Chicago Ridge Theatre Ltd. Partnership v. M & R Amusement Corp., 87-2270

• Decision Date: 02 November 1988
• Docket Number: No. 87-2270,87-2270
• Citation: 855 F.2d 465
• Parties: , 1988-2 Trade Cases 68,207 CHICAGO RIDGE THEATRE LIMITED PARTNERSHIP, a limited partnership, and F & F Management Co., a corporation, Plaintiffs-Appellants, v. M & R AMUSEMENT CORP., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 465

855 F.2d 465

57 USLW 2178, 1988-2 Trade Cases 68,207

CHICAGO RIDGE THEATRE LIMITED PARTNERSHIP, a limited partnership, and F & F Management Co., a corporation, Plaintiffs-Appellants, v. M & R AMUSEMENT CORP., et al., Defendants-Appellees.

No. 87-2270.

United States Court of Appeals Seventh Circuit.

Argued March 28, 1988.

Decided Aug. 24, 1988.

As Amended on Denial of Rehearing and Rehearing En Banc Nov. 2, 1988.

Sheldon O. Collen, Epton, Mullin & Druth, Ltd., Paul E. Slater, Sperling, Slater & Spitz, Chicago, Ill., for plaintiffs-appellants.

James G. Hunter, Jr., Latham & Watkins, Robert W. Bergstrom, Bergstrom, David & Teeple, Chicago, Ill., for defendants-appellees.

Before BAUER, Chief Judge, and CUDAHY and RIPPLE, Circuit Judges.

CUDAHY, Circuit Judge.

This is an antitrust suit by the owners and operators of the Chicago Ridge Theatre (the "Chicago Ridge"), a motion picture theater in the Chicago area, against the owners and operators of the Evergreen Theatre (the "Evergreen"), another Chicago area movie house, and six motion picture distributors. The complaint charges a conspiracy to license movies to the Evergreen for an exclusive "first run" free and clear of any run made available to the Chicago Ridge. The matter was tried to the court, which entered judgment for the defendants at the close of the plaintiffs' case. See Fed.R.Civ.P. 41(b). The plaintiffs appeal and we reverse and remand.

I.

The Chicago Ridge Theatre Limited Partnership is the lessee and operator of a four-screen movie theater, the Chicago Ridge, at 95th Street and Ridgeland Avenue, just southwest of Chicago in Chicago Ridge, Illinois. This partnership is affiliated with F & F Management Company which performs certain management functions for it. We shall refer to these entities collectively as the "plaintiffs." In 1982, the plaintiffs filed an antitrust suit under section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1982), seeking injunctive relief and treble damages pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. Secs. 15, 26 (1982). Named as defendants were the Evergreen Theatre Corporation and the M & R Amusement Corporation, the owners and operators of the Evergreen. The Evergreen is located on 95th Street in Chicago, 6.1 miles east of the Chicago Ridge. Additional defendants are six distributors of motion pictures (Columbia, Embassy, Paramount, United Artists, Universal and Orion). ¹ Late in March 1981, several of the plaintiffs' representatives met with representatives of the Evergreen's operator. At that time, the Evergreen representatives made it clear that they would not play films at the Evergreen "day and date" (i.e., simultaneously) with a showing of the same films at the Chicago Ridge. At the request of the Evergreen's operator, each distributor defendant agreed that the Evergreen would receive the first run ² of any picture licensed to be shown at the Evergreen, to the exclusion of the Chicago Ridge. That is, the Evergreen would receive "clearance" over the Chicago Ridge with respect to films played at the Evergreen. The distributor defendants knew of M & R Amusement Corporation's refusal to play "day and date" with the Chicago Ridge.

The Chicago Ridge was constructed in 1981 and consisted of three (later four) separate auditoriums for the showing of movies. The plaintiffs claim that they would not have expended capital to build the Chicago Ridge had they known that their new entrant would be precluded from getting attractive first-run films because of the clearance granted to the Evergreen. The parties agree that the first-run exhibition of motion pictures is the cream of the exhibition business.

The complaint demanded treble damages as well as a temporary and permanent injunction prohibiting the defendants from granting the Evergreen a clearance over the Chicago Ridge for first-run films. The theory of the plaintiffs' case is that it is unlawful to grant a clearance between theaters if they are not in substantial competition. Supplemental Appendix of Appellants at 11, 30 (hereinafter "Plaintiffs' Appendix"). Plaintiffs argue that this is the teaching of United States v. Paramount Pictures Corp., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260 (1948), which has generally been thought to be the controlling case in the area of motion picture distribution clearances. The plaintiffs also relied on a conspiracy theory, described by the distributor defendants as "coerced acquiescence." In essence, plaintiffs alleged a series of vertical agreements made jointly between each of the six distributor defendants and the Evergreen's operator, motivated by the "circuit buying power and aggressiveness" of that operator. I Supplemental Appendix of Defendants-Appellees at 78, 82. According to this theory, the defendant distributors agreed with the Evergreen's operator to refuse to license the Chicago Ridge for first-run films for which the Evergreen had a first-run license.

The defendants filed motions for summary judgment denying the conspiracy allegations and asserting that the plaintiffs had affirmatively proved that there was substantial competition between the theaters, which would make clearance a permissible competitive action. In January 1983 the plaintiffs withdrew their motion for a preliminary injunction and in February of that year the district court denied summary judgment and narrowed the issues for trial. The court accepted the plaintiffs' position (with which the defendants apparently agreed) that "a clearance can never be justified between two theaters not in substantial competition." Chicago Ridge Theatre Ltd. Partnership v. M & R Amusement Corp., No. 82 C 3141, mem. op. at 13 (N.D.Ill. Feb. 22, 1983). The court disagreed with the plaintiffs' assertion that the agreement to ensure clearance for the Evergreen over the Chicago Ridge could be held unlawful without an inquiry into its reasonableness. The district court stated:

When we examine defendants' conduct under the rule of reason, we find that plaintiffs' conspiracy theory collapses into its second theory [lack of competition between the theaters]. The only reason plaintiffs suggest that the clearance is unreasonable is that the Evergreen and the Chicago Ridge are not in substantial competition. This is plaintiffs' second, supposedly independent theory of liability.

Id. at 12. The district court therefore ordered a trial limited to the following issues:

(1) Has M & R [the Evergreen's operator] and/or the Evergreen agreed with one or more of the other defendants that the Evergreen would receive a clearance over the Chicago Ridge? (2) Did plaintiffs adequately demand that they be licensed day and date with the Evergreen until the point at which further demands were futile? (3) Are the Evergreen and the Chicago Ridge in substantial competition?

Chicago Ridge Theatre Ltd. Partnership v. M & R Amusement Corp., No. 82 C 3141, mem. op. at 2 (N.D.Ill. Nov. 6, 1984).

The case was tried to the court without a jury in January 1985. At the beginning of the trial the district court explained to counsel that in a nonjury case, if a motion for a finding is made by the defendants at the close of the plaintiffs' case, the district court need not view the evidence in the light most favorable to the plaintiffs but instead may weigh the evidence and assess the credibility of the witnesses. The burden of persuasion is on the plaintiffs; if at the close of the plaintiffs' case the court is not persuaded by the plaintiffs' submissions, the court should find for the defendants. See Fed.R.Civ.P. 41(b); see also Furth v. Inc. Publishing Corp., 823 F.2d 1178, 1179 (7th Cir.1987). In accordance with this framework, at the close of the plaintiffs' case, the court scheduled argument on the defendants' Rule 41(b) motions to dismiss, and after hearing argument took the matter under advisement. In July 1987 the court issued its memorandum opinion and order entering judgment for the defendants.

II.

The controlling issue upon which the district court's decision rests is its determination that the Chicago Ridge and the Evergreen theaters are in substantial competition. In reaching that conclusion, the district court relied explicitly upon the "testimony" of the defendants' three expert economic witnesses, Stephen Shavell, Michael Baumgardner and James Folsom, as well as upon the plaintiffs' witnesses. Unfortunately, the defendants never put on their case and their witnesses did not in fact testify. The defendants' evidence upon which the court relied was merely prefiled testimony of the three expert witnesses which in fact had never been received in evidence. The witnesses were never sworn in open court, never identified the testimony as their own and were never subjected to cross-examination.

The district court stated:

Defendants on the other hand introduced the testimony of Stephen Shavell, professor of law and economics at Harvard Law School ...; James Mack Folsom, a Ph.D. in economics ...; and statistician and psychologist Michael H. Baumgardner, a Ph.D. in social psychology and quantitative methods....

Chicago Ridge Theatre Ltd. Partnership v. M & R Amusement Corp., No. 82 C 3141, mem. op. at 9 (N.D.Ill. July 14, 1987) (hereinafter "1987 Opinion") (emphasis added). If the district court did in fact rely substantially on this unintroduced testimony in reaching its decision holding against the plaintiffs, the plaintiffs were denied due process of law and there must be a new trial or other proceedings.

The defendants make a valiant effort to show that the district court relied only upon the plaintiffs' own evidence in finding that the two theaters were in substantial competition with each other, or that even if the court erred, the unintroduced evidence was merely cumulative and the decision may stand without it. The defendants primarily assert that the district court did not depend upon any unintroduced evidence in making the finding in question. They quote certain...