BladeRoom Group Ltd. v. Emerson Electric Co., No. 19-16583 (9th Cir. 2021)
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Competitors BladeRoom and Emerson began negotiating a sale of BladeRoom to Emerson. They signed a non-disclosure agreement (NDA). The negotiations fell through. Facebook selected Emerson’s proposal for a data center. BladeRoom sued. Emerson proposed a jury instruction that would have excluded information disclosed or used after August 17, 2013, from its liability for breach of contract, which Emerson argued was the date of the contract’s expiration. The district court agreed that the NDA’s confidentiality obligations did not expire under paragraph 12 of the NDA. The jury found that Emerson breached the NDA and willfully and maliciously misappropriated BladeRoom’s trade secrets and awarded $10 million in lost profits and $20 million in unjust enrichment. The district court later awarded BladeRoom $30 million in punitive damages.
The Ninth Circuit reversed. Paragraph 12’s natural meaning unambiguously terminated the NDA and its confidentiality obligations two years after it was signed. The court treated the district court’s error as an error of jury instruction and addressed issues for consideration on the awards of damages and prejudgment interest should they be determined after a new trial. Under California law, a party cannot collect punitive damages for breach of contract awards. On remand, the district court must take several steps to allocate damages and should consider adopting a more detailed special verdict form.
Court Description: Non-Disclosure Agreements / Damages and Interest. The panel held that the district court erroneously interpreted a non-disclosure agreement (“NDA”), and (1) reversed the district court’s order granting a motion in limine as it related to the twelfth paragraph of the NDA; (2) vacated the district court’s judgment and post-verdict orders; and (3) vacated the orders awarding attorneys’ and expert witness fees. * The Honorable Stephen J. Murphy, III, United States District Judge for the Eastern District of Michigan, sitting by designation. 6 BLADEROOM GROUP LTD. V. EMERSON ELECTRIC BladeRoom Group Limited and Emerson Electric Co. were competitors that began negotiating a sale of BladeRoom to Emerson, and they signed an NDA. The negotiations fell through. Facebook selected Emerson’s proposal for a data center, and BladeRoom sued Facebook and Emerson. Halfway through a jury trial, BladeRoom settled with Facebook, and the case continued against Emerson. Emerson proposed a jury instruction that would have excluded information disclosed or used after August 17, 2013, from its liability for breach of contract, which Emerson argued was the date of the contract’s expiration. The district court denied the instruction but allowed Emerson to make the legal argument to the jury. BladeRoom moved in limine to overturn that ruling. The district court granted the motion and agreed that the NDA’s confidentiality obligations did not expire under paragraph twelve of the NDA. The jury found that Emerson breached the NDA and willfully and maliciously misappropriated BladeRoom’s trade secrets. The jury found that BladeRoom sustained $10 million in lost profits and $20 million in unjust enrichment. The district court later awarded BladeRoom $30 million in punitive damages. The panel held that the district court erred in interpreting the NDA. The panel applied English law, which interprets contracts to discern the contracting parties’ intent and balances textual and contextual analyses. The panel held that paragraph twelve’s natural meaning unambiguously terminated the NDA and its confidentiality obligations two years after it was signed. The district court therefore erred as a matter of law when it granted BladeRoom’s motion in limine. The panel treated the district court’s error as an error of jury instruction. First, BladeRoom’s motion in limine was a BLADEROOM GROUP LTD. V. EMERSON ELECTRIC 7 clear attempt to stymie the district court’s jury instruction ruling that allowed Emerson to argue any exclusion from liability it believed should apply. Second, the district court’s order lacked basic findings necessary for the panel to construe it as a denial of a motion for judgment as a matter of law. The panel held that the district court prejudiced Emerson when the jury made its breach of contract, misappropriation, and damage findings; vacated these jury findings; and remanded for a new trial on those issues. Given the panel’s order to vacate the judgment and remand for a new trial, the panel vacated the district court’s post-verdict orders on appeal. The panel also vacated the district court’s awards of attorneys’ and expert witness fees. The panel addressed a number of issues for consideration on the awards of damages and prejudgment interest should they be determined after a new trial. Under California law, a party cannot collect punitive damages for breach of contract awards. Because the jury awarded a lump sum for breach of contract and misappropriation damages, Emerson correctly argued that the district court could not assume that the whole award went to misappropriation. In awarding punitive damages, the district court abused its discretion by changing its reasoning without explaining why, and the inconsistency visibly benefited BladeRoom. On remand, the district court must take several steps to allocate damages: the district court should consider adopting a more-detailed special verdict form; and if the jury cannot allocate damages, then the district court should take another step to explain why it allocated damages. 8 BLADEROOM GROUP LTD. V. EMERSON ELECTRIC California Civil Code § 3288 allows the award of prejudgment interest for the breach of an obligation not arising from a contract, whereas California Civil Code § 3287(b) allows an award of prejudgment interest only for breach of contract claims. Awarding prejudgment interest under one section rather than the other can make a sizable difference. The panel held that the district court erred in awarding prejudgment interest on the full compensatory damages award under § 3288, not § 3287(b); and erred in finding that prejudgment interest should run from October 30, 2012. On remand, if the district court awards § 3288 prejudgment interest for BladeRoom’s lost profits, it would have to find when the lost profits began, and the award must run from when the lost profits began. Should the district court be called on to award § 3288 prejudgment interest for unjust enrichment after a new trial, the district court should find whether § 3288 allowed prejudgment interest for unjust enrichment damages; and, if so, the district court should apply the same standard that it applied for lost profits – it should find when the unjust enrichment began. Judge Rawlinson concurred fully in the majority opinion, and wrote separately to bring two additional matters to the district court’s attention. First, in the event the jury on retrial imposes liability on BladeRoom for unjust enrichment, it would be Emerson’s burden to prove the amount of damages. BladeRoom will not be entitled to future profits absent definitive evidence of a future contract that was lost due to Emerson’s misappropriation of BladeRoom’s trade secret. Second, because BladeRoom conceded that Facebook and Emerson were joint tortfeasors and conspired to misappropriate BladeRoom’s trade secrets, California law required an offset. If the retrial results in the imposition of damages against Emerson, the district court should apply an offset for the amount of the settlement BLADEROOM GROUP LTD. V. EMERSON ELECTRIC 9 between BladeRoom and Facebook. Correspondingly, Emerson would be entitled to discovery of the settlement terms.
The court issued a subsequent related opinion or order on December 21, 2021.
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