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The Babcock & Wilcox Co. v. Areva NP, Inc.

Supreme Court of Virginia

June 30, 2016

THE BABCOCK & WILCOX COMPANY, ET AL.
v.
AREVA NP, INC., F/K/A FRAMATOME ANP, INC.

         FROM THE CIRCUIT COURT OF THE CITY OF LYNCHBURG Mosby G. Perrow, III, Judge

          PRESENT: Lemons, C.J., Goodwyn, Mims, McClanahan, Powell, and Kelsey, JJ., and Lacy, S.J.

          OPINION

          D. ARTHUR KELSEY JUSTICE

         This appeal concerns a royalty dispute over the use of nuclear technology, which resulted in a jury verdict in favor of Areva NP, Inc. ("Areva") against Babcock & Wilcox Company ("B&W") and affiliated companies (collectively, the "B&W defendants") for breach of contract and violation of the Virginia Uniform Trade Secrets Act, Code §§ 59.1-336 to -343.

         The B&W defendants appeal on various grounds, claiming that the trial court misconstrued the governing agreements and that the alleged use of the nuclear technology did not violate these agreements, properly construed, as a matter of law. The B&W defendants also contend that Areva failed to prove a prima facie violation of the Trade Secrets Act. In one of its two assignments of cross-error, Areva contends that, in the event that we reverse and remand for a new trial, we should correct an alleged error in the finding instruction.[1]

         I. Background

         In the trial court, Areva filed a two-count complaint against B&W and three affiliated companies, Babcock & Wilcox Power Generation Group, Inc.; Babcock & Wilcox Nuclear Energy, Inc. ("B&W Nuclear"); and Babcock & Wilcox Canada, Ltd. ("B&W Canada"). This suit was filed on the heels of earlier litigation between the parties in federal court, which the parties settled after the issuance of a preliminary injunction against Areva's parent company in favor of B&W Canada and BWX Technologies, Inc. See Babcock & Wilcox Canada Ltd. v. Framatome ANP, Inc., No. 6:02CV00049 (W.D. Va. Feb. 13, 2003) (Moon, J.) (unpublished opinion granting the B&W affiliates' motion for a preliminary injunction); 9 J.A. at 3465 (2003 Settlement Agreement's recital referencing the federal suit). The present dispute arose primarily out of one of several agreements related to the settlement of the litigation in federal court.

         A. Count I – Breach of Sub-License

         Count I of Areva's complaint alleged that B&W and B&W Canada ("B&W sublicensees") breached a 2004 agreement titled "Sub-License of Nuclear Technology" ("Sub-License"). 19 J.A. at 8507.[2] According to Areva, the B&W defendants had breached the Sub-License by failing to notify Areva of qualifying contracts under Section II.A and "to pay Areva a [corresponding] royalty of four percent (4.0%) of the gross amount paid under any such contracts." 1 J.A. at 7.

         The parties agreed on the relevant terms of the Sub-License. It included several prefatory clauses acknowledging prior agreements between the parties and defining various terms of the Sub-License by reference to these agreements. The first "WHEREAS" clause stated that, in an agreement titled "Technology Transfer Agreement" entered into in 1989 and restated in 1991 ("1991 License Agreement"), B&W had transferred to B&W Nuclear Service Company, Areva's predecessor in interest, "an exclusive license to apply the Once Through Steam Generator ('OTSG') nuclear technology in the field of commercial nuclear services." 19 J.A. at 8507.[3] The second through fourth recitals stated that Areva could sublicense back to the B&W sublicensees "all Nuclear Technology" as that term was understood in the 1991 License Agreement and various other prior contracts between the parties. Id.

         Section I of the Sub-License, titled "LICENSE GRANT, " provided that Areva's predecessor granted to the B&W sublicensees "a perpetual, worldwide, sub-license to practice and use the Nuclear Technology which is exclusive to [Areva] . . . for all purposes, without restriction, in the field of or relating to the supply of commercial nuclear services to OTSG plants." Id. at 8508. Section II, designated "ROYALTY OF 4% ON GROSS REVENUES, " stated:

For the use as defined in this Sub-License at OTSG plant sites described in Exhibit "A" by a Grantee of the Nuclear Technology, but excluding the first contract, which is covered under paragraph D, below, the Grantee agrees to pay to [Areva] a royalty of four percent (4.0%) of the Grantee's gross contract amounts to the extent such amounts are actually paid to the Grantee by the Grantee's customer(s) . . . as calculated and on the terms and conditions as set out below . . . .

Id. The "below" terms and conditions included paragraph A, a notice provision, and paragraph B, which clarified that the actual "receipt" of any portion of contract revenue would trigger the obligation to pay "the royalty applicable to such payment." Id.

         In addition, paragraph D recognized a one-time royalty waiver for the "first contract, " which Section II specifically excluded:

[The B&W sublicensees] shall pay [Areva] a one-time only lump sum payment of U.S. $250, 000 within thirty days of the first contract to be entered into by either [B&W sublicensee] greater than U.S. $100, 000 for commercial nuclear service projects performed using the Nuclear Technology as licensed herein at an OTSG site described in Exhibit "A", or by December 31, 2004, whichever occurs first. If payment is not received by [Areva] by December 31, 2004, this Sub-License Agreement will be considered null and void.

Id.

         In their counterclaim for declaratory judgment, the B&W defendants agreed that the Sub-License governed B&W and B&W Canada, see 1 J.A. at 65, 67, but they denied that they had entered into any customer contracts that triggered the royalty obligation. Their customer contracts, they contended, did not require the use of Areva's exclusive technology or constitute the specific type of use specified in the royalty provision.

         B. Count II – Trade Secrets

         Count II of Areva's complaint alleged that the B&W defendants had misappropriated Areva's trade secrets by using its exclusive technology, which was "subject to" the Sub-License, without obtaining Areva's authorization to do so and "without compensating Areva" for the unauthorized use. 1 J.A. at 9-10. In a bill of particulars, Areva added that B&W Nuclear was "neither a signatory to nor a Grantee under" the Sub-License. Id. at 14; see also id. at 27.

         In their answer, the B&W defendants denied Areva's allegation that B&W Nuclear was not a party to the Sub-License. Instead, they claimed, all B&W subsidiaries, including B&W Nuclear, were "authorized under the License and Sub-License Agreements." Id. at 52; see also id. ("[T]he [Sub-License] allows use of the intellectual property in issue by the referenced parties").

         C. Cross-Motions for Summary Judgment

         Both sides of the dispute filed cross-motions for summary judgment. Among the issues in contest was the B&W defendants' assertion that the royalty provisions of the Sub-License were unambiguous and should be interpreted by the court as a matter of law according to their plain meaning. The trial court agreed and found, based on the record available upon summary judgment, that the plain meaning of those provisions precluded any royalty liability for customer contracts involving the off-site design, manufacture, and sale of heavy components known as ROTSGs, an acronym for replacement once-through steam generators installed at nuclear power plants. The court held,

as a matter of law that the four percent (4%) royalty provisions in Art. II of the [Sub-License Agreement] between the parties is unambiguous; that the royalty applies to gross contract amounts involving the use of nuclear technology exclusive to Areva in the field of commercial nuclear services at OTSG plant sites identified in Exhibit A of the Agreement, whether such use was substantial or "insubstantial"; and that the royalty does not apply to gross contract amounts for off site design, manufacture and sale of ROTSG[s].

Id. at 234-35 (emphases added). On this ground, the court granted "Defendants' Motion for Summary [J]udgment That The Services Sublicense Does Not Apply To Contracts For The Design, Manufacture And Sale Of ROTSGs." Id. at 236.

         D. Trial

         The case proceeded to a jury trial. In Areva's opening argument, counsel stated that this was a "contract case and [that the B&W defendants] should be paying us 4 percent, and that's it in a nutshell." 2 J.A. at 737 (emphasis added). Areva's counsel later affirmed this position in closing argument, suggesting to the jurors: "[A]s to every one of these contracts [listed on the verdict form] the answer that you should give in your jury verdict form is yes . . . ." 8 J.A. at 3239 (emphasis added).[4] Significantly, Areva had taken this position even though two of these contracts - verdict form contract numbers 10 and 14 - involved only B&W Nuclear, which was not specifically identified by name in the Sub-License as a grantee.

         The B&W defendants responded by asserting that three of these contracts, which were for the "off site design, manufacture and sale of ROTSG[s], " were excluded from the royalty obligation as a matter of law pursuant to the court's letter opinion on the cross-motions for summary judgment. Id. at 235. All but one of the remaining contracts, they argued, did not involve exclusive technology of Areva and, in any event, did not involve any "use" of such technology "at OTSG plant sites described in Exhibit 'A, '" as the Sub-License required. 19 J.A. at 8508. In their view, the one contract that would trigger the royalty obligation qualified for the "first contract" exclusion under Section II.D of the Sub-License. Id.

         At the end of Areva's case-in-chief and again at the close of the evidence, the B&W defendants moved to strike, arguing that the evidence, when reviewed against the unambiguous contractual terms, did not prove Areva's claims as a matter of law. "This is the plain language on the face of the contract, your Honor, " B&W counsel argued. 5 J.A. at 2145. "There's no jury issue here." Id. The trial court took the first motion to strike "under advisement, " noting that it wanted "a complete record" for review on appeal. Id. at 2223-24.

         Following the B&W defendants' renewal of their motion to strike at the conclusion of all the evidence, the trial court again took the motion "under advisement" without restating its purpose for doing so. 7 J.A. at 2970. The trial court later clarified its reasoning: "[W]hat I am trying to do, and since we have gone this far for this long, is to get a verdict and then set portions of it aside or not, depending on how I rule on the motions." Id. at 3004. "I want to get it to the jury, subject to all the objections. I know the defendants feel like it shouldn't go to the jury at all. And the reasons are well stated on the record." Id at 3006.

         The jury returned a $16, 075, 000 general verdict for Areva against the B&W defendants. The verdict form, which was offered by Areva over the B&W defendants' objection, recorded the jury's finding that on each of the 15 contracts at least one of the B&W defendants owed the contractual 4% royalty under the Sub-License. The jury accepted Areva's argument that all 15 customer contracts triggered the contractual duty to pay royalties. See 1 J.A. at 360-62 (verdict form indicating breach of contract for each of the 15 contracts). The verdict form also indicated that the jury found that the B&W defendants had misappropriated Areva's trade secrets.

         The B&W defendants moved to set aside the verdict and filed a written motion for judgment notwithstanding the verdict or, alternatively, a new trial on various grounds. Those relevant to our resolution of this appeal include the contentions that:

■ The court should have enforced its ruling on the cross-motions for summary judgment, which, when applied to the facts at trial, categorically excluded three ROTSG contracts from the royalty obligation.
■ On all contracts other than one (the Duke Master Services Contract), the evidence failed to prove as a matter of law that the B&W defendants used Areva's exclusive technology "at OTSG plant sites, " as the royalty provision expressly required. 19 J.A. at 8508.
■ The court should enter judgment notwithstanding the verdict on Areva's royalty claim applicable to the Duke Master Services Contract because the "first contract" exclusion applied as a matter of law. Alternatively, the court should set aside the verdict on this claim and order a retrial after giving a proper jury instruction.
■ Finally, the court erred by submitting the trade secrets claim to the jury because any use of Areva's exclusive technology was governed exclusively by contract (the Sub-License), and no evidence demonstrated a prima facie claim for damages under the Virginia Uniform Trade Secret Act.

See 8 J.A. at 3342-50 (oral motion to set aside the verdict); 18 J.A. 8361-405, 8474-505 (brief and reply brief in support of motion for judgment notwithstanding the verdict). The trial court denied all post-trial motions and entered final judgment on the jury verdict.[5]

         II. The Sub-License Agreement

         To address the principal issues on appeal, we must first determine if the relevant contract provisions have a meaning discernible from the words alone, and if so, whether the trial court correctly interpreted these provisions. On these questions, we do not defer to either the trial court or the jury. "The interpretation of a contract presents a question of law subject to de novo review." School Bd. of Newport News v. Commonwealth, 279 Va. 460, 467, 689 S.E.2d 731, 735 (2010) (citation omitted).[6]

         In this case, Areva and the B&W defendants both assert that the Sub-License's provisions, while highly technical, have a plain meaning and, thus, should be considered unambiguous.[7] Even so, they offer very different interpretations favoring their respective views. Their opposing interpretations, however, do not necessarily render the contract ambiguous. Bartolomucci v. Federal Ins., 289 Va. 361, 370-71, 770 S.E.2d 451, 456 (2015). As we have often said, "[a] contract is not ambiguous simply because the parties to the contract disagree about the meaning of its language." Pocahontas Mining L.L.C. v. Jewell Ridge Coal Corp., 263 Va. 169, 173, 556 S.E.2d 769, 771 (2002). We concede the possibility that the parties' interpretative deadlock implies the possibility that the correct meaning may be somewhere between the two. Even so, we neither presume this to be the case nor discount the possibility that it might be so.

         Turning to the Sub-License and the prior contracts it incorporated by reference, we must first determine whether the plain meaning of the contractual terms can be discerned with sufficient precision to render the Sub-License unambiguous, and, if so, whether that meaning favors the B&W defendants or Areva. We organize our analysis around three contractual benchmarks: (a) the nuclear technology "exclusive" to Areva, which defines the scope of the Sub-License; (b) use of Areva's exclusive technology "at OTSG plant sites, " which triggers the obligation under the Sub-License to pay royalties; and (c) the "first contract" exclusion, which the Sub-License exempts from any royalty obligation. 19 J.A. at 8508.

         To determine whether these provisions have a plain meaning, "words used are given their usual, ordinary, and popular meaning." Pocahontas Mining L.L.C., 263 Va. at 173, 556 S.E.2d at 772; see also City of Chesapeake v. States Self-Insurers Risk Retention Grp., 271 Va. 574, 578, 628 S.E.2d 539, 541 (2006). In addition, "when considering the meaning of any part of a contract, we will construe the contract as a whole, " Doctors Co. v. Women's Healthcare Assocs., 285 Va. 566, 572-73, 740 S.E.2d 523, 526 (2013) (citations omitted), striving not to "place emphasis on isolated terms" wrenched from the larger contractual context, Quadros & Assocs. v. City of Hampton, 268 Va. 50, 54, 597 S.E.2d 90, 93 (2004).[8]

         There is a temptation, regrettably natural to the adjudicative task, to allow complex draftsmanship to discourage the search for the plain meaning of words used in technical agreements. But complexity should not be confused with convolution, and agreements are not ambiguous simply because they deal "with a technical subject that may be considered complex to the uninformed lay person who is not familiar with the topic." Westmoreland-LG&E Partners v. Virginia Elec. & Power Co., 254 Va. 1, 11, 486 S.E.2d 289, 294 (1997) (quoting Doswell Ltd. P'ship v. Virginia Elec. & Power Co., 251 Va. 215, 223, 468 S.E.2d 84, 89 (1996)). As Professor Costello perceptively said:

As modern life becomes more complex, and commerce becomes increasingly dependent on law, arcane business arrangements will come before the courts in increasing numbers. It will not do that judges be deprived of their control over contracts by the assertions of a party that her technical agreement is ambiguous because she says it is, or that her agreement cannot be understood by persons not schooled in her obscure science.

         John L. Costello, Virginia Remedies § 18.11[3] (4th ed. 2012).

         A. Nuclear Technology "Exclusive to Areva"

         The Sub-License expressly granted to B&W and B&W Canada, the B&W sublicensees, the right to

use the Nuclear Technology which is exclusive to [Areva], for all purposes, including without limitation the supply of Licensed Products and Services as such term is defined in Article 1.13 of the License Agreement and generally for all purposes, without restriction, in the field of or relating to the supply of commercial nuclear services to OTSG plants.

19 J.A. at 8508 (emphases added). For the definition of "Nuclear Technology, " a prefatory recital incorporated relevant portions of the 1991 License Agreement, contemporaneous agreements, and "all technology which was at issue in [the federal litigation]." Id. at 8507.[9] Another of the Sub-License's recitals explained the source and meaning of this "exclusive" technology by recognizing that the 1991 License Agreement granted to Areva "an exclusive license to apply the Once Through Steam Generator ('OTSG') nuclear technology in the field of commercial nuclear services." Id.

         These prefatory recitals "shed light on the circumstances the parties wished to have considered in the interpretation of the contract." 2 E. Allan Farnsworth, Farnsworth on Contracts § 7.10, at 289 (3d ed. 2004). So read, the recitals confirmed that the exclusivity of Areva's original license depended on the terms of the 1991 License Agreement and was limited to the "field of commercial nuclear services." 19 J.A. at 8507; see also id. at 8508. The 1991 License Agreement separated the relevant nuclear technology into three categories: technology exclusive to B&W, technology shared by B&W and Areva, and technology exclusive to Areva.

         The first category, technology exclusive to B&W, included nuclear technology used to "perform the manufacture or Manufacturing Detailed Design of Heavy Components." 9 J.A. at 3562 (Art. 8.1.3(ii)). This included "the design activities to detail manufacturing drawings, processes, procedures, sequencing, quality control procedures, tolerances, weld location and technology, inspection requirements and any other details needed to manufacture the component to meet the Component Design[10] requirements." Id. at 3532. Article 8.6 expressly "reserved" to B&W "[a]ll rights in" the nuclear technology that were "not granted" to Areva. Id. at 3566.

         In this respect, the 1991 License Agreement maintained B&W's exclusive right to use the nuclear technology to manufacture and sell "Heavy Components, " which were defined as "complete components for a Nuclear Reactor System, " including "reactor vessels; reactor vessel heads; reactor vessel internals; steam generators or portions thereof which includes tube bundles; primary system heat exchangers; pressurizers; accumulators (core floor tanks); control rod drive mechanisms; and main reactor coolant piping [i.e., hot and cold legs]." Id. at 3531.

         The second category, technology shared by B&W and Areva, included functional design of heavy components[11] and component design, as well as other activities not at issue here. Id. at 3560-61, 3565; see id. at 3531-32 (defining "Licensed Products and Services"). Functional design included "design activities which establish the design parameters of the component and the specific applicable design requirements such as design codes, safety and quality levels, physical interfaces, working fluids, electrical requirements and any other parameters needed to define the form, fit and function of an acceptable component." Id. at 3529 (emphasis added). "[C]hange-out of steam generators or other heavy components" was also nonexclusive. Compare id. at 3565 (Art. 8.2(d) of 1991 License Agreement) with 28 J.A. at 13394 (Section 5.05(f) of BWNS Coordination Agreement).[12]

         The third category, technology exclusive to Areva, included the right to "design and sell (i) Nuclear Reactor Engineering Services; and (ii) Specialized Nuclear Maintenance, Inspection and Field Services" and to "design, manufacture, sell and use: (i) Specialized Service Tools and Inspection Equipment and (ii) Specialized Equipment and Spare Parts." 9 J.A. at 3559. The tw categories relevant to this case are nuclear reactor engineering services and specialized nuclear maintenance, inspection, and field services.

         Nuclear reactor engineering services were defined as "services for Nuclear Reactor Systems or parts thereof which require a specialized knowledge of the functional design, operation, or safety and regulatory requirements of or related to Nuclear Reactor Systems." Id. at 3533 (emphasis added). Such services consist "of designing, providing requirements for, specifying and procuring equipment for, performing engineering studies . . . relating to, or implementing modifications . . . to, Nuclear Reactor Systems or parts thereof" but expressly exclude the same activities when they "do not require a specialized knowledge of Nuclear Reactor System functional design, operation, safety or regulatory requirements." Id. at 3533-34. Specialized nuclear maintenance, inspection, and field services were broadly defined as "services for Nuclear Reactor Systems or parts thereof, " when performance of such services requires: "a) specialized knowledge of the functional design, operation or safety of Nuclear Reactor Systems, or b) nuclear related analyses and/or regulatory licensing support, or c) the use of Specialized Service Tools and Inspection Equipment." Id. at 3538-39.

         The 1991 License Agreement appended two exhibits of "illustrative" activities, one describing nuclear reactor engineering services and the other describing specialized nuclear maintenance, inspection, and field services. The illustrations of nuclear reactor engineering services included, among other things, "[c]onduct[ing] safety, reliability and probabilistic risk analyses" and "[d]esign[ing], specify[ing], procur[ing], and provid[ing] regulatory licensing support, for new" - but not replacement - "equipment or components (including Heavy Components), and perform[ing] design/engineering activities for their installation." Id. at 3605-07. Illustrative specialized maintenance, inspection, and field services included various services for complete nuclear reactor systems, hot and cold legs, and other components. See id. at 3609-12. Some of these services were characterized as "on-site, " others as "off-site, " and others were not designated either way, though it was often implicit in the nature of the work to be done. Id.

         The three categories of nuclear technology described in the 1991 License Agreement confirm the B&W defendants' view that Areva's exclusive license was limited, as the Sub-License states, to nuclear technology "in the field of or relating to the supply of commercial nuclear services, " 19 J.A. at 8508 (emphasis added), and not in the field of manufacture and sale of complete heavy components. Equally clear is that the shared-use category of nuclear technology, when applicable, protected the B&W defendants from any royalty liability under the Sub-License.

         A separate category of nuclear technology pertains solely to the TVA Bellefonte plant. Exhibit B to the TVA Agreement, executed one day after the 1991 License Agreement, amended the 1991 License Agreement to include Article 8.1.6, in which B&W granted to Areva an exclusive, "non-assignable license . . . to make, use, sell, design or take any other action (but not including manufacture of Heavy Components) necessary or desirable to perform Bellefonte NSS Completion." 26 J.A. at 12106. By inserting the phrase "but not including manufacture of Heavy Components, " id., B&W expressly reserved for itself the exclusive right to manufacture ROTSGs and any other heavy components for the TVA Bellefonte plant.

         In sum, read separately and together, these interlocking contractual provisions provided a clear contractual meaning to the Sub-License's grant of "Nuclear Technology which is exclusive to [Areva] . . . in the field of or relating to the supply of commercial nuclear services to OTSG plants." 19 J.A. at 8508 (emphases added). On the issue of technology exclusive to Areva, therefore, the Sub-License has a plain, albeit intricate and technical, meaning.

         B. Use of Areva's Exclusive Technology "at OTSG Plant Sites"

         The Sub-License limited royalty liability to use of Areva's exclusive technology "at OTSG plant sites" by the B&W sublicensees. Id. The governing paragraph stated:

For the use as defined in this Sub-License at OTSG plant sites described in Exhibit "A" by a Grantee of the Nuclear Technology, but excluding the first contract, which is covered under paragraph D, below, the Grantee agrees to pay to [Areva] a royalty of four percent (4.0%) of the Grantee's gross contract amounts to the extent such amounts are actually paid to the Grantee by the Grantee's customer(s) . . . as calculated and on the terms and conditions as set out below . . . .

Id. (emphases added). The "below" terms and conditions included paragraph A, a notice provision that repeated that the royalty must be paid only for "use" of the technology "at an OTSG site described in Exhibit A." Id. (emphasis added). Also included was paragraph D, which recognized the "first contract" exclusion for "commercial nuclear service projects performed using the Nuclear Technology as licensed herein at an OTSG site." Id. (emphases added).

         These provisions break down to a simple statement with three essential predicates: No matter the scope of Areva's exclusive technology, the B&W sublicensees were obligated to pay a 4% royalty only when (i) they, not their customers or anyone else, (ii) used Areva's exclusive technology, not shared technology, (iii) at a covered OTSG site, not at some off-site location. Thus, under the plain meaning of the royalty provision, no royalty was owed if only the customers of the B&W sublicensees used Areva's exclusive technology at their own OTSG sites. Nor was the royalty owed if the B&W sublicensees used this technology at some non-OTSG, off-site location.

         We reject Areva's contrary interpretation, which would impose the royalty obligation whenever the B&W sublicensees used the technology at their own facilities in Canada or, for that matter, when they used the technology for any other reason anywhere in the world - so long as the technology was ultimately put into operational use at an OTSG site by one of their OTSG customers.[13] This expansive interpretation not only contradicts, but ...


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