USCA1 Opinion
January 3, 1994 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1266
COMBUSTION ENGINEERING, INC.
Plaintiff, Appellant,
v.
MILLER HYDRO GROUP, ET AL.,
Defendants, Appellees.
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No. 93-1267
COMBUSTION ENGINEERING, INC.,
Plaintiff, Appellee,
v.
MILLER HYDRO GROUP, ET AL,
Defendants, Appellants.
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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.
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APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
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Before
Boudin and Stahl, Circuit Judges,
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and Fuste,* District Judge.
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*Of the District of Puerto Rico, sitting by designation.
John H. Montgomery with whom Gordon F. Grimes, David A. Soley,
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Diane S. Lukac, Faith K. Bruins and Bernstein, Shur, Sawyer & Nelson
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were on briefs for plaintiff.
George S. Isaacson with whom David W. Bertoni and Brann &
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Isaacson were on briefs for defendant Miller Hydro Group.
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Roy S. McCandless with whom Robert S. Frank, Mark K. Googins and
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Verrill & Dana were on brief for party-in-interest appellee Kansallis-
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Osake-Pankki.
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December 30, 1993
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BOUDIN, Circuit Judge. This appeal arises out of a
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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
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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
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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
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evidence presented a reasonable jury could find for the
plaintiff. Murray v. Ross-Dove Co., 5 F.3d 573, 576 (1st
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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.
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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
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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
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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
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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
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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
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figure be read as akin to other figures in the contract that
are allegedly performance minima. Combustion Engineering
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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
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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.
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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
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(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.
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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
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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.
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Hamilton & Son, Inc., 312 A.2d 748, 755-56 (Me. 1973);
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Accord, Levine v. Reynolds, 54 A.2d 514, 517 (Me. 1947).
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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
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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
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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
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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
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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"
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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.
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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.
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Evid. 502(d)(1), the magistrate judge found that Miller
Hydro's evidence thus far made out the necessary prima facie
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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
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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
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Weymouth, 805 F.2d 30, 31 (1st Cir. 1986).
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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
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5The standard of proof is rather elusive since a prima
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facie case does not require definitive proof; yet the fraud
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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
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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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