Kerasotes Mich. Theatres v. Nat. Amusements, Inc.

• Decision Date: 01 May 1987
• Docket Number: No. 85-CV-40448-FL.,85-CV-40448-FL.
• Citation: 658 F. Supp. 1514
• Parties: KERASOTES MICHIGAN THEATRES, INC., Plaintiff, v. NATIONAL AMUSEMENTS, INC., Northeast Theatre Corporation, Michael Redstone and Sumner Redstone, Defendants. NATIONAL AMUSEMENTS, INC., Counter-Plaintiff, v. KERASOTES MICHIGAN THEATRES, INC., Counter-Defendant, and George G. Kerasotes, Anthony L. Kerasotes, Marjorie Kerasotes, Louis G. Kerasotes, John G. Kerasotes, Robert A. Kerasotes, Denis Kerasotes, Dan Stone, Kerasotes Indiana Theatres, Inc., Kerasotes Administration Company, Kerasotes Illinois Theatres, Inc., Kerasotes Missouri Theatres, Inc., Kerasotes Iowa Theatres, Inc., Louis G. Kerasotes Corporation and George G. Kerasotes Corporation, As Additional Defendants on the Counterclaim.
• Court: U.S. District Court — Western District of Michigan

658 F. Supp. 1514

KERASOTES MICHIGAN THEATRES, INC., Plaintiff, v. NATIONAL AMUSEMENTS, INC., Northeast Theatre Corporation, Michael Redstone and Sumner Redstone, Defendants.

NATIONAL AMUSEMENTS, INC., Counter-Plaintiff, v. KERASOTES MICHIGAN THEATRES, INC., Counter-Defendant, and George G. Kerasotes, Anthony L. Kerasotes, Marjorie Kerasotes, Louis G. Kerasotes, John G. Kerasotes, Robert A. Kerasotes, Denis Kerasotes, Dan Stone, Kerasotes Indiana Theatres, Inc., Kerasotes Administration Company, Kerasotes Illinois Theatres, Inc., Kerasotes Missouri Theatres, Inc., Kerasotes Iowa Theatres, Inc., Louis G. Kerasotes Corporation and George G. Kerasotes Corporation, As Additional Defendants on the Counterclaim.

No. 85-CV-40448-FL.

United States District Court, E.D. Michigan, S.D., Flint Division.

May 1, 1987.

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David A. Ettinger, Detroit, Mich., for plaintiff and counter-defendant.

Eugene Driker, Elaine Fieldman, Detroit, Mich., Barry Rabeck, Boston, Mass., Tad Jankowski, Deaham, Mass., for defendant and counter-plaintiff.

Janathan T. Watton, Jr., Detroit, Mich., for defendants.

Joseph V. Griffen, Chicago, Ill., for counter-defendant.

MEMORANDUM OPINION AND ORDER

NEWBLATT, District Judge.

Before the Court is counterdefendants' Motion to Dismiss counterplaintiff's counterclaim pursuant to Rule 12(b)(6), Fed.R. Civ.P. In bringing a Rule 12 motion, the moving party has the burden of demonstrating that no claim has been stated. All factual allegations of the complaint must be assumed to be true, and all reasonable inferences are made in favor of the nonmovant. Miree v. Dekalb Co., 433 U.S. 25, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977). "After thus construing the complaint, the Court should deny a motion to dismiss for failure to state a claim `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" 2A Moore's Federal Practice, ¶ 12.072.-5 (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)).¹

The relevant facts follow: On September 25, 1985, Kerasotes Michigan Theatres, Inc., (KMT) filed a six-count complaint against National Amusements, Inc., (National) and others alleging that they were monopolizing and unreasonably restraining trade with respect to the exhibition of movies in the Flint, Michigan area.² On November 22, 1985, National filed a counterclaim alleging that KMT and others,³ engaged in conduct which violated antitrust laws.⁴

In late 1984, KMT purchased four theatres in the Flint area from Butterfield Theatres. KMT, which previously did not operate in the Flint area, now operates or has a total of eleven indoor screens for the exhibition of films. National owns and operates two indoor theaters in the Flint area with a total of ten screens. National claims that prior to filing suit KMT attempted to induce National to enter into a "split" or an agreed-upon allocation of films in this area between National and KMT. When National refused, National claims that KMT began this lawsuit as well as other suits against movie distributors to induce and coerce them into licensing motion pictures to KMT. Moreover, National asserts that KMT used its market power outside Flint to induce and coerce distributors to license motion pictures to KMT and to discriminate against National in the Flint area.

I

Counterdefendants (KMT) first claim that National lacks the antitrust injury necessary to assert its claims in markets in which it does not compete.⁵ In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977), the Supreme Court held that an antitrust plaintiff "must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the anti-trust laws were intended to prevent and that flows from that which makes defendants' acts unlawful."⁶ In Associated General Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 539, 103 S.Ct. 897, 909, 74 L.Ed.2d 723 (1983), the Court based its finding of the lack of antitrust injury, in part, on the fact that the antitrust plaintiff was "neither a consumer nor a competitor in the market in which trade was restrained," and thus were not persons injured by reason of the antitrust law violation.⁷

Counterdefendants contend that National has not plead an antitrust injury in markets other than Flint because it does not compete with counterdefendants in any market except Flint. This need not be reached because National has responded that it does not assert that it has been injured in markets in which it does not compete with counterdefendants. Instead, National claims that KMT used its market power outside Flint to restrain competition in the Flint area. Such leveraging has long been recognized as illegal and actionable. See White & White, Inc. v. American Hosp. Supply Corp., 723 F.2d 495 (6th Cir.1983).

Counterdefendants next claim that National's allegations under Sections 1 and 2 of the Sherman Act⁸ fail to state a claim upon which relief can be granted because National has not and cannot plead an unreasonable anticompetitive effect on the Flint area market. Counterdefendants contend that National's Sherman Act claims allege a vertical agreement and that such vertical agreements are governed by the rule of reason which requires a showing of a significant anti-competitive effect. In response, National contends that it has alleged that KMT's actions constitute a per se violation and that even if the rule of reason is applied, it has stated a claim.

A

National contends that its allegations concerning a horizontal conspiracy to boycott against National constitutes a per se restraint of trade which is presumed to be unreasonably anticompetitive.⁹ Although the rule of reason is generally applied in Sherman Act cases, the Supreme Court has indicated that certain acts "are conclusively presumed illegal without further examination under the rule of reason `because they are plainly anticompetitive.'" Com-Tel, supra at 408. Group boycotts,¹⁰ specifically those involving agreements between competitors at the same level (horizontal), are generally considered under the per se classification. See Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190 (6th Cir.1982).

For a boycott to be analyzed under the per se rule, it must involve a group of competitors at the same level. In Dunn & Davis v. NuCar Drive Away, 691 F.2d 241 (6th Cir.1982), it was found that there was no invalid group boycott when the complaint did not assert that a group of competitors on the same level coerced, suggested or agreed with a manufacturer to terminate its relationship with plaintiffs. See also Davis-Watkins, supra.¹¹ In this case, National states that although the precise relationship among the counterdefendants is not entirely clear, the counterdefendants had the capacity to conspire.¹² However, the issue is whether they are competitors, and an examination of the counterclaim reveals that of the various counterdefendants, none are competitors of National except KMT. Thus, there is no conspiracy among competitors.

Moreover, National's argument that just because counterdefendants and distributors are in a vertical relationship with one another does not necessarily exempt them from per se liability must similarly be rejected. Although it is true that when manufacturers or suppliers succumb or agree to carry out the action against a party proposed by a customer-competitor of that party, the ultimate effect is a horizontal combination,¹³ National has neither alleged that the distributors have agreed to such plans among themselves or with the counterdefendants nor claimed that there is a unity of purpose or common design among movie distributors. Finally, National contends that the type of leveraging alleged in this case where counterdefendants have used market power in closed towns to obtain preferential treatment in Flint, has been considered analogous to tying agreements which is a per se violation. Although it is true that these situations are analogous, the cases National cites still apply the rule of reason to leveraging cases.

B

As National's complaint alleges a vertical agreement, National has the burden of establishing that the particular acts are unreasonable restraints of trade. Continental T.V. v. GTE Sylvania, 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). In National Society of Professional Engineers v. United States, 435 U.S. 679, 688-690, 98 S.Ct. 1355, 1363-64, 55 L.Ed.2d 637 (1977), the Supreme Court stated that the basic inquiry under the rule of reason "is whether the restraint is one that promotes or suppresses competition," an inquiry which is "confined to a consideration of impact on competitive conditions."¹⁴ The restraint must produce a significant anti-competitive impact to be found unreasonable. Hand v. Central Transport, Inc., 779 F.2d 8 (6th Cir.1985). See also Dunn & Mavis, supra.¹⁵

In deciding whether there is a significant anticompetitive effect, courts require antitrust plaintiffs to establish that the defendant has significant market power. Hand, supra at 11; See also Davis-Watkins, supra at 1202 ("Without market power a firm cannot have an adverse effect on competition").

The Court agrees with counterdefendants that National has failed to allege facts establishing a significant impact on competition. Market share allegations frequently substitute for market power allegations. A review of the counterclaim, specifically paragraph 12, indicates that National's main complaint is for harm to itself, not harm to competition. Even giving the complaint the most liberal interpretation, it must be concluded that National has failed to allege facts to establish that there is a significant impact on competition or market shares from which market power can be inferred. There is nothing in the...