Fanchon & Marco, Inc. v. Paramount Pictures, 154

• Decision Date: 09 March 1953
• Docket Number: No. 154,Docket 22534.,154
• Citation: 202 F.2d 731
• Parties: FANCHON & MARCO, Inc., et al. v. PARAMOUNT PICTURES, Inc., et al.
• Court: U.S. Court of Appeals — Second Circuit

202 F.2d 731 (1953)

FANCHON & MARCO, Inc., et al. v. PARAMOUNT PICTURES, Inc., et al.

No. 154, Docket 22534.

United States Court of Appeals Second Circuit.

Argued February 3, 1953.

Decided March 9, 1953.

Russell Hardy, Washington, D. C. (John Harlan Amen, New York City, and James Wallace Kemp and Russell Hardy, Jr., both of Washington, D. C., on the brief), for plaintiffs-appellants.

Albert C. Bickford, New York City (Simpson, Thacher & Bartlett, Irving Parker and David S. Junker, all of New York City, on the brief), for defendants-appellees.

Before SWAN, Chief Judge, and CHASE and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This is an action for relief under the antitrust laws, 15 U.S.C.A. §§ 15, 16, involving the operation of moving picture theatres in Hollywood, California, the restraint of trade relied on being the control of movie distribution condemned in the Paramount case, United States v. Paramount Pictures, Inc., D.C.S.D.N.Y., 66 F. Supp. 323; Id., D.C., 70 F.Supp. 53; Id., D.C., 85 F.Supp. 881; Id., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260; United States v. Loew's, Inc., 339 U.S. 974, 70 S.Ct. 1032, 94 L.Ed. 1380. Plaintiff Fanchon & Marco, Inc., owns fifty per cent of the stock of its co-plaintiff, Paramount Hollywood Theatre Corporation. Defendant Paramount Pictures, Inc., owned the other fifty per cent until December 30, 1949, when its shares were transferred to United Paramount Theatres, Inc., pursuant to the divestment requirements of the decree in the Paramount case. United has been permitted to intervene as a defendant in this case; and its answer, denying the plaintiff's claims with special defenses, contains also a counterclaim for a declaratory judgment and an injunction.

The plaintiffs' suit is upon three claims, based on essentially the same violations of the antitrust laws: one a claim by Fanchon & Marco individually for injury to its property and business, another the Theatre Corporation's claim of injury on the same facts, and the third a claim by Fanchon & Marco as a shareholder bringing a derivative suit for the benefit of the Theatre Corporation for the same injury. From the facts alleged in the amended complaint it appears that Fanchon & Marco obtained a ten-year lease on a moving picture theatre in Hollywood in 1941, with an option for renewal for an additional ten years. Then it arranged for development of this business with Paramount Pictures. To take over the newly acquired lease and operate the theatre, the two corporations organized Paramount Hollywood Theatre Corporation as a Delaware corporation in 1942, with each organizing corporation receiving one-half the stock and naming two of the four directors. The new corporation then made a contract with Paramount for obtaining a distribution of pictures from the latter. It is now the claim of plaintiffs that through the restraint found by the court in the Paramount case the Theatre Corporation was unlawfully deprived of the competitive service of Paramount in supplying first-run movies and suffered a loss in profits accordingly. It is further claimed that the Theatre Corporation purchased a theatre site in Beverly Hills, but was prevented by Paramount from building a theatre in this potentially profitable part of the Los Angeles area. In their action begun on March 30, 1949, plaintiffs ask for treble damages and attorneys' fees in a total of some three million dollars, together with an order enjoining the defendants from voting the stock held by them in the Theatre Corporation and ordering them to return the stock to that corporation. The counterclaim of defendant-intervenor United asks for a declaratory judgment that it is the lawful owner of this stock and an injunction against interference with its ownership or the functioning of the Theatre Corporation.

On extended pre-trial hearings after the answers were filed, the judge considered a motion to dismiss by the defendants, together with affidavits and depositions. Thereafter in a reasoned opinion, D.C.S.D. N.Y., 107 F.Supp. 532, he granted the motion, ruling that Fanchon & Marco had shown no individual injury to itself, that suit on behalf of the Theatre Corporation had not been authorized by its directors, and that Fanchon & Marco could not maintain a shareholder's derivative suit "in equity" for treble damages under the antitrust act. As to the first claim the judge pointed out possible grounds for claiming direct injury to Fanchon & Marco, and left the matter open for it to amend. He dismissed the other two claims finally, but reserved United's counterclaim for further action by the court. Question being raised at the argument before us as to the appealability of the order, the parties have since filed a stipulation and consent for disposition of the appeal upon the record, as supplemented by an order of the district court, dated February 6, 1953, which amends the previous order of dismissal "nunc pro tunc," and a final judgment to the same effect. In the new order the judge recites that since Fanchon & Marco has elected not to amend, all the plaintiffs' claims are dismissed finally, the counterclaim being preserved by the judge's finding pursuant to F.R.C.P. 54(b), 28 U.S.C., that there is no just reason for delay as to final judgment on the plaintiffs' claims. The appeal is now in shape for final disposition; while we doubt any efficacy to the mystic words "nunc pro tunc," nothing turns upon them at this time. In view of the obvious insufficiency of the first claim, as pointed out by the judge, and plaintiffs' declination of any attempt to patch it up, we have for consideration only the latter two claims.

We agree with the judge in his dismissal of the Theatre Corporation's action as unauthorized and in the reasons he assigns, 107 F.Supp. at pages 537-540. This suit was started by action of Mrs. Fanchon Simon, president and one of the directors of the Theatre Corporation, on her own authority as president and upon vote of herself and her co-director representing Fanchon & Marco, without any notice to the two directors representing Paramount. This was justified on the naive reason that it was known the latter would oppose the action and that they were disqualified because of interest; why the acts of the two acting directors were not subject to a like infirmity is not disclosed. Moreover, the certificate of incorporation itself negates any such theory of disqualification. Article 12 validates transactions with corporations in which a Theatre Corporation director is interested, even if his vote is necessary to authorize those transactions, so long as the other directors know of his interest; and the Article further exempts the interested director from liability for any loss incurred in connection with such transactions. The adverse interest of the two directors representing Paramount here was, of course, obvious, so that their disqualification would certainly run counter to the spirit, if not the letter, of the Article. We need not stop here to discuss the other articles in the certificate of incorporation or the by-laws of the corporation; they are thoroughly considered in the judge's opinion and do not yield any unusual powers to the president. It may be agreed that a president may authorize normal litigation without thereby finding justification for an action against the single other stockholder which will obviously disrupt corporate activities until terminated and which is known to be opposed by one-half the board of directors. The contention relied on seems too farfetched to deserve extended consideration. Sterling Industries, Inc. v. Ball Bearing Pen Corp., 298 N.Y. 483, 84 N.E.2d 790, 10 A.L.R.2d 694; Motor Terminals, Inc. v. National Car Co., D.C.Del., 92 F.Supp. 155, affirmed 3 Cir., 182 F.2d 732.

As the cases cited point out, this conclusion makes more apparent the need of the remedy of a stockholder's derivative action; and we turn now to that final and most interesting claim. The district court ruled that "a stockholder's derivative suit does not lie for the recovery of treble damages under the anti-trust laws, because the claim is one at law," citing Fleitmann v. Welsbach Street Lighting Co. of America, 240 U.S. 27, 36 S.Ct. 233, 60 L.Ed. 505, and United Copper Securities Co. v. Amalgamated Copper Co., 244 U.S. 261, 37 S.Ct. 509, 61 L.Ed. 1119. It also discussed the effect of the new Federal Rules of Civil Procedure, effective a couple of decades after the cases cited, saying: "A single form of action is provided for in Rule 2, F.R.C.P., 28 U.S.C.A., but the basic difference between law and equity has not been changed," in support of which it cited Bereslavsky v. Caffey, 2 Cir., 161 F.2d 499, certiorari denied 332 U.S. 770, 68 S.Ct. 82, 92 L.Ed. 355. 107 F.Supp. at page 541.

The district court's decision can be upheld only on the basis that no stockholder's derivative action of any kind can be brought for a violation of the antitrust laws. For, as is well understood, the one civil action under the rules is used to vindicate any civil power the district court has; the demand for judgment forms no part of the claim for relief, and does not restrict the relief to be granted against those appearing and defending; and as against such parties the final judgment shall grant all the relief to which a plaintiff is entitled, whether or not demanded in his pleadings. F.R. 1, 2, 54(c); Ring v. Spina, 2 Cir., 148 F.2d 647, 653, 160 A.L.R. 371, 2 Cir., 166 F.2d 546, certiorari denied Spina v. Ring, 335 U.S. 813, 69 S.Ct. 30, 93 L.Ed. 368; Gulbenkian v. Gulbenkian, 2 Cir., 147 F.2d 173, 158 A.L.R. 990; Gins v. Mauser...