Goldberg v. Tri-States Theatre Corporation

• Decision Date: 03 March 1942
• Docket Number: No. 12066.,12066.
• Citation: 126 F.2d 26
• Parties: GOLDBERG et al. v. TRI-STATES THEATRE CORPORATION.
• Court: U.S. Court of Appeals — Eighth Circuit

126 F.2d 26 (1942)

GOLDBERG et al. v. TRI-STATES THEATRE CORPORATION.

No. 12066.

Circuit Court of Appeals, Eighth Circuit.

March 3, 1942.

I. J. Dunn and John C. Mullen, both of Omaha, Neb. (I. Ziegler and George W. Becker, both of Omaha, Neb., on the brief), for appellants.

Yale C. Holland, of Omaha, Neb. (J. A. C. Kennedy and Eugene N. Blazer, both of Omaha, Neb., on the brief), for appellee.

Before STONE, WOODROUGH, and JOHNSEN, Circuit Judges.

JOHNSEN, Circuit Judge.

This is a suit to enjoin the use for theatre purposes, by defendants, of the State Theatre Building, located at 1410-1414 Farnam Street, in the city of Omaha, Nebraska.¹ The injunction was sought under a contract of sublease upon the World Theatre Building, located at 15th and Douglas Streets, Omaha, between defendant World Realty Company and Premier Theatres Corporation, for the period from October 1, 1934, to September 30, 1944, which contained the following clause: "`World Realty' agrees that it will not use the State Theatre Building * * *, nor will it suffer or permit the State Theatre Building to be used for the purpose of operating a theatre as long as the lease upon the World Theatre property to `Premier Theatres' shall remain in effect."

Premier, which was a mere subsidiary of plaintiff, had assigned its contract of sublease on the World Theatre to plaintiff, and it is not disputed here that plaintiff is entitled to assert such general rights as Premier itself would have had under the sublease clause quoted.

World Realty held 99 year leases upon both the World and State Theatre buildings, from the fee owners. At the time it made the ten year sublease on the World Theatre to Premier, defendant Goldberg was the managing officer and a director of World Realty, and he executed the contract on behalf of the corporation. The stock of the corporation was all held by Goldberg's mother, father and himself, except twenty-four per cent which had been assigned to the Omaha National Bank as collateral for a loan. Goldberg and one of the officers of the bank, who was looking after its interests under the loan, constituted the sole directors of the corporation. Immediately after the contract of sublease had been made between World Realty and Premier, Goldberg set out to acquire title to the State Theatre Building from the fee owners. He organized defendant State Investment Corporation for this express purpose, and admitted that he at all times had been "the owner of substantially all of the stock" and "in complete control" of that corporation.

After title to two-thirds of the State Theatre property had thus been acquired in the name of State Investment, Goldberg claims that an agreement was made between himself, on behalf of State Investment, and himself and the officer of the Omaha National Bank, on behalf of World Realty, for a cancellation of the latter's 99 year lease on the State Theatre. Shortly thereafter the bank's loan appears to have been paid off, and the stock held by it was cancelled and retired. The connection of the bank and its officer with World Realty thereupon ceased, and, so far as the record indicates, from that time on, Goldberg was the sole officer and director of the corporation, with his mother, his father and himself as the sole stockholders, and with himself as the sole representative of the entire stock interests.

After title to the other one-third of the State Theatre property had subsequently been acquired, Goldberg purported to make arrangements between himself, on behalf of State Investment, as lessor, and himself, on behalf of defendant A. L. Kaplan, Inc., another corporation, in which he was the sole stockholder, as lessee, to re-open the State Theatre, with himself as manager. Plaintiff sought to enjoin the reopening, as a violation of the restrictive clause in its contract of sublease on the World Theatre.

The District Court granted an injunction against all the defendants who have been referred to herein, as prayed, and they have appealed.

Appellants rigorously assail the finding of the trial court that the evidence was insufficient to show a valid cancellation of the 99 year lease of World Realty on the State Theatre, which could furnish the necessary foundation for unconditional rights, under an independent tenancy, in favor of a third party, such as A. L. Kaplan, Inc. was claimed to be. The only testimony upon the question of cancellation was that of Goldberg himself, who frankly admitted that there were no minutes of the board of directors or other corporate records on the part of either World Realty or State Investment to corroborate his statements. Nor was there any showing that a formal release or quitclaim of the 99 year lease ever had been executed by World Realty or filed of record.

Goldberg merely testified, in response to a question as to what arrangements had been made between State Investment and World Realty with relation to the payment of further rent and the possession of the property, as follows: "The State Investment Company agreed not to charge the World Realty Company any rent for the ground in the future. In other words, so far as the State Investment Corporation was concerned, the State Investment Corporation agreed to remove the burden of the ground rent." Further, in response to a direct and leading question as to whether the lease actually was cancelled, he declared: "The State Investment Corporation actually cancelled the lease, and has, since its purchase of the property, kept the World Realty Company harmless from any further expense." The only other fact to which Goldberg testified in this connection was that World Realty thereupon "agreed to abandon the building", and that it did accordingly surrender possession to State Investment.

If Goldberg's testimony should be accepted as sufficient to show that World Realty and State Investment actually agreed upon a cancellation of the 99 year lease, as appellants contend that it ought, it is clear that it at most establishes a cancellation based upon a voluntary surrender, and not one grounded on a forfeiture right. There is no evidence that any default existed under the 99 year lease at the time. The only thing that Goldberg's testimony indicates that was involved was an agreement "not to charge the World Realty Company any rent for the ground in the future".

While no Nebraska decision has been found upon the proposition, it is a well settled rule in equity that a surrender by a lessee, where no right of forfeiture has accrued, will not ordinarily be allowed to defeat the interests or equities of third persons in the term.² As against such interests or equities, an acquisition of the term, based on mere surrender, does not leave the lessor in any better position than a regular assignee. Where a lessee has made an agreement with a third person, validly restricting the use of the property during the term, the restriction is enforcible in equity against an assignee with notice or any one in an equivalent position.³ If it appears that the assignment was made for the express purpose, on the part of both the assignor and assignee, of defeating or evading the interest or equity of a third person in the term, there clearly should be no hesitancy in enforcing the restrictive agreement. In fact, in any case, as against an assignee with notice or any one in an equivalent position, a court of equity will treat the interests or equities created by a lessee in favor of third persons, under an agreement validly restricting the use of the property during his term, as if they were attached to the leasehold, without regard to their sufficiency to run with the estate at common law.

In the present case, State Investment and A. L. Kaplan, Inc. both expressly admit that they had knowledge of the restrictive agreement. The evidence strongly suggests, as a matter of fact, that Goldberg's dominant purpose as to both of these corporations, as well as on behalf of World Realty, was to effect the defeat or evasion of the restrictive agreement. The acceptance of a surrender, where there had been no breach sufficient to create a right of forfeiture, would, as we have indicated, leave State Investment in no better position, with respect to the equities existing against the leasehold for the remaining term of plaintiff's sublease, than if it had been a regular assignee. Similarly, the position in equity of A. L. Kaplan, Inc. is no better than would have been that of a sublessee of such an assignee, with notice. As to both of them, the restrictive agreement, if it is valid, would clearly be enforcible in the present situation.

The validity of the agreement, as a restraint upon trade, is not seriously open to question under the general contract law of Nebraska. An agreement which places a restriction upon the use of certain real estate is not invalid in Nebraska, as being an unreasonable restraint of trade, where the restriction is purely ancillary to the acquiring of an interest in another piece of real estate for commercial purposes; where it places only a limited restraint as to period and manner of the use of such property; where it does not appear to be greater than reasonably to serve as a protection in accomplishing the legitimate commercial purpose for which the interest in the other real estate involved was acquired; and where it does not have as its primary object or as its direct result the fostering of some illegal monopoly.⁴

The restrictive agreement here involved adequately satisfies these general requirements of validity. Its apparent purpose was to prevent the use of the State Theatre by World Realty or its successors in interest, as a theatre, for a period of ten years, unless the Premier lease should be sooner terminated. The State Theatre was located only a block and a half from the World Theatre. The two theatres, during their previous operation, had drawn from the same general class of patronage. Experience had demonstrated that,...