Levine v. CMP Publications, Inc.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: Before TATE, JOLLY and DAVIS; E. GRADY JOLLY; Ackerman; Denies New Levine Plea; TATE
• Citation: Levine v. CMP Publications, Inc., 738 F.2d 660 (5th Cir. 1984)
• Decision Date: 13 August 1984
• Docket Number: No. 83-1362,83-1362
• Parties: 10 Media L. Rep. 2337 Richard C. LEVINE, Plaintiff-Appellee, v. CMP PUBLICATIONS, INC., Defendant-Appellant.

Page 660

738 F.2d 660

10 Media L. Rep. 2337

Richard C. LEVINE, Plaintiff-Appellee, v. CMP PUBLICATIONS, INC., Defendant-Appellant.

No. 83-1362.

United States Court of Appeals Fifth Circuit.

Aug. 13, 1984.

Haynes & Boone, Donald C. Templin, Daniel E. Westbrook, Dallas, Tex., Townley & Updike, Andrew L. Hughes, New York City, for CMP.

Phalen, Chumlea & McQuality, Joseph G. Chumlea, Mark S. McQuality, Dallas, Tex., David Bragg, Austin, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before TATE, JOLLY and DAVIS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

CMP Publications, Inc. appeals the judgment entered against it after a jury trial in this libel action. CMP argues that the two allegedly libelous articles were privileged reports of judicial proceedings and that there was insufficient evidence of either negligence or actual malice to support the judgment of $267,501 in actual damages and $125,000 in punitive damages. ¹ We affirm the award of actual damages against CMP, but reverse in part the award of punitive damages because we find no evidence of actual malice on CMP's part in its publication of the first of the two articles.

I.

The controversy that generated this litigation began in the early 1970s, when Richard Levine worked for Diecomp, Inc., a New Jersey company he co-founded. Levine was accused by some members of Diecomp's board of directors of incompetence and conflict of interests. In 1972 Levine and Diecomp executed a settlement agreement in which Levine agreed to resign and Diecomp agreed to purchase some of Levine's Diecomp stock. Levine later sued Diecomp and obtained a judgment against it for failure to perform its obligations under the settlement agreement.

The assets of Diecomp were purchased in 1975 by Manufacturing Technologies, Inc. (MTI), a company which was formed for that purpose. Some time after the purchase, Levine and MTI became involved in a dispute over the ownership of some computer software tapes which apparently contained programs developed by Levine for Diecomp. Levine claimed, and still claims, that he found the tapes on the doorstep of his New Jersey home. Levine attempted to have the tapes sold at a foreclosure sale in order to satisfy the judgment which he had previously secured against Diecomp and which Diecomp had not paid in full. MTI was able to obtain an injunction against the foreclosure sale, and Levine signed a consent judgment in which he agreed to return the tapes to MTI.

MTI later discovered that Levine had made copies of some of the Diecomp tapes and had offered to sell the copies to third parties. ² MTI sued Levine, alleging conversion of the tapes, unfair competition and violation of Levine's employment contract with Diecomp. Levine counterclaimed for breach of the 1972 settlement agreement. This suit, which we will refer to as MTI v. Levine, was tried before Judge Harold Ackerman, in a New Jersey state court. ³ Judge Ackerman found Levine liable to MTI for conversion of the Diecomp tapes, rejecting, as a finding of fact, Levine's claim that he had come innocently into possession of the tapes. Ackerman also found that the computer program embodied in the software tapes was a trade secret of Diecomp, and later, of MTI, and that Levine had violated restrictive covenants, made in his employment agreement with Diecomp and affirmed in the 1972 settlement agreement, by making copies of the computer tapes and offering them for sale. ⁴ Judge Ackerman said:

Plaintiff has established that the defendant was a converter. Certainly, a misappropriator of trade secrets in New Jersey may be enjoined and assessed not only compensatory damages but punitive damages, and he may also be prosecuted ... if the grand jury sees fit in its wisdom to indict him.

Judge Ackerman found that MTI has suffered actual damages of $31,000 by virtue of Levine's conversion of the tapes, which diminished the marketability of MTI's program. ⁵ He also awarded MTI $20,000 in punitive damages. Levine was awarded $12,213, the amount of his counterclaim under the settlement agreement.

Judge Ackerman stated that he was convinced that Levine still possessed copies of MTI's computer program. ⁶ He considered issuing a permanent injunction against Levine prohibiting dissemination of any information relating to the Diecomp program, but rejected that course of action, saying,

I just don't believe that Dr. Levine will obey this Court's order. I don't believe, with all of his intelligence, he will admit that he still has some tapes.

....

I have thought about this very carefully. There is only one way to deal with a man like this: I am referring this matter to the Prosecutor of the Pleas of Union County to determine, for him to determine whether there has been a violation of the criminal statute.

Levine appealed the judgment of MTI v. Levine to the New Jersey Supreme Court. He was required under New Jersey law to file a supersedeas bond to secure the rights of MTI pending appeal. Bonds totalling approximately $38,000, the difference between the amount of the award to MTI and the amount of Levine's counterclaim, were posted by friends and relatives of Levine. Levine moved from New Jersey to Texas in August 1979, shortly after he lost his appeal, to take a job with Texas Instruments. MTI, unable to enforce its judgment against Levine personally, began proceedings to levy on the supersedeas bonds in order to collect the amounts owed to it.

Against this backdrop, the actors of this lawsuit began to assemble. In late 1979, Carole Patton, a reporter for a CMP publication called Information Systems News (ISN), met by chance John Gutman, president of MTI, at a trade meeting. She told Gutman that she was a reporter for ISN, and Gutman offered to tell her about the controversy between MTI and Levine. Patton later conducted a three-hour interview of Gutman during which Gutman gave his version of the facts of Levine's departure from Diecomp and the MTI litigation. Gutman told Patton that in 1971 Levine had been engaged in an illegal kickback scheme with a vendor which constituted a breach of his fiduciary responsibilities to Diecomp. Gutman referred to Levine's later possession of the Diecomp tapes as "a classic case of computer crime." Gutman told Patton that he was working with an assistant district attorney in New Jersey in an investigation of the affair. After this interview, his ire cooled and his feet cold, Gutman refused Patton's request for more specific information regarding MTI's case against Levine.

Patton next obtained access to the court records for MTI v. Levine. These records were in the chancery division of the Union County Courthouse. Patton knew that the chancery division handled equity disputes and that it had no criminal division.

In the chancery court file, Patton found a letter indicating that the case had been referred to the economic crime section of the New Jersey attorney general's office. She also found a copy of the 1972 settlement agreement between Levine and Diecomp, the preamble to which included the following statements:

WHEREAS, the development of the PDDC System has not progressed as anticipated; and

WHEREAS, accusations have been made against LEVINE of wrongdoing by taking of secret profits and supplying false and misleading information to stockholders and others, and also accusations have been made against LEVINE of technical incompetence; and

WHEREAS, the parties hereto have now agreed that it is in their respective best interests to resolve their existing differences in accordance with the terms of this Agreement....

In addition, with respect to the alleged kickbacks, the settlement agreement provided:

6. DIECOMP represents and warrants that its Board of Directors has ratified and approved the time sharing service contract between DIECOMP and COMSERV dated March 16, 1970 and LEVINE'S and INFORMATION'S roles therein with full knowledge thereof and has further ratified and approved LEVINE'S performance of his responsibilities and duties as Vice President for Research and Development, it being understood that such ratification and approval is limited to the area of responsible professional judgment and conduct and is not intended as and expressly excludes ratification, approval or release of any wrongdoing, misrepresentation, or fraud. DIECOMP further represents and warrants that its corporate minutes do not contain accusations of wrongdoing or incompetence against LEVINE.

Patton testified at trial that, in her judgment, the "whereas" clause citing accusations against Levine stated "the substance or reason for the separation" and that the warranty by Diecomp was not relevant to the substance of the agreement.

Also in the court file, Patton found an affidavit made by Gutman. In that affidavit, in response to allegations made by Levine, Gutman said:

Mr. Levine [alleges] ... that ex-employees have referred to the fact that there were many copies, "floating around," which resulted from the fact that no effective controls were exercised for the protection of whatever material was in fact contained on the tapes. This is erroneous. There were stringent controls made at all times so that no one would have access to the computer tapes which, as I indicated previously, represented an investment of approximately $4,000,000 by various persons. After Mr. Levine made this original accusation in his November 10, 1975 deposition, we made immediate checks to determine the accuracy of his claim, and as of this date, we have been able to find no ex-employee who knows of any other copies that had been made of these tapes that are "floating around." .... It is very difficult to believe that if anyone has possession of the tapes, it came about through lack of security. If there are any tapes it came about through outright theft. (Emphasis added.)

In addition to this research, Patton interviewed some of the people...