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July 27, 1977


The opinion of the court was delivered by: LASKER



 Columbia Pictures Industries, Inc., a Delaware corporation with its principal place of business in New York, sues Burton Schneider, Robert Rafelson and Stephen Blauner, all residents of California, for a declaratory judgment that Columbia has not, alone or in concert with A.B.C. Television, violated the anti-trust laws or breached its contract with the defendants or otherwise violated their rights in connection with its marketing for national network broadcast the motion picture film, "The Last Picture Show." Columbia also seeks a preliminary injunction restraining the defendants from prosecuting an action which the defendants filed in the Central District of California which sought damages and injunctive relief against Columbia and ABC for anti-trust violations, breach of contract, violation of fiduciary duty, and conspiracy to defraud. In essence, Columbia argues that since its action in the Southern District of New York was filed six days before the defendants' action in California, the California proceedings should be enjoined. Defendants argue that California is the more appropriate forum for litigation of the issues between the parties, and move to dismiss the complaint for lack of personal jurisdiction and failure of service.


 Prior to December 31, 1971 defendants were the sole stockholders of an independent motion picture production company called BBS Productions, Inc. ("BBS"), a California corporation. In 1970 BBS acquired the motion picture rights to the novel, "The Last Picture Show," and commenced production. In order to secure financing for the picture, BBS assigned to Columbia Pictures distribution rights and a share in the profits of the film; BBS retained a 30% interest in the net proceeds of "The Last Picture Show."

 On December 30, 1971, Schneider, Rafelson and Blauner sold to Columbia Pictures all of the issued and outstanding shares of BBS stock pursuant to an Agreement of Sale ("the contract"). BBS' 30% interest in the net proceeds of "The Last Picture Show" was one of many assets acquired by Columbia through its purchase of the BBS stock. The purchase price set by the contract for the BBS stock was to be no less than $350,000. and no more than $10,000,000. altogether. Defendants were entitled to semi-annual payments of 85% of the total amounts realized by Columbia from the assets of BBS -- which included other motion pictures in addition to "The Last Picture Show" -- between December 30, 1971 and December 30, 1978.

 In March, 1974 Columbia entered into a television licensing agreement with A.B.C. Television for its national broadcast of "The Last Picture Show" and nine other movies owned by Columbia. In the summer of 1976 Schneider, Rafelson and Blauner retained the Los Angeles law firm of Simon & Sheridan to investigate the facts underlying the Columbia-ABC transactions and Schneider's contention that such transactions "constituted an illegal tie-in and block-booking" and that in addition "there was a secret side deal entered into whereby ABC agreed that Columbia would produce certain television pilot films for ABC." (Defendant's Opposition Memorandum, p. 11) Simon & Sheridan drafted a complaint alleging that the ABC-Columbia transaction amounted to a violation of the federal antitrust laws, a breach of the 1971 contract, and a conspiracy to defraud Schneider et al.

 Instead of filing the finalized draft of this complaint, however, on August 13, 1976 Schneider sent a copy of the proposed complaint to Leo Jaffe, Chairman of the Board of Columbia, at his New York Office. The personal covering letter reads as follows:

 "Dear Leo,

 I have enclosed a set of papers which need very little explanation. I am completely convinced as to their accuracy. In light of our long-standing friendly relationship, I believe that the acts we allege were done without your knowledge. Therefore, as a courtesy to you, I have postponed filing these papers for ten days so you can have a chance to investigate the matter.

 If after checking all this out, you feel we have something to discuss, please let me know before the end of the month.

 I am sorry to see us once again in conflict, but I am sure that once having looked into the matter you will understand our position.


 Three days later, on August 16, Sheridan & Smith sent copies of the complaint to counsel for Columbia Pictures and ABC (which was named as a defendant) along with a cover letter inviting negotiations towards settlement in lieu of filing the complaint.

 As a result of these communications, various meetings and telephone conversations were had from August 25, 1976 to September 30, 1976 between the parties and their counsel concerning possible settlement. Although offers were apparently made on both sides, the two positions were quite far apart. (Kaufman Reply Affidavit, [*] 9; Stulberg Deposition at 28, 37, 39-40) On October 3, 1976, following a phone conversation on September 30, 1976 with Leo Jaffe in which no agreement was reached, Schneider advised Simon & Sheridan to file their complaint in the United States District Court for the Central District of California.

 On October 8, 1976 Columbia filed its complaint in the Southern District of New York. Schneider's complaint was filed in California six days later, on October 14th. Columbia moved immediately for a temporary restraining order and preliminary injunction prohibiting Schneider, et al. from proceeding with the California litigation; on October 18, 1976, a temporary restraining order was granted. By stipulation the parties have ...

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