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DIPSON THEATRES, INC. v. BUFFALO THEATRES

September 27, 1949

DIPSON THEATRES, Inc.
v.
BUFFALO THEATRES, Inc., et al.



The opinion of the court was delivered by: KNIGHT

Plaintiff, in its amended complaint, sued 11 defendants, demanding $ 5,125,472 triple damages plus reasonable attorneys' fees for alleged violations of 15 U.S.C.A. §§ 1-7, 15 note (Sherman Act) and 15 U.S.C.A. §§ 12-27 (Clayton Act). Plaintiff alleged three causes of action. By order of this court, dated November 1, 1948, they were all dismissed as to defendant Columbia Pictures Corp. and the third cause of action was dismissed as to all defendants.

For brevity's sake, the following abbreviations will be used in naming the parties: Plaintiff will be named Dipson. The 10 remaining defendants will be named thus: Buffalo for Buffalo Theatres, Inc.; Bison for Bison Theatres Corporation; Vitagraph for Vitagraph, Inc.; Loew for Loew's Inc.; Paramount for Paramount Pictures, Inc.; RKO for RKO Radio Pictures, Inc.; Fox for Twentieth Century-Fox Film Corporation; Universal for Universal Film Exchanges, Inc.; United for United Artists Corp.; McFaul for Vincent R. McFaul.

 Of these 10 defendants, three (Buffalo, Bison and McFaul) are sued as exhibitors . . . the remaining seven as distributors.

 Plaintiff's first cause of action alleges unlawful discrimination against its Bailey Theatre, located at 2163 Bailey Avenue, Buffalo, N.Y. by defendant exhibitors, who operated it until August 1, 1939; that their lease expired July 31, 1939; that, on April 19, 1939, Dipson-Basil Theatres, Inc., which became Dipson Realty Co., Inc., purchased this theatre subject to the unexpired lease and operated it from August 1 to August 31, 1939, when D & B Operating Co., Inc., which by change of name became the plaintiff herein, leased it, began operating it on September 1, 1939, and has continued such operation. Plaintiff demands damages from September 1, 1939, to September 17, 1945 for 'actual operating losses, based upon income from admission * * * $ 19,115; and losses of net income * * * $ 126,878, totalling * * * $ 145,993.' Par. 25.

 Plaintiff's second cause of action concerns the Century Theatre, located at 511 Main St., Buffalo, N.Y., and the Riviera Theatre, located in Tonawanda, N.Y. It alleges that defendant exhibitors operated the Century for about 10 years prior to August 1, 1939, when their lease expired; that it was then leased for 10 years by Century Theatrical Enterprises, Inc., which took possession August 1, 1939, and operated both it and the Riviera until November 20, 1940, after which plaintiff operated both theatres until June 26, 1941, when lessee was forced by defendants to surrender both leases to the respective lessors. It is alleged that, on or about November 25, 1941, Century Theatrical Enterprises, Inc. assigned to plaintiff all its claims and causes of action against defendants. Plaintiff alleges that, during 23 months (August 1, 1939, to June 26, 1941), it and said Century Theatrical Enterprises, Inc. suffered an operating loss of $ 58,240.67, Par. 36, and, 'except for the unlawful combination and conspiracy of the defendants,' would have earned a net income between September 1, 1939, and August 31, 1949, of $ 1,423,788 Par. 36, from the Century and a net income between June 27, 1941, and July 31, 1949, of $ 56,570.60 from the Riviera, Pa. 38.

 Plaintiff alleges that 'all of the defendants have combined and conspired to attempt to and to monopolize trade and commerce among the several States by securing to Defendant Exhibitors the sole and exclusive right to first-run and second-run of feature pictures at Buffalo, New York,' in violation of section 1 and 2 of the Sherman Act; that 'the precise date or dates of origin of the said combination and conspiracy * * * are unknown to the plaintiff' but they 'were in existence during the months of April through September, inclusive, 1939, having been formed prior to such period, and they have been in existence continuously since such period.' Par. 17.

 Plaintiff further alleges: 'Such monopoly and restraint of trade have been accomplished, among other methods, by: contracts between Defendant Distributors and * * * Exhibitors granting special privileges to (latter) not available to the plaintiff, nor to other exhibitors; contracts between (them) making available to (Defendant Exhibitors) a supply of feature pictures far in excess of their reasonable needs, thus depriving the plaintiff and other exhibitors of the first-run and second-run of such features; contracts imposing unreasonable terms of run and clearance on plaintiff and other exhibitors for the benefit of Defendant Exhibitors; refusing to contract with plaintiff and other exhibitors for the purpose of preserving a monopoly to Defendant Exhibitors; Ermitting (latter) to move a picture from one theatre, when its run has been completed, to another theatre operated by them, for a so-called 'moveover' run, thus postponing all subsequent runs by plaintiff and other exhibitors, and reducing the revenue-producing possibilities of the picture at subsequent runs; threatening, and otherwise interfering and attempting to prevent the sale or lease to plaintiff or other exhibitors of theatres qualified to exhibit at first and second run in Buffalo; discriminating in film rentals by granting lower rentals to Defendant Exhibitors; contracts fixing minimum admission prices at subsequent run theatres for the purpose of preventing competition with Defendant Exhibitors.' Par. 17.

 It is alleged that 'Defendant Exhibitors have attained a buying power which they exert to continue their monopoly and to restrain competition.' Par. 18. There are many other allegations which will be cited in the body of this opinion.

 Plaintiff admits in its brief: 'There is no direct proof in the record of the existence of a conspiracy or an attempt to monopolize.' Relying wholly on circumstantial evidence, it cites Interstate Circuit .v U.S., 306 U.S. 208, 59 S. Ct. 467, 83 L. Ed. 610, and William Goldman Theatres v. Loew's, Inc., 3 Cir., 150 F.2d 738. In its reply brief, it leans heavily on Ball v. Paramount Pictures, Inc., 3 Cir., 169 F.2d 317. Witnesses who had charge of the firm distribution in this area testified for all the distributors that they did not participate in and knew of no monopoly or conspiracy to injure the plaintiff. McFaul so testified for the exhibitors.

 Plaintiff has the burden of establishing the alleged monopoly, conspiracy and restraint of trade. If the 'proven facts give equal support to each of two inconsistent inferences', the plaintiff must fail. Pennsylvania Railroad Co. v. Chamberlain, 288 U.S. 333, 339, 53 S. Ct. 391, 393, 77 L. Ed. 819; Schad v. Twentieth Century-Fox Film Corp., 3 Cir., 136 F.2d 991, 996. Plaintiff must not only establish the fact of damages but must also offer sufficient proof of their amount. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562, 51 S. Ct. 248, 75 L. Ed. 544; Bigelow v. R.K.O. Radio Pictures, 327 U.S. 251, 266, 66 S. Ct. 574, 90 L. Ed. 652; Twin Ports Oil Co. v. Pure Oil Co., D.C.D. Minn., 46 F.Supp. 149, 152.

 The principal defendants in this action are the so-called 'Shea Group', comprising McFaul, Paramount and Loew. Michael Shea in 1914 built the Hoppodrome Theatre and opened it as the first modern moving picture theatre in the City of Buffalo. In 1920, Shea opened the North Park Theatre, the first modern neighborhood theatre in that city. Prior to 1925 the Shea business was locally owned and financed. In that year Famous Players Laskey Corp., predecessor of Paramount, became associated with him and the Buffalo Theatre was built. In 1934, upon the death of Michael Shea, defendant Buffalo was organized to take over the motion picture exhibition business founded and carried on by him during his lifetime. It has had 3 stockholders, Paramount, Loew and McFaul. The latter was a protege of Mr. Shea and ultimately became president of Buffalo, which had merged with Bison. He owns 40 shares of the 300 shares of Buffalo. Until October, 1040, he booked all the pictures and arranged all the runs for Buffalo. In that month these matters were taken over by Marcus Loew's Booking Agency, which maintains an office in New York City.

 Nikitas D. Dipson, president of plaintiff Dipson and an experienced motion picture exhibitor, came to Buffalo in 1939 from Batavia, N.Y. and negotiated to purchase the Bailey Theatre and to lease the Century and Riviera Theatres. In that year he organized Century Theatrical Enterprises, Inc. and Dipson. The former leased the Century for a term of 10 years from its owner . . . Midland Properties, Inc. . . . and the Riviera for the same term from its owner . . . Smith Properties, Inc. By deed dated June 1, 1939, title to Bailey Theatre was acquired by Dipson-Basil Theatres, Inc., which by change of name became Dipson Realty Co., Inc. and was then leased to D & B Operating Company, which by change of name became the plaintiff Dipson.

 After Mr. Dipson came to Buffalo in the early part of 1939, he negotiated with defendant distributors for films for the Century, Riviera and Bailey Theatres for the 1939-1940 season. He got all the films he wanted for the Riviera but contends that he did not get a sufficient quantity of first-run feature pictures for the Century and proper clearance at the Bailey ahead of Shea's Kensington Theatre.

 Plaintiff claims no damage to the Riviera Theatre prior to the alleged forced surrender of the lease on June 26, 1941. It there had for exhibit on exclusive first run all the products of Loew, Paramount, Fox, RKO, United and Warner Bros. Pictures Distributing Corp., formerly called Vitagraph. During the operation of Century Theatre by plaintiff and its predecessor no pictures of Loew or Paramount were there shown. These defendants were majority stockholders in Buffalo and had a financial interest in the theatres operated by Buffalo. Their witnesses admitted that they favored their own theatres. It does not appear that Loew or Paramount are financially connected in any way with any of the other five defendant distributors or that these are interested in Buffalo's theatres, except that Buffalo was an old customer. Defendants Universal, Vitagraph and United in their brief cite many cases in support of the proposition that a distributor has the legal right to select its own customers and to deal or not deal with any customer as it sees fit. Among these citations is Federal Trade Commission v. Paramount, Famous-Laskey Corp., 2 Cir., 57 F.2d 152, where the court said: 'A distributor of films * * * has the right to select his own customers and to sell * * * or to refuse to sell at all to any particular person for reasons of his own.' 57 F.2d at page 156. Defendants Fox and RKO in their brief also stress the right of a distributor to do business with whom it pleases in the exercise of its own judgment and cite many cases.

 The general rule and its exception are well stated in Binderup v. Pathe Exchange, 263 U.S. 291, at page 312, 44 S. Ct. 96, at page 100, 68 L. Ed. 308, in these words: 'It is doubtless true that each of the distributors, acting separately, could have refused to furnish films to the exhibitor without becoming amenable to the provisions of the act, but here it is alleged that they combined and conspired together to prevent him from leasing from any of them. The illegality consists, not in the separate action of each, but in the conspiracy and combination of all to prevent any of them from dealing with the exhibitor.'

 Plaintiff urges that the seven defendant distributors did not act independently and that the evidence discloses that Vitagraph, RKO, Fox, Universal, and United were dominated by the powerful 'Shea Group', comprising Loew, Paramount and McFaul, so that plaintiff suffered financial loss at its Century and Bailey Theatres. The evidence however discloses that at the Century it got all of RKO's first-run feature pictures with the exception of one picture . . . Pinocchio . . . and all of RKO pictures it requested at the Bailey to be shown immediately after the run at Buffalo's competing Kensington Theatre. At the Century it also got about one half (18 pictures) of the Warner (Vitagraph) product. It claims that this was not enough for successful operation; that in consequence of defendants' conspiracy and monopoly it lost money at the Century and the lessee was forced to surrender the lease, which was tied up with the Riviera lease, which also had to be abandoned at the same time.

 Plaintiff offered no proof that the two leases were interrelated. There is no reference in one lease to the other. The two landlords were wholly independent corporations. The only connection between them is that one Max Yellen was president of the Riviera landlord corporation and general manager of the Century corporate landlord. He served a notice to vacate the Century for non-payment of rent. Thereafter, according to witness Nikitas D. Dipson, he offered a choice of three alternatives: (1) pay the back rent, (2) being evicted and 'having the total amount of the rent of the Century, as well as the Riviera becoming due', (3) that 'if we surrendered the lease of the Century we would be given credit in the amount of $ 10,000, which was the rent deposit for that theatre, and whatever was owned over and above that we were to pay and we were also to surrender the Riviera Theatre.' Max Yellen, however, testified that before this proposition was made N. D. Dipson came to him and said he wanted to surrender both leases. Dipson did so and got a credit of $ 10,000 on the Century indebtedness. He tried repeatedly thereafter to lease the two theatres again but did not succeed. Whatever his motives may have been, he was not legally obliged to surrender the Riviera lease. There is no evidence that Max Yellen was agent of any of the defendants. They should not be held liable for any loss to plaintiff resulting from the Riviera lease surrender.

 Did defendants compel surrender of the Century lease?

 The Century was built in 1920-1921 and was originally operated as a combination vaudeville and motion picture theatre. It made a profit until Buffalo opened its Buffalo and Great Lakes Theatres. Buffalo, having lost substantial money in the Century in 1938-1939, declined to pay the increased rent asked by the landlord and renew the lease. It was then leased to Century Theatrical Enterprises, Inc. for a term of 10 years beginning August 1, 1939.

 The minutes of a special meeting of the board of directors of the latter corporation, held on June 30, 1941, disclose that its president, N. D. Dipson, presented audit reports showing a loss in the Century operation from August 1, 1939, to December 31, 1939, of $ 23,345.26; from January 1, 1940, to November 20, 1940, of $ 10,155.73; from November 21, 1940, to December 31, 1940, of $ 7,990.95; from January 1, 1941, to May 31, 1941, of $ 6,453.76. He also reported a loss during June, 1941, but did not state the amount. He also told the board of directors 'that in his opinion, the company was not in a position to further continue to make good the losses in the operation of the Century * * * , and that accordingly he recommended * * * that the unexpired term of the lease covering the * * * Century * * * , and the unexpired term of the lease covering the Riviera * * * be surrendered to the respective lessors, effective immediately.'

 The same minutes disclose these losses at the Riviera in 1941 . . . March . . . $ 1,228,27; April . . . $ 287,97; May . . . $ 508.44.

 The minutes then recite: 'There was considerable discussion by the directors with reference to the losses sustained by the company in the operation of the * * * Century * * * , and with reference to the operation of the Riviera * * * , particularly as to the problem of further contributions by the stockholders to meet the losses sustained in the past, and to meet the losses which the Board of Directors felt would be sustained in the future in the operation of the * * * Century * * * , particularly so because of the puzzling drop in theatre attendance throughout the country, which this year became apparent in the months of April and May, fully two months earlier than the usual summer slump; that the movie industry was unable to explain why the people were staying away from the movies in face of increased employment and national defense spending.'

 It was then resolved to terminate both leases, Andrew Gibson, who signed these minutes as secretary of Century Theatrical Enterprises, Inc., testified thus on cross-examination:

 'Q. The facts and circumstances causing the surrender of the lease are those recorded in the minutes, is that correct? Yes or no. A. Yes. sir.

 'Q. As a matter of fact, Mr. Gibson, you and Dipson decided apropos of the drop in business throughout the country to seek a rent reduction from Yellen or the Midland Properties, didn't you? A. When?

 'Q. In the spring of 1941. A. I think we had during the winter, too; both times.'

 In these corporate minutes there is no mention of any loss caused by defendants' conduct. Plaintiff did not commence this action until September 17, 1946, more than 5 years after the leases were surrendered.

 Plaintiff, in its amended complaint, alleges that 'on or about November 25, 1941, said Century Theatrical Enterprises, Inc., for good and valuable consideration, duly assigned to the plaintiff all of its right, title and interest in and to its claims and causes of action against the defendants arising from the unlawful conduct of the defendants with respect to said assignor's operation of said Century and Riviera Theatres, and plaintiff is now the sole owner of said claims and cause of action.' Par. 31.

 The minutes of a special meeting of the stockholders of said corporation held November 25, 1941, disclose the following three resolutions:

 'Resolved, that the corporation dissolve * * *

 'Resolved, that the President and Secretary be, and they hereby are, directed to execute the necessary papers to effect a dissolution * * *

 'Resolved, that all of the company's assets including all available property, deposits of every nature and description, and the accounts receivable from Dipson Realty Co., Inc. be transferred to Dipson Theatres, Inc., in cancellation of the company's obligation to Dipson Theatres, Inc., and in consideration of the payment by Dipson Theatres, Inc., of such obligations of the company which Dipson Theatres, Inc., deems necessary to pay in order to continue its own operations of theatres in Buffalo and Western New York.'

 The certificate of dissolution, executed December 1, 1941, was filed December 11, 1941.

 The minutes also contain this sentence: 'The President (N. D. Dipson) reported that the company had discontinued doing business in the city of Buffalo and that it was advisable at this time to dissolve the corporation, and to dispose of the remaining assets of the company.'

 Max Yellen, general manager of the Century landlord, sworn by plaintiff, testified thus on cross-examination:

 'Q. Mr. Yellen * * * Did you have a conversation with Mr. Dipson at the time of the surrender of the lease, with respect to the disposition of the assets of the Century Theatrical Enterprises, Inc.? * * * A. Yes, sir. * * *

 'Q. Will you tell us what that conversation was? A. Well, the conversation was that all of the assets of the company, with the exception of the office equipment and office improvements and office furnishings of Century Theatrical Enterprises in the Main Street offices that they occupied were to go to the landlord.

 'Q. Midland Properties? A. That's correct. * * *

 'Q. And, as I understand it, Mr. Dipson stated that, and you agreed to it? ...


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