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RECORD CLUB OF AMERICA, INC. v. UA RECORDS

June 17, 1985

RECORD CLUB OF AMERICA, INC., Plaintiff, against UNITED ARTISTS RECORDS, INC., Defendant


The opinion of the court was delivered by: CONNER

OPINION AND ORDER

CONNER, D. J.:

 This diversity action was commenced in 1973 by plaintiff Record Club of America, Inc. ("RCOA"), a Delaware corporation engaged in the business of manufacturing and distributing mail-order records and tapes, against United Artists Records, Inc. ("UAR"), a California corporation with which plaintiff had entered into a 1970 licensing agreement. *fn1" Plaintiff asserted in its original complaint that UAR had breached the licensing agreement. Subsequently, however, plaintiff amended the complaint to allege a claim of antitrust violations against defendant, an another claim that UAR had tortiously induced two of its subsidiaries to breach related agreements with RCOA.

 Before the Court today is defendant's motion for partial summary judgment on the antitrust and tortious inducement claims. For the reasons below, the motion is granted in part and denied in part.

 This action has a somewhat complicated procedural history which need not be set forth in detail here. The following summary of undisputed facts is helpful, however, for purposes of placing the instant dispute in context:

 The controversy finds its roots in 1970, when plaintiff filed two actions against UAR and other record companies, alleging violation of the Sherman Act. In voluntary settlement of the claims against UAR, the parties entered into three contracts, all of which took effect on October 1, 1970. Under the first contract ("the license agreement"), UAR granted to RCOA a renewable three-year non-exclusive license to produce, advertise and sell by mail-order all records and tapes manufactured and distributed by UAR. RCOA agreed to make quarterly royalty payments on all albums and tapes it sold, and to make certain minimum payments. Under the other two agreements ("the side agreements"), RCOA agreed that during the term of the license agreement, it would purchase UAR's catalogue of long-playing records from a wholly-owned record-manufacturing subsidiary of UAR called All-Disc Records, Inc. ("All-Disc"), and that it would purchase eight-track and cassette tapes from another wholly-owned subsidiary, Liberty/UA Tape Duplicating, Inc. ("Liberty Tape").

 On January 2, 1972, RCOA entered into an Agreement of Settlement and Release with UAR and its affiliates. Ex.2 to Def.Mem. of July 16, 1984. This agreement recited that UAR had been named as a defendant in the two antitrust suits, and that in consideration of the parties' execution of the 1970 licensing agreement, RCOA would dismiss its claims against UAR, and the parties would exchange mutual releases. The Agreement of Settlement and Release then provided that RCOA released and forever discharged UAR and its affiliates from all antitrust claims and similar causes of action arising out of any transaction or occurrence connected with or in any manner related to the underlying lawsuit.

 In late 1972, a dispute arose over how and when certain royalties were to be calculated and paid under the licensing agreement. Defendant filed an action against plaintiff in California, alleging that RCOA had failed to pay these royalties on time. RCOA then filed an action in this Court, seeking an order confirming that its obligation to pay the royalties in question had not yet arisen. These actions were consolidated before me. Shortly thereafter, RCOA raised two additional claims: it asserted that UAR had tortiously induced its subsidiary All-Disc to breach the side agreement with RCOA, and that UAR had committed antitrust violations.

 In December 1974, before these issues were resolved, plaintiff commenced Chapter 11 proceedings. At the request of a court-appointed receiver, this action was transferred to the Court's suspense docket, where it remained until 1982, when RCOA emerged from bankruptcy and requested that the matter by restored to the active calendar. The Court granted that request and subsequently held a pretrial conference on March 16, 1983. At the conference, the Court reviewed the complaint and directed RCOA to replead its antitrust claim. A week later, RCOA filed an "Amended and Supplemental Complaint" asserting five grounds for relief.

 In the amended complaint plaintiff seeks: (1) damages resulting from UAR's atory breach of the licensing agreement in 1972; (2) a declaratory judgment that plaintiff effectively renewed the contract for a two-year period commencing in 1973, and thereby obtained an option for a second renewal period under the agreement; *fn2" (3) damages for UAR's breaches of the agreement during the years 1973 through 1977; (4) damages for All Disc's breach of the side agreement with RCOA, which allegedly was tortiously induced by UAR; and (5) treble damages for UAR's unreasonable restraint of trade in violation of the Sherman Act.

 On November 14, 1983, defendant moved for partial summary judgment on the fourth and fifth claims raised in the amended complaint. Thus, only the tortious inducement and antitrust causes of action are relevant to the Court's considerations today. Arguments surrounding the antitrust allegations have consumed the vast majority of the parties' voluminous submissions, and I therefore address these issues first.

 The Antitrust Claim

 The Sherman Act claim alleges that from October 1, 1970 through 1978, UAR and All-Disc combined and conspired with each other, with Liberty Tape, and with "other co-conspirators known and unknown," to coerce RCOA to enter into the two side agreements with UAR's subsidiaries, thus unreasonably restraining RCOA's freedom to manufacture albums and tapes on more favorable economic terms, such as those enjoyed by RCOA's competitors. According to plaintiff, this conduct violated § 1 of the Sherman Act, 15 U.S.C. § 1, et seq., insofar as it represented a conspiracy in restraint of trade.

 Defendant's initial position was that it was entitled to summary judgment on the antitrust claim on the ground that UAR and its wholly-owned subsidiaries constituted a single integrated enterprise, and therefore there were no independent entities capable of conspiring within the meaning of § 1 of the Sherman Act. In response, RCOA denied that UAR, All-Disc and Liberty Tape were sufficiently integrated to foreclose conspiracy liability under the Sherman Act. RCOA asserted, in addition, that even if UAR were found to be legally incapable of conspiring with its wholly-owned subsidiaries, summary judgment would still be inappropriate because: (1) the complaint also alleged that UAR had conspired with other parties; and (2) the allegations that UAR had required RCOA to purchase records and tapes from its subsidiaries instead of from competitors described an illegal tying arrangement, which also violated § 1 of the Sherman Act. According to RCOA, UAR used ...


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