BCE Emergis Corp. v. Community Health Solutions of America, Inc. ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT August 9, 2005
_______________________ Charles R. Fulbruge III
Clerk
No. 04-50367
_______________________
BCE EMERGIS CORPORATION,
Plaintiff-Appellant,
versus
COMMUNITY HEALTH SOLUTIONS OF AMERICA, INC.;
BENCOMP NATIONAL CORP; GARY S. SIMMONS; MICHAEL R. MASTERS;
BARBARA FREEMAN; RICHARD K. DANKWORTH; SCOTT BARNES;
CLARENDON NATIONAL INSURANCE COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Texas
1:02-CV-741-LY
Before JOLLY, JONES, and DEMOSS, Circuit Judges.
EDITH H. JONES, Circuit Judge:*
Plaintiff-Appellant BCE Emergis Corporation (“BCE”)
appeals the jury verdict exonerating Defendant-Appellees Community
Health Solutions of America (“CHS”), numerous individuals
(collectively, “CHS,” “Appellees”), and Clarendon National
Insurance Company (“Clarendon”) from its claims for, inter alia,
breach of contract, breach of fiduciary duty, and misappropriation
of trade secrets. BCE challenges the district court’s denial of
BCE’s motion for judgment as a matter of law, its motion for new
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
trial, the content of the verdict forms and jury instructions, and
various evidentiary rulings. Having reviewed the record, and
finding no significant error in this carefully tried case, we
affirm.
I. BACKGROUND
BCE developed and maintains a nationwide network of
healthcare providers, through which it offers access to discounted
healthcare services. NHS, located in Louisville, Kentucky, is a
wholly-owned subsidiary of BCE, which offers utilization review and
case management services. NHS was incorporated in 1984 and became
BCE’s subsidiary in February 2000. NHS’s four primary products
include medical review, management, disease management, and a
24-hour nurse/triage help line. NHS employees four hundred people,
eighty percent of whom are nurses. NHS uses numerous written
policies and procedures, as well as a management software program
called CareReview, in operating its business. NHS is accredited by
the Utilization Review Accreditation Commission (“URAC”), and
frequently shares its policies and procedures with other healthcare
service providers. On contracts for government-sponsored insurance
programs, such policies and procedures must satisfy certain
requirements.
Appellee Clarendon National Insurance Co. (“Clarendon”)
hired NHS to provide medical management services for contracts
Clarendon had with the states of Texas and Florida. In Texas,
2
Services were performed in Texas for the Texas Children’s Health
Insurance Program (“CHIP”), and in Florida for the Florida Healthy
Kids Program (“Healthy Kids”). The CHIP contract was for an
initial three-year term starting in May 2000, with two automatic
one-year terms of renewal. The Healthy Kids contract was
negotiated and acted upon, but never memorialized. The NHS
executive staff based in Louisville and responsible for these
subcontracts included Appellees Barbara Freeman (“Freeman”),
President and Chief Medical Officer from the 1990's to July 2002;
Richard Dankworth (“Dankworth”), Executive Vice President until
June 2002; and Scott Barnes (“Barnes”), Vice President for
Information Systems until March 2002. Barnes was responsible for
the development and upkeep of the CareReview program. CHS was
incorporated in February 2002 by its two principals, Appellees
Michael Masters (“Masters”) and Gary Simmons.
A. BCE’s Case to the Jury
The Parties continue to disagree as to what the evidence
showed. Thus, we present the arguments of each side sequentially.
Masters developed the concept of an “exclusive provider
organization” (“EPO”) model for the delivery of rural healthcare
services. Under an EPO, one company would provide services in
Texas and Florida; however, operating the EPO would require the
operational capability of NHS, and CHS lacked this capacity at the
relevant time. Thus, BCE alleged Appellees accomplished this goal
3
by pilfering NHS’s proprietary information and employees. In
spring 2001, Masters developed an EPO proposal for Clarendon, which
he also secretly sent to Freeman and Dankworth for advice even
though the proposal did not concern business with NHS. Then
several “offline” discussions took place between Masters and both
Freeman and Dankworth to determine whether each was interested in
business opportunities with CHS. By late 2001, Masters had enticed
Dankworth with employment opportunities at his startup; Dankworth
expressed interest for himself and on behalf of his fiancée Patty
Callen (“Callen”),1 the NHS manager who oversaw the nursing staff
that directly served CHIP.
Further, in early 2002 Masters and Simmons met secretly
with Dankworth and Barnes at a Louisville hotel to continue
employment discussions. Barnes brought along four of his computer
department subordinates. In February 2002, Dankworth wrote to
Masters and Simmons, outlining proposed terms of employment for
himself and Callen, including an ownership interest in the new
company. Simmons emailed Barnes’s proposed offer letters for his
four subordinates, requesting Barnes to review them. Barnes and
his subordinates left NHS for CHS in March 2002.
On March 19, 2002, Masters proposed to Clarendon’s Senior
Vice President Dominic Hagger that CHS become Clarendon’s EPO for
rural healthcare services. Although this occurred months before
1
Dankworth and Callen are now married.
4
either Dankworth or Freeman quit NHS, both were identified as CHS
executives in the organizational chart accompanying the proposal,
and their resumes appeared on CHS letterhead. The proposal
described a medical management system that did not exist at CHS in
March 2002 and included both CHIP and Healthy Kids.
Later, Hagger signed a separate proposal submitted by CHS
for Florida Medicaid work, which, BCE claims, repeated the same
misrepresentations about Freeman, Dankworth, and CHS’s medical
management capabilities. BCE also contends this proposal appended
confidential medical policies and procedures that Dankworth
purloined from NHS and falsely claimed belonged to CHS. According
to BCE, Dankworth, the negotiator of the Texas CHIP contract with
Clarendon, was familiar with BCE’s confidentiality restrictions.
BCE claims Dankworth asked a subordinate NHS employee, Patty
Russell, to put the policies and procedures on a computer disk.
Dankworth allegedly took the disk home and asked Callen to reformat
the policies and procedures, such that references to NHS became
references to CHS. Dankworth then sent the reformatted policies to
the then-CHS president, who passed them along to a CHS employee,
who confirmed they were the policies included with the Florida
Medicaid proposal.1 BCE alleges that the Hagger’s and Dankworth’s
testimony shows these policies could only have come from the NHS
policies used in the CHIP contract.
1
As will be discussed infra, Dankworth and Callen provided a very
different account of these events at trial.
5
B. Appellees’ Case to the Jury
Appellees presented evidence that after BCE’s acquisition
of NHS, BCE instituted multiple dramatic changes in corporate
practice at NHS. BCE transferred significant decisionmaking power
out of Louisville, instituted rigid cost-cutting, and increased the
bureaucracy of the workplace, as well as the workload. NHS
required more approval to authorize expenditures by NHS personnel.
Appellees testified that these changes ultimately affected client
services. In particular, as NHS moved departments around, the IT
department and all the computer hardware was moved from its base in
Louisville to BCE’s offices in Maryland and Canada. This proved a
controversial issue, as many IT employees feared for their jobs.
Barnes, in fact, approached NHS Vice President Christie Spencer and
advised her that some of his subordinates were going to quit
because of the deteriorating conditions. Around October or
November 2001, the situation became more intense when NHS employees
learned BCE had a non-compete agreement “in the works” that they
would be required to sign. Upon learning this, Barnes and
Dankworth began aggressively seeking other employment. In February
2002, BCE circulated an annual acknowledgment of BCE’s ethics-
related policies and made signing it a condition of employment;
several employees objected to signing it.
Without signing the agreement, Dankworth submitted his
written resignation to NHS on May 27, 2002. Prior to his
6
resignation, Dankworth had discussed his dealings with CHS only in
passing with BCE general counsel Joseph Mott; he did not discuss
the departure of any other BCE employees. Freeman informed NHS of
her possible job offer in June 2002 and left for CHS soon
thereafter. Barnes and several members of his department left in
March 2002 and were hired by Appellee Bencorp National Corp.
(“Bencorp”), a startup company, to develop claims payment software.
Barnes, et al., developed Care Management, which BCE alleges is
remarkably similar to CareReview. Callen left in June 2002 for
CHS, and Russell did likewise in September 2002. Clarendon then
notified NHS that it was moving its CHIP and Healthy Kids medical
management work to CHS. Clarendon gave the one-hundred-eighty-day
notice required by the CHIP contract; however, because BCE (through
its agent, Dankworth) had never finalized the Healthy Kids
contract, Clarendon said it only needed to provide thirty to sixty
days’ notice to terminate that deal.
Appellees’ evidence presents a different picture of the
Healthy Kids agreement. As background, Appellees contend the State
of Florida had been running the program, but the program did not
reach rural areas of Florida. In 1997, Masters created a non-HMO,
alternative product to cover children in rural areas. Masters
recruited Clarendon to be the program writer and underwriter.
Other companies were subcontracted to provide various services,
including medical management. Appellees contend Masters brought
together all the necessary constituent parts for the program, then
7
Clarendon entered into a contract with Florida to underwrite the
program, and Clarendon in turn entered into subcontracts with other
companies that Masters recruited to perform the actual services.
Masters, first through his company Community Health Systems of
America, Inc. (“CHS-Systems”) and then through CHS, remained as the
program manager of Healthy Kids. Initially, one of the
subcontracts (for medical management) was with IntraCorp, but NHS
was eventually chosen as its replacement. In September 2000,
Dankworth sent a draft contract to Clarendon. Although no
Clarendon executive signed the contract, in January 2001, NHS
started working as the medical management subcontractor for Healthy
Kids. The contract was to expire in April 2003.
Appellees present a similar background for CHIP.
Masters, while putting together the Florida plan in 1999 for
CHS-Systems, was also working with Texas officials regarding a
similar program in Texas. These discussions eventually led to
Clarendon’s being awarded the CHIP contract, with the three-year
plus renewal and one-hundred-eighty-day notice terms discussed
above. Clarendon subcontracted with NHS to perform medical
management. Just as with Healthy Kids, CHS-Systems was the program
manager for CHIP. Appellees contend CHIP was met with numerous
concerns from the Texas Health and Human Services Commission (the
“Commission”). In essence, the Commission demanded fewer sub-
contractors, better communication, and better integration. Masters
also met with then-President and CEO of Clarendon, Detlef Steiner,
8
who also criticized CHIP’s structure.
Masters considered ways to address these concerns. He
eventually discussed them with Simmons, an officer from Cadent
Underwriters, Inc. (“Cadent”), the claims processor for Healthy
Kids. Both conceived of a virtual company that would operate under
one name and coordinate all subcontractors. They abandoned this
idea, and instead decided that perhaps CHS-Systems and BCE (and
thus NHS) could enter into a joint venture and create one entity to
perform the government health insurance contracts. Between summer
and fall 2001, Masters proposed this idea to the CEO of BCE, Faye
Baggiano. Baggiano initially supported the concept, but she
eventually decided in October 2001 that BCE would instead compete
with CHS-Systems for CHIP contracts.
With that response from BCE (and thus NHS), Masters and
Simmons approached another medical care company in south Florida
regarding the formation or purchase of a joint venture; neither
event occurred. In December 2001, Masters and Dankworth met over
drinks at an airport bar while waiting for their flights following
a meeting. Masters mentioned to Dankworth that he was either going
to buy or start a medical management company. Masters indicated
Dankworth was surprised at first but then appeared to express
interest in being hired, along with other NHS personnel. Masters
was delighted and immediately called Simmons. That same month,
Barnes contacted Simmons, with whom he had worked before, to see
whether Simmons had any job openings. Barnes told Simmons about
9
the possible phase-out of the IT department at NHS and that he and
others were looking for work. Simmons and Masters discussed
Barnes’s situation and experience; they decided he would be a
desirable hire, as would other NHS IT personnel.
Barnes continued telephonic discussions with Simmons into
January 2002. Appellees admit the Louisville meeting took place;
Simmons had told Barnes he would soon be in Louisville. Appellees
also admit that Barnes discussed his potential arrangement with NHS
with his subordinates over lunch at a Wendy’s fast food restaurant.
Masters followed up with Dankworth in January 2002 and
asked whether he and others from NHS were under employment
contracts and might consider working for another company.
Dankworth said he would consider it, due to the hostile environment
at BCE. Masters told Dankworth he would be passing through
Louisville. Masters left Freeman a message about his discussions
with Dankworth and essentially offered her a job.
At the Louisville meeting, Masters and Simmons discussed
with Dankworth and Barnes their plan for consolidating services
into one entity, CHS. They also described Simmons’s new software
company, Bencorp, which would be writing medical management
programs similar to CareReview. Simmons specifically told Barnes
that if he and others came to work for Bencorp, they would be
creating their programs from scratch and they should not even bring
a paper clip belonging to NHS.
In February 2002, after discussing the possible job moves
10
with Callen, Dankworth faxed his and Callen’s employment criteria
to Masters and Simmons. Around this time, Dankworth told Freeman,
NHS General Counsel Joseph Mott, and Russell that he was
considering working for Masters. Dankworth claimed he had
conflicting feelings about the possible move and agonized over it.
Freeman avoided Masters’ calls because she felt
uncomfortable talking to him while she worked for NHS; she advised
both Baggiano and Mott that Masters had offered her a job.
That same month, Masters continued his discussions with
Clarendon about streamlining the CHIP administrative processes.
Also, Masters and Simmons started CHS. In March 2002, Masters
submitted a proposal on behalf of CHS to Clarendon to serve as its
general agent for EPO services.
Clarendon was already considering removing its business
from NHS. Additionally, CHS received an invitation to bid on a
Florida Medicaid contract, and CHS approached Clarendon for
permission to put together a bid. Clarendon gave such permission;
Clarendon would be the program’s insurance company, while CHS would
serve as administrator. CHS needed to provide some sample policies
and procedures, so Joyce Dove (then-president of CHS) asked
Dankworth for some samples of the Clarendon policies and procedures
for CHIP; Dankworth asked Patty Russell to provide copies of
certain NHS policies on a disk. None of the documents was marked
as confidential or proprietary. Callen then reformatted the
samples with no substantive changes, only name and logo changes.
11
Hagger signed the proposal, which was submitted in April 2002.
In June 2002 Clarendon, BCE, CHS, and Bencomp represen-
tatives met at Clarendon’s New York offices to discuss Clarendon’s
decision not to renew NHS’s subcontract and the transition from NHS
to CHS. Masters offered to purchase the remainder of NHS’s
subcontract for $500,000 and to offer jobs to any NHS employee
working on the CHIP contract. NHS refused the offer.
NHS complained that CHS launched its operations using
software pilfered, and only slightly altered, from NHS; specifi-
cally, NHS claims the outgoing employees stole the CareReview
program. At trial, Appellees insisted that Barnes and the others
at CHS began working on a “bare-bones” medical management software
program called Care Management. They developed the architecture of
the database system from scratch, using flip charts and Post-It
notes. They also relied on model guidelines from similar govern-
ment programs and URAC documentation obtained from public Internet
sites. They used a code-writing tool called Progress to create the
software’s source code. CareReview was not copied; although there
are similarities, the programs are not functional equivalents.
Around this time, Callen and then Dankworth resigned from NHS,
although Dankworth stayed on for a while (at NHS’s request), and
helped procure a project for NHS. Freeman left shortly after
Dankworth.
Clarendon informed NHS that effective April 30, 2003, the
parties’ medical management contract for CHIP would not be renewed.
12
The same day, Clarendon notified NHS that its services would no
longer be needed for Healthy Kids. Clarendon informed NHS that it
wanted to centralize the services under these programs, and it had
agreed for CHS to do that. This centralization through CHS yielded
Clarendon administrative savings in CHIP of $3.5 million annually.
The start-up and other attendant costs, however, yielded no
immediate profit for CHS. Additionally, most of the former NHS
employees moving to CHS experienced a reduction in salary and
benefits.
C. Litigation Commences
On November 19, 2002, BCE filed a six-count complaint
asserting claims for, inter alia, tortious interference with
contractual relations, tortious interference with prospective
business relations, civil conspiracy, misappropriation of trade
secrets, breach of fiduciary duty, and commercial disparagement,
against all Appellees except Clarendon, seeking injunctive relief
and damages. BCE also filed for and was granted a temporary
restraining order (“TRO”), extended through January 6, 2003. An
agreed order for expedited discovery was entered. BCE later
amended its complaint to add Clarendon as a defendant, alleging
misappropriation of trade secrets and commercial disparagement.2
The district court denied all motions for summary judgment. Trial
began on February 9 and continued through February 23, 2004. The
2
BCE later dropped the commercial disparagement claims.
13
court entered judgment on the jury’s verdict in favor of Appellees
on February 24, 2004. BCE moved for judgment as a matter of law or
for a new trial, which motion the court denied on March 18, 2004.
BCE timely appealed.
II. DISCUSSION
A. Denial of BCE’s Motions For Judgment As a Matter of Law
and For New Trial
This court reviews a denial of a motion for judgment as
a matter of law (“j.m.l.”) de novo. Arguello v. Conoco, Inc., 330
F.3d 355, 357 (5th Cir. 2003). “[A] motion for j.m.l. in a jury
case is a challenge to the sufficiency of the evidence supporting
the verdict.” Id. A Rule 50 motion is properly granted where the
facts and inferences involved point so overwhelmingly and strongly
in favor of one party that the court believes reasonable persons
could not arrive at the opposite verdict. Info. Communication
Corp. v. Unisys Corp., 181 F.3d 629, 633 (5th Cir. 1999). We con-
sider all evidence in the light most favorable to the nonmovant,
drawing all reasonable inferences therein in favor of that party.
Id. To defeat a motion for j.m.l., the nonmovant must point to a
conflict in substantial evidence. Casarez v. Burlington N./Sante
Fe Co., 193 F.3d 334, 336 (5th Cir. 1999). “Substantial evidence
is evidence of such quality and weight that reasonable and fair-
minded men in the exercise of impartial judgment might reach
different conclusions.” Id. (internal quotation marks and citation
omitted).
14
We review the denial of a motion for new trial for abuse
of discretion. Rivera v. Union Pacific R. Co., 378 F.3d 502, 506
(5th Cir. 2004). The “denial will be affirmed unless there is a
clear showing of an absolute absence of evidence to support the
jury’s verdict.” Id. (partially quoting Lane v. R.A. Sims, 241
F.3d 439, 444 (5th Cir.2001)).
BCE argues that the district court should have granted
its motions (for j.m.l. and new trial) based on the overwhelming
evidence that Dankworth, Freeman, and Barnes breached their
fiduciary duties to BCE through their conduct in establishing and
passing information to BCE’s eventual competitor, CHS. Addition-
ally, BCE contends it was entitled to j.m.l. on its claim against
Dankworth for pilfering BCE proprietary information, and against
Masters, Simmons, CHS, and Clarendon for aiding and abetting these
fiduciary violations. Additionally, BCE claims the district court
should have awarded it j.m.l., or ordered a new trial, on its
breach of contract claim against Clarendon for Clarendon’s
violation of BCE’s non-disclosure policies in turning over
proprietary information.
As Kentucky law controls the breach of fiduciary duty
claims, we first consider that state’s fiduciary duty requirements.
An employee-fiduciary must be loyal and faithful to the interests
of the employer-principal. DSG Corp. v. Anderson, 754 F.2d 678,
682 (6th Cir. 1985). This duty “includes the obligation not to act
against the employer’s interests, not to establish a competing
15
enterprise until after the employment relationship is terminated,
and, finally, requires the employee-fiduciary to disclose to the
employer any information which could damage the company.” Id.
(citations omitted). An individual “cannot, while still a
corporate fiduciary, set up a competitive enterprise, or resign and
take with him the key personnel of the corporation for the purpose
of operating his own competitive enterprise.” Aero Drapery of
Kentucky, Inc. v. Engdahl, 507 S.W.2d 166, 169 (Ky. Ct. App. 1974).
Additionally, “an employee may not speculate for his gain in the
subject matter of his employment by using information acquired in
the course of employment against his employer’s interests.” DSG
Corp., 754 F.2d at 682 (internal citations and quotations omitted).
Kentucky fiduciaries further have a duty to disclose any
information that could be harmful to the corporation. Id.
Additionally, Kentucky law holds aiders and abetters of fiduciary
violators of their corporate duties jointly and severally liable
for any profits that accrue from such a breach. Steelvest, 807
S.W.2d at 485; DSG Corp., 754 F.2d at 683 n.7.
We evaluate this law in light of the jury’s verdict, and
review the record to determine, first, whether the verdict against
BCE on each of these claims was in the face of overwhelming
evidence to the contrary (the j.m.l. standard, which we review de
novo); and second, whether BCE can demonstrate the district court
abused its discretion in rejecting its motion for a new trial. BCE
argues it produced undisputed evidence at trial that Dankworth,
16
Freeman, and Barnes each owed NHS a fiduciary duty. They breached
such duty first by engaging for months in undisclosed negotiations
with Masters and Simmons, who sought to create a competitor to NHS.
BCE points to the covert discussions and the Louisville hotel
meeting; Appellees had knowledge of the competitive consequences of
the formation of CHS and their leaving NHS to work for CHS. BCE
argues the proposals submitted by CHS to Clarendon falsely
represented that Dankworth and Freeman, and also Callen and
Russell, were, long before they resigned, already executives with
CHS. Dankworth did not inform NHS officials of his plan to depart
until he resigned; Freeman only did a year after the offline
discussions had commenced.
In addition, BCE alleges Appellees breached their
fiduciary duty by recruiting subordinates in the “secret exodus” to
CHS. Barnes involved four of his subordinates in the scheme,
meeting with them at a restaurant. Barnes also assisted in setting
up the Louisville meeting and reviewed Simmons’s offer letters to
Barnes’s subordinates. Dankworth, the conduit between Masters,
Simmons, and Callen, also discussed Freeman’s interest in CHS
employment with Masters, and held meetings at his house to discuss
CHS employment with Callen, Freeman, and Russell. Appellees also
breached their fiduciary duty to NHS by not disclosing the
conspiratorial conduct of one another. Instead, they actively
facilitated it. BCE contends Masters and Simmons aided and abetted
these fiduciary violations. Finally, BCE maintains Dankworth
17
breached his fiduciary duty by failing to finalize the Healthy Kids
contract with Clarendon for NHS and not notifying Freeman. BCE
also alleges Dankworth breached his fiduciary duty by removing
policies and procedures from NHS offices, having a subordinate
reformat them, and sending them to CHS for use in their proposals.
Viewing the evidence and drawing all inferences in favor
of Appellees, as we must, we determine the district court correctly
denied BCE’s motion for j.m.l., and later its motion for a new
trial, on BCE’s breach of fiduciary duty claims. Simply put,
Appellees put forward explanations and counter-stories to every
factual assertion made by NHS; the jury credited Appellees’
accounts of the disputed issues, and we cannot inject our own
credibility determinations and factual opinions into the case on
appeal. Specifically, Appellees testified that any discussions
they had concerning employment with Masters and Simmons were
appropriate and lawful. Appellees characterized the discussions
with NHS as traditional job interviews, not an attempt to set up a
competing organization. The allegedly conspiratorial employees all
testified that they had become unhappy with the corporate changes
instituted by BCE, particularly with being forced to sign what was
essentially a non-compete agreement. The new job opportunity
offered a way out of this unhappy situation without any resort to
breach of fiduciary duty.
As to the termination of NHS’s subcontract with
Clarendon, evidence demonstrated that this loss was due to Texas’s
18
and Clarendon’s desire to streamline the provision of services. In
fact, Appellees presented evidence at trial that Dankworth and
Freeman helped NHS retain other existing contracts and obtain new
ones, and Dankworth did so even after he had announced his decision
to leave BCE.3
Appellees also disavowed any effort to coordinate an
exodus from NHS, while BCE produced no evidence that Freeman
engaged in any pre-arranged exodus plan. Barnes explained away the
infamous “Wendy’s meeting” as a happenstance conversation with his
co-workers; the topic of low morale came up and Dankworth was asked
if he was staying at NHS. He merely told his coworkers over lunch
that he was unhappy and planned to leave NHS; there was no active
recruitment. The other IT personnel left voluntarily because of job
security concerns. Moreover, BCE failed to demonstrate how the
departure of the IT department damaged NHS; the jury could have
reasonably inferred that the IT jobs were about to be eliminated in
any event by the transfer of the hardware and the department to
Canada and Maryland.
Although some of the discussions and interactions between
Masters and Simmons and Appellees certainly could approach the
level of a breach of fiduciary duty, particularly where it seemed
3
Additionally, the jury could have (and apparently did) credit
Dankworth’s account of the improperly executed contract with Clarendon as mere
negligence, or the product of the parties’ preferred means of doing business.
In light of Dankworth’s continued loyalty to NHS after announcing his departure,
this resolution of the disputed claims is reasonable and warrants deference to
the jury’s finding.
19
obvious that Masters and Simmons represented a nascent competitor
to NHS, the jury could reasonably infer, in the absence of signed
non-compete agreements or some evidence that Appellees were not
considered at-will employees, that Appellees did not breach their
fiduciary duty by engaging in good faith searches for new
employment. Cf. Steelvest, 807 S.W.2d at 484-85 (finding jury
questions where the fiduciary allegedly spoke to banks, potential
investors, and employees and customers of the original employer
with an eye toward creating a competing enterprise while still
employed in a fiduciary position with the original employer).
Additionally, the jury could have reasonably determined
that Dankworth’s disclosure of NHS information was not a breach of
his fiduciary duty. Dankworth testified that none of the documents
he supplied to Clarendon bore confidential markings; he believed
Clarendon was entitled to see and review its own policies and
procedures from its own program with NHS and for what he reasonably
believed was a future proposed project with NHS. Dankworth also
thought if NHS’s permission was needed for distribution, he was
authorized to give it. A reasonable jury could have agreed with
his version, particularly in light of the evidence that Dankworth
was still attempting to procure contracts for NHS after his
announced departure. Moreover, Appellees argued these policies and
procedures contained no “secret” information and were available
freely on the Internet. The documents contain fairly standardized
information common to this type of program, which must conform to
20
strict guidelines to receive federal funding. The documents
produced at trial comported with this description, and Appellees
put on expert testimony to support their contentions as to all of
these claims. In light of the conflicting evidence, BCE has failed
to demonstrate error in the district court’s denial of its j.m.l.
and new trial motions on the fiduciary duty claims.
The same analysis applies to the breach of contract claim
against Clarendon. By the express terms of the CHIP contract at
issue here, Delaware law applies to this claim. The elements of a
breach of contract under Delaware law are: (1) a contractual
obligation; (2) a breach of that obligation by the defendant; and
(3) a resulting damage to the plaintiff. H.M. Wexford LLC v.
Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003).
The relevant contractual provision of both the CHIP and
Healthy Kids contracts states:
All confidential and proprietary information of a party,
including, but not limited to, the terms of this
Agreement, information about fees, computer software,
business procedures and manuals, data, review criteria,
contract rates, information collected and/or reports
prepared pursuant to this Agreement, and any other
information that a party identifies as confidential
and/or proprietary (“Confidential Information”), will not
be disclosed, published, disseminated or released without
the prior written consent of the party owning the
Confidential Information. Further, Confidential
Information will be disclosed only to those persons and
entities who have a need for the information in order to
carry out the terms of this Agreement. Confidential
Information will not be used in any way not specifically
allowed under this Agreement. For purposes of this
Agreement, Confidential Information will not include:
. . . information provided to the other party with the
21
intention that it be published, disseminated, released or
distributed by the other party to the Covered Persons,
contract persons or the general public.
Plaintiff’s Ex. 1, ¶5(a). At trial, Hagger confirmed that NHS
never gave Clarendon written authority to disclose any confidential
information to the state of Florida with the Florida Medicaid
proposal. Dankworth admitted that the policies he removed from NHS
and reformatted were developed by NHS staff in connection with
CHIP. BCE argues that Dankworth’s subjective belief that the
policies were Clarendon’s is not relevant to Clarendon’s breach of
contract. BCE points to the plain language of the contract as
prohibiting Clarendon from disclosing, disseminating, or releasing
“business procedures and manuals, data, [and] review criteria”
without NHS’s prior written consent. BCE also contends Hagger’s
testimony regarding his intent (he only signed the portion of the
bid proposal that did not include the attached policies) is not
relevant to Clarendon’s breach of contract.
Clarendon responds that the jury had to make a
determination based on disputed facts whether the policies and
procedures attached to the proposal were indeed considered
Confidential Information under the contracts. Moreover, the jury
had to decide whether they belonged to NHS or Clarendon. Nothing
in the contracts indicated which company owned the policies and
procedures for CHIP and Healthy Kids. Dankworth and Freeman
testified they were Clarendon’s. Even if they were NHS’s, there
was a fact question as to whether Clarendon actually disclosed
22
Confidential Information. BCE argues that the policies and
procedures submitted with the Florida Medicaid bid were business
procedures and manuals; Clarendon disagrees and instead argues they
were medical management policies and procedures that, even if
covered by anything in the contract provision, would have been
considered review criteria. Clarendon insists BCE presented no
evidence that the policies attached to the Florida Medicaid bid
were review criteria. Moreover, Clarendon argues the attached
policies were not identified as confidential or proprietary by NHS,
such that they could fall under the catchall phrase of the
provision. Clarendon also argues that there was evidence that CHS
and Bencomp would be considered “contract providers” under the
contracts, thus information released to them was not considered
Confidential Information under the provision.
In addition, Clarendon insists it raised a fact issue on
breach itself because it was Dankworth (then working for NHS) who
disclosed the policies to CHS (before he began working there),
which actually assembled the bid. Finally, Clarendon argues the
integral element of damages is entirely missing because any harm
that BCE may have suffered came from its loss of the CHIP and
Healthy Kids contracts; there is no connection at all, much less a
detrimental one, to the bid on the Florida Medicaid program.
According to Clarendon, that contract had not yet been awarded;
there was no evidence of lost profits from that bid by BCE, nor any
evidence of profits gained from that bid by Clarendon. There was
23
also no retained damages expert and no evidence by which the jury
could value the policies and procedures obtained by Clarendon. See
Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 545
(5th Cir. 1974) (noting damages can be shown through “evidence by
which the jury can value the rights the defendant has obtained”).4
We agree with Clarendon that a reasonable jury, drawing
all plausible inferences in its favor, could have found several
elements of breach of contract lacking. BCE did not present
irrefutable evidence that the policies constituted Confidential
Information; without proving this element, there was no contractual
obligation. Additionally, there were various ways the jury could
have determined who owned the policies, and which party, if any,
disseminated or distributed the policies. Thus, even if the jury
did find the element of damages met, by comparing the annual values
of the terminated CHIP and Healthy Kids contracts, the jury
reasonably may have found either no contractual obligation or no
breach. We cannot disturb the jury’s verdict on this issue.
B. Challenges To Verdict Forms and Jury Instructions
“Generally, a trial court is afforded great latitude in
the framing and structure of the instructions and special
interrogatories given to the jury.” Barton’s Disposal Serv., Inc.
v. Tiger Corp., 886 F.2d 1430, 1434 (5th Cir. 1989). This court’s
4
Moreover, the district court permitted the vague damages calculations
proffered by BCE at trial to be sufficient to take this claim to the jury in the
first place. Had the jury found in BCE’s favor, this point would be subject to
a very careful review.
24
review is for abuse of discretion. Id. “Although we afford broad
discretion in fashioning jury instructions, the trial court must
nevertheless instruct the jurors, fully and correctly, on the
applicable law of the case, and guide, direct, and assist them
toward an intelligent understanding of the legal and factual issues
involved in their search for truth.” EEOC v. Manville Sales Corp.,
27 F.3d 1089, 1096 (5th Cir. 1994) (internal quotations, ellipses,
and citations omitted). “On appeal, the charge must be considered
as a whole, and so long as the jury is not misled, prejudiced, or
confused, and the charge is comprehensive and fundamentally
accurate, it will be deemed adequate and without reversible error.”
Id. (citation omitted).
BCE does not complain that the district court incorrectly
applied Kentucky law to the trade secret misappropriation claim.
See KY. REV. STAT. ANN. §§ 365.880-365.900 (adopting and imposing the
1979 Uniform Trade Secrets Act (“USTA”)). BCE argues instead that
the court erred by requiring proof of actual damages for the jury
to issue a verdict in BCE’s favor on liability because Kentucky law
imposes no such requirement. The USTA defines liability for trade
secret misappropriation as the improper acquisition, disclosure, or
use of a trade secret. KY. REV. STAT. ANN. § 365.880. BCE contends
the plain statutory text makes no reference to, nor is a finding of
liability dependent on, the existence of any proximate cause of
damages. That is, BCE maintains that after the threshold question
of liability is determined, only then does the statute provide for
25
injunctive relief (§ 365.882), damages (§ 365.884), and attorney’s
fees (§ 365.886).
BCE contends the verdict forms concerning trade secret
liability improperly required the jury to find proximate causation
and short circuited consideration of the unjust enrichment claims
by making those claims contingent upon earlier, unnecessary
findings. Additionally, BCE argues Verdict Form Number 9, concern-
ing fiduciary violations, was similarly defective in that it
conditioned liability on the dual predicate that the offending
conduct was “to the detriment of NHS for the benefit of himself or
any other Defendant.” BCE contends Kentucky law does not require
proof of any damage to establish a fiduciary violation. See DSG,
754 F.2d at 682 (noting employee-fiduciary may be liable for
nondisclosure “even if the employer has suffered no loss”).
BCE also complains that the legal standard regarding
unjust enrichment damages in the misappropriation instruction and
forms was incorrect. The court instructed the jury:
You may consider, in awarding such damages, one of the
following measure of damages: (1) the profit, if any,
received by a Defendant for the use of such trade secret;
(2) the loss of profit, if any, suffered by Plaintiff for
the use of such trade secret; or (3) the reasonable
royalty for the trade secret appropriated.
R. 2279. BCE argues this constituted error because the court did
not explain what “profit . . . received by a Defendant” meant and
included a confusing paragraph on unjust enrichment at the end of
the instruction. BCE contends an unsophisticated juror would not
26
have understood the relationship between profit and unjust
enrichment. BCE notes the error was compounded because of the
broad-form submission of the liability question.
We have granted the district court particularly wide
discretion in instructing juries on misappropriation claims. See,
e.g., Univ. Computing, 504 F.2d at 538 (noting every trade secrets
case “requires a flexible and imaginative approach to the problem
of damages”).5 We are aware of no controlling or persuasive
caselaw that holds it is reversible error for a trial court to
submit to the jury the broad question of liability together with
the question of damages for misappropriation of trade secrets in
one interrogatory. The Kentucky statute is silent; it does not
prohibit such submission. Moreover, in light of the claims at
issue (specifically BCE’s request for monetary damages), it made
sense for the court to submit the broad-form instruction. This
interrogatory did not foreclose other types of relief, e.g., an
injunction or attorneys’ fees, but other relief is irrelevant in
light of the failure to find liability.
Moreover, assuming arguendo the instruction forms
improperly prevented the jury from considering unjust enrichment,
the error was harmless. The applicable statute permits such
5
Appellees first contend BCE failed to object adequately to the
content of the trade secret verdict form and jury instruction, as required by
FED. R. CIV. P. 51. Thus, Appellees argue this court’s review is limited to plain
error, and BCE cannot satisfy this “stringently limited” standard. See Horstmyer
v. Black & Decker, Inc., 151 F.3d 765, 771 (5th Cir. 1998). BCE’s proffered jury
forms and instructions arguably do not preserve this error, but as we find no
abuse of discretion, we will not employ the more restrictive standard.
27
damages only if that measure “is not taken into account in
computing actual loss.” KY. REV. STAT. ANN. § 365.884. The jury did
not find any loss here, so there could be no error. Additionally,
the jury instruction included a discussion of reasonable royalty as
a possible measure of damages; this court has treated reasonable
royalty as a subspecies of restitution-based relief. See Univ.
Computing, 504 F.2d at 536-37. Additionally, the trade secret
damages instruction properly included all possible types of damages
under the statute. See KY. REV. STAT. ANN § 365.884.
As to the fiduciary duty question (Number 9), the court
sustained BCE’s objection to the joint submission of liability and
damages and separated the damages issue in Numbers 11 and 12.
Having prevailed on this argument at trial, BCE cannot show
substantial and ineradicable doubt whether the jury was properly
guided because of the “detriment” wording, much less that the jury
was confused or misguided. As with the other instructions, even if
these jury instructions were erroneous, BCE has not sufficiently
demonstrated any harmful effect the purported error had on the
outcome of the trial.
BCE further claims the instructions on damages were
confusing to the jury. Although the verdict forms’ discussion of
damages might have seemed a bit repetitive to jurors, the
instructions properly described all the various forms of damages
possible, including the concepts of reasonable royalty and unjust
enrichment referenced in the statute. There was no abuse of
28
discretion on damages.
BCE further argues the district court abused its
discretion by refusing to instruct the jury regarding the
confidentiality of medical policies submitted to the state of Texas
for licensure. BCE contends that this refusal compromised BCE’s
ability to meet its burden to show that its policies and procedures
were not generally available to the public. BCE notes that
Appellees admitted at trial that they had no proof that the Texas
licensing process resulted in any public disclosure to compromise
the confidential nature of NHS’s policies. However, Appellees
argued that because the policies had been sent to the state, there
had been “public dissemination” to deprive the policies of trade
secret status. Texas law provides:
Such written screening criteria and review procedures
shall be available for review and inspection to determine
appropriateness and compliance as deemed necessary by the
commissioner . . . provided, however, that any
information obtained or acquired under the authority of
this subsection and article is confidential and
privileged and not subject to the open records law or
subpoena except to the extent necessary for the
commissioner to enforce this article.
TEX. INS. CODE ANN. art. 21.58A, § 4(i). BCE maintains it proposed
an instruction mirroring these confidentiality requirements. BCE
argues CHS’s views on whether such policies were confidential
depended on whether they were BCE policies (not confidential) or
CHS policies (confidential). BCE contends that in this situation,
the district court’s refusal to provide the requested instruction
was contrary to law. Cf. Taco Cabana Int’l, Inc. v. Two Pesos,
29
Inc., 932 F.2d 1113, 1124 (5th Cir. 1991) (“The district court
correctly instructed the jury that ‘[f]iling of architectural plans
with a city does not make them public information within the
context of secrecy that relates to the law of trade secrets.’”)
(quoting the district court opinion).
The trial court instructed the jury adequately on trade
secrets. The instruction’s discussion of “general dissemination”
and “matters in the public domain” was true and allowed the jury to
determine whether NHS’s policies were disseminated by state
representatives of CHIP. BCE never objected to references made by
NHS counsel in closing statements that NHS’s policies were not
secret because they were submitted for review by the Commission.
Moreover, BCE has failed to show that the instruction given by the
district court and the lack of the additional Texas law instruction
harmed BCE and affected the case’s outcome. BCE presented
insufficient evidence to meet its burden. For example, BCE never
provided evidence that the commissioner had reviewed NHS’s
policies. BCE did not present enough evidence to merit an
additional instruction on confidentiality under art. 21.58A.
As to spoliation of evidence, BCE argues that CHS
employee (formerly of NHS) Linda Shelburne, who started at CHS in
March 2003, admitted that when changes were made to CHS policies,
older versions were discarded and no one told her to preserve them.
In order to receive a spoliation instruction, which allows (but
does not require) the jury to draw an adverse inference against a
30
party, the party seeking the instruction must demonstrate bad faith
or bad conduct by the other party. See, e.g., United States v.
Wise, 221 F.3d 140, 156 (5th Cir. 2000). BCE failed to make the
requisite showing: The Post-It notes and flip charts used to
create Care Management were not needed and were simply discarded
after the programmers got the software into a semi-workable state
and downloaded it into the master database. Additionally, the
destruction of earlier versions of policies occurred because the
only changes related to formatting and grammar. Moreover, the
district court gave both parties the freedom to put forward
evidence about document destruction; thus, the jury was free to
consider BCE’s contentions and punish Appellees accordingly. BCE
did not show a substantial and ineradicable doubt that the jury was
improperly guided, nor that the instruction would have affected the
outcome. Any residual error was harmless. See Caparotta v.
Entergy Corp., 168 F.3d 754, 756 (5th Cir. 1999).
C. Challenges To Evidentiary Rulings
A trial court’s evidentiary rulings are reviewed for
abuse of discretion. Kelly v. Boeing Petroleum Servs., Inc., 61
F.3d 350, 356 (5th Cir. 1995). “When, as here, the district court
has conducted, on the record, a carefully detailed analysis of the
evidentiary issues and the court’s own ruling, appellate courts are
chary about finding an abuse of discretion.” Id. The district
court has wide discretion regarding expert evidentiary rulings;
31
this court reviews them for manifest error. United States v. West,
58 F.3d 133, 140 (5th Cir. 1995). “Considerable deference is to be
accorded to the district court’s evidentiary rulings and a ruling
which admits or excludes evidence does not require reversal unless
a substantial right of a party is affected.” Grizzle v. Travelers
Health Network, Inc., 14 F.3d 261, 271 (5th Cir. 1994).
BCE argues that the court, over BCE’s objections,
repeatedly allowed wholly irrelevant testimony regarding the
alleged morale at NHS, including testimony by Freeman, Dankworth,
Barnes, and others. BCE contends the morale evidence did not meet
the Rule 402 standard in that it did not tend to support or
disprove any element of any claim. BCE argues that although
tortious interference requires proof that the defendant acted
without justification, morale is not an accepted form of
justification such as competition, REST. (SECOND) OF TORTS § 768, nor
does it constitute a good faith assertion of legally protected
interest, id. § 773. BCE further contends that even if the
evidence was deemed relevant, its probative value was outweighed by
the danger of prejudice or confusion. See FED R. EVID. 403.
In response, Appellees argue all the evidence on morale
and the deteriorating conditions at NHS under BCE’s control was
probative of the employees’ state of mind and their reasons for
leaving. Appellees contend the testimony tended to rebut BCE’s
offered reasons for their leaving, conspiracy, misappropriation,
stealing contracts, and leading a mass exodus. Also, Appellees
32
note BCE asked for and received instructions on punitive damages
for its claims — whether the acts were intentional, wilful and
malicious. Appellees thus argue their testimony also rebutted
scienter.
Based upon our review of the trial transcript, the
district court properly allowed this evidence. The testimony
concerned how the employees felt and reacted to the changes in BCE
management practice; this was probative in rebutting BCE’s claims
that those employees acted improperly and with malice. In
Kentucky, “it is clear that to prevail [on tortious interference]
a party seeking recovery must show malice or some significantly
wrongful conduct.” Nat’l Collegiate Athletic Ass’n By and Through
Bellarmine Coll. v. Hornung, 754 S.W.2d 855, 859 (Ky. 1988).
“Morale” and other evidence may be probative of the question
whether Appellees’ conduct was “significantly wrongful” in this
specific context. Thus, by persisting in this cause of action, BCE
invited this exact type of testimony.
Finally, BCE argues, the court erred in prohibiting BCE’s
principal management witness, Spencer, from testifying about the
company’s profit margin on the CHIP contract. This evidentiary
ruling had been deferred from a pretrial motion in limine to trial;
Appellees objected to the evidence on the ground that BCE failed to
file a timely Rule 26(a)(1) disclosure. We find no reversible
error in this decision; BCE failed to comply with the discovery
orders and further failed to remedy the concerns repeatedly raised
33
by the district court (during discovery, at the pretrial
conference, and ultimately at trial) concerning damage calcula-
tions. The district court did not abuse its discretion in
disallowing this testimony.
III. CONCLUSION
For the reasons discussed above, we AFFIRM the judgment
of the district court.
34