### REVISED

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 96-40622

DSC COMMUNICATIONS CORPORATION; DSC TECHNOLOGIES CORPORATION,

Plaintiff-Appellants and Cross Appellees,

VERSUS

NEXT LEVEL COMMUNICATIONS; THOMAS R. EAMES; PETER W. KEELER,

Defendants-Appellees and Cross Appellants.

Appeal from the United States District Court

for the Eastern District of Texas

February 28, 1997 Before POLITZ, Chief Judge, SMITH and DUHÉ, Circuit Judges.

DUHÉ, Circuit Judge:

DSC Communications appeals the district court’s refu sal to

aggregate damages awarded to it by a jury for diversion of

corporate opportunity and misappropriation of trade secrets, as

well as the district court’s denial of attorneys’ fees. Next Level

Communicat ions cross appeals on numerous grounds, alleging that

DSC’s claims fail, that certain evidence was improperly admitted at

trial, and that damages were improperly awarded.

For the reasons assigned, we affirm in part and vacate and

remand in part.

Background2

DSC Communications designs and manufactures telecommunications

equipment. Thomas Eames and Peter Keeler began working at DSC in

1990 after DSC acquired their origi nal employer, Optilink

Corporation. At both Optilink and DSC, Eames worked as an engineer

designing new technology, while Keeler worked in marketing.

When DSC acquired Optilink, Eames and Keeler were both

involved with the “Litespan 2000" product, a digital loop carrier

that represented a significant advance in communications

technology. The Litespan combines many individual analog telephone

signals into one digital signal. The Litespan quickly became very

profitable for DSC, and the company began to consider developing a

more advanced version of the Litespan, known as a broadband access

product, that delivers television and computer services in addition

to telephone service.

Eames began working to develop a broadband access product in

1994, and identified two alternative designs for the product:

hybrid fiber coax (“HFC”) and switched digital video (“SDV”). HFC

design uses a system similar to that of existing cable television,

and broadcasts TV signals. SDV design instead makes private,

“point to point” connections to each household on the system.

In the early stages of broadband access developm ent, it

appeared telephone companies preferred HFC design as a short term

option, but favored SDV as a long term design choice. DSC claimed

at trial it instructed Eames to focus on HFC as a sho rt term

solution, but to continue developing SDV technology.

B y 1994, Eames and Keeler were considering leaving DSC and3

forming their own company. In May 1994, while still employed at

DSC, Eames drafted a document representing a business plan for a

new company. This document proposed the development of an SDV

architecture, a nd was marked with the name “Next Level

Communications.”

In early July, 1994, Eames and Keeler obtained $5 million in

financing to start Next Level. On July 8, 1994, Eames and Keeler

resigned from DSC. At least 6 other DSC employees followed Eames

a nd Keeler to Next Level. Next Level focused its efforts on

developing an SDV system.

By Januar y 1995, Next Level was low on funds, and began to

seek investors so it could continue its product devel opment.

Several companies discussed investing wit h Next Level, including

DSC. Ultimately General Instrument (“GI”), a larger company who

principally manufactures television delivery equipment, committed

to invest $6.5 million in Next Level in return for a 10% interest

in the company, plus an option to buy the remaining stock.

DSC filed this lawsuit in April, after GI first announced its

investment in Next Level, when it reviewed the files saved on

Eames’ computer at DSC and found thre e pages of Next Level’s May

business proposal. In September 1995, GI exercised its option to

purchase the remaining stock in Next Level and agreed to indemnify

Eames and Keeler from any liability or expenses incurred by them in

connection with this lawsuit.

After a three week trial, the jury found Eames, Keeler and

N ext Level liable for breach of contract, diversion of corpor ate4

opportunity, and misappropriation of trade secrets. The jury also

awarded DSC punitive damages. The total damages award against the

defendants was $369,200,000.

DSC moved for entry of judgment for all actual and punitive

damages, and asked the district court to grant a permanent

injunction prohibiting Defendants from disclosing the trade secrets

found to be misappropriated, plus requiring an assignment to DSC of

any SDV patents. DSC also sought attorneys’ fees, costs, and

interest.

The district court declined to enter judgment as DSC

requested. It held the legal theories underlying the three torts

on which DSC recovered, breach of contract, diversion of corporate

opportunity, and misappropriation of trade secrets, were

duplicative, and refused to aggregate the damages. It ordered DSC

to elect between the damages awarded for those torts. Under

objection , DSC chose the damages for diversion of corporate

opportunity, and the court entered judgment for $126,532,000. The

court also entered judgment for DSC on the total $10, 200,000

awarded in punitives, and granted DSC temporary injunctive relief

until the jud gment was satisfied that prevented Next Level from

disclosing the technology at issue unless it did so in “the

ordinar y course of business.” The court declined to award

attorneys’ fees.

Both parties appea l the judgment, DSC claiming it was

wrongfully forced to elect its damages and Next Level arguing the

eviden ce did not support verdicts of diversion of corporate1 DSC does not appeal the election order as to the breach of

contract award.

5 opportunity and misappropriation of trade secrets.

Discussion

I.

DSC first complains that the district court incorrectly

ordered it to elect between relief for diversion of corporate

opportunity and misappropriation of trade secrets. 1 Since the

district court found the three legal theories advanced by DSC at

trial overlapped by alleging predicate facts that were nearly

identical, it only allowed recovery under one of the theories.

D SC argues that the torts of diversion of corporate

opportunity and misappropriation of trade secrets are distinct and

do not overlap. It contends, therefore, that it is entitled to

relief for both torts. Next Level responds that there is no need

to consider the propriety of the election requirement because DSC’s

legal theories both fail: the corporate opportunity claim fails as

a matter of law and was supported by insufficient evidence, while

the verdict for misappropriation of trade secrets is insupportable

as a matter of law, as well as a result of several evidentiary

errors made by the district court.

We agree with Next Level that the award for usurpation of

corporate opportunity cannot stand. On October 28, 1996, this

Court decided United Teachers Assoc. Ins. Co. v. MacKeen & Bailey,

Inc.

, 99 F.3d 645 (5th Cir. 1996), which controls the2 Next Level did not originally argue to this Court that Eames

and Keeler could not be liable as they were not officers, directors

or major shareholders in their original brief. Next Level did,

however, raise the argument that Eames and Keeler were only high

level employees who did not occupy positions as officers, directors

or major shareholders in the district court. It did not originally

argue this theory on appeal as support for its allegation Next

Level did not divert a corporate opportunity because the issue has

not been definitively decided in Texas state court, and the only

federal ca se law specifically addressing this issue was the

district court ho lding in U nited Teachers overruled on appeal by

this Court’s holding.

While it is clear that a party who fails to raise an issue in its

initial brief waives t he right to review of that issue, W ebb v.

Investacorp, Inc.

, 89 F.3 d 252, 257 n.2 (5th Cir. 1996), we have

yet to ad d ress our procedure when a party wishes to file a

supplemental brief on an issue because of an intervening change in

law. Other circuits have held both that parties may raise new

6 determination. In that case, an insurance company sued its actuary

for breach of fiduciary duty. We stated that while the actuary had

fiduciary status, and had breached his duties to the insurance

company, the district court erred in allowing recovery against him

under the usurpation of corporate opportunity doctrine:

We bel ieve that under Texas law the usurpation of

corporate opportunity doctrine do es not apply to all

corporate fiduciaries, but is limited to officers,

directors, and major shareholders who are fiduciaries.

While it is true that several Texas cases use the broader

term “corporate fiduciary” in discussing the doctrine, we

have found no Texas cases, nor has UTAIC cited us to any, applying the corporate opportunity doctrine to any person

other tha n an officer, director, or major shareholder.

We certainly have found no Texas cases standing for the

proposition that this doctrine applies to all corporate

fiduciaries.

Id. at 651 (footnote omitted). U nited Teachers had not been

decided when briefs were filed or at the time of oral ar gument.

Next Level filed a supplemental brief with this court after oral

argument to call our attention to t his clarification of existing

case law and its application to the facts of this case. 2issues because of an intervening change in law, and that parties

waived their right to have issues addressed by not discussing them

in their original brief. See United States v. Sterner , 23 F.3d

250, 252 n.3 (9th Cir. 1994), overruled on other grounds by United

States v. Keys

, 95 F.3d 874 (9th Cir. 1996)(allowing issue to be

raised for the first time in a 28(j) letter to prevent “substantial

injustice”); Louisiana-Pacific Corp. v. ASARCO, Inc.

, 24 F.3d 1565,

1582-83 (9th Cir. 1994), cert. denied

, 115 S.Ct. 780 (1995)

(allowing plaintiffs to file a supplemental brief after a statutory

amendment); contra Bickel v. Korean Air Lines

, 96 F.3d 151 (6th

Cir. 1996), cert. denied

, No. 96-796, 1996 WL 693653, (U.S. Jan.

21, 1997), (declining to consider an argument raised by the

defendant in a supplemental brief even though a recent Supreme

Court case dealt with some of the issues in the appeal).

Refusing to allow the introduction of the holding i n United

Teachers would result in this panel deciding an essential issue in

this appeal under incorrect law. U nited Teachers ’ holding clearly

states the law, and we are bound to follow our own precedent. We

are unwilli ng to ignore this important clarification of the law,

and perpetuate incorrect law, merely because U nited Teachers was decided after briefing and oral argument in this case.

7 In light of the holding in United Teachers

, Eames, Keeler and

Next Level were incorrectly found to be liable for diversion of

corporate oppo rtunity under Texas law. U nited Teachers clearly

holds that, under Texas law, the usur pation of corporate

opportuni ty doctrine is inapplicable to any fiduciary who is not

also an officer, director, or major shareholder of a corporate

entity. None of the appellees ever were, or ever alleged to be,

officers, directors, or major shareholders in DSC. As a matter of

law in this circuit, Eames, Keeler and Next Level could not be held

responsible for diverting a corporate opportunity from DSC because

they did not hold any of these positions. For this reason, the

judgment in favor of DSC for div ersion of corporate opportunity

must be vacated.

Next Level also appealed the award to DSC of $20 million for

conspiracy to usurp a corporate opportunity. Since it was legally8

impossible for the Appellees to usurp a corporate opportunity, they

could not have conspired to do so. The damages award for

conspiracy to usurp a corporate opportunity also fails.

Since we hold the verdict for diversion of corporate

opportunity is incorrect as a matter of law, and the judgment

awarding damages for that tort must be vacated, the verdict for

misappropriation of trade secrets is no longer duplicative and may

be reinstated if upheld. Next Level attacks this verdict on two

grounds, first arguing that the misappropriation verdict was based

on defective special interrogator ies that did not adequately

present the contested issues.

DSC alleged that Eames, Keeler, and Next Level misappropriated

six tr ade secrets. Next Level mounted a double defense to this

charge, arguing these trade secrets were not secret, then

contending they had not misappropriated any of the alleged secrets.

The trial judge submitted a single interrogatory to the jury asking

if DSC proved Next Level had misappropriated DSC’s trade secrets.

Next Level claims this single interrogatory permitted a

nonunanimous jury verdict, in that the jury did not specify which

of the alleged trade secrets Next Level used.

We review the district court’s use of special interrogatories

only for abuse of discretion. E .E.O.C. v. Manville Sales Corp.

, 27

F.3d 1089, 1096 (5th Cir. 1994), cert. denied

, 115 S.Ct. 1252

(1995). The district court has considerable leeway in deciding if

special interrogatories should be used, as well as in constructing

the form of the interrogatories. See Bryan v. Cargill, Inc. , 7233 It is difficult to see how an article published in a trade

journal could have been “withheld”.

9 F.2d 1202, 1204-6 (5th Cir. 1984).

Next Level argues that the dama ges model DSC presented

depended on a finding six trade secrets were misappropriated. If

the jury believed less than six secrets were wrongly used by Next

Level, the damages model collapses. However, there is no

indication that the jury found less than all six secrets were

misappropriated, or that the evid ence presented at trial was

insufficient to support a finding of misappropriation on all six

secrets. We do not find any abuse of discretion by the district

court in its construction of the interrogatories.

Next Level also argues the misappropriation judgment must be

overturned because the trial cou rt erred in excluding important

evidence. The trial court told the parties before trial it would

not allow into evidence any documents that were not produced to

opposing counsel in a timely manner. During trial, it refused to

allow Next Level to cross examine the DSC expert with a short

article written by George Haw ley, a vice president at DSC,

published in a trade journal in 1991. The article purportedly

disclosed the elements of one of the six alleged trade secrets,

contradicting the expert’s testimony that the trade secret was not

in the public domain. Next Level had not disclosed the article to

DSC or listed the article on its pretrial exhibit list, claiming it

was unaware of the article’s existence because DSC withheld the

article from them. 34 The district court issued a temporary injunction against Next

Level directing that the trade secret technology may not be

transferred or disclosed, but allows disclosure “in the ordinary

course of business.” The temporary injunction is only in place

until the judgment for DSC is satisfied.

10 “The district court has broad discretion in deciding whether

to admit into evidence exhibits not listed in the pre-trial order.”

Gilber v. Tulane Univ.

, 909 F.2d 124, 127 (5th Cir. 1990). As

well, the district court has no obligation to consider evidence not

listed in the pre-trial order unless “necessary to prevent manifest

injustice.” G oodman v. Lee

, 78 F.3d 1007, 10 11 (5th Cir. 1996),

cert. denied

, 117 S.Ct. 166 (1996). The district court made it

clear evidence not disclosed to the opposing party would not be

admitted at trial. The article may have been helpful to Next

Level, but was not es sential to its case. The trial court acted

within its discretion.

For these reasons, we find there was no reversible error in

the verdict for misappropriation of trade secrets. It therefore

stands, and upon remand should be substituted for the judgment

entered on usurpation of corporate opportunity.

II.

DSC contends it is entitled to p ermanent injunctive relief 4

for misappropriation of trade secrets; either a limited injunction

in combination with monetary damages or a total injunction

prohibiting Next Level from using the trade secrets the jury found

it misappropriated. DSC believes it should be allowed to choose

between these forms of relief, after it sees what sort of permanent11

injunction the district court would fashion.

Since “the basis for injunctive relief in the federal courts

has always been irreparable injury and the inadequacy of legal

remedies,” Weinbur g er v. Romero-Barcelo

, 102 S.Ct. 1798, 1803

(1982), it is clear injunctions are an extraordinary remedy, to be

granted only when a party is threatened with injury for which he

cannot obtain a sufficient legal remedy. Wright, Miller & Kane,

Federal Practice and Procedure: Civil 2d § 2942 at 43-44 (1995).

We review the district court’s denial of permanent injunctive

relief for abuse of discretion. N orth Alamo Water Supply Corp. v.

City of San Juan, Tex.

, 90 F.3d 910, 916 (5th Cir. 1996), cert.

denied

, 117 S.Ct. 586 (1996); Peaches Entertainment C orp. v.

Entertainment Repertoire Assoc.

, 62 F.3d 690, 693 (5th Cir. 1995).

“The district court abuses its discretion if it (1) relies on

clearly erroneous factual findings when deciding to grant or deny

the permanent injunction (2) relies on erroneous conclusions of law

when deciding to grant or deny the permanent injunction, or (3)

mi sapplies the factual or legal conclusions when fashioning its

injunctive relief.” Peaches Entertainment Corp. , 62 F.3d at 693.

The district court did not abuse its discretion in deci ding

DSC was n ot entitled to permanent injunctive relief. It did not

rely on clearly erroneous factual findings or an erroneous

conclusion of law. The jury awarded DSC damages for lost sales on

SDV products. DSC thus premised its damages claim on Next Level

developing an SDV system that competed with DSC’s system. As the

district court noted, the money damages DSC recovered sufficiently12

compensated it for that injury, and the drastic solution of a

permanent injunction is unnecessary. No irreparable harm was

suffered.

III.

Next Level contends the district court erred in reversing an

earlier order and admitting, on the last day of testimony, evidence

that GI had agreed to indemnify Next Level, Eames, and Keeler

against any judgment for DSC. The court originally ruled evidence

of the indemnification agreement was inadmissible, but changed its

ruling near the end of trial. It rejected Next Level’s argument

that its agreement was equivalent to liability insurance, and was

inadmissible under Fed.R.Evid. 411. It stated that even had the

agreement been insurance, it was admissible under the exceptions in

Rule 411 to show Eames and Keeler’s lack of ownership of the trade

secrets. It then noted that Next Level opened the door to

admission of the agreement in voir dire, when its counsel told the

jurors the case was “a question of life or death to Mr. Eames and

Mr. Keeler.” Finally, it found that even if admission of the

agreement was improper, the error was not sufficient to warrant a

new trial.

We examine the admission of challenged evidence by asking two

questions: did the district court abuse its discretion in admitting

the evidence, and, if so, did its error affect the substantial

rights of the affected party? M unn v. Algee

, 924 F.2d 568, 571

(5th Cir. 1991), cert. denied , 502 U.S. 900 (1991). The district13

court did not abuse its discretion in admitting evidence of the

indemnity agreement. The agreement was an integral part of the

relationship between the pa rties in this litigation. Evidence

showed the price GI paid for Next Lev el was far below its actual

worth. To explain this apparent incongruity, the jury needed to

understand the parties’ full relationship. It also cast doubt on

counsel’s characterization of the effect of the case on Eames and

Keeler. While the timing of the district court’s decision to allow

this evidence was admittedly awkward, it was not an abuse of

discretion.

IV.

Next Level argues that the damage award f or lost profits

cannot stand because DSC’s damage model was speculative: DSC has

yet to sell its SDV product, and no market has been established for

DSC’s SDV system. It then attacks the methodology used by DSC’s

damage expert, Ray Sears, claiming the assumptions Sears relied on

were based on conjecture not fact. Next Level’s main objections to

Sears’ analysis are that Sears had no basis to assume a large

number of households would gain access to SDV technology, and Sears

assigned market shares to DSC and Next Level without solid evidence

to support these numbers. Sears testified DSC would have assumed

a forty percent market share in SDV sales had Next Level not been

formed. With Next Level in the market, that company would acquire

twenty percent of the SDV market, and later “take away” eight

percent of DSC’s market share. Finally, Next Level argues DSC did14

not allocate any portion of the damage figure Sears proposed to

specific acts by Next Level. The jury, however, found that two of

the acts included in the damages analysis were not wrongful.

Next Level also argues that as the damages award should be

reversed, the punitives award should not be allowed to stand.

A. Were the damages speculative?

We examine the challenge that damages for lost profits are

speculative to determine whether a reasonable person could find the

profits were established with reasonable certainty, considering all

evidence in the light most favorable to the plaintiffs. Thompson

and Wallace v. Falconwood Corp.

, 100 F.3d 429, 435 (5th Cir. 1996).

Under Texas law, “evid ence to establish profits must not be

uncert ain or speculative.” T exas Instruments, Inc. v. Teletron

Energy Management, Inc.

, 877 S.W.2d 276, 279 (Tex. 1994), (quoting

Southwest Battery Corp. v. Owen

, 131 Tex. 423, 426; 115 S.W.2d

1097, 1098 (Tex. 1938)). However, the requirement that damages be

based on more than speculation “is intended to be flexible enough

to accommodate the myriad cir cumstances in which claims for lost

p rofits arise.” T exas Instruments

, 877 S.W.2d at 279. “[I]t is

not necessary that recovery for future profits should be

established by exact calculation, as it is enough to have data from

which these profits may be ascertained with a reasonable degree of

certainty and exactness.” F iberlok, Inc. v. LMS Enter., Inc.

, 976

F.2d 958, 962 (5th Cir. 1992) (citing Copenhaver v. Berryman , 602

S.W.2d 540, 544 (Tex.Civ.App. 1980)).

While SDV technology represents a new product the intensive15

market research DSC presented at trial, coupled with the known

history of the telecommunications industry and the success of the

Lightspan product, established with sufficient certainty that SDV

technology is likely to generate significant profits. Even if a

product is not yet fully developed, a plaintiff is not prevented

from recovering future lost profits if it was hind ered in

developing that product, and the evidence shows the eventual

completion and success of that product is probable. As well, DSC

has traditionally been a leader in producing te chnology used in

telecommunications. Its history of strong performance is

indicative of the likely success of this revolutionary new product.

B. Was Sears’ methodology based on conjecture?

While “damages may not be determined by mere speculation or

guess, it will be enough if the evidence show[s] the extent of the

damages as a matter of just and reasonable inference, although the

result be only approximate.” T errell v. Household Goods Carriers’

Bureau

, 494 F.2d 16, 24 (5th Cir. 1974), cert. dismissed

, 419 U.S.

987 (1974) (quoting Story Parchment Co. v. Paterson Parchment Paper

Co.

, 282 U.S. 555, 563 (1931). We do not agree that Sears’

methodolo gy was based on conjecture. The assumptions Sears made

about the availability of SDV access and the respective market

percentages of DSC and Next Level are adequately supported.

It is true these predictions are not guaranteed. No one can

definitively say what the future holds for SDV technology, or DSC

and Next Level in particular. However, uncertainty surrounding16

precisely how the industry will evolve does not reduce all analysis

about future developments to mere specul ation. Sears based his

predictions on data o btained from respected sources in the

telecommunications market. The jury chose to believe his

estimation of damages. There was sufficient evidence presented to

support the jury’s verdict.

C. Was the unitary damages figure impermissible?

The damage model Sears presented showed the total damages

allocated to Next Level’s alleged wrongful conduct. The jury then

allocated damages to each different cause of action. DSC was not

obligated to precisely apportion damages for each instance of

wrongful conduct it alleged, as unitary damages mod els are

permissible under Texas law. B ildon Farms, Inc. v Ward County

Improvement Dist. No. 2 , 415 S.W.2d 890, 896 (Tex. 1967).

The fact the jury found Eames and Keeler were not liable for

soliciting key employees of DSC is irrelevant to our inquiry.

First, the jury found Eames and Keeler were not liable for these

acts in the context of the breach of contract claim. Damages for

breach of contract were not included in the judgment entered by the

district court, and are not appealed to this Court. Second, even

if the jury’s finding was relevant to the misappropriation of trade

secrets damages, we may safely assume the jury did not award

damages to DSC for conduct for which Eames and Keeler were not

liable.

D. Should the punitive damages award be reversed?

N ext Level argues that the punitive damage award must be17

vacated since DSC’s compensatory damage award cannot stand. As we

uphold the compensatory damage award, this argument fails.

V.

DSC appeals the district court ’s denial of attorneys’ fees.

It argues that attorneys’ fees are recoverable incident to punitive

damages, and that under our precedent, the district court erred in

refusing to enter this award.

As DSC does not claim it is entitled to attorneys’ fees

because of a statute or contract, the court’s authority to award

fees is based on its inherent power to sanction behavior by a

litigant. Tacon Mechanical Contractors, Inc. v. Aetna Casualty &

Sur. Co.

, 65 F.3d 486, 489 (5th Cir. 1995). We review for abuse of

discretion. Id.

While we agree that attorneys’ fees are allowed in connection

with an award of punitive damages, an award of punitive damages

does not automatically compel an award of attorneys’ fees.

Attorneys’ fees not compelled by statute or contract are awarded at

the discretion of the district court. The district court issued a

well-reasoned, thorough opinion detailing the reasons for its

refusal of DSC’s request for attorneys’ fees. We find no basis for

reversing its holding.

D SC claims that B auman v. Centex Corp. , 611 F.2d 1115 (5th

Cir. 1980), is authority for the proposition DSC is entitled to its

fees. We agree with the district court that B auman does not

control. In Bauman , the district court awarded attorneys’ fees,18

where the parties had stipulated beforehand the court would decide

this matter instead of the ju ry. The parties also agreed on the

amount of attorneys’ fees that would be proper. Id. at 1121.

Contrary to DSC’s apparent belief, Bauman does not direct that

a court must award attorneys’ fees in a particular case. It only

upheld an award made by the district court. As well, the challenge

in Bauman focused on the amount of the award, when the parties

submitted no evidence of fees but had previously stipulated to a

reasonable amount. We merely found the stipulation was sufficient

to support the amount of the award.

CONCLUSION

We rever se the award to DSC for usurpation of corporate

opportunity and conspiracy to usurp a corporate o pportunity. As

the award for misappropriation of trade secrets stands, judgment on

that claim should be entered. No other errors merit reversal or a

new trial. DSC is not entitled to an award of attorneys’ fees. We

therefore AFFIR M IN PART, and VACATE IN PART and REMAND to the

district court for entry of judgment consistent with this opinion.