Unit ed St at es Court of Appeals Charles R. Fulbruge III Clerk - PDF document

United States Court of Appeals Fifth Circuit F I L E D I n t he November 6, 2006 Unit ed St at es Court of Appeals Charles R. Fulbruge III Clerk f or t he Fif t h Circuit _______________ m 05-50673 _______________ B RAZOS R IVER A UTHORITY , Plaintiff-Appellant, VERSUS GE I ONICS , I NC ., A LSO K NOWN AS I ONICS , I NCORPORATED , ET A L ., Defendants, GE I ONICS , I NC ., A LSO K NOWN AS I ONICS , I NCORPORATED ; C AJUN C ONSTRUCTORS , I NC ., F ORMERLY K NOWN AS C AJUN C ONTRACTORS , I NC ., Defendants-Appellees. _________________________ Appeal from the United States District Court for the Western District of Texas ______________________________

Before S MITH and S TEWART , Circuit Judges, adjacent to the electrodes; and stack siding, and H ANEN , District Judge. * whichare large plasticprotective coverings for the stacks. J ERRY E. S MITH , Circuit Judge: In the 1990’s Ionics developed the “Mark The Brazos River Authority (“BRA”) ap- IV” or third generation (“3G”) spacers for its peals a judgment after a jury trial in its suit for next generation Mark IV EDR stack systems. breach of contract, breach of implied warran- Ionics also made a retrofit version of the spac- ties, and fraud against GE Ionics, Inc. (“Ion- er for use in older Mark III systems known as ics”), and Cajun Constructors, Inc. (“Cajun”), the “3G retrofit,” “retrofit screen,” and the arguing that the district court improperly ex- “retrofit” spacer. In 1996 BRA concluded that cluded evidence. Finding reversible error, we it needed to expand the capacity of SWATS to vacate and remand. meet customer demand. The parties disagree about many of the details after this point. I. BRA is responsible for developing and Ionics proposed that BRA could increase managing the water resources of the Brazos its capacity by using the retrofit spacers. BRA River Basin; as part of its duties it operates the accepted the proposal and announced the job Lake Granbury Surface Water and Treatment for public bid. Cajun Constructors, Inc. (Ca- System(“SWATS”). Because Lake Granbury jun”), submitted a bid and was awarded the has a highconcentrationofsalts, SWATS used prime contract, thenentered into a subcontract a process called electrodialysis reversal with Ionics whereby Ionics agreed to retrofit (“EDR”) to reduce the salt content of the wa- the stacks with the new spacers. Cajun and ter. Ionics designed and manufactured the or- Ionics performed the retrofit in 1998 and iginal “Mark III” EDR system installed at 1999. BRA alleges, and brought evidence at SWATS in 1989. trial, that after the retrofit it began experienc- ing problems with the plant (so that the water The fundamental working unit of the EDR qualitydecreased),problemsthat culminated in system is a “stack,” which consists of alternat- fires in June 2001 and March and April 2002. ing layers of membranes and plastic spacers. BRA closed the SWATS plant in December The spacers contain channels through which 2002. water flows. Electric current is applied to the stack, and the resulting electrical field sepa- BRA sued in state court, inter alia , Ionics rates the salt ions out of the water, reducing and Cajun, alleging negligence, negligent mis- the mineral content. Other EDR components representation, fraud, breach of implied war- relevant in this appeal are the electrodes, ranty of good and workmanlike performance, which are large metal plates that transfer elec- breach of implied warranty of merchantability, tricity; electrode cable assemblies, by which breach of implied warranty of fitness for a par- voltage is supplied to the electrodes; electrode ticular purpose, strict liability in tort, and spacers, which are special thicker spacers breach of contract. The suit was removed to federal court. Before trial the district court dismissed the tort claims on account of the contractual relationship among the parties; the * District Judge of the Southern District of dismissal of the tort claims was not appealed. Texas, sitting by designation. 2

The jury rendered a verdict in favor of Ionics defendant’s having taken proprietary trade se- and Cajun on all the remaining claims. crets before from a prior employer (because this would prove “propensity” to commit mis- II. appropriation). The standard of review for evidentiary rul- ings is abuse of discretion. If, however, the As BRA correctly points out, the propensi- district court applies the wrong legal rule, the ties of a particular person to act a certain way standard is de novo . Moss v. Ole S. Real Es- are not at issue in this case, which involves the tate, Inc. , 933 F.2d 1300, 1305-06 (5th Cir. properties and functions of inanimate objects 1991). 1 (EDR components) at various facilities. The rule talks about the character of a “person,” A. and there is no person whose character BRA is BRA argues that the district court incor- trying to prove. rectly applied Federal Rule of Evidence 404(b), byexcluding, as to an inanimate object Given that it was error to exclude evidence as distinguished from a natural person, evi- of similar occurrences on the basis of rule dence meant to prove action in conformity 404(b), we ask whether that error is harmless. with character. We agree this was serious er- Compaq Computer Corp. v. Ergonome Inc. , ror. Specifically, the court erred in excluding 387 F.3d 403, 408 (5th Cir. 2004). We “may evidence of fires at other facilities on the basis not disturb the district court’s exclusion of the of rule 404(b). evidence . . . if that ruling can be upheld on other grounds, regardless ofwhether the court Rule 404(b) provides that “[e]vidence of relied on those grounds.” Metallurgical In- other crimes, wrongs, or acts is not admissible dus., Inc. v. Fourtek, Inc. , 790 F.2d 1195, to prove the character of a person in order to 1207 (5th Cir. 1986). We “will not reverse er- show action in conformitytherewith” (empha- roneous evidentiary rulings unless the ag- sis added). This rule is applied most frequent- grievedpartycan demonstrate ‘substantial pre- ly in the criminal law context, Aetna Cas. & judice.’” Viazis v. Am. Ass’n of Orthodontists , Sur. Co. v. Guynes , 713 F.2d 1187, 1193 (5th 314 F.3d 758, 767 (5th Cir. 2002) (citation Cir. 1983), and we have limited its application omitted). to civil actions “where the focus is on essen- tially criminal aspects,” Crumpton v. Confed- In Davidson Oil Country Supply v. Klock- eration Life Ins. Co. , 672 F.2d 1248, 1253-54 ner, Inc. , 917 F.2d 185 (5th Cir. 1990) (per n.7 (5th Cir. 1982). An example is a civil ac- curiam) (on petition for rehearing), we held tion for trade secret misappropriation in which that exclusion of evidence of similar occur- the plaintiff seeks to introduce evidence of the rences was not harmless, so a new trial was re- quired. We explained that exclusion of similar occurrences seriously hindered the presenta- 1 Alternatively, this standard can be phrased as tion of plaintiff’s case and that the “scarcity of stating that an error of law is an abuse of discre- instances ofFerrotubi pipe failure” turned into tion. See United States v. Buck , 324 F.3d 786, “affirmative proof” of the lack of defect, dis- 791 (5th Cir. 2003)(noting that district court abus- crediting the plaintiffs’ witnesses and creating es discretion where decision to admit evidence is “an atmosphere so unreal and so prejudicial” based on error of law). as to require remand: “Our original opinion 3