L.C.L. Theatres, Inc. v. Columbia Pictures Industries, Inc.

421 F. Supp. 1090
CourtDistrict Court, N.D. Texas
DecidedJune 15, 1976
DocketCiv. A. CA3-7735-G
StatusPublished
Cited by17 cases

This text of 421 F. Supp. 1090 (L.C.L. Theatres, Inc. v. Columbia Pictures Industries, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
L.C.L. Theatres, Inc. v. Columbia Pictures Industries, Inc., 421 F. Supp. 1090 (N.D. Tex. 1976).

Opinion

MEMORANDUM OPINION

HIGGINBOTHAM, Judge.

This suit was instituted under the antitrust laws by L.C.L. Theatres, Inc., a Texas corporation, (“L.C.L.” or “The Long Circuit”) against ten motion picture distributors (collectively referred to hereafter as “distributors”) and their law firm, Sargoy, Stein & Hanft, of New York City, New York, (“Sargoy”). Eleven distributors, including the ten defendants, by counterclaim, seek to recover film rental from L.C.L. and John G. Long alleged to have been due but, through fraud, not paid, for the period January 1,1966, through November, 1973.

This court has jurisdiction of the claim for violations of the anti-trust laws of the United States by virtue of 15 U.S.C. § 4, also referred to as Section 4 of the Sherman Act. Jurisdiction of the counterclaim is bottomed upon diversity of citizenship (28 U.S.C. § 1332) and upon principles of pendent jurisdiction, the counterclaim being compulsory.

I.

The Parties

The Long Circuit owns or leases motion picture theaters in the Texas Cities of Victoria, Bay City, Port Lavaca, Texas City, Freeport, and other smaller towns of the same general geographical area, including Edna, Ganado and West Columbia. Eight theaters are the subject of the distributors’ allegations of fraudulent under-reporting:

1. El Rancho of Victoria (burned September, 1975)
2. Showboat of Texas City
3. Velasco of Freeport
4. Texas of Bay City
5. Showboat of Bay City
6. Surf Drive-In of Freeport
7. Port Drive-In of Port Lavaca
8. Gemini Drive-In of Victoria

L.C.L. is dominated by John G. Long, an eighty-two-year-old resident of Bay City, Texas. He is now and has always been the principal stockholder and, with the immediate members of his family, the sole owner of L.C.L. He also does business personally as Long Realty Company, owning in fee the real estate on which several of the theaters are located. Thus, John G. Long, personally, is the landlord of many of the theaters *1092 in the circuit. From time to time, he has been a substantial creditor of L.C.L., a circumstance which will become of more than background significance. Although L.C.L. once operated or owned between forty and fifty theaters, it now has less than ten (tr. 56). John G. Long, in addition to his theater and real estate businesses, is the owner and operator of two radio stations located in Bay City and Texas City, respectively.

During all pertinent times, the distributors’ films have earned approximately 75 per cent of the total box office nationally. In 1975, approximately One Billion, Four Hundred Million Dollars was taken in by the nation’s theaters. Each distributor maintains executive and sales offices in the Cities of New York or Los Angeles, with numerous branch offices throughout the country, including Dallas, Texas. Dallás is a central distribution point within Texas. The “booker,” or purchasing agent, for The Long Circuit maintains his office in Dallas, Texas. The distributors license pictures to exhibitors, including The Long Circuit, either on a “flat” rental rate, a sum owed regardless of the film’s success, or on a “percentage” basis, with rental calculated as a fraction of the gross admission receipts at the box office. While some rental terms are agreed to before a film is shown, with an understanding that the rate is final, most film is let upon terms negotiated after the exhibitor has had box office experience with the film. Some films are licensed with this future settlement expressed in the licensing agreement. The custom and practice of the industry in the area and with the film here at issue was to settle after the film was shown, absent a contrary agreement. A rental contract, in which the amount of the rental is determined after the film has played, is referred to as a “terms later” contract.

Defendant, Burton H. Hanft, d/b/a Sargoy, Stein & Hanft, is a member of the New York Bar. Whether he is engaged in the practice of law is disputed. In any event, his firm is unique, both in its makeup of personnel and its specialty. Of the firm’s 55 employees, two are attorneys. The great percentage of employees are persons with training in accounting. The firm’s “practice” is confined to the eleven distributor claimants in this suit, furnishing them with a sophisticated policing of the reporting of box office receipts by motion picture exhibitors-licensees. At the beginning of a year, the distributors agree to pay the expenses of the firm as anticipated by a pro forma budget, plus the fee of Mr. Hanft. A principal part of these services includes reviewing the box office receipts as reported by the exhibitors against the reports of Sargoy’s own checks. When a check of the box office receipts is done with the knowledge of the exhibitor, it is referred to as an “open check,” but when done covertly, the check bears the somber sobriquet of “blind check.” These checks, both blind and open, together. with other auditing of exhibitors, may lead to the recommendation that “counsel” be employed, meaning the retention of a law firm for potential litigation. Sargoy does not alone prosecute such actions, but assists the law firm. A substantial part of Sargoy’s work is as a consultant to law firms representing distributors in anti-trust matters. The firm also assists the distributors in connection with problems of film “piracy,” a blatant form of trademark infringement.

II.

The Anti-Trust Claims

The Long Circuit abandoned at trial any claim for money damages and limited its claim to declaratory and injunctive relief. Three violations of the anti-trust laws are asserted.

First, the concerted assertion of the claim for the recovery of film rental not paid because of alleged under-reported gross revenues from the box offices is said to constitute price fixing. Second, this concerted claim is said to be an abusive use of monopoly power possessed by the combination of movie distributors. Third, The Long Circuit claimed that there was an agreement among the distributors not to settle individually, but to negotiate as a group; *1093 that such agreement violated the anti-trust laws.

Because the merit of the claim for unpaid film rental is central to all, it will be ruled upon first. For example, the contention that the concerted claim is a guise for the fixing of higher film rental cannot survive a finding that the amounts claimed are only those contracted for and not paid by The Long Circuit. There is no assertion that the original rental terms or the rates negotiated on “terms later” contracts, upon the reporting by The Long Circuit of its box office receipts, were the product of an illegal combination. Otherwise stated, the combined effort to collect unpaid rental, if well founded, can hardly have price fixing as its purpose and an incursion into the free market pricing mechanism as its effect.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Schwab v. Philip Morris USA, Inc.
449 F. Supp. 2d 992 (E.D. New York, 2006)
Hunt Petroleum Corp. v. State
901 So. 2d 1 (Supreme Court of Alabama, 2004)
Reis v. Peabody Coal Co.
997 S.W.2d 49 (Missouri Court of Appeals, 1999)
Hendrickson v. Peabody Coal Co.
37 F. Supp. 2d 947 (W.D. Kentucky, 1997)
Johns Hopkins Hospital v. Peabody Coal Co.
920 F. Supp. 738 (W.D. Kentucky, 1996)
Rosefielde v. Falcon Jet Corp.
701 F. Supp. 1053 (D. New Jersey, 1988)
Vuyanich v. Republic Nat. Bank of Dallas
505 F. Supp. 224 (N.D. Texas, 1980)
Paramount Pictures Corp. v. Thompson Theatres, Inc.
621 F.2d 1088 (Tenth Circuit, 1980)
Country Cupboard, Inc. v. Texstar Corp.
570 S.W.2d 70 (Court of Appeals of Texas, 1978)
Metro-Goldwyn-Mayer, Inc. v. Antioch Theatre Co.
367 N.E.2d 247 (Appellate Court of Illinois, 1977)

Cite This Page — Counsel Stack

Bluebook (online)
421 F. Supp. 1090, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lcl-theatres-inc-v-columbia-pictures-industries-inc-txnd-1976.