Arnold v. International Business Machines Corp.

• Decision Date: 05 February 1981
• Docket Number: No. 78-3458,78-3458
• Citation: 637 F.2d 1350
• Parties: Wolfgang ARNOLD, Plaintiff-Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1350

637 F.2d 1350

Wolfgang ARNOLD, Plaintiff-Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION et al Defendants-Appellees.

No. 78-3458.

United States Court of Appeals Ninth Circuit.

Argued Oct. 6, 1980.

Submitted Oct. 20, 1980.

Decided Feb. 5, 1981.

Richard A. DeSantis, Los Angeles, Cal., for plaintiff-appellant.

C. Douglas Floyd, Pillsbury, Madison & Sutro, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before WALLACE and HUG, Circuit Judges, and CROCKER, ^* District Judge.

WALLACE, Circuit Judge:

Arnold brought suit against International Business Machines (IBM) and several of its employees (collectively, defendants) for alleged violations of his civil rights. The violations about which Arnold complains arose out of criminal action taken against him for the theft of IBM documents and trade secrets. He appeals from the district judge's entry of summary judgment for defendants and from the district judge's denial of his discovery motion. We affirm.

I

In 1970, IBM became aware that certain documents, which involved what IBM considered proprietary information and trade secrets, had been stolen and were in the possession of outsiders. The information contained in these documents was the drawings and specifications for certain IBM disc drives. IBM's efforts in the next two years to locate the disloyal source within IBM and the outside buyers of these documents were largely unsuccessful. In December 1972, IBM hired Richard Callahan as manager of security for its San Jose operation. Callahan's primary responsibility was the protection of IBM's proprietary information. He undertook to investigate the theft of the drawings for the "Merlin" or 3330 disc drive and to discover whether information relating to IBM's newest disc drive, the "Winchester" or 3340, had also been leaked to outsiders.

Callahan's first breakthrough was his discovery that David Bourget had at one time purchased stolen IBM Merlin documents. Bourget admitted this and agreed to assist Callahan in discovering the identity of the IBM source. In March 1973, Bourget contacted Phillip Steckel, the person from whom he had purchased IBM documents. Bourget expressed to Steckel his interest in purchasing IBM Winchester drawings. Steckel agreed to contact his IBM source and to consider telling Bourget the name of the source.

On April 4, 1973, IBM employees met with representatives of the California Attorney General's Office and the Santa Clara County District Attorney's office to discuss the possibility of a criminal investigation of the document thefts. At that meeting, it was decided that the Santa Clara authorities would investigate the activities of Steckel and the IBM insider. Santa Clara Deputy District Attorney Albert Bender was in charge of the legal and prosecutorial matters. The investigation itself was headed by Captain Larry Stuefloten of the San Jose Police Department. Stuefloten and Bender formed an investigative body called the Task Force. The members of the Task Force were persons from the District Attorney's office and police department, and Callahan. Callahan provided the Task Force with the information that IBM had gathered concerning the leak of the proprietary information.

During IBM's earlier investigation, Arnold's name had come up. Shortly after IBM discovered the leak of the information concerning its disc drives, it discovered that Wesley Powers, the President of Memory Magnetics, Inc. (MMI), was in possession of several Merlin documents. Powers admitted this possession, and agreed to tell IBM how he had obtained them if IBM would give him a "hold harmless" agreement. IBM agreed to hold Powers, MMI, and several MMI employees, including Arnold, Steckel, and others, harmless for their involvement, if any, in the possession of IBM proprietary information concerning Merlin. Powers apparently agreed to provide IBM with information that would assist it in locating the leak within IBM. IBM was unsuccessful in locating the leak, and claimed that Powers was not telling all that he knew. A 1971 IBM memorandum indicates that Arnold had told IBM that another small computer company had obtained certain IBM information and that he knew how they had secured the information. The memorandum states that IBM planned to interview Arnold. A January 1973 document prepared by Callahan outlining potential leads contained Powers' name but not Arnold's. A February 1973 IBM memorandum lists persons who might have information concerning the losses of the IBM documents. The persons were divided into three groups: (1) those who IBM was confident knew the source of the drawings; (2) those who IBM thought might know the source; and (3) "all others who may be of some use." Arnold was placed in the second group, but only as an employee of Powers' at MMI. This memorandum also indicates an intent to interview Arnold.

After the Task Force was formed, Bourget continued to contact Steckel, and the San Jose Police Department tape recorded these meetings. On April 14, Bourget purchased from Steckel a Winchester drawing and the name of the IBM insider. Steckel identified the IBM source as Ramon Serrata. Steckel stated that Arnold also had Merlin documents. He indicated that MMI was now Computer Disc Mastertape (CDM), and that Arnold was running that corporation.

Steckel further indicated that he had access to drawings for a third IBM disc drive named the 2314. Bourget expressed an interest in purchasing drawings for the 2314. Steckel agreed. Steckel also told Bourget that MMI had built a 2314 after Steckel had provided MMI with the IBM drawings. Steckel stated that Arnold was the chief engineer at MMI and had been in charge of the building of the 2314 from the IBM drawings. Steckel also said that Adolph Jarmann had been an engineer with MMI and would be able to help Bourget with any electrical problems encountered in building the 2314. Several meetings were held between Bourget, Steckel, Jarmann and others in the weeks that followed. Jarmann admitted that he had received a set of 2314 drawings and still had his set.

In early June of 1973, members of the Task Force interviewed several former MMI employees who had worked on some phase of the production of the 2314. These people indicated their belief that the 2314 had been produced from stolen drawings, as MMI did not have the resources to produce its own drawings or to reverse engineer IBM's 2314 in such a short time. Many of them reported their belief that Powers, Arnold, Steckel, Jarmann, or some combination of these men, had been responsible for obtaining the IBM drawings for MMI. One of the persons interviewed was Donald Town. Town stated that Arnold was responsible for discovering whether the drawings provided MMI were authentic. According to Town, after Arnold had examined the documents he would turn them over to MMI draftsmen, who would copy the documents by hand and return them to Arnold. Town stated that Arnold had taken at least some of the IBM drawings home with him and stored them there.

On June 28, 1973, warrants were issued for the arrests of Serratta, Steckel, Jarmann, Powers, Arnold, and others. The felony complaint on which the warrant was based contained 18 counts against the various defendants. Arnold was charged with criminal conspiracy, theft of trade secrets, and receiving stolen property. A warrant was also issued for the search of Arnold's residence, and for the premises of CDM. The criminal complaint and the affidavits supporting the warrants were signed by Sergeant Richard Frechette, a member of the San Jose Police Department and of the Task Force. The information contained in Frechette's affidavits against Arnold included background information supplied by Callahan concerning the leaks and the initial contacts with Bourget; Frechette's personal knowledge, and information supplied by other police officers, concerning the activities of the Task Force and the recorded conversations that implicated Arnold; and Frechette's interviews with Town and others.

Arnold was arrested the next day, June 29, 1973. The search of Arnold's residence also occurred on June 29. During the search, many documents were discovered that contained the IBM name or some other feature identifying IBM. Leighton Wood, an IBM employee, accompanied the police on their search of Arnold's residence to determine which materials were IBM documents. Bender described the reliance on Wood's judgment concerning what belonged to IBM as "a hundred percent." On July 31, 1973, the same defendants were indicted by the Santa Clara County Grand Jury. Arnold was indicted for theft of trade secrets, criminal conspiracy to steal trade secrets, and criminal conspiracy to receive and conceal stolen property.

In January 1974, Arnold's motion to suppress the evidence that had been seized at his residence was granted. The judge held that there was probable cause to believe that Arnold had the IBM drawings. He ruled, however, that the only information indicating that those drawings were at Arnold's residence was the statement that Town had made to the effect that Arnold sometimes took the IBM documents home with him. The judge held that because Town's statement was based on his information and belief of facts that occurred over two years before the search, the information was stale and insufficient to support a valid search warrant.

In April 1974, the district attorney dismissed the charges against Arnold, indicating that the evidence that had been suppressed was "the heart and soul" of his case. At that time, Arnold executed a covenant not to sue the San Jose officials. In September and October 1975, the Santa Clara Superior Court, pursuant to a petition by IBM, adjudged IBM the owner of most of the documents seized from Arnold's residence, and ordered the property returned to IBM.

II

In June 1976, Arnold initiated this lawsuit. In...