 1990 meeting was

neither known within the hose industry "in its disclosed

combinations" nor obtainable from public information with

reasonable ease. In making its public domain argument, BWC

understandably focuses on the fact that, generally speaking,

-25-
there was at the relevant point in time nothing secret about

constructing a hose with a nylon core, a Kevlar braid, and

polyurethane. But nothing in the instructions required the jury

to decide the public domain issue at this level of generality.

Rather, we think that, as instructed, the jury was entitled ask

itself a much more specific question: On May 11, 1990, could an

interested party have learned with reasonable ease from publicly

available information that there existed a polyurethane-coated,

Kevlar-reinforced nylon hose that was small, strong, and

flexible enough to remove sludge within even the tiny gaps

between the tube bundles in Canadian nuclear reactors? The

evidence is more than sufficient to sustain the jury’s negative

response.

Having disposed of BWC’s primary argument, we turn to

its alternative challenges to the district court’s denial of its

motion for judgment as a matter of law. BWC’s first alternative

argument is that, even if FMI disclosed confidential information

on May 11, 1990, BWC never "used" the information in violation

of the agreement because BWC engineers did not "incorporate" the

information into the BWC hose. (BWC Brief at 35.) We recognize

that, in addressing BWC’s motion, the trial judge accepted that

incorporation was the standard by which the jury should have

gauged whether there had been an unlawful use. See Foster-

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Miller, Inc. v. Babcock & Wilcox Canada, No. 93-12465-RGS, at 6-

7 (D. Mass. December 31, 1998) (memorandum of decision and order

on defendant’s motion for judgment as a matter of law). The

court reached this conclusion because, in its opinion, FMI had

argued exclusively at trial that there had been such an

incorporation. See id. But even if we shared the lower court’s

view of the trial record, we would disagree with its conclusion.

Theories presented in opening and closing arguments do not

necessarily curb a jury’s discretion in this way. As we already

have stated, a jury verdict will stand so long as the evidence

makes it reasonable under "any permissible claim or theory."

Collazo-Santiago, 149 F.3d at 27 (emphasis supplied). Here, the

jury was not asked to find incorporation; it more broadly was

asked, without objection from BWC, whether BWC "used" the

information in violation of the agreement. BWC cannot now

complain that the jury may have understood the term "use" in its

ordinary sense.

So viewed, the use issue is not close. There was

abundant evidence that BWC developed its hose far more quickly

than otherwise would have been possible because it started with

and proceeded from the knowledge that a viable hose could be

constructed from nylon, Kevlar, and polyurethane. Moreover,

there was evidence from which the jury reasonably could have

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found that BWC "used" the May 11, 1990 disclosure of U.S.

Composites as the hose manufacturer to obtain an FMI hose sample

from U.S. Composites, test the sample, and apply the test

results in developing its own hose. Thus, the evidence

adequately supported the jury’s conclusion that BWC wrongfully

used the confidential information disclosed on May 11, 1990.

Pointing to evidence that Ontario Hydro in fact owned

the hose technology at issue in this case, BWC next contends

that the evidence was insufficient to support the conclusion

that the technology was proprietary to FMI under Massachusetts

law. In BWC’s view, one cannot protect under a confidentiality

agreement that which one does not own. BWC did not, however,

present this argument to the lower court when it moved for

judgment as a matter of law. Accordingly, we deem the argument

waived. See, e.g., Hammond v. T.J. Litle & Co., Inc., 82 F.3d

1166, 1171 (1st Cir. 1996).

Finally, BWC argues that it should prevail because FMI

did not formally designate an expert to testify as to liability

issues. More particularly, BWC takes the position that expert

testimony was required for the jury rationally to have answered

whether (1) the "combination of materials [in the FMI hose was]

an idea so unique that an engineer with the appropriate training

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and experience could . . . readily discover it"; and (2) "BWC

had incorporated aspects of the FMI hose that were proprietary

to FMI." (BWC Brief at 47-48 (emphasis in original)). But as

we have explained, these questions – which again are based on

the premise that the jury was instructed in strict accordance

with Massachusetts trade secrets law (or at least BWC’s view of

such law) – were not questions that the instructions required

the jury to answer. Based on our review of the record as a

whole, we are satisfied that competent evidence supports the

jury’s verdict.

2. Admission in Evidence of Lichtman Notes and Failure

to Give Curative Instruction

BWC asserts that the district court erred in admitting

the Lichtman notes in evidence, and then exacerbated its error

by failing to give a curative instruction after FMI, in arguing

to the jury during its closing that its hose was not an obvious

extension of existing technology, used the Lichtman notes in a

manner prohibited by the hearsay rule. See Fed. R. Evid. 802

(prohibiting the introduction of hearsay evidence). In BWC’s

view, the court’s failure to give a curative instruction

effectively permitted FMI to use inadmissible double hearsay as

substantive expert testimony on a crucial liability issue. FMI

responds that the Lichtman notes were admitted for two

-29-
permissible non-hearsay purposes – (1) to show what information

Babbitt and Leary had when they conducted their hose searches;

and (2) to show the falsity of the vendors’ impressions, see

United States v. Adkins, 741 F.2d 744, 746 (5th Cir. 1984) ("When

statements are introduced to prove the falsity of the matter

asserted, they are not inadmissible as hearsay.") – and, in any

event, were properly admitted as a business record. See Fed. R.

Evid. 803(6) (setting forth the "[r]ecords of regularly

conducted business activity" hearsay exception).

FMI successfully moved the Lichtman notes in evidence

during its direct examination of Chip Babbitt. After overruling

BWC’s objection to admission of the notes, and in response to

BWC’s subsequent request for a limiting instruction, the

district court addressed the jury as follows:

Jurors, if I can anticipate what
[BWC’s counsel] is asking me to tell you
with respect to this last exhibit, the man –
that is, Mr. Lichtman – who prepared these
notes upon which this witness relied,
because of medical problems, is unavailable
to testify.

He had a cerebral hemorrhage so he
cannot come into court and testify about the
circumstances under which he prepared these
notes which contain a fair amount of
hearsay.

He is in the business of calling on
people and asking them certain questions
about the availability of this product.

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 I’m sure what [BWC’s counsel] wants me
to do is to point this out to you, that
while this witness [Chip Babbitt] may have
relied on these notes, we are in a position
today, even though I’ve admitted them as
evidence, of not being able to go back to
their author to really explore the manner in
which these notes were assembled.

When asked if this was what BWC’s counsel had in mind in

requesting the limiting instruction, counsel informed the court:

"It is exactly, your Honor." FMI then went on to question

Babbitt about the particulars of his hose search, asking whether

and why Babbitt did or did not contact vendors with whom

Lichtman previously had spoken.

The context in which the notes were admitted, the

court’s admonition that the notes contain "a fair amount of

hearsay," and the court’s two explicit references to Babbitt

relying on the notes, combine to suggest that the court did not

admit the Lichtman notes as evidence tending to prove the truth

of the matters asserted therein. Instead, these factors make it

far more likely that the notes were admitted for the limited

purpose of helping to establish the factual context in which

Babbitt began his hose search. Admission of the notes for this

limited purpose would not have violated the hearsay rule and

therefore would have been within the court’s discretion. See

Fed. R. Evid. 801(c) (defining hearsay as a "statement, other

than one made by the declarant while testifying at the trial, or

-31-
hearing, offered in evidence to prove the truth of the matter

asserted"). Moreover, even if the court admitted the notes for

a different purpose, the fact that the notes were admissible for

the purpose just described is sufficient to support their

consideration by a properly instructed jury. See LaBarre v.

Shepard, 84 F.3d 496, 500-01 (1 st Cir. 1996) ("[W]e can affirm

the admission of evidence on any proper basis, even if the trial

judge relied on a different ground.").

Of course, whether the notes conceivably could have

come into evidence for a proper purpose is a different question

from whether the court permitted FMI to use them improperly.

And it is on this latter issue that BWC primarily focuses its

appellate argument. In particular, BWC complains about the

following passage from FMI’s closing argument:

What [FMI] did in 1988 was they called
the leading hose companies in the world and
said, This is our problem, do you have an
answer, which is the way it works in real
life.

And what we found out was two things:
First of all, the top guy in the world,
Rogan, from Rogan & Shanley, other vendors
refer to Rogan & Shanley as the prime source
for small-diameter high-pressure hose, spoke
to Lichtman twice.

He said there are technical problems
which Rogan feels may be insuperable at
almost any price. In short, Rogan thinks
we’re wasting our time. People told

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 Columbus he shouldn’t have sailed to
America.

BWC contends that this portion of FMI’s closing argument

effectively converted Rogan’s out-of-court statement (as related

by the non-testifying Lichtman) into substantive expert

testimony that the hose FMI developed was not an obvious

extension of extant, publicly known hose technology.

BWC’s contention fails to take account, however, of the

unusual procedural posture in which this issue comes before us.

BWC did not object to this argument when it was made. It

instead brought the issue up at the sidebar conference following

the court’s jury instructions, when it asked the district court

to repeat its earlier limiting instruction:

[BWC’s Counsel]: Your honor, [FMI’s
counsel] again emphasized the importance of
the Lichtman notes in his closing, and we
would ask for another cautionary instruction
on the hearsay nature of this document.

The Court: If he did emphasize it, it
[e]luded me completely.

[BWC’s Counsel]: Your Honor, what
[FMI’s counsel] did was to take the hearsay
portions of those notes, Mr. Rogan, what Mr.
Rogan said about this being an impossible
task, and used those as expert testimony
where, in fact, Mr. Rogan was not before the
Court.

The Court: Yes.

[BWC’s Counsel]: We understood those
were only admitted to show this was the

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 beginning of a hose search and Mr. Rogan –
anything of a hearsay nature about what Mr.
Rogan believed about the difficulty would
not come in as expert testimony.

The Court: Well, I just want to call
attention to specific – I’m just going to
have to trust that the jury will understand
that they have to follow my instructions
limiting, excluding, and disregarding
evidence.

Thus, the question is not whether the court should have

instructed the jury to disregard FMI’s counsel’s argument; it is

only whether, in light of unobjected-to interceding events, the

court should have repeated its earlier instruction to the effect

that the Lichtman notes should only be considered for limited,

non-hearsay purposes. The court did not abuse its discretion in

declining to repeat what it already had said.

3. Remaining Arguments

BWC’s remaining arguments do not require extended

discussion. BWC first complains that the district court

committed reversible error in instructing the jury on the

weighing of "differ[ing]" expert testimony because FMI presented

no expert testimony as to liability. In rejecting BWC’s

challenge to its instruction, the court stated that it had given

the instruction to guide the jury with respect to the differing

testimony given by each side’s damages expert. The court did

not abuse its discretion in so reasoning.

-34-
 BWC next asserts that the district court erred in

failing to evaluate BWC’s motion to exclude FMI’s damages expert

under the reliability standard set forth in Daubert v. Merrell

Dow Pharm., Inc., 509 U.S. 579 (1993), and refined in Kumho Tire

Co., 526 U.S. 137. BWC also contends that, had the court

performed a Daubert analysis, it would have excluded the

testimony.

In arguing that the district court failed to assess

whether FMI’s damages expert’s testimony "both rests on a

reliable foundation and is relevant to the task at hand,"

Daubert, 509 U.S. at 597, BWC wrests out of context the court’s

statement that the proposed testimony "raises no issues . . .

that . . . implicate[] the rule of Daubert." The statement BWC

relies upon is more fairly evaluated in full context:

With respect to the testimony of [each
side’s damages expert], I’ve had the
opportunity last night to review the reports
and exhibits that I was provided . . . .

[FMI’s damages expert’s] report, to my
mind, raises no issues of unconventional
hypothesis or unorthodox methodology that,
in my mind, implicates the rule of Daubert
v. Dow Pharmaceuticals . . . .

I don’t find that these differences
[between each side’s experts’ proposed
testimony], again, raise any of the kind of
concerns that Daubert addresses, nor do I
find anything about the credentials of
either economist that would cause me to

-35-
 doubt that they are unqualified to give
testimony of this kind.

Rather, the conflict[s] between the
two views [are] the ordinary sorts of
differences that I encounter all the time
between economists over issues like this
which, to some degree, are speculative and
have to be speculative because you’re
talking about events that did not occur,
about a future that hasn’t been revealed.

So I think that I’m not going to allow
the motion to hold . . . .

If there is a fundamental difficulty
that emerges with either expert’s testimony,
I’ll handle that in a more conventional
method by simply striking or telling the
jury to disregard that aspect of the
testimony.

In our view, this passage makes clear that the district

court evaluated the proposed testimony for reliability and

concluded that it was sufficiently reliable for admission in

evidence. We thus reject BWC’s claim that the court did not

evaluate the testimony under Daubert. And having rejected the

argument that the court improperly failed to perform its

gatekeeping function under Daubert, we also reject as based on

a faulty factual premise the argument that the court would have

excluded plaintiff’s damages expert’s testimony had it applied

Daubert. In reaching this latter conclusion, we think it

significant that BWC has not here challenged the damages verdict

as based upon speculative or insufficiently reliable evidence

-36-
introduced at trial. Indeed, in connection with this issue,

BWC’s brief makes no mention at all of the testimony FMI’s

damages expert gave at trial.

BWC’s final argument is that the district court abused

its discretion in ordering that (1) certain documents produced

by FMI during discovery "be used only for purposes related to

the instant litigation"; and (2) "any notations made [by FMI] on

the documents after their creation be deleted." The documents

in question were all initially marked confidential by FMI and

produced under an agreed-to protective order which limited the

parties’ ability to use materials so marked. BWC alleges that

the documents demonstrate "that FMI had, on numerous occasions,

gained unauthorized access to information about BWC’s sludge

lance designs and financial information, in some instances by

taking it from desks of Ontario Hydro employees or directly off

Ontario Hydro’s facsimile machines." (BWC Brief at 20.) BWC

does not suggest that the court’s order hampered its trial

preparation. Rather, BWC appears interested in using the

materials for purposes unrelated to this litigation.

Whatever merit there might be to BWC’s claimed

entitlement to use as it sees fit the documents, complete with

FMI’s notations thereon, the fact is that BWC never argued such

an entitlement to the district court. These documents only were

-37-
brought to the lower court’s attention by means of BWC’s "Motion

to Remove Confidential Designations from Certain Documents

Produced by Plaintiffs," which the court granted subject to the

restrictions noted above. In that motion, BWC asserted only

that the inaccurate confidential designations were hampering its

trial preparation efforts; it in no way argued an entitlement to

use the materials for non-litigation related purposes.

Moreover, BWC never asked the court to reconsider the

restrictions, which were imposed in response to FMI submissions

expressing concern that BWC intended to use the materials for

such purposes (which submissions BWC did not oppose on grounds

of entitlement to use the material for such purposes). Under

the circumstances, we regard the argument BWC presses here as

waived. See, e.g., National Amusements, Inc. v. Town of Dedham,

43 F.3d 731, 749 (1st Cir. 1995) (arguments not presented below

are waived).

C. FMI’s Appeal

1. Denial of Motion for New Trial on Damages

In March 1994, FMI established a wholly owned

subsidiary named Foster-Miller Canada (FMC) to compete for water

lancing contracts in Canada. During discovery, FMI acknowledged

that FMC, and not FMI, would have bid on any post-March 1994

contracts wrongfully won by BWC as a result of its breach of the

-38-
confidentiality agreement. FMI’s damages expert, without

explaining why, included FMC’s projected lost profits in

arriving at the FMI damages calculations set forth in his

report. Prior to trial, BWC moved in limine to preclude FMI

from presenting evidence of FMC’s lost profits, arguing that FMI

alone was the plaintiff and that FMI was not entitled to profits

that would have gone to its wholly owned subsidiary. In

opposition, FMI simply asserted that "the law thoroughly and

indisputably establishes that a parent/stockholder ([FMI]) can

recover damages to a subsidiary/corporation ([FMC]) flowing from

breach of an agreement with the parent/stockholder (BWC’s

agreement with [FMI]) . . . ." The district court agreed with

BWC and barred FMI from presenting testimony regarding FMC’s

lost profits.

Following the verdict, FMI moved for a partial new

trial on damages, arguing for the first time that it had been

entitled to FMC’s lost profits because such profits accurately

measured the diminution in the value of FMC caused by BWC’s

conduct: "FMI was a 100% shareholder of [FMC, and] profits lost

by [FMC] translated, dollar for dollar, into a loss to [FMI]

because of the loss in the value of its ownership interest in

[FMC]." (FMI’s Motion for Partial New Trial at 4.) In other

words, rather than simply asserting an entitlement to its wholly

-39-
owned subsidiary’s lost profits (as it had done prior to trial),

FMI now was asserting both an entitlement to the diminution in

value of its wholly owned asset, and that the asset’s lost

profits accurately measured such diminution. In a margin order,

the district court rejected this theory as, inter alia, "raised

too late in the game." (Id. at 1.)

On appeal, FMI renews its claimed entitlement to

recover the diminished value of BWC. In so arguing, FMI once

again asserts that BWC’s lost profits are the proper measure of

such diminution. But even if we assume arguendo that FMI was

entitled to recover FMC’s diminished value as part of its

damages, we think that the "FMC’s lost profits = FMC’s

diminished value" premise of FMI’s argument is sufficiently

debatable to have required its disclosure to BWC during

discovery. Clearly, lost profits and diminished corporate value

are distinct concepts, see, e.g., Protectors Ins. Service, Inc.

v. United States Fidelity & Guar. Co., 132 F.3d 612, 617-18 (10th

Cir. 1998), and we are not prepared to say that the measure of

diminished corporate value will always meet or exceed the

measure of the corporation’s lost profits. Had FMI afforded BWC

notice that it was seeking FMC’s lost profits as a measure of

FMC’s diminished value, BWC would have been afforded the

opportunity to develop a competing valuation theory. The

-40-
district court’s decision to reject FMI’s theory as untimely was

thus within its discretion.

2. Discovery Sanction

During discovery, BWC served upon FMI a Fed. R. Civ.

P. 30(b)(6) deposition notice covering fourteen topics. FMI did

not produce witnesses competent to testify as to five of the

topics because BWC had in the early stages of the case already

deposed the employees FMI regarded as most knowledgeable on

those topics. Instead, with respect to these five topics, FMI’s

counsel wrote BWC’s counsel and asked him to specify whether he

wanted FMI (1) to recall these witnesses; (2) to produce

additional witnesses; or (3) to designate the prior deposition

testimony as Rule 30(b)(6) testimony. BWC subsequently moved

for an order compelling FMI to comply with its Rule 30(b)(6)

deposition notice, which the district court granted. The court

also awarded BWC the costs and fees it incurred in bringing the

motion to compel. See Fed. R. Civ. P. 37(d) (requiring an award

of costs and fees upon the granting of such a motion "unless the

court finds that the failure was substantially justified or that

other circumstances make an award of expenses unjust").

On appeal, FMI argues that its conduct was reasonable

under the circumstances and that the district court’s sanction

was an abuse of its discretion. But our review of the record

-41-
reveals that the court had reason to conclude that FMI, by

asking BWC whom it wished to testify on behalf of FMI for Rule

30(b)(6) purposes (or what testimony it wished FMI to designate

as Rule 30(b)(6) testimony), effectively attempted to shift to

BWC the onus of identifying who best spoke for FMI on the

matters in question. Such a burden shift is contrary to the

purposes of Rule 30(b)(6). See Mistui & Co. (U.S.A.), Inc. v.

Puerto Rico Water Resources Auth., 93 F.R.D. 62, 66-67 (D.P.R.

1981). In any event, FMI cannot and does not deny that,

strictly speaking, it failed either to designate witnesses

competent to address each of the topics specified in the Rule

30(b)(6) notice or to obtain from the court an appropriate

protective order. The court thus did not abuse its discretion

in strictly enforcing Rule 30(b)(6). See id. Nor did the court

abuse its discretion in concluding that FMI’s failure to comply

with the notice was not "substantially justified" within the

meaning of Fed. R. Civ. P. 37(d).

III.

For the reasons stated, we affirm the orders and

judgments appealed from in all respects.

Affirmed. No costs.

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