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Milgram v. Loew's

October 31, 1951


Author: Staley

Before BIGGS, Chief Judge, and STALEY and HASTIE, Circuit Judges.

Opinion of the Court

STALEY, Circuit Judge: Plaintiff, a partnershi p, owns and operates a newly constructed drive-in theater in Allentown, Pennsylvania. It commenced this action against the eight major distributors*fn1 of feature motion pictures, alleging that they had conspired to refuse to license features on the first run to plaintiff's drivein. The case was tried to the court. The district judge found that the uniform refusal of all eight distributors to license first run films to plaintiff was the result of concerted action. This was held to be an unreasonable restraint of trade in violation of the antitrust laws, whereupon a decree was entered requiring the distributor-defendants to give plaintiff an equal opportunity with the operators of conventional theaters to bid for pictures on first run. From that decree the distributors have appealed. Several exhibitors who operate first run theaters in downtown Allentown and Bethlehem were allowed to intervene; they too have appealed from the decree entered below. Plaintiff has moved to dismiss the appeal of these intervening defendants, and this motion is also before us. The district court refused to enter an order allowing plaintiff an attorney's fee as a part of its costs, and plaintiff has taken an appeal.

The salient facts found by the district court are as follows: Plaintiff's theater, known as the Boulevard Drive-In, is located on a major highway leading from the center of Allentown to Bethlehem. It is within the city limits of Allentown - 2.4 miles from the business center of that city, 1.7 miles from the common boundary between Allentown and Bethlehem, and less than five miles from the business center of Bethlehem. The Boulevard was constructed in 1949 at a total land and building cost of nearly $260,000. It accommodates over 900 cars, with an estimated capacity of 2500 adult patrons. The opinion of the trial judge was that in equipment, appointments and conveniences, Boulevard Drive-In is one of the finest drive-in theaters in the country and that if any drive-in be suitable for the showing of first run features, certainly this one is. David Milgram, the managing partner and an experienced operator, has been conducting the theater "along lines consistent with the highest grade of moving picture entertainment."

Plaintiff opened Boulevard Drive-In on October 19, 1949. It was operated for about five weeks as a "dress rehearsal," during which time it showed only old pictures. Plaintiff planned, however, that when the Boulevard reopened the following spring, it would be with first run films. During the fall of 1949, David Milgram spoke with the salesmen and district managers of many of the defendants, requesting features on first run when Boulevard Drive-In reopened in the spring. In November, 1949, plaintiff's attorney sent registered letters to each of the distributor-defendants, wherein he formally requested features on first run for plaintiff's theater. Some of the distributors failed to reply; others replied with inconclusive answers. There is no doubt, however, that each distributor decided not to license features on first run to the Boulevard. Moreover, six of the distributors (the Big Five and Universal) have now offered plaintiff a run 28 days after first run. The district managers of each of the distributors testified that their companies would not license first run features to the Boulevard even should plaintiff offer to pay a rental in excess of that offered by one of the downtown Allentown theaters. Each asserted that his company had arrived at this decision independently and had made no agreement with any other distributor. In fact, each stated he had no knowledge that any other distributor had refused to license first runs to the Boulevard.

The district managers testified with respect to the business reasons which prompted their companies to adopt this policy. Aside from minor variations, these reasons are essentially the same. They fall into two categories. First, the distributors declared that the drawing power of a conventional downtown theater is superior to that of a drive-in. The importance of the "drop-in" trade in the downtown area was stressed. The conventional theater has afternoon and early evening performances, whereas the drive-in is naturally limited to hours of early evening performances, whereas the drive-in is naturally limited to hours of darkness. Emphasis was placed on Saturday matinees for children. In this area a drive-in is a seasonal enterprise limited to seven or eight months, only several of which are so-called peak months. The distributors agreed that drive-in theaters are more susceptible to the whims of the weather. And it can hardly be denied that the drivein's appeal is limited to those who have the use of an automobile.

Secondly, the distributors testified that the showing of a feature on first run at a drive-in would reduce the income derived from subsequent runs. They asserted that first run showings are, in a sense, show cases for subsequent runs, in that the first run showing at a downtown theater gives a picture prestige which is important in "establishing" it in the neighboring area. Further, they emphasized the advertising value of a central city marquee.

The trial judge found that the Boulevard was in substantial competition with theatres in both Allentown and Bethlehem. In downtown Allentown, first run features are shown in seven theaters,*fn2 one of which also plays features on a subsequent run. First run features are shown in four theaters in Bethlehem.

It should be noted that none of the distributor-defendants has a financial interest in any of the first run theaters in Allentown or Bethlehem.*fn3 Three of these Allentown theaters are operated by intervening defendant Hamilton Street Realty Company. Hamilton is affiliated with the Fabian interests, which operate a total of sixty theaters in the eastern part of the United States.

The trial court found that each distributor adopted and adhered to the uniform course of excluding plaintiff from competing for first runs and that each acted with knowledge that all the others were so doing. Testimony to the effect that each proceeded in ignorance of the others was termed by the district judge incredible. Weighing this evidence of consciously parallel practices on the part of the distributors in the factual context of this case, the trial court concluded that a finding of a conspiracy in violation of Section 1 of the Sherman Act was warranted.

The distributor-defendants argue on appeal that the evidence is insufficient to justify an inference of agreement among them. But in this modern era of increasing subtleties, it is rare indeed for a conspiracy to be proved by direct evidence.*fn4 There is no dispute over the proposition that circumstantial evidence will sustain a finding of conspiracy. An experienced trial judge has heard the evidence and passed upon the credibility of the witnesses in this case; his conclusion is that an inference of joint action on the part of the distributors is warranted. The sole question now before us on this appeal is whether the trial judge's findings of fact are clearly erroneous. See Rule 52 of the Federal Rules of Civil Procedure.

Our starting point in analyzing the evidence is the complete unanimity with which all the distributors refused to license features on first run to plaintiff and the substantial unanimity with which they gave the Boulevard a 28 day status. Further, each distributor acted with knowledge of the policies of his competitors. It is clear that the reasons advanced by the distributors were not reasons peculiarly applicable to the Boulevard Drive-In or to Allentown, but were, with a few exceptions,*fn5 applicable to all drive-in theaters.The district court properly concluded that the district managers were putting into effect in Allentown a general program adopted and adhered to by the directing heads of each distributor to relegate drive-ins to second run status. This uniformity in policy forms the basis of an inference of joint action. This does not mean, however, that in every case mere consciously parallel business practices are sufficient evidence, in themselves, from which a court may infer concerted action. Here we add that each distributor refuses to license features on first run to a drive-in even if a higher rental is offered. Each distributor has thus acted in apparent contradiction to its own self-interest. This strengthens considerably the inference of conspiracy, for the conduct of the distributors is, in the absence of a valid explanation, inconsistent with decisions independently arrived at.

We think the evidence in this case can be profitably viewed against the background of United States v. Paramount Pictures, 66 F.Supp. 323 (D.C.N.Y., 1946). The evidence the government relied on there to prove a conspiracy to fix minimum admission prices and establish uniform clearances and runs was essentially consciously parallel business practices. The district court, 66 F.Supp. 341-346, concluded that the distributors, the same defendants now before this court, had acted in concert in granting clearances and runs. The Supreme Court, in affirming this finding, declared, 334 U.S. 131, 146-147:

"The evidence is ample to support the finding of the District Court that the defendants either participated in evolving this uniform system of clearances or acquiesced in it and so furthered its existence."

The past proclivity of these defendants to unlawful conduct has been alluded to both by the Supreme Court in the Paramount case, 334 U.S. at p. 147, and by this court in Ball v. Paramount Pictures, 169 F.2d 317, 320 (1948). It is true that the facts of the instant case arose subsequent to the time period involved in the Paramount case. They arose soon after the Paramount decision, and before any decree had been entered there against most of the distributor-defendants.*fn6 We think that the past proclivity of these defendants to unlawful conduct may be of some significance here, where the conspiracy alleged by plaintiff is identical in scope and nature to one of the conspiracies found in the Paramount case - concerted action to fix a uniform system of runs and clearances. The similarity of the conspiracy found in the case at bar and the nationwide conspiracy considered in the Paramount case is striking. On remand, the district court in the Paramount case observed that in smaller communities there was either a total absence of or slight competition from drive-ins. 85 F.Supp. 881, 894 (D.C.N.Y., 1949). This evidence the district court termed significant additional proof of monopoly control by the five major distributors of the first run theater market.Though that court did not mention the status of drive-ins in larger cities, the evidence presented in the case at bar makes it clear that the policy of the eight distributors, at least in the Philadelphia exchange area,*fn7 does not differentiate between smaller and larger communities. Further, there is no evidence that this policy was conceived subsequent to the time period involved in the Paramount case. Viewing the facts of this case in the light of the specific finding in the Paramount case, the inference of conspiracy here is strengthened.

We think that the district court's inference of a concerted action was warranted under the rules laid down by the Supreme Court in the Paramount case and in Interstate Circuit v. United States, 306 U.S. 208 (1939). The decisions of this court are in full accord. Goldman Theatres v. Loew's, Inc., 150 F.2d 738 (1945), and Ball v. Paramount Pictures, supra . The Goldman case is particularly apposite. There the distributors, the identical ones now before this court, had uniformly refused to license pictures on first run to the plaintiff's Erlanger Theatre, which the trial court had found suitable for the showing of first run features in Philadelphia. In reversing the judgment of the district court, which had held that no conspiracy had been established, we stated, 150 F.2d at p. 745:

"Uniform participation by competitors in a particular system of doing business where each is aware of the other's activities, the effect of which is restraint of interstate commerce, is sufficient to establish an unlawful conspiracy under the statutes before us."

We also stated in the Goldman case that the burden fell on the defendants to explain away the inference of joint action. In that case there was a complete failure to shoulder that burden, in that none of the officers who had responsibility to act for the distributors were called to testify. Here the distributor-defendants have attempted to meet this burden. But we cannot stress too strongly that the credibility of those witnesses was a matter peculiarly within the province of the trial judge. Rule 52, Federal Rules of Civil Procedure. See dissenting opinion of Judge Goodrich in Ball v. Paramount Pictures, 150 F.2d, 321 at 322.

The district court in the instant case no doubt concluded that the reasons advanced by the distributors were not the real ones prompting their action, or, at least, that the distributors' policies were not arrived at independently. It may be noted that there was a conflict between the testimony of Milgram and that of many of the district managers and salesmen with respect to Milgram's alleged requests for first run features. Milgram had testified concerning conversations which the distributor's witnesses in many cases denied. As the trial judge concluded that Milgram's testimony was more accurate, it is implicit that the credibility of defendants' witnesses was damaged in his eyes. We have already noted that the district court had termed incredible the distributors' testimony that each acted in ignorance of the others. The trial judge was also influenced by the fact that opinions of each distributor were based on mere conjecture, for none had ever experimented in licensing features on first run to a drive-in. We need hardly say that businessmen are not guilty of conspiracy because a court finds their business reasons poor ones. Yet the district judge was justified in giving some weight to the fact that experienced officials of all eight distributors had made important policy decisions without engaging in any serious attempt to test their validity. At least some of the business reasons uniformly advanced by all the distributors were not strictly relevant. The fact that a downtown theater is accessible to "drop-in" trade, has matinees, and attracts children on Saturdays is beside the point so long as plaintiff offers a guarantee which sufficiently protects the distributors. We must atart with the premise that plaintiff has offered to pay a guaranteed rental in excess of the probable total rental to be paid by a downtown theater. If the drawing power of the conventional downtown theater is so superior to its open air cousin that plaintiff could not continue to offer larger rentals, then the competitive forces of our economy would effectively dispose of plaintiff's bids for first runs. It is implicit in the opinion of the district court that at least some of the explanations offered by the distributor-defendants for their actions were invalid. The voicing of the same invalid reasons for identical equivocal actions is of itself sufficient from which to infer guilt.

The distributor-defendants urge strenuously that the Goldman case is not controlling here, as that case dealt with a monopoly situation. In that case one of the distributors, Warner Brothers, operated all the first run theaters in Philadelphia, whereas in the instant case none of the distributors has any financial interest in the theaters in Allentown or Bethlehem. We do not think, however, that the difference in the factual setting substantially lessens the weight we should accord the Goldman decision. The key question in that case was whether the uniform action of all distributors in not licensing pictures on first run to Goldman was the result of a conspiracy. Admittedly, Warner Brothers would have had an excellent motive for desiring such joint action. Why the other distributors desired such action is not quite so obvious, but becomes so if viewed against the facts of the motion picture industry brought to light in the Paramount litigation. In 1945 the Big Five distributors dominated the first run theater market in the 92 largest cities of the nation. 85 F.Supp. 881, 894. Thus, each of the major distributors, by favoring Warner Brothers in Philadelphia, might expect reciprocal favored treatment in other cities where it, in turn, dominated the first run theater market. This was apparently the motive for conspiracy in the Goldman case, and no doubt aided the court in drawing such inference. The motive in the instant case is similar. The trial judge found that the denial of first runs to plaintiff was the result of a nationwide policy of all the distributors - a nationwide policy to relegate drive-ins to second run status.We have no doubt that the five major distributors, with large investments in first run, conventional theaters throughout the country, may have been fearful of the competition of this new medium of exhibition - the drive-in theater.*fn8 Their common apprehension readily explains the unanimity with which they refused first runs to plaintiff and the unanimity with which they accorded it second run status. Had Boulevard been given films on first run, first-class drive-ins throughout the country would have demanded similar treatment. Hence, the fact that none of the distributors operates a theater in Allentown is of little significance. The denial of first runs to the Boulevard, a purely local situation, was thus merely a condition resulting from the nationwide policy. The real motive for the conspiracy here is thus strikingly similar to that in the Goldman situation. The motive of the minor defendants, as in the Goldman case, may not have been as strong, but it is apparent that they acquiesced in the policy.

Our study of the evidence in this case has convinced us that the trial judge's finding of a conspiracy in violation of Section 1 of the Sherman Act is adequately supported by the record.

The second question before us is the motion of plaintiff to dismiss the appeal of the intervening defendants. The district court found no unlawful conduct on their part, and as to them, dismissed the complaint without costs.The sole problem for our consideration is whether these intervenors have been legally aggrieved in any way by the decree entered below. It is settled law that even a party cannot appeal from a decision which is not adverse to him. Stearns-Roger Mfg. Co. v. Brown, 114 Fed. 939 (1902); Atles v. United States, 50 F.2d 808 (C.A. 3, 1931). The decree of the district court was not directed at the intervening defendants. Where an injunction is granted, one cannot generally appeal from the order unless he is directly or indirectly restrained from the performance of some act. See 4 C.J.S., Appeal and ...

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