610 F.2d 614 (9th Cir. 1979), 77-2292, Las Vegas Sun, Inc. v. Summa Corp.

Docket Nº77-2292.
Citation610 F.2d 614
Party NameLAS VEGAS SUN, INC., a Nevada Corporation, Plaintiff-Appellant. v. SUMMA CORPORATION, dba Castaways Casino, Frontier Hotel, and Desert Inn Hotel, Hotel Properties, Inc., dba Landmark Hotel, Hughes Television Network, Inc., dba Sands Hotel, First National Bank of Nevada, dba Silver Slipper, Frank W. Gay, and Chester Davis, Defendants-Appellees.
Case DateNovember 15, 1979
CourtUnited States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 614

610 F.2d 614 (9th Cir. 1979)

LAS VEGAS SUN, INC., a Nevada Corporation, Plaintiff-Appellant.

v.

SUMMA CORPORATION, dba Castaways Casino, Frontier Hotel, and

Desert Inn Hotel, Hotel Properties, Inc., dba Landmark

Hotel, Hughes Television Network, Inc., dba Sands Hotel,

First National Bank of Nevada, dba Silver Slipper, Frank W.

Gay, and Chester Davis, Defendants-Appellees.

No. 77-2292.

United States Court of Appeals, Ninth Circuit

November 15, 1979

Rehearing Denied Jan. 17, 1980.

Page 615

Joseph M. Alioto, Alioto & Alioto, San Francisco, Cal., for plaintiff-appellant.

Robert E. Cooper, Gibson, Dunn & Crutcher, Los Angeles, Cal., argued for defendants-appellees; Walter H. Beebe, Maxwell E. Cox, Harriet S. Stein, New York City, Morse, Foley & Wadsworth, Las Vegas, Nev., on brief.

Davis & Cox, Los Angeles, Cal., for defendants-appellees, Frank Gay and Chester Davis.

Appeal from the United States District Court for the District of Nevada.

Before DUNIWAY and WALLACE, Circuit Judges, and BLUMENFELD, [*] District Judge.

WALLACE, Circuit Judge:

The Las Vegas Sun, Inc. (the Sun) appeals the district court's refusal to grant money damages and injunctive relief for alleged violations of section 1 of the Sherman Anti-Trust Act, 15 U.S.C. § 1, section 8 of the Clayton Anti-Trust Act, 15 U.S.C. § 19, and the common law of Nevada. The basis of the Sun's complaint is that various corporations and individuals combined and conspired to ruin the Sun's business by withdrawing their commercial advertising from its newspaper.

The district court held that neither the Sherman Act, the Clayton Act, nor the Nevada common law had been violated by any of the charged activities. The district court also denied the Sun's motion, pursuant to Rules 38(b) 1 and 39(b), Federal Rules of Civil Procedure, to grant a jury trial on issues raised in the amended complaint and to set aside the Sun's prior waiver of a jury trial. We hold that the district judge ruled

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correctly on both issues, and therefore affirm.

I

The Sun owns and publishes the Las Vegas Sun, one of two major daily newspapers in Las Vegas, Nevada. Its average daily circulation is 38,447; the circulation of its evening competitor, the Las Vegas Review-Journal, is 67,921.

The corporations sued, Summa Corporation (Summa), Hughes Television Network, Inc. (HTV), and Hotel Properties, Inc. (HPI), were all owned or controlled by the late Howard R. Hughes, Jr. 2 Through Summa, HTV, HPI, and a sole proprietorship in the Silver Slipper Casino, Hughes controlled six hotel-casino resorts in Las Vegas, Nevada. None of these resorts was separately incorporated, and Hughes personally held, in conjunction with various officers and directors of his companies, each casino's gambling license. The district court found that Summa operated all of the Hughes Resorts as divisions, regardless of which of Hughes' corporate entities actually held record title to the respective property. Further, the Hughes Resorts held themselves out to the public as a single business known as "Hughes Resort Hotels" and "Hughes Hotels and Casinos." There was testimony by Frank Gay, the chief executive officer of Summa, that the various hotel-casinos did compete with each other and that Summa encouraged this competition. The district court concluded, however, that the various hotel-casinos were run by Howard Hughes as a single economic unit and did not in fact compete.

The relationship between Summa and the Sun began in May 1967, when Hughes Tool Company (Hughes Tool), Summa's predecessor, and the Sun agreed that Hughes Tool would advance $500,000 to the Sun for prepaid advertising. Hughes Tool was entitled, pursuant to this agreement, to designate any of the Hughes Resorts or other Hughes businesses to draw on this credit for their advertising in the Las Vegas Sun.

The district court found that the Sun obtained the $500,000 advance through its close relationship with Robert Maheu, then head of Hughes' Nevada operations. Shortly after the Sun received the advance, Hank Greenspun, the owner of the Sun, who had previously opposed issuance of multiple gambling licenses, testified before the Nevada Gaming Commission in favor of issuing multiple licenses to Hughes. During 1967 through 1969, Maheu arranged for payments and loans on extremely favorable terms from Summa to the Sun and Greenspun, totaling $11,373,064.45. The day after the largest single payment of these transactions was received, Greenspun "loaned" Maheu $150,000. Maheu has never paid any principal or interest on this "loan."

Hughes fired Maheu in December 1970. Immediately thereafter, the Sun reversed its pro-Hughes editorial policy and began to attack Hughes and his businesses. The Sun's hostile editorial stance, in addition to the approaching exhaustion of the prepaid advertising credit, led Summa's Public Relations Department to review the "cost-effectiveness" of its advertising in both the Las Vegas Sun and the Review-Journal. This study concluded that the Hughes Resorts' advertising cost $15.83 per thousand paid subscribers if purchased from the Review-Journal, and, after eliminating duplication between the two newspapers, cost $47.42 per thousand in the Las Vegas Sun. In addition, the head of Summa's Public Relations Department, Robert Bennett, determined that the quality of printing and photographic reproduction was superior in the Review-Journal. Nonetheless, Bennett decided to continue advertising in the Las Vegas Sun until the prepaid account was exhausted.

On April 12, 1976, the Las Vegas Sun carried a front-page article which implied that certain Summa officers, including Frank Gay, had been guilty of forgery and

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other criminal conduct. By that date the prepaid advertising account had been reduced to a trivial amount. After consultation with Gay, Bennett decided to cancel all Hughes Resorts advertising in the Las Vegas Sun and directed each of the six hotel-casinos controlled by Hughes to cancel any advertising which could be cancelled and to purchase no new advertising space in the Las Vegas Sun. The managers of the six hotel-casinos followed Bennett's direction.

The district court found that although Bennett anticipated that his decision to withdraw Hughes Resorts' advertising might injure the Sun, Bennett did not act with this effect as his purpose. The court specifically found that Bennett's decision was prompted by legitimate business considerations.

The Sun's business was not ruined by Summa's termination of advertising in the Las Vegas Sun. In fact the district court found that the Sun's revenue and total inches of display advertising increased in each month after April 1976.

II

The Sun's Sherman Act § 1, 15 U.S.C. § 1, and Clayton Act § 8, 15 U.S.C. § 19, claims are each premised on the ground that the six hotel-casinos were separate, competing, business entities. To prove a Sherman Act § 1 violation, the Sun must show that those charged "conspired" to restrain trade. To prove a violation of section 8 of the Clayton Act, the Sun must demonstrate that the two individual defendants, Gay and Chester Davis, Summa's chief counsel, were simultaneously acting as directors of corporations which, "by virtue of their business and location of operation," are "competitors." 15 U.S.C. § 19. Because the district court's findings that the corporations involved neither competed among themselves, nor were separate entities capable of "conspiring" are not clearly erroneous, we hold that both the Sherman Act and the Clayton Act claims must fail.

A.

We have stated:

The Supreme Court repeatedly has held that "common ownership and control does not liberate (two separately incorporated subsidiaries within the same corporate family) from the impact of the antitrust laws . . . especially . . . where (they) hold themselves out as competitors." Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 215, 71 S.Ct. 259, 261, 95 L.Ed. 219 (1951). Accord, Perma Life Mufflers v. International Parts Corp., 392 U.S. 134, 141-42, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968); Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951).

Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620, 625 (9th Cir. 1977). Nevertheless, "the mere formality of separate incorporation is not, without more, sufficient to provide the capability for conspiracy." Harvey v. Fearless Farris Wholesale, Inc., 589 F.2d 451, 456 (9th Cir. 1979). See Knutson v. Daily Review, Inc., 548 F.2d 795, 801-02 (9th Cir. 1976), Cert. denied, 433 U.S. 910, 97 S.Ct. 2977, 53 L.Ed.2d 1094 (1977). To "conspire" within the meaning of the Sherman Act, corporate entities within a single organization must be sufficiently independent of each other for their concerted action to raise antitrust concerns. See id.; Harvey v. Fearless Farris Wholesale, Inc., supra, 589 F.2d at 455-58. To determine whether corporate entities are separate enough to be capable of conspiracy, a court must examine the particular facts of the case before it. Mutual Fund Investors v. Putnam Management Co., 553 F.2d at 625-26; Knutson v. Daily Review, Inc., 548 F.2d at 802. If the intra-enterprise entities "hold themselves out as competitors," the rule that they cannot avoid Sherman Act liability by hiding behind their common ownership and control is "especially applicable." Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 215, 71 S.Ct. 259, 95 L.Ed. 219 (1951). 3

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We have considered the problem of intra-enterprise conspiracy under the antitrust laws on two recent occasions. In Knutson v. Daily Review, Inc., supra, a parent corporation and its wholly-owned subsidiary published several newspapers. A single individual controlled the parent, headed each of its subsidiary corporations, and served as publisher of all the newspapers. In dicta, we held that the...

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