Azalea Drive-In Theatre, Inc. v. Sargoy

• Citation: 215 Va. 714,214 S.E.2d 131
• Decision Date: 28 April 1975
• Docket Number: DRIVE-IN,No. 740472,740472
• Court: Virginia Supreme Court
• Parties: , 1975-1 Trade Cases P 60,297 AZALEATHEATRE, INCORPORATED, and Twin Drive-In Theatre, Inc. v. Edward A. SARGOY et al. Record

Page 131

214 S.E.2d 131

215 Va. 714, 1975-1 Trade Cases P 60,297

AZALEA DRIVE-IN THEATRE, INCORPORATED, and Twin Drive-In Theatre, Inc. v. Edward A. SARGOY et al.

Record No. 740472.

Supreme Court of Virginia.

April 28, 1975.

Stanley E. Sacks, Norfolk (Louis H. Cohn, Sacks, Sacks & Tavss, Norfolk, on brief), for plaintiffs in error.

Lewis T. Booker, Richmond (Benjamin C. Ackerly; Hunton, Williams, Gay & Gibson, Richmond, on brief), for defendants in error.

Before I'ANSON, C.J., and CARRICO, HARRISON, COCHRAN, HARMAN, POFF and COMPTON, JJ.

I'ANSON, Chief Justice.

Plaintiff, Sargoy, Stein & Hanft (Sargoy), instituted this action against defendants, Azalea Drive-In Theatre, Incorporated, and Twin Drive-In Theatre, Inc. (defendants), to obtain a judgment on a promissory note dated February 12, 1971, in the amount of $70,000, together with interest and a reasonable attorney's fee. Defendants filed a responsive pleading and numerous affirmative defenses, one of which alleged that the note was void because it was procured in violation of the Sherman Anti-Trust Act and the Robinson-Patman Act. Defendants also filed a counterclaim for treble damages based upon alleged violations of these two antitrust acts.

Sargoy moved to strike defendants' affirmative defense based upon the federal antitrust laws because such defense was not available in this State court action. Sargoy also filed a plea in abatement to defendants' counterclaim asserting that federal district courts have exclusive jurisdiction to entertain federal antitrust actions. The motion to strike and the plea in abatement were sustained by the trial court.

Defendants' request for a jury trial was denied by the trial court because the note sued on provided that the right to a jury trial was waived by defendants in any litigation resulting from a default on the note.

After hearing evidence, the trial judge stated in an opinion letter that the legal issues presented turned on issues of fact and, as the trier of fact, he was resolving the issues in favor of Sargoy. Judgment was accordingly entered for Sargoy for the full amount of the note, together with interest and attorneys' fees.

The evidence shows that Earnest H. Price was the sole stockholder and operator of the Azalea and Twin Drive-In Theatres, located in Norfolk, Virginia. Films for the two drive-ins were rented from nine major distributors, who represented at least 75% Of the total motion picture distribution companies in the country. The standard rental fee was 40% Of the paid admissions less sales tax. To ensure that the totral admissions were accurately reported by the driveins (commonly known as exhibitors in the industry), the rental contracts contained a clause permitting the distributors or their agents to audit the exhibitors' records.

In November 1970 Sargoy, a New York law firm representing the nine distributors, notified defendants that it was sending Philip Kornfeld, an auditor, to Norfolk to audit the records of the two theatres. After an audit of the accounts covering a five-year period, Kornfeld came to the conclusion that defendants had underreported admissions in the sum of $220,000.

Kornfeld arrived at this figure by comparing concession receipts to admissions on those nights when defendants knew admissions were being independently counted. The concession receipts were approximately 48.5% Of the admission receipts when defendants knew they were being checked. However, on nights when 'blind checks' were conducted, the percentage of the concession receipts to admissions varied from 55% To 75%, indicating that not all of the admissions had been reported.

Another indication that there was underreporting was that the national average of persons per car entering a drive-in theatre was 2.2. Defendants' records did not reflect this national average.

At a meeting held on February 12, 1971, Kornfeld advised both Price and his accountant, Carl J. Katz, what his audit showed and told them that the unreported admissions represented a claim against defendants in the amount of $88,000.

Price and Katz testified that they questioned the accuracy of Kornfeld's figures, but they said Kornfeld told them that, if defendants did not agree to a settlement that day, defendants would not receive any more films. Kornfeld repeatedly denied making this threat.

Price and Katz then held a private conference and decided that it would be best for Price to accept some form of agreement to avoid having his film supply cut off, which would put the theatres out of business. A compromise figure of $70,000 was finally agreed upon with Kornfeld. At this time Price, as president of the two corporations, signed a note payable to Sargoy in the agreed amount. The note was to be paid over a three-year period and the first payment was due June 1, 1971. Two $7,500 checks were to be held in escrow for the first payments on the note.

Kornfeld then asked Price to sign a settlement agreement which purported to release any further claims against defendants arising out of the audit period ending on December 31, 1970. Price stated that he wanted his attorney to review the agreement before he signed it. Kornfeld agreed to this and asked Price to mail the agreement to him after his attorney had read it and Price had signed it for the corporations.

The settlement agreement provides, in pertinent part:

'In order to settle and resolve the questions and controversies between the Exhibitor and each respectively of said Distributors involving or in any way connected with each and any said Released Theatre(s), and to effect a mutual exchange of releases as to Released Theatre(s) between the Exhibitor and each said respective Distributor, in the content and form of the accompanying Schedule A (which is the typical form of mutual exchange of release contemplated by this agreement), it is mutually agreed as follows:

'4. Upon confirmation of acceptance it is further mutually agreed that the Exhibitor shall be deemed to have entered into and effected a mutual exchange of release with each separately of the above named Distributors, in the form of the accompanying Schedule A which is made a part hereof for such purposes . . ..

'8. IN WITNESS WHEREOF, this offer of settlement has herewith been executed by the Exhibitor, which upon confirmation by Sargoy & Stein of acceptance hereof as above provided, shall be deemed to be the settlement agreement of the respective parties hereto, with the effective release date hereof for the purpose of the releases provided herein being the day preceding the 31st day of December 1971.' (Date handwritten.)

Kornfeld later discovered that he had mistakenly written the effective release year as 1971 in the agreement instead of 1970. He said that he called Katz on the telephone and informed him of the mistake and that Katz stated that he would see to it that the date was changed. Katz denied receiving any such call from Kornfeld.

Kornfeld delivered the note and two $7,500 checks to David Fallick, his superior, in New York. Fallick testified that one of the dates on the checks had been changed and suggested that Kornfeld get a replacement from Price. On March 3, 1971, Fallick received, and acknowledged receipt of, the settlement agreement signed by Price, as president of the corporations, and the revised check.

Upon examination of the settlement agreement, Kornfeld noticed that the date of the effective release on the agreement had not been changed from 1971 to 1970, as he had requested Katz to do. Kornfeld then changed the date himself.

After receiving the settlement agreement, Fallick sent letters to all nine distributors asking them if they would accept a certain percentage of the $70,000 in settlement for their claims. Written acceptances were received from seven distributors and oral acceptances from the remaining two.

Burton H. Hanft, attorney for Sargoy, testified that he signed the settlement agreement on behalf of the distributors. He stated that plaintiffs had been the attorneys and agents for the nine distributors for the past thirty years; that all the distributors had given him the authority to accept the settlement agreement in this particular case; and that he had communicated this authority to defendants.

On April 2, 1971, Fallick wrote a letter to Price informing him that the distributors had accepted the agreement. He enclosed a separate mutual release from each distributor for Price to sign and return. On May 3, 1971, Fallick again wrote Price asking him to sign and return the releases. He received no response from Price.

The next word that Fallick received on the matter was a phone call and a letter from defendants' attorney three days before the first installment on the note was due, stating that defendants did not intend to go through with the settlement and that a 'stop payment' order had been placed on the two checks.

Defendants' first contention is that the trial court erred in striking its affirmative defense based upon violations of the Sherman Anti-Trust Act and the Robinson-Patman Act. They argue that the note was unenforceable because it was illegally procured under threat of refusing to supply them with films in violation of the federal antitrust acts. We do not agree.

This issue has been resolved against defendants by the United States Supreme Court in the cases of Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 67 S.Ct. 1015, 91 L.Ed. 1219 (1947), and Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959). In Bruce's...