Cine 42nd Street Theater Corp. v. Nederlander Organization, Inc., 124

• Decision Date: 14 May 1986
• Docket Number: No. 124,D,124
• Citation: 790 F.2d 1032
• Parties: , 1986-1 Trade Cases 67,097 CINE 42nd STREET THEATER CORPORATION, Leonard Clark and the Brandt Organization, Inc., Plaintiffs-Appellants, v. The NEDERLANDER ORGANIZATION, INC.; Harris Nederlander, Inc.; Jujamcyn Company, Inc.; Cambridge Investment Group, Ltd.; Park Tower Realty Corp.; the New York State Urban Development Corporation; Times Square Redevelopment Corporation and the City of New York, Defendants-Appellees. ocket 85-7412.
• Court: U.S. Court of Appeals — Second Circuit

Page 1032

790 F.2d 1032

54 USLW 2601, 1986-1 Trade Cases 67,097

CINE 42nd STREET THEATER CORPORATION, Leonard Clark and the Brandt Organization, Inc., Plaintiffs-Appellants, v. The NEDERLANDER ORGANIZATION, INC.; Harris Nederlander Inc.; Jujamcyn Company, Inc.; Cambridge Investment Group Ltd.; Park Tower Realty Corp.; the New York State Urban Development Corporation; Times Square Redevelopment Corporation and the City of New York, Defendants-Appellees.

No. 124, Docket 85-7412.

United States Court of Appeals, Second Circuit.

Argued Oct. 3, 1985.

Decided May 14, 1986.

James E. Daniels, New York City (Barbara L. Levine, Neil G. Sparber, Warshaw Burstein Cohen Schlesinger & Kuh, New York City, of counsel), for plaintiffs-appellants Cine 42nd Street Theater Corp. and Leonard Clark.

Martin J. Schwartz, New York City (Rubin Baum Levin Constant & Friedman, New York City, of counsel), filed a brief for plaintiff-appellant The Brandt Organization, Inc.

Francis F. Caputo, New York City (Frederick A.O. Schwarz, Jr., Corp. Counsel of the City of New York, of counsel), for defendant-appellee The City of New York.

Irving Scher, New York City (Weil, Gotshal & Manges, New York City, of counsel) for defendants-appellees The Nederlander Organization, Inc., Harris Nederlander, Inc. and New Amsterdam Nederlander, Inc.

Robert Bicks, New York City (Breed, Abbott & Morgan, New York City, of counsel), for defendants-appellees Jujamcyn Co., Inc. and Cambridge Investment Group, Ltd.

Gerald Sobel, New York City (Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for defendant-appellee Park Tower Realty Corp.

Susan M. Heilbron, New York City, for defendants-appellees, N.Y. State Urban Development Corp. and Times Square Redevelopment Corp.

Before NEWMAN, CARDAMONE and MINER, Circuit Judges.

CARDAMONE, Circuit Judge:

New York's Urban Development Corporation (UDC) and New York City, together with private parties, are engaged in a development project designed to revitalize the Times Square area. Under the plan, five moviehouses in the Broadway Theater district are being acquired by the UDC and leased to private parties to renovate and operate them as Broadway Theaters. This appeal presents the novel question of whether the developers of this project are immune from the provisions of the federal antitrust laws.

A state's attempt to regulate its own domestic economy that results in anticompetitive consequences brings two divergent beliefs into sharp conflict. The first, embedded in our federalist system, holds that states are sovereign powers and--absent constitutional constraints--entitled to act independently, even when such leads to anticompetitive economic activity. The second tenet is that our economy is grounded on the free enterprise system and that anticompetitive economic activity is prohibited by antitrust law. Resolving the conflict between these concepts is our task.

Beyond doubt free competition undergirds our economy. But the State urges that private enterprise cannot effectively deal with the problems of urban decay, and contends that exclusive reliance on free enterprise may leave its cities as desolate as the nothingness Shelley described beside Ozymandias. "Round the decay Of that colossal wreck, boundless and bare, The lone and level sands strech far away." ¹ Concerned that unchecked urban blight could produce a similar wasteland, and persuaded that free enterprise alone could not reverse its spread, the state crafted a vehicle to solve this persistent problem, even though that redevelopment effort might involve anticompetitive activity.

Appellants Cine 42nd Street Theater Corporation, Leonard Clark and the Brandt Organization, Inc. presently have contractual interests in the five moviehouses to be leased and were unsuccessful bidders for the theater development rights. As plaintiffs below they challenged the designation of those rights to the private appellees--the Nederlander Organization, Inc., Jujamcyn Company, Inc. and Cambridge Investment Group, Ltd.--made by the public appellees, the New York State Urban Development Corporation and the City of New York. The complaint alleged awarding interests in the development project to the private appellees would substantially lessen competition in the Broadway Theater market and thus violate the Clayton Act, 15 U.S.C. Sec. 15 et seq. (1982) and New York's Donnelly Act, N.Y.Gen.Bus. Law Secs. 340-349-a (McKinney's 1968 & Supp.1986). Appellees' motion to dismiss the complaint was granted by judgment dated April 18, 1985 in the United States District Court for the Southern District of New York (Conner, J.), 609 F.Supp. 113. Appellants challenge the district court's holding that appellees were entitled to a state action defense under the Clayton Act. We agree with the district court's conclusion, but take a somewhat different path to reach it.

I Background

A. Formation, Purpose and Powers of the New York State Urban Development Corporation

In 1968, the New York State Legislature confronted the persistent problem of urban blight. Recognizing that many localities were in decay and unsanitary, thereby depriving citizens of educational, cultural, and residential opportunities, the legislature enacted the New York State Urban Development Corporation Act. 65 N.Y.Uncon.L. Sec. 6251 et seq. (McKinney 1980 & Supp.1986) (Act or UDC Act). The Act created the UDC as the vehicle to reverse urban decay.

The UDC is "a corporate governmental agency of the state, constituting a political subdivision and public benefit corporation." UDC Act Sec. 6254(1) (McKinney Supp.1984). Two of its nine member governing board are public officials--the superintendent of banking and the chairman of the State Science and Technology Foundation. Subject to the advice and consent of the state senate, the remaining seven directors are selected by the governor who also designates one of the seven as chairperson. Currently, the directors serve four year terms.

The agency is designed to make the State an active participant in the financing and construction of urban renewal projects. See Governor's Memorandum on Approval of Urban Development Program, reprinted in 1968 N.Y.Sess.Laws 2359 (February 27, 1968). As such, the UDC represents legislative recognition that private enterprise cannot by itself rebuild the State's cities, and that other methods of obtaining funds, such as state-wide voting referendums, are ineffectual. See Osborn, New York's Urban Development Corporation: A Study on the Unchecked Power of a Public Authority, 43 Brooklyn L.Rev. 237, 237-41 (1977) (New York's UDC ).

From its inception the UDC was structured to operate independently, free from the political and bureaucratic inertia that had delayed other projects and made them unattractive investments to the private sector. Although a creature of statute, the UDC derives its powers directly from the State Constitution. Floyd v. N.Y.S. Urban Development Corp., 33 N.Y.2d 1, 7, 347 N.Y.S.2d 161, 300 N.E.2d 704 (1973). As a public benefit corporation it exercises governmental authority, although it does so independently of the State. Smith v. Levitt, 37 A.D.2d 418, 421, 326 N.Y.S.2d 335 (3d Dep't 1971), aff'd mem., 30 N.Y.2d 934, 335 N.Y.S.2d 687, 287 N.E.2d 380 (1972); see Osborn, New York's UDC at 237-38 & n. 4.

Its powers are as broad and diverse as the problems it is designed to address. While the UDC was given generalized powers to improve the urban environment, it was also granted specific authority to enter into lease arrangements, to acquire property through purchase or condemnation, and to hold, sell or otherwise transfer this property either to public or private third parties. UDC Act Sec. 6255.

Because this case involves the leasing of land for land use improvement projects, we examine that aspect of the UDC's powers with greater particularity. Pursuant to Sec. 6256(1) the UDC may enter into 99-year leases with any third party, whether public or private, when the land is to be used for a land use development project. Although leases may be auctioned through competitive bidding, such bidding is not mandatory. Further, public notice is only necessary if the lease is awarded to a "person, firm, partnership, or corporation," rather than a housing company or local development corporation. Id. at (a), (b), (c).

The sole limitation placed on the UDC's leasing power--within the context of land use improvement projects--is that it must first find that the proposed project will actually improve a previously decayed area. See id. This limitation as further defined in Sec. 6260 requires the agency to make three findings prior to awarding a lease and undertaking such an improvement project: first, the target area must qualify as a "substandard or unsanitary area, or [be] in danger of becoming" such an area, UDC Act Sec. 6260(c)(1); second, the designated project must actually improve the target area in a manner consistent with the underlying legislative purpose, see id. at (c)(2); third, the project must solicit and incorporate, to the greatest extent possible, the active participation of private business interests, id. at (c)(3).

The UDC is encouraged to work actively with municipalities. UDC Act Sec. 6266. To permit municipalities to enter freely into coordinated projects with the UDC, the Act specifically authorizes municipalities to contract with the agency notwithstanding prohibitions to the contrary. Id. at 6266(6). The specific grants and powers conferred upon the UDC make it a powerful engine for social change. Its powers include: developing projects without regard to local zoning, building, or other local laws, UDC Act Sec. 6266, and funding, building, leasing, selling or managing facilities, free from "any taxes, other than assessments for local improvements, upon or in respect of a project or of any property ... of the corporation" otherwise assessable by the State or its political subdivisions, id. ...