Combustion Engineering, Inc. v. Miller Hydro Group

January 3, 1994 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1266

COMBUSTION ENGINEERING, INC.

Plaintiff, Appellant,

v.

MILLER HYDRO GROUP, ET AL.,

Defendants, Appellees.

No. 93-1267

COMBUSTION ENGINEERING, INC.,

Plaintiff, Appellee,

v.

MILLER HYDRO GROUP, ET AL,

Defendants, Appellants.

ERRATA SHEET

The opinion of this Court issued on December 30, 1993, is
amended as follows:

On page 25, 1st full paragraph, line 5, "When a directed
verdict was served," should be "after a directed verdict was
ordered,".

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1266

COMBUSTION ENGINEERING, INC.,

Plaintiff, Appellant,

v.

MILLER HYDRO GROUP, ET AL.,

Defendants, Appellees.

No. 93-1267

COMBUSTION ENGINEERING, INC.,

Plaintiff, Appellee,

v.

MILLER HYDRO GROUP, ET AL.,

Defendants, Appellants.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. Gene Carter, U.S. District Judge]

Before

Boudin and Stahl, Circuit Judges,

and Fuste,* District Judge.

*Of the District of Puerto Rico, sitting by designation.

John H. Montgomery with whom Gordon F. Grimes, David A. Soley,

Diane S. Lukac, Faith K. Bruins and Bernstein, Shur, Sawyer & Nelson

were on briefs for plaintiff.
George S. Isaacson with whom David W. Bertoni and Brann &

Isaacson were on briefs for defendant Miller Hydro Group.

Roy S. McCandless with whom Robert S. Frank, Mark K. Googins and

Verrill & Dana were on brief for party-in-interest appellee Kansallis-

Osake-Pankki.

December 30, 1993

BOUDIN, Circuit Judge. This appeal arises out of a

complex commercial dispute, with overtones of deception,

relating to the construction of a hydroelectric facility in

Maine. In the ensuing litigation, neither the builder,

Combustion Engineering, Inc., nor the owner, Miller Hydro

Group, succeeded in recovering against the other. Both

appeal. We affirm the district court.

I. BACKGROUND

In the early 1980's, Miller Hydro set about creating a

hydroelectric facility on the Androscoggin River near Lisbon

Falls, Maine, to generate electricity. It first negotiated a

contract with Central Maine Power Company by which the latter

agreed to purchase a set amount of power from the planned

facility. Miller Hydro also obtained financing from a

Finnish bank, Kansallis-Osake-Pankki, and a license to build

the project from the Federal Energy Regulatory Commission

("FERC").

In May 1986, Miller Hydro entered into a contract--the

central document at issue in this case--with Combustion

Engineering for the latter to build the facility on a

"turnkey" basis. The turnkey contract, by cross-reference,

provided for a facility including turbines with a capacity of

7800 cubic feet of water per second.1 Under its contract

1The 7800 cfs figure, which is important to this case,
appears in technical specifications annexed to the turnkey
contract. A shorter and more general "project description,"

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with Maine Central Power, Miller Hydro was expected to

provide power capacity of 14 megawatts, and the Miller Hydro

contract with Combustion Engineering also referred to this

requirement by cross-reference.

Subject to these and other specifications, it was

entirely up to Combustion Engineering to design and build the

new facility. The turnkey contract contained incentive and

penalty provisions, one of which lies at the heart of this

case. The price set for construction was fixed at just under

$24 million, but the contract provided that Combustion

Engineering would earn a sliding-scale bonus for efficiency

to the extent that the facility produced power in excess of

77,500 megawatt hours per year; a corresponding penalty

provision reduced Combustion Engineering's fixed price to the

extent that the facility was less efficient than a specified

minimum output of 73,500 megawatt hours per year.

The turnkey contract provided that the bonus or penalty

would be determined by certain tests that would be performed

by an independent tester at the completion of construction.

A protocol specified how the test would be conducted,

including a requirement that the facility be tested at a

"total flow of 7800 cfs." It also permitted Miller Hydro to

require a retest by a different tester if it were

also annexed, refers to turbine discharge capacity of
"approximately 8,000" cfs.

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dissatisfied with the initial test. It appears that if

Combustion Engineering had built a highly efficient plant of

the size specified, Miller Hydro might have been liable for a

bonus payment as large as $850,000.

What happened instead is that Combustion Engineering

built a far larger plant with turbines having a maximum flow

capacity of over 9000 cfs or more and a power capacity of 18

to 19 megawatts. Miller Hydro claims that this increase in

size was done deliberately and secretly by Combustion

Engineering in order to manipulate the bonus provisions of

the construction contract. Miller Hydro and Kansallis-Osake-

Pankki both say that they did not learn of the increase until

it was too late to modify the facility.

When the facility was tested at a total flow of 9000 or

more cfs, the tester reported results that equated to a bonus

of over $8 million. In Miller Hydro's view, Combustion

Engineering had invested $1 million or so of its own money in

increasing the facility's size in order to reap a ten-fold

increase in the incentive bonus. Miller Hydro also objected

to the test itself and invoked its right to a retest. It

also refused to state its "final acceptance" of the facility,

or to make final construction payments. Instead of agreeing

to a retest, Combustion Engineering promptly brought suit

against Miller Hydro in district court.

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In its complaint Combustion Engineering set forth claims

based on contract, unjust enrichment, and promissory

estoppel, and it sought to enforce a mechanic's lien against

the facility. As damages, it demanded an incentive bonus of

$8.16 million, a final construction payment of $45,364, a

further payment of $1,236,427 in amounts withheld from prior

payments, and a claimed early completion bonus of $893,894.

Kansallis-Osake-Pankki intervened, arguing that Combustion

Engineering had by contract subordinated its rights under the

mechanic's lien statute to the bank's mortgage on the

facility.

Miller Hydro counterclaimed against Combustion

Engineering asserting contract, fraud, and racketeering

claims. Miller Hydro tells us that Central Maine Power has

not agreed to buy the extra power that the facility can

generate and that Miller Hydro will or may incur additional

costs as a result of the facility's enlarged size. In

particular, it says that it may face penalties from FERC for

building a facility larger than the license permits, and that

it may have to reconstruct fish-protection facilities that

were keyed to the originally planned smaller turbines.

Because the case presented both legal and equitable

claims, the district court bifurcated the trial. In the

first phase, Combustion Engineering tried its contract claims

to the jury and Miller Hydro tried its contract and fraud

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counterclaims to the same jury. (Miller Hydro's racketeering

counterclaim was dismissed by the court in circumstances

recounted below.) In the second phase the trial judge

proposed to rule himself on Combustion Engineering's

equitable claims (unjust enrichment and promissory estoppel)

and to resolve any outstanding issues concerning the

mechanic's lien claim, including priority as between

Combustion Engineering and Kansallis-Osake-Pankki.

After Combustion Engineering presented its case in chief

to the jury, the district court entered judgment as a matter

of law against Combustion Engineering on its contract claims.

The court held that Combustion Engineering had materially

breached its contract in testing the facility at a total flow

in excess of 7800 cfs and in other departures from the test

protocol. The court found it unnecessary to reach Miller

Hydro's argument that the refusal of Combustion Engineering

to agree to a retest was also a breach of contract that

barred recovery.

Miller Hydro's own contract and fraud counterclaims

against Combustion Engineering were submitted to the jury

together with a special verdict form. On January 23, 1992,

the jury returned its verdict, finding that Combustion

Engineering had breached the contract by designing the

facility for a maximum flow in excess of 7800 cfs, and not in

accordance with the FERC license. It found the actual

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maximum flow to be at least 9000 cfs and the power output

capacity to be 18 megawatts. It also found that Combustion

Engineering had provided materially false information to

Miller Hydro. Nevertheless, the jury awarded no damages to

Miller Hydro either for breach of contract or fraud, finding

(in response to special verdict questions) that Miller Hydro

had not proved damages from the breach of contract or the

misrepresentations.

On October 6, 1992, the trial judge filed a decision

denying Combustion Engineering recovery on its equitable

claims. The court held that under Maine law material

breaches of contract did not automatically preclude an

equitable recovery but that the plaintiff's good faith effort

to perform was a prerequisite; and the court ruled that

Combustion Engineering "did not seek in good faith to meet

its obligations under the turnkey contract," given the

deliberate breaches and misrepresentations found by the jury.

The jury findings, the court said, were binding on the court

in deciding the equitable claims.

On the same day, the trial judge denied a motion by

Combustion Engineering requesting the court to order a

retesting of the facility, to appoint a special master, and

to allow the filing of a supplemental complaint. The court

ruled that this motion, filed on June 3, 1992, well after the

jury verdict, came too late. Not only had extensive

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discovery been conducted but the jury trial had already been

held and the case was nearing completion. Further delay,

said the court, would be unfair to both of the other parties.

Finally, by decision entered on December 22, 1992, the

trial judge ruled on Combustion Engineering's mechanic's lien

claim. It rejected the claim on the ground that enforcement

of such a lien required a valid underlying claim and that

Combustion Engineering had been found to lack such a valid

claim. The court granted Kansallis-Osake-Pankki's request to

discharge the mechanic's lien. It also granted Miller

Hydro's requests, made in its counterclaims, for declarations

of breach of contract and misrepresentation by Combustion

Engineering.

On January 11, 1993, the court entered final judgment in

the case. Combustion Engineering has appealed the directed

verdict against it on its contract claims, and the denial of

its equitable claims, its mechanics lien claim, and its

motion to retest. Miller Hydro has appealed the earlier

dismissal of its racketeering counterclaim. Neither side has

explicitly sought to disturb the judgment on Miller Hydro's

contract and fraud counterclaims entered upon the jury

verdict.

II. DISCUSSION

Combustion Engineering advances a series of different

arguments on appeal, variously involving the directed verdict

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against it on its contract claims, the dismissal of its

equitable claims, the district court's refusal to order a

retest, and the ruling discharging the mechanic's lien. We

begin with these issues, reserving for the end a discussion

of Miller Hydro's cross-appeal.

Combustion Engineering's first, and most extensively

briefed, point on appeal is its attack on the district

court's grant of a directed verdict--now renamed judgment as

a matter of law, Fed. R. Civ. P. 50(a)--dismissing Combustion

Engineering's contract claims against Miller Hydro. We

review such a dismissal de novo, asking whether on the

evidence presented a reasonable jury could find for the

plaintiff. Murray v. Ross-Dove Co., 5 F.3d 573, 576 (1st

Cir. 1993). In considering this question, it is assumed that

issues of credibility are resolved, and inferences from

evidence drawn, in favor of the non-moving party. Id.

At the threshold one might think that the attack on the

directed verdict is barred by the jury's subsequent findings.

These findings, on Miller Hydro's counterclaims, establish

that Combustion Engineering breached the turnkey contract by

building a plant well in excess of the contracted for

capacity. Miller Hydro claims that Combustion Engineering

has forfeited its right to challenge those findings by

failing to "appeal" from the jury verdict; Combustion

Engineering replies that appeals are from judgments, not

-10-

findings, and that it has appealed the judgment rejecting its

contract claims.

We think that in this case the jury findings do not

settle the propriety of the directed verdict. The jury

verdict might insulate the directed verdict if the jury in

deciding the counterclaims had independently reached the same

conclusion on the same issue. But here the trial judge, in

submitting the counterclaims to the jury, instructed the jury

that as a matter of law "the turnkey contract required the

construction of a hydroelectric facility . . . . designed to

accommodate a maximum hydraulic flow of 7800 cubic feet per

second."2

A central theme of Combustion Engineering's argument on

appeal is that the contract did not make 7800 cfs a maximum

figure. We think it would be odd to uphold the directed

verdict on the ground that the jury found the same thing as

the district judge (namely, that the 7800 cfs figure was a

ceiling) when in fact the district judge told it to do so.

This is not to say that the district court erred in so

instructing the jury--on the contrary, we agree with its

reading of the contract--but rather to explain why we think

2The court also told the jury that the court itself had
rejected Combustion Engineering's contract claims because the
court had found (in directing a verdict) a material breach of
contract by Combustion Engineering, namely, its failure to
show compliance "with the testing requirement of testing at a
total flow of 7800 cfs" as required by the protocol annexed
to the turnkey contract.

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that the directed verdict decision by the district court is

not insulated by the jury verdict and should be reviewed on

the merits.

Turning to the merits, the first issue before us in

relation to the directed verdict is whether the testing

protocol required that the final acceptance test be conducted

at a maximum of 7800 cfs. Although formally this is a

separate issue from whether the turnkey contract made 7800

cfs the maximum size for the facility, we think that the

reality here is that the two issues are interrelated. One

might be able to read the 7800 cfs figure differently in the

test protocol and the contract design specifications, but

would be unlikely to do so in this case. Combustion

Engineering treats the two issues together, and so do we.

The district court construed the turnkey contract and

ruled as a matter of law that the 7800 cfs figure was a

target and ceiling figure for both construction and testing

of the facility. As noted above, the 7800 cfs figure does

appear in annexed technical specifications although

apparently not in the body of the contract itself. This

cross-reference might not be conclusive if it stood alone,

but it does not stand alone. Two other pieces of evidence

intrinsic to the contract--the FERC license and the test

protocol--support the view that the 7800 cfs figure was both

target and ceiling for the project.

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First, the FERC license was incorporated in the turnkey

contract by cross reference, the contractor promising to

construct the facility in accordance with the license. The

FERC license refers to the project as having turbines with a

total capacity of 14 megawatts, a figure that the turnkey

contract treats as a counterpart to the 7800 cfs figure. As

already noted, the turnkey contract refers to 14 megawatts

and the annexed technical specifications to 7800 cfs.3

Second, the test protocol annexed to the turnkey project

clearly provided for testing at "a total flow of 7800 cfs."

One can imagine a contract providing for a facility with a

large capacity while limiting the test to some lower figure

(perhaps the expected normal flow). Here, however, the

reference to the same figure in the technical specifications

and in the test protocol strongly suggests as a matter of

common sense that the facility was to be built and tested at

that figure.

Combustion Engineering's brief argues that the 7800 cfs

figure was actually intended as a minimum, urging that the

figure be read as akin to other figures in the contract that

are allegedly performance minima. Combustion Engineering

3There was also evidence that the license application
initially reflected a flow of 6800 cfs and that approval of
FERC to increase this to 7800 was obtained in 1985. However,
there is some doubt that this evidence could be described as
intrinsic, at least in the form submitted, and we do not rely
upon it to sustain the directed verdict.

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also suggests that in any event the 7800 figure was only a

rough approximation. It also argues that the parties

contemplated modifications in whatever figure was chosen.

Finally, it claims that Miller Hydro learned of the increase

and waived its objection. Some of these arguments are in

tension with others, and none is persuasive.

There may be figures in the turnkey contract that are

performance minima. But certainly the normal reading of a

performance or capacity figure in a license is that, like the

speed limit sign on a highway, it is intended as a maximum.

Here, the contract said that the facility was to be built in

accordance with the license, and the license provided for a

14 megawatt facility, a figure that the contract's technical

specifications equated to a facility having a capacity of

7800 cfs. Thus, we think that 7800 cfs was a target and

ceiling and not a minimum.

We agree with Combustion Engineering's claim that, even

treating 7800 cfs as a ceiling, there may be room for minor

deviations; but an increase to over 9000 cfs--there was some

testimony that 9600 cfs or more was the real capacity--is

hardly a minor change. Correspondingly, the megawatt

capacity increased from 14 megawatts to 18 megawatts or more,

hardly a minor adjustment. The engineer who assisted

Combustion Engineering testified that a change from 7800 cfs

to 9000 cfs or more would be material.

-14-

There were provisions for modification of the turnkey

contract by agreement, but Combustion Engineering has not

proved any agreement by Miller Hydro permitting the

contractor to exceed the 7800 cfs figure. As for the claim

of waiver or estoppel, that issue was submitted to the jury.

The jury's verdict that Combustion Engineering breached the

contract by constructing a facility in excess of 7800 cfs

appears implicitly to reject the waiver or estoppel defense.

This is quite understandable since there is no clear evidence

that Miller Hydro knew of the change in capacity until it was

too late to alter course, and substantial evidence indicates

that Combustion Engineering sought to conceal its deviation.

Combustion Engineering argues that at the very least the

contract was ambiguous, so that extrinsic evidence should

have been admitted and the issue submitted to a jury. Some

jurisdictions follow the traditional binary rule that an

integrated contract is either clear or ambiguous and, in the

former case, extrinsic evidence is excluded; other states

follow the so-called modern approach, allowing extrinsic

evidence to "interpret" even a seemingly unambiguous

document. See A. Farnsworth, Contracts 7.12, at 521-23

(1990). But we need not decide in this case precisely how

Maine resolves the problem, because Combustion Engineering

has not properly pointed to any extrinsic evidence that could

alter the result.

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We say "properly" pointed because Combustion

Engineering's brief does have an entire page of capsule

summaries of documents, events or testimony purporting to

comprise relevant extrinsic evidence. In this page of

summaries, not a single reference appears to a transcript

page or an exhibit number or to an appendix or addendum page.

There is some similar material in the fact statement of the

brief, with record or appendix references, and we have sought

to match up the summaries with relevant portions of the fact

statement. Having done so as best we can, our conclusion is

that this "evidence," even if considered, does not create

ambiguities warranting jury resolution.

To take Combustion Engineering's first capsule summary

as an example, the brief says that an engineer working for

both Combustion Engineering and Miller Hydro told the latter

that "the Turbine Specifications were minimums that did not

limit Combustion Engineering's right to select appropriate

equipment." The engineer's actual letter, however, merely

affirms the contractor's right to design the generator and

electrical equipment and says that "the overall performance

expected of the equipment was outlined in the minimum

criteria . . . ." Nothing in the quotation associates the

general reference to minimum criteria with the 7800 cfs

figure. The balance of the evidence summarized by Combustion

Engineering is even less persuasive.

-16-

Later in its brief, Combustion Engineering makes a quite

different argument. It says that even assuming that a

violation of the test protocol occurred, this should not

debar Combustion Engineering from all recovery under the

contract. It argues that testing was directed to fixing the

efficiency bonus or penalty, and that proper testing should

not be found to be a "condition precedent" to recovery of

other amounts, such as the final payment due under the

contract or sums retained temporarily from prior payments.

The company also invokes the notion that "substantial

performance" is sufficient to allowit to sue on the contract.

It may be a close question whether standing alone the

breach of a testing protocol--among other breaches,

Combustion Engineering tested the facility at a flow far

greater than 7800 cfs--should preclude recovery of the

balance of the contract price as well as the possible bonus.

If this were the posture of the case, we would be obliged to

engage in a close reading of the test protocol and its

relation to the rest of the contract. One can certainly

conceive of a case in which the contractor failed to fulfil a

requirement needed to earn a bonus payment but would not, in

ordinary circumstances, be deemed to lose the right to

collect the basic price for work done.

Here, however, Combustion Engineering violated not only

the test protocol but the contract specifications by building

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an oversized facility, and the breach was substantial and

deliberate. The jury verdict alone confirms the substantial

breach, and its deliberate character is patent from

Combustion Engineering's misrepresentations and efforts at

concealment. Even if the violation of the testing protocol

did not preclude all further recovery under the contract,

assuredly the substantial and deliberate breach did so and

precludes a contractual claim based on substantial

performance.

This premise of a substantial and deliberate breach also

disposes of Combustion Engineering's equitable claims for

unjust enrichment and promissory estoppel. We agree with the

district court that, even if such claims may be permitted

under Maine law where contractual claims have been lost,

Maine law appears to make good faith a condition of such

equitably based recoveries.4 Here Combustion Engineering's

good faith is disproved by the jury verdicts. The verdicts

4The most recent Maine decision to which we are cited,
says that an equitable recovery may be allowed when the
builder provided materials or services "in an honest
endeavor" to perform the contract. Loyal Erectors v.

Hamilton & Son, Inc., 312 A.2d 748, 755-56 (Me. 1973);

Accord, Levine v. Reynolds, 54 A.2d 514, 517 (Me. 1947).

Even if Maine law is more fluid, allowing the judge some
flexibility in weighing the equities, see A. Horton & P.
McGehee, Maine Civil Remedies, 11-17 (2d ed. 1992), we are

certain from its statements here that the district court
would exercise that discretion to disallow recovery, and we
would have no difficulty sustaining that decision.

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were binding on the court, see Dairy Queen, Inc. v. Wood, 369

U.S. 469 (1962), and are amply supported by the evidence.

This outcome becomes even more compelling when one

appreciates that the deliberate and substantial breach placed

Miller Hydro at risk of significant harm. There may be cases

where building "more" than one promised is a benefit to the

owner; but that is hardly assured in the case of a federally

licensed dam. Indeed, it may be that Miller Hydro itself

will ultimately suffer because of violation of its federal

license terms or because the fish protection facilities will

have to be rebuilt. Nor is it clear that it has gained by

obtaining extra power that it says it can neither sell to

CentralMaine Power nor economically wheel to other customers.

Miller Hydro alludes to these possibilities without

providing much supporting detail. We have no way of knowing

how much substance there is to them, nor whether short term

disadvantages may be offset in part, or even outweighed, by

the long-term benefits of a larger facility with a greater

capacity to produce power. What we do know is that

Combustion Engineering was not entitled to create such risks

for Miller Hydro by secretly deviating--substantially and

deliberately--from the terms of the contract. That one

behaving in this fashion now forfeits the balance due under

the contract does not seem in the least unfair.

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Combustion Engineering has two remaining arguments that

require little discussion. It first argues that the court

should have granted its motion for a retest of the facility

in accordance with the protocol. This demand was made not

only after Combustion Engineering had turned down Miller

Hydro's own request for retest, but after the directed

verdict and the jury verdict in this case. The district

court's refusal to grant this highly belated, if not

impudent, request for equitable relief was well within its

discretion.

The other argument is Combustion Engineering's attack on

the district court's refusal to grant it relief under the

Maine mechanic's lien statute. It may be an

oversimplification to say that the statute creates only an

additional remedy and not a new right; but it is clear that

under Maine law, as in many jurisdictions, the mechanic's

lien depends on the claimant having a valid underlying claim

for monetary recovery based on the construction performed.

Bangor Roofing & Sheet Metal Co. v. Robbins Plumbing Co., 116

A.2d 664, 666 (Me. 1955). Combustion Engineering has no such

valid underlying claim in this case, so the district court

properly discharged the mechanic's lien.

There remains Miller Hydro's own appeal. As already

noted, the jury found (in deciding Miller Hydro's

counterclaims) that Combustion Engineering had breached its

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contract and engaged in misrepresentation but that the proof

did not support a finding of damages from the breach or

falsehoods. Miller Hydro does not challenge these verdicts,

which limited its judgment on these claims to declaratory

relief. Rather, it argues that the district court erred by

dismissing its remaining racketeering counterclaim and

declining to submit that claim to the jury.

The remaining counterclaim comprised three related

counts under the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. 1961, et seq. ("RICO"). In

substance, these RICO counts, asserted in a pleadings

amendment, charged Combustion Engineering and various of its

employees with a fraudulent scheme to obtain inflated bonuses

from one or more power-plant construction projects. Various

uses of the mails or telephone system in aid of the

fraudulent scheme were alleged. For the RICO violations,

Miller Hydro sought damages, injunctive relief, and

attorney's fees.

After the RICO counts were added, Combustion Engineering

on April 16, 1991, moved to dismiss the counts under Fed. R.

Civ. P. 12(b)(6) for failure to state a claim; it asserted as

grounds for dismissal various somewhat technical defects in

the RICO counterclaims (e.g., that a separate "enterprise"

had not been sufficiently alleged). On October 4, 1991, the

district court granted the motion to dismiss but on a ground

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only barely suggested by a footnote in the motion, namely,

that an earlier, October 19, 1990, discovery order by the

magistrate judge had found a failure of Miller Hydro to make

out a prima facie case of fraud by Combustion Engineering.

The magistrate judge's order had been entered in

resolving discovery disputes including Miller Hydro's claim

that Combustion Engineering had lost the protection of the

attorney client privilege as to certain materials because its

attorney was participating in a fraudulent scheme.

Interpreting Maine law governing the privilege, see Me. R.

Evid. 502(d)(1), the magistrate judge found that Miller

Hydro's evidence thus far made out the necessary prima facie

case on "the first three elements of fraud [knowing or

reckless misrepresentation of a material fact] but not the

final two [purpose and effect of inducing reliance]." Absent

sufficient proof of each element needed to prove fraud, the

magistrate judge found no loss of the privilege and refused

to order protection of the documents in issue.

On appeal, Miller Hydro complains sharply that in

resolving the Rule 12(b)(6) motion the district judge had no

right to rely on materials beyond the pleadings without

giving Miller Hydro notice and an opportunity to counter the

extra-pleading material. Although Rule 12(b)(6) does require

"a reasonable opportunity" to counter material outside the

pleadings, the magistrate judge's finding of no prima facie

-22-

case was cited in Combustion Engineering's motion to dismiss

and arguably Miller Hydro had the necessary opportunity to

counter it. This court has looked through form to substance

in applying the rule's requirement. See Moody v. Town of

Weymouth, 805 F.2d 30, 31 (1st Cir. 1986).

What is more troublesome is Miller Hydro's further,

substantive argument that the magistrate judge's finding

cannot support the district court's order dismissing the RICO

claims. All that the finding showed, says Miller Hydro, is

that in October 1990, while discovery was still underway, it

lacked enough evidence to show that all elements of fraud had

been made out to the extent needed to vitiate the attorney

client privilege.5 Even assuming that the standards are the

same for proving fraud in relation to the attorney-client

privilege issue and in relation to a RICO claim, it does not

follow that evidence was equally lacking in October 1991

after further discovery had been conducted.

The district court did not discuss any of the evidence

in its brief order of dismissal in October 1991. Further,

the court actually allowed the Maine fraud claims made by

Miller Hydro to go the jury. Yet common alleged acts of

fraud underlay both the Maine fraud and the RICO fraud

5The standard of proof is rather elusive since a prima

facie case does not require definitive proof; yet the fraud

claim itself has to be proved under Maine law by clear and
convincing evidence.

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counts. Indeed, Miller Hydro argues that RICO fraud is

easier to prove than fraud under Maine law because the latter

requires that each element be proved by clear and convincing

evidence. The district court's seeming concession that there

was enough evidence of fraud under Maine law adds to doubts

whether we could sustain the court's dismissal of the RICO

counts based on the magistrate judge's finding.

We need not resolve the matter, however, because the

jury's verdict taken together with other circumstances

persuades us that Miller Hydro was not prejudiced by the

dismissal of the RICO claims. The jury found that no damages

had been proved by Miller Hydro on the two counterclaims that

did reach the jury even though the jury found both breach of

contract by Combustion Engineering and acts amounting to

fraud. The central damage claims argued to the jury by

Miller Hydro--e.g., delay costs, prospective rebuilding of

the fishways--are common to the Maine fraud and RICO fraud

claims, and the jury finding of no damages on the former

suggests the same outcome would have resulted on the latter.

Miller Hydro argues, although without much detail, that

its damage claims based on breach of contract were somewhat

narrower than those covered by fraud. Its theory is that

contract damages must be within the contemplation of the

parties but fraud damages need not be, and we will assume

that this is so. But Miller Hydro does not suggest

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(attorney's fees aside) that its actual damages for fraud

were narrower under Maine law than under RICO and, given the

common acts of alleged fraud, it is hard to see why the

damage claims under RICO would be broader. Instead, Miller

Hydro simply asserts that the fraud damage claims under Maine

law required clear and convincing evidence while those under

RICO required merely a preponderance of the evidence.

It is by no means clear that the jury was told that the

fraud damages under Maine law had to be proved by clear and

convincing evidence.6 But even if the jury had been

explicitly told clear and convincing evidence was required in

computing damages, we would still find no showing of

prejudice in this case. Perhaps where the issue of damages

is shown to be very close--turning, for instance, on a clash

of expert opinions--the asserted difference in burden of

proof between a common law fraud and a civil RICO claim could

be decisive. See Wilcox v. First Interstate Bank of Oregon,

815 F.2d 522, 531 (9th Cir. 1987). But the burden of showing

6The district court's generally lucid instructions did
tell the jury that the elements of fraud under Maine law had
to be established by clear and convincing evidence. But when
the court came to instructing on the computation of damages,
where it discussed contract and fraud damages together, it
did not say that any of these determinations had to be made

by clear and convincing evidence. Indeed, the jury could
easily have inferred the contrary because the court went on
to say that an award of exemplary damages did require a
finding of malice by clear and convincing evidence.

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prejudice is upon the party claiming error, and we think that

here that burden has not been met.

Miller Hydro's main efforts at trial appear to have been

devoted to establishing Combustion Engineering's breach of

contract and fraud, findings very important in shoring up

Miller Hydro's own defense to Combustion Engineering's claims

against it. When a directed verdict was served, after a

directed verdict was ordered, Miller Hydro chose to present

no case in chief of its own in support of its own

counterclaims. Instead, Miller Hydro relied upon the

evidence that Combustion Engineering had offered in its own

case in chief before the directed verdict was granted. It is

not surprising that, absent an affirmative independent

showing as to how Miller Hydro would suffer from the larger

facility, the jury awarded no damages. Miller Hydro's

decision to stop while ahead was probably good tactics, but

it does not suggest that an adjustment in the burden of proof

would have altered the result.

More important, there is nothing in Miller Hydro's reply

brief--which offers the burden of proof distinction as the

basis for presuming prejudice--that discusses the evidence of

damages in any detail or provides any basis for believing

that a different standard of proof could alter the result in

this case. In the present circumstances, including the

nature of the jury instructions and the seemingly limited

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weight placed on damages at trial, we think that the

theoretical possibility of a different result is not enough.

And absent a showing that would suggest a real possibility of

a different result, it is time for this already lengthy

litigation to come to an end.

Having considered consequential damages, it remains to

address two other possible differences in remedy. First, the

RICO statute allows attorney's fees to a person "injured in

his business or property" by a RICO violation. 18 U.S.C.

1964(c). It is far from clear, however, that such attorney's

fees would be available where, as here, the jury finds that

no actual injury has been proved. Again, given the absence

of some showing by Miller Hydro that a jury could award

damages limited solely to attorney's fees, we think that no

showing of prejudice has been made.

Second, Miller Hydro argues that under RICO it would

have been entitled to injunctive relief that remains of

continuing importance to it. Specifically, it asserts that

Combustion Engineering, having had its belated motion for a

retest denied by the district court, is now trying (how is

not explained) to pursue its demand for a retest though other

means. This conduct, says Miller Hydro, constitutes

continuing RICO fraud that the district court would have been

asked to enjoin if the RICO claims had not been dismissed.

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See 18 U.S.C. 1964(a) (injunctive remedy available under

RICO).

We think this is too thin a reed on which to hang a

remand and further litigation under RICO. Taken together,

the district court's dismissal of Combustion Engineering's

contract and equitable claims and the court's denial of the

belated motion for a retest establish definitively that

Combustion Engineering has no further claim for a retest or

any other remedy under the turnkey contract. If Combustion

Engineering were to pursue any such claim through an

independent law suit, we think that sanctions for baseless

litigation might well be available.

III. CONCLUSION

This case could plausibly have been settled at the

outset by, for example, payment of any remaining amounts due

under the contract but without any bonus payment. Now, after

wearisome and no doubt expensive litigation over an imperfect

contract and imperfect conduct, neither side has gained what

it sought at the outset. This may itself be a form of

justice, but it could have been achieved at a lower price.

Affirmed. No costs.

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