Calderone Enterprises Corporation v. United Artists Theatre Circuit, Inc.

454 F.2d 1292, 27 A.L.R. Fed. 843

• Court: Court of Appeals for the Second Circuit
• Decided: December 28, 1971
• Docket: 293, Docket 71-1713
• Status: Published

Opinions

MANSFIELD, Circuit Judge:

This appeal raises once again the question whether one who is not a “target” of an alleged antitrust conspiracy has standing under § 4 of the Clayton Act, 15 U.S.C. § 15, to sue for treble the amount of damages suffered by it incidentally. In this case, suit is brought by a non-operating landlord of theatres allegedly used by its tenant and various motion picture distributors and exhibitors in furtherance of an antitrust conspiracy to restrain the trade of competing distributors and exhibitors. We adhere to our prior decisions on the issue, see Fields Productions, Inc. v. United Artists Corp., 432 F.2d 1010 (2d Cir. 1970), affirming, 318 F.Supp. 87 (S.D. N.Y.1969), cert, denied, 401 U.S. 949, 91 S.Ct. 932, 28 L.Ed.2d 232 (1971); Billy Baxter, Inc. v. Coca-Cola Company, 431 F.2d 183 (2d Cir. 1970), cert, denied, 401 U.S. 923, 91 S.Ct. 877, 27 L.Ed.2d 877, rehearing denied, 401 U.S. 1014, 91 S.Ct. 1250, 28 L.Ed.2d 553 (1971); S.C.M. Corp. v. Radio Corp. of America, 407 F.2d 166 (2d Cir.), cert, denied, 395 U.S. 943, 89 S.Ct. 2014, 23 L.Ed.2d 461, rehearing denied, 396 U.S. 869, 90 S.Ct. 38, 24 L.Ed. 2d 125 (1969); Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2d Cir. 1955), cert, denied, 350 U.S. 936, 76 S.Ct. 301, 100 L.Ed. 818 (1956), and affirm the district court’s dismissal of the complaint.

The action arises out of plaintiff’s lease of three theatres located in Nassau County, New York (the Calderone, Rivoli and Cove) to defendant Metropolitan Playhouses, Inc., which, along with defendant United Artists Eastern Theatres, Inc., is a subsidiary of defendant United Artists Theatre Circuit, Inc. (all three of which are referred to collectively as UATC), for operation as motion picture theatres by UATC. The remaining defendants are engaged in the distribution of motion pictures to theatres throughout the United States, including those operated by UATC.

Invoking federal jurisdiction pursuant to the federal antitrust laws, plaintiff on April 16, 1970, filed its complaint containing six claims, the first three of which seek more than $7 million treble damages from all defendants, based upon their participation in an alleged antitrust conspiracy to restrain trade in the distribution and exhibition of motion pictures. The last three claims, predicated on pendent jurisdiction, seek $2,-350,815 damages against UATC for breach of its lease of the three theatres. Each of the first three claims of the complaint alleges that plaintiff’s predecessor leased one of the three theatres (the Calderone, Rivoli, or Cove), a high quality, first-class house, to UATC for an annual fixed minimum rental, plus an additional rental based upon a percentage of gross receipts realized annually from exhibition of motion pictures, the term of the lease being later extended to May 7, 1971. Plaintiff, as the landlord of the three theatres, did not reserve any right to participate in the operations or management of them. It alleges that the defendant-distributors, pursuant to a conspiracy with UATC and other motion picture theatre operators in violation of the federal antitrust laws, established a system of distributing motion pictures in the New York Metropolitan area called “Showcase.” Under “Showcase” UATC and other exhibitors did not compete against one another for licenses from distributors to exhibit motion pictures on a first neighborhood run basis. Instead they divided all theatres suitable for such runs into groups known as “tracks” and allocated motion pictures for first neighborhood runs among the different “tracks.” In the absence of such an arrangement, plaintiff alleges, better quality theatres such as the three leased by plaintiff to UATC would on a competitive basis exhibit pictures having the greatest box office appeal, thus realizing higher gross receipts than from less popular pictures. Under “Showcase,” however, it is alleged that each of the three theatres was obligated to exhibit all features assigned to that theatre’s “track,” including inferior pictures that would not have been exhibited under normal competitive conditions, with the result that plaintiff’s percentage of rental income was substantially less than it otherwise would have been and the market value of its fee interest in the theatres has been impaired. Plaintiff seeks treble the amount of the alleged loss in income and in value of the theatres.

The last three claims of the complaint seek single damages against the UATC defendants based on the charge that their exhibition of pictures in the three theatres pursuant to “Showcase” constituted a breach of their duty under the leases to refrain from willful acts which would have the effect of reducing gross receipts and percentage rentals of the three theatres.

The district court granted defendants’ motion, pursuant to Rule 12(b) (6), F.R. Civ.P., to dismiss the first three counts on the ground that as a non-operating landlord of a motion picture theatre, plaintiff did not have standing under § 4 of the Clayton Act to recover damages allegedly caused by a combination of motion picture distributors and theatre operators to restrain trade in the exhibition of motion pictures in violation of the federal antitrust laws. Accordingly the three pendent state claims were also dismissed pursuant to the teaching of United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); see also O’Neill v. Maytag, 339 F.2d 764, 766 n. 3 (2d Cir. 1964).

In a series of decisions over the last 15 years, in all of which certiorari was denied by the Supreme Court, this court has committed itself to the principle that in order to have “standing” to sue for treble damages under § 4 of the Clayton Act, a person must be within the “target area” of the alleged antitrust conspiracy, i. e., a person against whom the conspiracy was aimed, such as a competitor of the persons sued. Accordingly we have drawn a line excluding those who have suffered economic damage by virtue of their relationships with “targets” or with participants in an alleged antitrust conspiracy, rather than by being “targets” themselves. For example, standing has been denied to a patent owner claiming derivative harm as the result of a conspiracy directed against its licensees, Productive Inventions, Inc. v. Trico Products Corp., swpra; S.C.M. Corp. v. Radio Corp. of America, supra, a franchisor complaining of an antitrust combination directed at its franchisee, Billy Baxter, Inc. v. Coca-Cola Company, supra, and a motion picture producer seeking damages from its television distributor based upon the latter’s distribution of films by “block booking” the films with a view to restraining the trade of television stations and other distributors but not producers, Fields Productions, Inc. v. United Artists Corp., supra.

The rationale behind the foregoing demarcation is simple, fair and reasonable. It respects the purpose of § 4 of the Clayton Act, which is to provide a private enforcement weapon that will deter violation of the federal antitrust laws by permitting any person injured in his business by reason of an antitrust violation to recover treble the damages actually suffered. It acknowledges that while many remotely situated persons may suffer damage in some degree as the result of an antitrust violation, their damage is usually much more speculative and difficult to prove than that of a competitor who is an immediate victim of the violation. Furthermore if the flood-gates were opened to permit treble damage suits by every creditor, stockholder, employee, subcontractor, or supplier of goods and services that might be affected, the lure of a treble recovery, implemented by the availability of the class suit as facilitated by the amendment of Rule 23 F.R.C.P., would result in an over-kill, due to an enlargement of the private weapon to a caliber far exceeding that contemplated by Congress. If the antitrust laws were precise and crystallized something might be said in favor of such an enormous expansion of potential .treble damage liability, speculative as the damages might be. But the fact remains that because there are few “bright lines” in the area, even experts who have devoted their entire professional lives to the practice of antitrust law often find it impossible to advise a client with any degree of certainty whether his contemplated conduct will transgress lawful bounds.¹

Accordingly it is necessary to use a rule of reason in construing the requirements of § 4 of the Clayton Act as to standing, just as such a rule has been adopted by courts in determining whether restraints, other than per se violations, trangress §§ 1 and 2 of the Sherman Act. Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4-5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). A line which limits standing to those against whom the antitrust violation is directed fulfills Congress’ fundamental purpose and at the same time establishes a reasonable and easily identifiable cutoff that avoids the unfortunate consequences of opening the flood-gate to all, no matter how remote their interest or incidental their relationship.² Competitors who are within the target area of an alleged antitrust conspiracy usually have more incentive than others to avail themselves of § 4. In those cases where they fail to do so, the Government may, of course, seek injunctive or punitive relief under other sections of the antitrust laws. See, e. g., 15 U.S.C. §§ 1, 2, 4, 9.

Applying these established principles here, plaintiff, a non-operating landlord of a theatre leased to an exhibitor, is clearly outside of the target area of the alleged conspiracy of distributors and exhibitors, which was to restrain competition in the exhibition of motion pictures. The alleged conspracy was admittedly not aimed at plaintiff, but at competing distributors and exhibitors.³ Nor does the fact that the plaintiff’s lessee was allegedly a party to the conspiracy materially distinguish this case from those where standing has been denied to one having a similar relationship to an innocent competitor victimized by a conspiracy, e. g., Billy Baxter, Inc. v. Coca-Cola Company, supra; S. C. M. Corp. v. Radio Corp. of Amer-ica, supra. Indeed, we have reecently denied standing to one suing on the basis of a contract with a co-conspirator. Fields Productions, Inc. v. United Artists Corp., supra. In determining whether a plaintiff has standing under § 4 of the Clayton Act, the only relevant factor is whether the plaintiff is a “target” of the illegal activity. If the plaintiff is not within the “target area,” then it is legally immaterial whether the person through whom the plaintiff derives his injury was a member of the conspiracy or was innocent of any wrongdoing. A plaintiff not a target of any antitrust violation does not become a target by virtue of the culpability of its lessee, patentee, franchisee, supplier, customer, or debtor.⁴

Although Calderone does not have standing under § 4 of the Clayton Act, nothing precludes a distributor or exhibitor against whom the alleged conspiracy is directed from bringing a treble damage suit against defendants, and we have been advised that such actions by nonparticipating exhibitors are now pending in the United States District Court for the Southern District of New York. See, e. g., Glen Cove Theatre, Inc. v. United Artists Corp., 66 Civ. 661.

We see no legally significant difference between plaintiff’s position and that of the franchisor in Billy Baxter, Inc. v. Coca-Cola Company, supra, and the motion picture producer in Fields Productions, Inc. v. United Artists Corp., supra, both of whom were denied standing. Indeed respected courts have held that a non-operating landlord lacks standing to seek treble damages from its tenant and others for alleged antitrust violations which decreased its theatre rentals. See, e. g., Melrose Realty Co. v. Loew’s, Inc., 234 F.2d 518 (3d Cir.), cert, denied, 352 U.S. 890, 77 S.Ct. 128, 1 L. Ed.2d 85 (1956), motion for leave to file petition for rehearing denied, 355 U.S. 900, 78 S.Ct. 259, 2 L.Ed.2d 198 (1957); Harrison v. Paramount Pictures, Inc., 115 F.Supp. 312 (E.D.Pa.1953), affd., 211 F.2d 405 (3d Cir.), cert, denied, 348 U.S. 828, 75 S.Ct. 45, 99 L.Ed. 653 (1954); Skouras Theatres Corp. v. Radio-Keith-Orpheum Corp., 193 F.Supp. 401 (S.D.N.Y.1961); Lieberthal v. North Country Lanes, Inc., 221 F.Supp. 685 (S.D.N.Y.1963), affd. on other grounds, 332 F.2d 269 (2d Cir. 1964). We are not persuaded by the contrary decision of the Seventh Circuit in Congress Building Corp. v. Loew’s Inc., 246 F.2d 587 (7th Cir. 1957), the soundness of which has been questioned by Judge Hastings of that court. See Sandidge v. Rogers, 256 F.2d 269, 278 (7th Cir. 1958). The Ninth Circuit’s decision in Steiner v. 20th Century-Fox Film Corp., 232 F.2d 190 (9th Cir. 1956), is clearly distinguishable from the present case for the reason that the plaintiff-landlord there alleged that her tenant and various motion picture distributors had conspired to destroy the value of plaintiff’s theatre by threatening to withhold first-run motion pictures from it unless plaintiff agreed to reduce the fixed monthly rental and to grant options to renew the lease, which plaintiff was forced to do. Plaintiff there was thus a target of the alleged conspiracy.⁵ No such allegation is made in the present case.

Our decision does not leave the plaintiff here without a remedy. Assuming plaintiff’s claims to be meritorious, it is not precluded from recovering single damages from UATC in a state court suit for breach of terms of the lease, which forms the basis of the three pendent claims asserted in the present action. Since the federally-based claims were properly dismissed prior to trial, however, the pendent state claims must also be dismissed and the plaintiff relegated to the state courts for relief. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); O’Neill v. Maytag, 339 F.2d 764, 766 n. 3 (2d Cir. 1964).

1 . See Austera, Dealing With Uncertainties in How to Comply With the Antitrust Laws. 367-68 (Van Cise & Dunn, eds. 1954) (“By this time, perhaps, an abiding sympathy may have been enlisted for those lawyers who must advise in this field. Even the most uncharitable should commiserate with the businessman who seeks to obtain definitive working rules for his daily operations.”)

2 . Despite our dissenting brother’s suggestion that the “target area” standard is vague and confusing, we find it to possess the virtue of definiteness. In simple terms a “target” is a person or business against which competitive aim is taken. The line is clearly drawn by requiring that to have standing one must be an object of an antitrust conspiracy. In contrast, the “foreseeability” test urged by the dissent would permit anyone to sue, regardless of how distant his interest or relationship (including a customer of a competitor’s customer, or a supplier to a supplier dealing with an alleged conspirator), since it would be difficult to disprove the fact that remote economic repercussions in the .line of distribution result from almost every antitrust violation.

3 . We do not suggest that a non-operating theater lessor may never have standing to sue for treble damages under § 4 of the Clayton Act. If Calderone had alleged, for example, that the defendants had aimed tlieir conspiracy at it, such as by agreeing to distribute and exhibit profitable pictures at theaters owned by the defendants or with which they bad flat-lease arrangements, and not to distribute them to theaters with which they had percentage leases, Calderone would be in a different posture.

4 . The dissent does not feel itself bound by the previous decisions of this Circuit mentioned above, because it views each of these decisions as distinguishable from the present case. We fail to find any legal significance in the factual differences described at some length by Judge Levet. Indeed, even the dissenting judges in two of the eases (S.C.M. Corp. and Billy Baxter, Ine.) indicated that their disagreements centered upon not whether the precedents were factually distinguishable from the case before them, but whether a different test should be applied.

Nor does the dissent provide any rationale in support of a differentiation based upon whether a plaintiff’s relationship was with a victim of the conspiracy or with one in pari delicto. Indeed, by denying standing in the latter situation in Fields Productions, Inc., supra, we failed to see the relevance of such a distinction. Moreover, we do not agree that Calderone, rather than its lessee-exhibitor, is in an analogous situation to the television stations in Fields Productions, Inc., who wore exhibitors of the motion pictures subjected to block booking.

5 . In addition, the test employed here is consistent with that of later Ninth Circuit decisions. In Hoopes v. Union Oil Co. of California, 374 F.2d 480, 485 (9th Cir. 1967), and Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073, 1076 (9th Cir. 1970), the court found the plaintiff to be within the “target area” of the antitrust violation.