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FANCHON & MARCO, INC. v. PARAMOUNT PICTURES

August 15, 1955

FANCHON & MARCO, Inc., and Paramount Hollywood Theatre Corporation, Plaintiffs,
v.
PARAMOUNT PICTURES, Inc., Defendant, and American Broadcasting-Paramount Theatres, Inc., Defendant-Intervenor



The opinion of the court was delivered by: DAWSON

This is an action tried by the Court without a jury wherein Fanchon & Marco, Inc. (hereinafter called 'Fanchon & Marco'), as a 50% stockholder of Paramount Hollywood Theatre Corporation (hereinafter called 'Paramount Hollywood') seeks, on behalf of Paramount Hollywood, treble damages and injunctive relief under the anti-trust laws, 15 U.S.C.A. §§ 1, 2, 15, against Paramount Pictures, Inc. (hereinafter called 'Paramount') and wherein the defendant-intervenor, American Broadcasting-Paramount Theatres, Inc. (hereinafter called %'ab-pt'> by a counterclaim seeks declaratory judgment that it is a 50% stockholder in Paramount Hollywood and seeks an injunction against interference with its rights.

Proceedings Prior to Trial

Originally, the complaint named as plaintiffs (1) Paramount Hollywood, suing in its own right for treble damages and injunctive relief, (2) Franchon & Marco, suing derivatively as a stockholder of Paramount Hollywood for the same damages and other relief which was sought by Paramount Hollywood, and (3) Fanchon & Marco, suing in its own right for the identical damages and relief.

 The District Court directed a dismissal of the amended complaint with leave to Fanchon & Marco, suing on its own behalf, to serve a second amended complaint consistent with the views expressed in its opinion. 107 F.Supp. 532. Fanchon & Marco elected not to amend and the District Court, by order dated February 6, 1953, entered final judgment dismissing all of the claims alleged in the amended complaint. On appeal, the Court of Appeals reversed as to the claim which Fanchon & Marco alleged derivatively on behalf of Paramount Hollywood and allowed that claim to stand and remanded the action for further proceedings consistent with its opinion. It affirmed, however, the dismissal of the action asserted in the name of Fanchon & Marco on its own behalf and the action asserted directly in the name of Paramount Hollywood, the latter on the ground that Paramount Hollywood had never authorized the bringing of a suit in its name. 2 Cir., 202 F.2d 731.

 Only the derivative right of action remained for trial. After remand, the District Court held extensive pretrial conferences and entered a pre-trial order which, among other things, defined the issues to be tried.

 The Issues

 The amended complaint is framed exclusively on alleged violations of the antitrust laws. It is not a suit for breach of contract. See Leibell, J., at 107 F.2d 542 and 548. Fanchon & Marco was afforded an opportunity to apply for leave to amend the amended complaint to assert any claims not based on the antitrust laws, but elected not to do so. 202 F.2d at page 733.

 Therefore, the issues framed in the pre-trial order which must, in the absence of modification, control the subsequent course of the action, Calendar Rule 18, S.D.N.Y., are, except for the counterclaim, framed on the basis that the action is solely a derivative one for violation of anti-trust laws and for the damage to Paramount Hollywood alleged to have resulted therefrom.

 The primary issue framed in the pretrial order is issue (1A) in Paragraph 8 which reads:

 '(1A) Was there a conspiracy on October 22, 1941, and for many years theretofore, among Paramount Pictures, Inc. and other corporations engaged in the production, distribution and exhibition of motion pictures (a) to restrain and monopolize for Paramount, its subsidiaries and said other corporations engaged in interstate trade and commerce, the distribution and exhibition of feature motion pictures, including the first-runs thereof in Hollywood and Los Angeles, and (b) to exclude all other persons therefrom except on terms and conditions fixed and established by the parties to the alleged conspiracy?'

 All other issues set forth in the pretrial order (except insofar as they relate to the cause of action asserted by the defendant-intervenor for declaratory judgment) stem from this main issue.

 The Facts

 Paramount Hollywood is a corporation which was formed in 1942 by Fanchon & Marco and Paramount to lease and operate the Paramount Hollywood Theatre in Hollywood, California. Fanchon & Marco is a company which has been engaged in the business of operating motion picture theatres directly or through affiliated companies for many years. It operates, directly or through affiliates or subsidiaries, approximately forty motion picture theatres.

 The defendant Paramount was engaged in the production and distribution of motion pictures and in the exhibition of motion pictures through subsidiary or affiliated companies.

 In 1933, a subsidiary of Paramount which owned the Paramount Downtown Theatre in Los Angeles leased that theatre to a wholly-owned subsidiary of Fanchon & Marco, known as Partmar Corporation, and simultaneously entered into a franchise agreement with Partmar by which Paramount licensed Partmar to exhibit Paramount pictures at the Paramount Downtown Theatre and which required Partmar to exhibit feature pictures released by Paramount. The Paramount Downtown Theatre was thereafter operated as a 'first run' theatre for Paramount pictures in Los Angeles.

 In 1941, both Fanchon & Marco and Paramount wished to open a new first run theatre for Paramount pictures in Hollywood. Most of the other major motion picture distributors were at that time distributing their pictures for simultaneous first run in downtown Los Angeles and also in Hollywood.

 On October 22, 1941, Fanchon & Marco and Paramount entered into a contract which, among other things, provided for the opening of a theatre in Hollywood to be operated by a corporation owned jointly and equally by Paramount and Fanchon & Marco and which was to be managed by Fanchon & Marco. Pursuant to this contract, Paramount Hollywood was formed as a Delaware corporation in February of 1942. Fanchon & Marco and Paramount each contributed one-half of the money capital and each received one-half of the stock and each was given equal representation on its Board of four Directors.

 Paramount Hollywood Theatre opened under the management of Fanchon & Marco on March 18, 1942. Following the opening of the theatre and pending negotiation and execution of a franchise, Paramount supplied certain first run pictures for exhibition at the theatre, pursuant to agreements made from time to time between Paramount and Paramount Hollywood. The franchise was finally executed by Paramount and Paramount Hollywood on September 5, 1944, after negotiations in which Fanchon & Marco and its ...


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