Sound Video Unlimited, Inc. v. Video Shack Inc.

661 F. Supp. 1482, 1987 U.S. Dist. LEXIS 4616
CourtDistrict Court, N.D. Illinois
DecidedMay 29, 1987
Docket86 C 8780
StatusPublished
Cited by12 cases

This text of 661 F. Supp. 1482 (Sound Video Unlimited, Inc. v. Video Shack Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sound Video Unlimited, Inc. v. Video Shack Inc., 661 F. Supp. 1482, 1987 U.S. Dist. LEXIS 4616 (N.D. Ill. 1987).

Opinion

MEMORANDUM AND ORDER

MORAN, District Judge.

The defendants-counterclaimants in this action move for an order under Rule 37 of the Federal Rules of Civil Procedure to compel certain non-party witnesses to answer deposition questions. The deponents asserted the attorney-client privilege in refusing to answer the questions. Because this court is persuaded that at least some of the questions pertain to matters within the crime/fraud exception to the attorney-client privilege, the motion is granted in part.

I. BACKGROUND

Sound Video Unlimited, Inc. (“Sound Video”) and Electratainment, Inc. (“Electratainment”) are the plaintiffs in a civil action now pending in the United States District Court for the Southern District of New York (Sound Video Unlimited, Inc. v. Video Shack, Inc., No. 83 Civ. 58583 *1484 (S.D.N.Y. filed August 11,1982)) (the “New York action”). Noel Gimbel is the president of both corporations. He owns 90% of the capital stock of Electratainment, which in turn owns 100% of the capital stock of Sound Video. Sound Video and Electratainment are Delaware corporations and each has its principal place of business in Niles, Illinois. This motion concerns depositions taken pursuant to subpoenas issued by this court.

Sound Video is a wholesaler of electronic entertainment media such as video cassette tapes, video discs, blank video cassette tapes and accessories. Video Shack Inc. (“Video Shack”), the corporate defendant in the New York action, is a retailer of the same items. Video Shack is a closely-held New York corporation with its principal place of business in New York, New York. Arthur H. Morowitz owns 60% of Video Shack’s capital stock; Howard J. Farber owns the remaining 40%. Morowitz and Farber are officers of Video Shack and they are also defendants in the New York action. The other individual defendants are Arthur Zwemke, formerly a vice-president of Sound Video, and Howard Levine, a former Sound Video employee under Zwemke’s supervision. All the defendants in the New York action join in this motion.

According to the complaint, Video Shack and Sound Video began negotiating an agreement to combine their operations into a national retail and wholesale distribution network. They reached an agreement in October 1981 and combined their operation shortly thereafter. Management and control of Electratainment, Sound Video and Video Shack were restructured by agreement executed in March 1982. However the combination of Sound Video and Video Shack proved to be abortive. In substance, Sound Video and Electratainment allege that the transaction was part of a scheme to defraud them. The alleged scheme was to obtain money from Sound Video without giving anything in return by manipulating Sound Video’s inventory data and account payments through collusion with Zwemke and Levine, and ultimately to take control of Sound Video’s operations. Among other things, Sound Video and Electratainment seek to recover for common law fraud, conversion, waste and mismanagement, breach of contract and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq.

The issues on this motion concern deposition questions pertaining to counterclaims by Zwemke and Morowitz against Gimbel (“the wiretapping counterclaims”). Zwemke and Morowitz each allege in separate counts that Gimbel violated Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510-2520 (“Title III”) by (1) tapping Zwemke’s office telephone and intercepting their conversations; (2) disclosing the contents of their conversations to various third parties; and (3) using the contents of their conversations to prepare for and prosecute the New York action.

The affidavits and deposition excerpts show that many of the facts underlining the wiretapping counterclaims are undisputed. By April 1982 Gimbel was dissatisfied with the arrangement between Sound Video and Video Shack for a variety of reasons (Janowitz reply aff., exh. A, Gimbel dep. at 550-51). He suspected by the middle of June 1982 that Zwemke and Morowitz were conspiring to take control of Sound Video (Janowitz reply aff., exh. A, Gimbel dep. at 54; plaintiffs’ surreply mem., exh. B, Gimbel dep. at 1547). He shared his concerns with John Hug, an auditor with the accounting firm of Peat, Marwick & Mitchell, at a meeting on June 23, 1982 (e.g., Janowitz reply aff., exh. A, Gimbel dep. at 538-49; plaintiffs’ surreply mem., exh. C, Hug dep. at 397-98). Because of his concerns, Gimbel asked Mr. Hug to take a complete inventory at Sound Video’s upcoming audit, rather than using the usual procedure, which entails only a partial inventory (Janowitz reply aff., exh. A, Gimbel dep. at 543-44; plaintiffs’ surreply mem., exh. B, Gimbel dep. at 1198). Mr. Hug expressed some skepticism at least initially (Janowitz reply aff., exh. A, Gimbel dep. at 542-43, 546; plaintiffs’ surreply mem., exh. B, Gimbel dep. at 1198).

*1485 Gimbel was “a little bit disturbed ... that [Mr. Hug] thought [Gimbel] may have been imagining things or that [he] wasn’t to be taken seriously” (plaintiffs’ surreply mem., exh. B, Gimbel dep. at 1199). Gimbel was already satisfied that Zwemke and Morowitz were conspiring to take over Sound Video. Nevertheless, he taped Zwemke’s telephone to verify his suspicions (Janowitz aff., exh. D, Gimbel dep. at 1178; plaintiffs’ surreply mem., exh. B, Gimbel dep. at 1547), to assure his attorneys he was not imagining things and to give them “something to go on” (Janowitz aff., exh. D, Gimbel dep. at 1189, 1197-98). During the last week of June 1982 he personally connected a wiretapping device to Mr. Zwemke’s office telephone (Janowitz aff., exh. D, Gimbel dep. at 1216). He connected wires to the junction box of Zwemke’s telephone, hid the wires by running them along the carpeting in Zwemke’s office into the adjoining office, and connected the wires to a self-activated recording device hidden in his office closet (id. at 1214-21). As long as Gimbel put a tape in the recording device, all of Zwemke’s telephone calls were recorded (id. at 1294-95). He disconnected the device on or about July 5, 1982 (id. at 1202). 1 Gimbel’s administrative assistant, Barbara Hoffman, transcribed the tapes at her home over the July 4 weekend in 1982 (Janowitz aff., exh. I, Hoffman dep. at 104-11).

On the first business day after the July 4 weekend in 1982, Ms. Hoffman returned the tapes to Gimbel, along with an original and two copies of the transcript she had just prepared (Janowitz aff., exh. I, Hoffman dep. at 109). Around that time Gimbel met with his attorneys, including his personal attorney, Martin Cohn, James Chatz from Chatz, Berman, Maragos, Haber & Fagel, and attorneys from Lord, Bissell & Brook (Janowitz aff., exh. D, Gimbel dep. at 1193).

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Cite This Page — Counsel Stack

Bluebook (online)
661 F. Supp. 1482, 1987 U.S. Dist. LEXIS 4616, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sound-video-unlimited-inc-v-video-shack-inc-ilnd-1987.