By-Prod Corp. v. Armen-Berry Co.

• Decision Date: 26 January 1982
• Docket Number: No. 81-1474,ARMEN-BERRY,BY-PROD,81-1474
• Citation: 67 A.L.R.Fed. 419,668 F.2d 956
• Parties: , 1982-1 Trade Cases 64,514 CORPORATION, Plaintiff-Counter-Defendant-Appellee, v.COMPANY, Defendant-Counter-Plaintiff-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 956

668 F.2d 956

67 A.L.R.Fed. 419, 1982-1 Trade Cases 64,514

BY-PROD CORPORATION, Plaintiff-Counter-Defendant-Appellee, v. ARMEN-BERRY COMPANY, Defendant-Counter-Plaintiff-Appellant.

No. 81-1474.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 5, 1982.

Decided Jan. 26, 1982.

Pamela J. Kempin, Chadwell, Kayser, Ruggles, McGee & Hastings, Ltd., Chicago, Ill., for plaintiff-counter-defendant-appellee.

Belle Gordon, Isham, Lincoln & Beale, Chicago, Ill., for defendant-counter-plaintiff-appellant.

Before BAUER and POSNER, Circuit Judges, and MARKEY, Chief Judge. ^*

POSNER, Circuit Judge.

This case raises questions of federal counterclaim practice, pendent jurisdiction, and civil liability (federal and state) for "bugging" telephone conversations. It is an offshoot of a federal antitrust suit brought by By-Prod Corporation against the Armen-Berry Company. Both firms are processors of animal glands for sale to pharmaceutical manufacturers. The antitrust suit (which has not yet gone to trial) alleges that Armen-Berry and others conspired to divide the market for buying animal glands from slaughterhouses, to depress the prices they pay for the glands, and to suppress the competition of processors such as By-Prod who refused to join the conspiracy.

In the course of pretrial discovery it was discovered that during the period of the alleged conspiracy an officer of By-Prod named Schiff had tape recorded a telephone conversation that he had had with an employee of Armen-Berry named Arens. That event is the basis of the counterclaim, filed by Armen-Berry and naming both By-Prod and Schiff as counterclaim defendants, that the district court below dismissed and that we are asked to reinstate. The counterclaim is in two counts. One alleges that the tape recording violated Title III of the Federal Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510-2520; the other that it violated Article 14 of the Illinois Criminal Code, Ill.Rev.Stat., ch. 38, §§ 14-1 to 14-9. The counterclaim asks for both compensatory and punitive damages and (in the Title III count) a reasonable attorney's fee. The district court dismissed the Title III count on motion for summary judgment, holding that there was no possible factual basis for the claim that Schiff (and derivatively By-Prod) had violated Title III. The court then held that the Article 14 count was a permissive counterclaim and, as such, required an independent federal jurisdictional basis, which it lacked because although there was diversity of citizenship between the parties to the counterclaim it was a legal certainty that Armen-Berry could not prove that the amount in controversy exceeded $10,000. The court also declined to exercise its pendent jurisdiction, and therefore dismissed the Article 14 count for want of federal jurisdiction. Thus the entire counterclaim was dismissed, and this appeal followed.

A person not acting under color of state law may, without violating Title III of the Crime Control and Safe Streets Act, intercept a telephone call to which he is a party unless the purpose of the interception is to commit an act that is criminal or tortious under federal or state law, or "any other injurious act." 18 U.S.C. § 2511(2)(d). There is no question that Schiff, not acting under color of state law, intercepted a telephone call to which he was a party; whether he violated the statute thus depends on whether his purpose was criminal, tortious, or otherwise injurious. Schiff stated in deposition that his purpose in making the tape recording was to be sure that he had an accurate record of the conversation. The conversation was critical because in it, according to Schiff, Arens described the conspiracy which is attacked in By-Prod's antitrust suit against Armen-Berry and invited Schiff to join it; and Schiff expects to testify to the content of the conversation (along with that of a prior, unrecorded conversation in which, says Schiff, Arens first mentioned the existence of the conspiracy) at the antitrust trial. But Schiff, besides having a tape recorder, also knows a form of shorthand; and he decided that the shorthand transcript of the telephone conversation which he had made while it was in progress was sufficiently accurate to make the tape recording unnecessary. So without ever listening to the tape he recorded over it and thus erased it. This is the only evidence that was before the district judge on the motion for summary judgment except for Arens' denial, in his deposition, that he had talked about any conspiracy in either phone conversation.

Though summary judgment was proper only if there was no genuine issue of material fact concerning Schiff's purpose in recording the conversation with Arens, we agree with the district court that this is the unusual case where an issue of intent can properly be resolved without a trial. Given Arens' emphatic denial that he discussed any conspiracy in either of his conversations with Schiff-a denial whose truth or falsity could not be determined by the district judge on the basis of deposition transcripts-we think there is a genuine issue, but not one of material fact, concerning Schiff's purpose in erasing the tape. He may have done it as he says because his shorthand transcript was adequate, or he may have done it because the transcript was fabricated and the tape recording would have exposed the fabrication. But the statute does not punish erasing a tape. So far as the interception-that is, the taping itself-is concerned, Schiff's testimony that he simply wanted to make sure he had an accurate record of a conversation that he hoped would produce evidence of an illegal conspiracy stands uncontradicted. A desire to make an accurate record of a conversation to which you are a party is a lawful purpose under the statute even if you want to use the recording in evidence. Moore v. Telfon Communications Corp., 589 F.2d 959 965-66 (9th Cir. 1978). It is inconceivable to us, as it was to the district judge, that Schiff, had he known in advance that the conversation would not produce an admission of unlawful activity by Armen-Berry, would nevertheless have recorded it. Maybe the conversation did not produce damaging admissions and he lied in his deposition in saying that it did. But he would not have recorded it unless he thought, at least before he hung up the phone, that it might produce useful admissions. We are unwilling to convert a statute designed to limit the recording of telephone calls into one that punishes people for erasing tape recordings that were lawful when made. And while it is even conceivable that Schiff if he had gotten the admissions he was hoping for would have used the recording to blackmail Armen-Berry rather than to bolster By-Prod's antitrust suit and that this was his real purpose in making the recording, no evidence of such an intent was presented below-and Armen-Berry had the burden of proving unlawful purpose.

We doubt anyway that a tape recording which was never used could form the basis for liability under section 2511(2)(d). It would be a dryly literal reading of the statute that found a violation because at the moment of pressing the "on" button a party to a conversation conceived an evil purpose though two seconds later he pressed the "off" button and promptly erased the two seconds of tape without even playing it back. A statute that provides for minimum damages of $1000 per violation must have more substantial objects in view than punishing evil purposes so divorced from any possibility of actual harm. We think it is the use of the interception with intent to harm rather than the fact of interception that is critical to liability, and there was no use of the interception here.

With the federal count in the counterclaim properly dismissed on the merits, as we hold it was, the remaining issue is whether the district judge had jurisdiction to decide the state-law (Article 14) count. If it was a compulsory counterclaim to By-Prod's antitrust suit he did, because a compulsory counterclaim requires no independent federal jurisdictional basis. A counterclaim is compulsory, according to Rule 13(a) of the Federal Rules of Civil Procedure, "if it arises out of the transaction or occurrence that is the subject matter" of the main suit. But this formula sets forth a conclusion rather than a test; we must look behind it to the purposes of making certain counterclaims compulsory and to the competing social purposes that might be frustrated if the rule were read too broadly. Cf. Ball v. Connecticut Bank & Trust Co., 404 F.Supp. 1 (D.Conn.1975).

The principal purpose of making certain counterclaims compulsory is judicial economy. This purpose would not be well served by requiring that the state-law count in the present case be litigated as a counterclaim to the antitrust suit. We need not as judges ignore what is obvious to us as former practitioners-that...