Martina Theatre Corporation v. Schine Chain Theatres, Inc.

• Decision Date: 13 May 1960
• Docket Number: No. 257,Docket 25966.,257
• Citation: 278 F.2d 798
• Parties: MARTINA THEATRE CORPORATION, Plaintiff-Appellant, v. SCHINE CHAIN THEATRES, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

278 F.2d 798 (1960)

MARTINA THEATRE CORPORATION, Plaintiff-Appellant, v. SCHINE CHAIN THEATRES, INC., et al., Defendants-Appellees.

No. 257, Docket 25966.

United States Court of Appeals Second Circuit.

Argued April 1, 1960.

Decided May 13, 1960.

Francis T. Anderson, Philadelphia, Pa., for plaintiff-appellant.

Robert M. Hitchcock, Buffalo, N. Y. (Kenefick, Letchworth, Baldy, Phillips & Emblidge, Buffalo, N. Y., on the brief), for defendants-appellees Schine, etc.

James O. Moore, Jr., Buffalo, N. Y. (Raichle, Moore, Banning and Weiss, Buffalo, N. Y., on the brief), for Paramount Pictures, Inc. and other distributor defendants-appellees.

Everett A. Frohlich, New York City (Schwartz & Frohlich, New York City, on the brief), for Columbia Pictures, Inc., defendant-appellee.

Before LUMBARD, Chief Judge, FRIENDLY, Circuit Judge, and J. JOSEPH SMITH, District Judge.^*

FRIENDLY, Circuit Judge.

In 1939 the government instituted a civil antitrust suit in the Western District of New York against the present defendants J. Myer Schine, Louis W. Schine, John A. May, and various corporations controlled by them (hereinafter collectively called Schine or the Schine defendants). The government alleged that the Schine defendants had imposed unlawful restraints on competition in the exhibition of motion pictures throughout the area, primarily Western New York and Ohio, where their theatre chain operated. After a Supreme Court decision, Schine Chain Theatres v. United States, 1948, 334 U.S. 110, 68 S.Ct. 947, 92 L.Ed. 1245, sustaining the charge of antitrust violation and remanding the case to the District Court for findings on the extent to which divestiture should be decreed, the parties agreed upon a consent decree. Among the terms of this decree was a requirement that Schine sell the Capitol Theatre in Oswego, New York, and the Pontiac Theatre in Ogdensburg, New York. In 1950 the two theatres were sold to the plaintiff in the present action, hereinafter called Martina.

Plaintiff's operation of the two houses not being successful, it instituted in the District Court for the Western District of New York, in September, 1951, a treble-damage action under the antitrust laws against the Schine defendants and the major distributors of motion pictures. Plaintiff alleged that defendants had conspired to prevent Martina from obtaining first-run films on terms comparable to those afforded Schine and that Schine had engaged in various other predatory practices in the operation of the first-run houses it had retained in Oswego and Ogdensburg.

On January 22, 1952, on a stipulation of the parties, the district judge entered a judgment of dismissal with prejudice in the treble-damage action. Plaintiff executed a release and a covenant not to sue, and its shareholders executed a consent to settlement of the claim against the defendants, for $23,000. A short time prior to the dismissal, Martina had leased the Oswego and Ogdensburg theatres to Oswog Corporation for ten years at a rental of $18,000 per year. In an affidavit executed at the time of settlement, plaintiff's president, Charles V. Martina, stated that he had earlier suggested to Schine that it lease the two theatres but had been informed that the necessary Department of Justice approval would not be obtainable; that he had thereafter approached Elmer Lux, an officer of Darnell Theatres, Inc. and carried on negotiations that ultimately resulted in the lease to the Oswog Corporation; that this lease was entirely "separate and distinct" from the settlement; and that "none of the defendants influenced or attempted to influence, nor were they or any of them instrumental in any way in the negotiations leading to or the actual leasing of said theatres at Oswego and Ogdensburg, N. Y."

This statement, which had been prepared by Antevil, an officer of Schine, was false in important respects. As found by the District Court in a judgment entered in 1956 convicting the Schine defendants of criminal contempt for violation of the antitrust decree, United States v. Schine, Crim. No. 6279C, W.D.N.Y.Dec. 28, 1956, affirmed 2 Cir., 1958, 260 F.2d 552, certiorari denied 1959, 358 U.S. 934, 79 S.Ct. 318, 3 L.Ed. 2d 306, the Schine defendants used Darnell Theatres, Inc., a controlled corporation, secretly to reacquire the Oswego and Ogdensburg theaters although the decree permitted this only upon an affirmative showing that such action would not unreasonably restrain competition, and "J. Myer Schine participated in the negotiations through which the Pontiac and Capitol Theaters were acquired."

In September 1953, the plaintiff brought the present action to have the 1952 judgment dismissing its treble-damage suit and the releases set aside thereby permitting it to reinstate its antitrust complaint. The plaintiff alleged that the "prime consideration" for discontinuing the action had been the leasing of the two theatres by Schine; that Schine had formed a dummy corporation, Oswog, for the purpose of defrauding the plaintiff; and that Oswog had failed to pay the rent for the past three months and had damaged the theatres.¹ After defendants had moved for summary judgment, plaintiff in January, 1954, filed an amended complaint, this time specifically alleging that the settlement was procured through fraud in that the Schine defendants falsely represented that Oswog Corporation had "substantial assets and financial support." And there was a new allegation, that the settlement was "procured from plaintiff by means of duress" since the defendants' continuing antitrust violations had been causing severe losses in the operation of the theatres.

Matters remained in this status for some years during the pendency of the government's criminal contempt proceedings. In June, 1958, the defendants renewed their motions for summary judgment. Plaintiff moved for leave to file a second amended complaint. Judge Burke ruled in defendants' favor. He held that plaintiff was not entitled to equitable relief since, by plaintiff's own admission, it had knowingly engaged in a plan to violate the consent decree against Schine and "If, as the plaintiff asserts, the settlement was illegal and fraudulent, the plaintiff was knowingly and for its own benefit a party to the fraud."

On appeal plaintiff contends that the district court's reliance on the clean-hands doctrine was unjustified since, as plaintiff alleged, the settlement was procured through duress and plaintiff was thus not in pari delicto; defendants assert that any possible gradations in degree of fault are irrelevant. We think the question of application of the clean-hands doctrine more debatable than did Judge Burke. In contrast to Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 1945, 324 U.S. 806, 65 S.Ct. 993, 89 L.Ed. 1381 and Mas v. Coca Cola Co., 4 Cir., 1947, 163 F.2d 505, on which appellees rely, equity would not here be enforcing the illegal transaction but restoring the status quo ante. Cf. 67 Harv.L.Rev. 1079 (1954), as to setting aside collusive divorces fraudulently obtained, and 6...