U.S. v. Cooperative Theatres of Ohio, Inc.

• Decision Date: 08 March 1988
• Docket Number: No. 87-3594,87-3594
• Citation: 845 F.2d 1367
• Parties: , 1988-1 Trade Cases 67,923 UNITED STATES of America, Plaintiff-Appellee, v. COOPERATIVE THEATRES OF OHIO, INC. and David Beaupain, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1367

845 F.2d 1367

56 USLW 2678, 1988-1 Trade Cases 67,923

UNITED STATES of America, Plaintiff-Appellee, v. COOPERATIVE THEATRES OF OHIO, INC. and David Beaupain,

Defendants-Appellants.

No. 87-3594.

United States Court of Appeals, Sixth Circuit.

March 8, 1988.

Robert J. Rotatori, argued, Susan L. Gragel, Gold, Rotatori, Schwartz & Gibbons, Cleveland, Ohio, for defendants-appellants.

Edmund Round, Anne L. Porter, Cheri B. Cunningham, U.S. Dept. of Justice, Antitrust Div., Cleveland, Ohio, John J. Powers, III, Marion L. Jetton, argued, Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Before MARTIN and GUY, Circuit Judges, and JOHNSTONE, District Judge. ^*

PER CURIAM.

Defendants were found guilty after a jury trial of engaging in illegal trade practices in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1. The defendants were charged with entering into a conspiracy in restraint of trade whereby each of the two competing corporations agreed to refrain from competing for customers who were currently being serviced by the other rival corporation. Under the terms of the alleged agreement, the companies remained free to compete for new customers. The district court ruled that the alleged conduct constituted a per se violation of section 1 of the Sherman Act, and the jury found that the defendants had entered into the alleged illegal conspiracy. On appeal, defendants argue that the district court should have applied the "rule of reason" standard instead of the per se rule. Defendants also contend that there is insufficient evidence to support the convictions. For the following reasons, the judgment below is affirmed.

I.

This case involves an alleged agreement not to compete between two movie theater booking agents, Co-Operative Theatres of Ohio, Inc. (Co-Op), and Tri-State Theatre Services, Inc. (Tri-State). According to the facts alleged in the indictment, the agreement provided that "Co-Op would not attempt to become the booking agent for any theater that was already serviced by Tri-State in Ohio and West Virginia" and vice versa. Both companies operated as "middlemen" negotiating on behalf of independent movie theater owners to select and lease motion pictures from various distributors. The distributors are headquartered in several major cities known as "film exchanges." Defendant Tri-State has a Cincinnati office and is located in the Cincinnati exchange. Defendant Co-Op is based in Cleveland and operates primarily in that area.

In 1981, Co-Op began to seek customers in southern Ohio. Soon thereafter, Tri-State began to advertise the availability of its services in the Cleveland exchange. Edward Handler, as the Vice President of Tri-State, testified under a grant of immunity on behalf of the government. Handler told the jury that he was approached at a trade convention by defendant David Beaupain, an officer of Co-Op, who allegedly told Handler, "Tell your boss to stop calling our accounts, cause if you don't, we have a lot of your accounts calling us and we will start taking your accounts." When informed of Beaupain's threat, Handler's boss, Philip Borack, replied that Beaupain was bluffing. Following the trade convention, Co-Op began to book additional accounts in the Cincinnati exchange, including some former Tri-State accounts.

In the fall of 1981, Handler telephoned Beaupain and told him that "we should try to get our bosses together and have a meeting to stop this calling on each other's accounts." In November, 1981, a luncheon meeting was held in Dayton, Ohio, and attended by Handler, Borack, Beaupain, and Beaupain's boss, Blair Mooney. On direct examination, Handler stated that he did not recall the specifics of the discussion at the luncheon. When asked about the "substance" of Mr. Borack's comments during the conversation, Handler replied that "Tri-State and Co-Op were wasting a lot of time and energy in calling each other's accounts and it would be beneficial to both companies to stop, to stop doing this." Handler also testified that Blair Mooney had said "basically, the same thing." Handler did not recall any comments which may have been made by himself or Beaupain.

On cross-examination, Handler admitted that Tri-State had relied primarily on referrals in order to obtain customers. According to Handler, Tri-State had engaged in a brief campaign during the summer of 1981 to obtain customers in northern Ohio by contacting theater owners by telephone. Handler admitted, however, that this practice of making unsolicited "cold calls" was discontinued prior to the November lunch meeting because the technique was ineffective. Handler then testified that the agreement would not have prevented Tri-State from accepting unsolicited business from one of Co-Op's former accounts. When asked whether anyone at the lunch had used words like "agreement," "deal," "commitment," "assurance," or "promise," Handler replied that he did not recall. Handler again admitted that Tri-State had stopped cold calls for "independent business reasons" which "had nothing to do with anything at the Dayton luncheon." Finally, in response to a series of leading questions, Handler admitted that nothing was said or done at the luncheon meeting which was intended to restrict competition.

The government attempted to rehabilitate Handler's testimony on re-direct examination by asking Handler to tell the court "what you agreed to at the Dayton lunch." Handler replied that "Tri-State would not call on any Co-Operative Theatres' accounts." Handler's account of the luncheon meeting was disputed by defendants Mooney and Borack who testified that no agreement was made during the course of the lunch. Rather, they said that the purpose of the meeting was to defuse tensions and any personal animosity which may have resulted from increased competition between the two companies.

In addition to Handler, the government also called a theater owner, Solly Leo Yassenoff, who had formerly booked his films through Tri-State until October of 1981, when he switched to Co-Op. According to Yassenoff, Beaupain had called him and told him of a "war" between Co-Op and Tri-State, and Beaupain wanted to get Yassenoff's theaters into the Co-Op fold before a "truce" was declared. The government also called on three other theater owners who testified that Tri-State had called on them prior to November, 1981, but had subsequently refused their business on the grounds that Tri-State and Co-Op had an agreement not to take each other's customers. One of the theater owners further testified that he also contacted the President of Co-Op, Blair Mooney, who confirmed the existence of the agreement between Co-Op and Tri-State.

The defendants presented evidence to show that the two companies had continued to compete for new business throughout the area even after the November, 1981, lunch meeting. The defendants also emphasized that both companies had abandoned the "cold call" approach prior to November, 1981, and instead returned to their traditional method of gaining new accounts through referrals and general advertisements in trade magazines. Finally, there was evidence that Co-Op had accepted business which had come unsolicited from one of Tri-State's former accounts.

In rejecting defendants' pretrial motion for dismissal, the trial court found that the alleged agreement constituted a per se violation of section 1 of the Sherman Act because it was a horizontal agreement among competitors to allocate customers. Moreover, the court noted that the defendants had failed to articulate any potentially pro-competitive justification for the agreement. Accordingly, the jury was charged as follows:

Certain types of agreements, combinations or conspiracies are unreasonable per se. This means that the mere formation of the agreement, combination or conspiracy itself constitutes an unreasonable restraint of commerce, and it is not necessary for the prosecution to prove the extent of the effect on trade or commerce.

An agreement between two competitors to not attempt to become the booking agent for each other's customers is such a per se unreasonable restraint of trade.

The district court then went on to instruct the jury to determine whether the government had proved the existence of the charged conspiracy, whether the defendants had knowingly entered into the conspiracy, and whether the defendants did so with a knowledge of the probable anti-competitive effects of the agreement.

The jury returned guilty verdicts against the corporate defendants, Co-Op and Tri-State, and against the Vice President of Co-Op, David Beaupain. The President of Co-Op, Blair Mooney, and the President of Tri-State, Philip Borack, were acquitted. Co-Op and Tri-State were each fined $50,000. Beaupain was sentenced to two years probation. Tri-State, Co-Op, and Beaupain filed motions for judgment of acquittal and new trial. Those motions were denied in a written opinion and order dated May 28, 1987. Only Co-Op and Beaupain have appealed their convictions.

II.

Defendants present two issues on appeal. First, they claim that the alleged agreement should have been analyzed under the rule of reason rather than the per se standard applied by the district court. Second, defendants contend that the evidence presented by the government was insufficient to support their convictions. We address each of these issues seriatim.

Section 1 of the Sherman Act declares that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal...." 15 U.S.C. Sec. 1. Despite the broad language of the statute, the courts have limited the prohibitions of the Sherman Act to those restraints on trade which are deemed "unreasonable." ¹ In determining whether restraints of trade unreasonably restrict competition, courts have utilized two methods of analysis--the per se rule...