Paramount Pictures Theatres Corp. v. Partmar Corp., 6906.

• Decision Date: 02 May 1951
• Docket Number: No. 6906.,6906.
• Citation: 97 F. Supp. 552
• Parties: PARAMOUNT PICTURES THEATRES CORP. v. PARTMAR CORP. et al. PARAMOUNT PICTURES THEATRES CORP. v. PARTMAR CORP. et al. (PARAMOUNT PICTURES, Inc., et al., third-party defendants).
• Court: U.S. District Court — Southern District of California

97 F. Supp. 552

PARAMOUNT PICTURES THEATRES CORP. v. PARTMAR CORP. et al.

PARAMOUNT PICTURES THEATRES CORP. v. PARTMAR CORP. et al. (PARAMOUNT PICTURES, Inc., et al., third-party defendants).

No. 6906.

United States District Court S. D. California, C. D.

May 2, 1951.

O'Melveny & Myers, Los Angeles, Cal., for plaintiff.

Macfarlane, Schaefer & Haun, Los Angeles, Cal. (Russell Hardy, Washington, D. C., of counsel), for defendant.

WESTOVER, District Judge.

Paramount Productions, Inc. is engaged in the production of motion pictures. A subsidiary, Paramount Distributing Company, is engaged in distributing the motion pictures produced by Paramount Productions, Inc. Paramount Pictures Theatres Corporation, another subsidiary, plaintiff herein, is engaged in the operation of motion picture theatres. For the purpose of clarity, any and all of the above named corporations will hereinafter be referred to as Paramount.

The defendant Partmar Corporation was formed by the owners of Fanchon & Marco, Inc. for the purpose of leasing the Paramount Downtown Theatre in Los Angeles, California, from Paramount. The sole assets and business of Partmar Corporation are the holding of said lease and the operation of Paramount Downtown Theatre. All stock of Partmar Corporation is owned by Fanchon & Marco, Inc. For the purpose of this opinion defendants herein will be referred to as Partmar.

In July, 1938, the United States of America commenced an equity action in the United States District Court of New York entitled: "United States v. Paramount Productions, Inc., et al.", being Equity Number 87-273, which action was brought against eight major companies of the motion picture industry. The Government charged a conspiracy to carry out in the motion picture industry certain trade practices which were claimed to violate the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note.

In November, 1940, a consent decree was entered in the case in which Paramount, Loew's, Inc., Twentieth-Century Fox, Warners and R. K. O. consented. Columbia, United Artists and Universal did not consent. The consent decree, hereinafter referred to as the first consent decree, was to operate for a trial period of three years from the date of entry, to wit: November 20, 1940, during which three-year period the Government could not bring any proceedings to obtain any other or further relief. The Government, being dissatisfied with the first consent decree, after the lapse of the three-year period moved, in 1944, to modify the decree in certain respects. Hearings were had on the Government's application for modification, and on January 11, 1946, a written opinion was filed in which all franchise agreements of longer than a one-year period were held invalid. The opinion is reported in D.C., 66 F.Supp. 323.

Thereafter, findings of fact, conclusions of law, and a decree were entered on December 31, 1946, reported in D.C., 70 F. Supp. 53, which decree is hereinafter referred to as the 1946 decree. Appeals were taken from the 1946 decree, and in June, 1948, the Supreme Court rendered a decision therein, affirming the lower court in part and reversing it in part. The decision is found in 334 U.S. 131, 68 S.Ct. 915, 92 L. Ed. 1260. The case was sent back to the District Court of New York for further proceedings on certain issues.

Following rendition of the decision of the Supreme Court, and before any testimony was adduced at the hearings after remand from the Supreme Court to the District Court of New York, a second consent decree was rendered. Paramount Pictures, Inc. was a party to the second consent decree which was entered in the District Court on March 3, 1949. Six defendants did not consent to the second consent decree, and hearings proceeded against the six non-consenting defendants.

Upon completion of the hearings the New York Court entered a decree in favor of the Government and against the six defendants, in terms substantially the same as those of the second consent decree. D.C., 85 F.Supp. 881. An appeal was taken from the judgment. The Supreme Court refused to set aside the judgment and findings of the lower court, and as a consequence the second consent decree and the judgment against the six defendants not consenting thereto have become final.

On August 31, 1931, Paramount Pictures, Inc., predecessor of plaintiff herein, as lessor, entered into a lease agreement with Partmar Corporation, as lessee, by which Partmar was to take over and operate the Paramount Downtown Theatre for a period of years, upon terms as expressly set forth in said lease. At the same time the lease was entered into, a so-called film franchise agreement was executed by and between said parties, running for the same period of time as the lease. Said franchise agreement generally licensed Partmar to exhibit Paramount pictures at the Paramount Downtown Theatre and required Partmar to exhibit feature pictures released by Paramount.

Though two documents were executed — one a lease and the other a franchise agreement — it is evident the lease would not have been entered into if the franchise agreement had not also been entered into at the same time; and, conversely, the franchise agreement would not have been entered into unless the lease had been entered into at the same time. Although there were two separate documents — one the lease and the other the franchise agreement — they were executed at the same time, between the same parties, for the same period of time and, as a consequence, must be considered as one agreement.

The lease expressly provided that if the franchise agreement was "for any reason cancelled or terminated," then Paramount might, at its option, cancel and terminate the lease. At the trial herein it was agreed by respective counsel that "any reason" did not mean capricious or arbitrary but that "any reason" meant substantial, and that the franchise agreement could not be terminated except for a legal or substantial reason.

Plaintiff in its brief states:

"Plaintiff has not contended, as asserted by Mr. Hardy, that termination of the franchise by the capricious or arbitrary act of Paramount would be effective to terminate the lease. * * * Plaintiff is not relying upon any arbitrary or capricious termination. It is relying upon a termination by legal means.

"Plaintiff's position * * * is that the phrase `for any reason whatsoever' means `any legal cause' or `reason, something which the Court would accept as a good reason for terminating.' * * *"

Paramount contends that the Court in United States v. Paramount Pictures, D.C., 70 F.Supp. 53, 73, restrained the defendant Paramount "from further performing any existing franchise to which it is a party." However, Paramount knew this was not a final decree; that it was subject to review. But before the expiration of the time to appeal Paramount served notice of termination of the franchise agreement herein.

Paramount contends that it did not appeal from that portion of the decree restraining it from further performing any existing franchise. However, the case of United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260, which was the appeal of the 70 F.Supp. 53 case, discloses that Whitney North Seymour argued the case (before the Supreme Court) for Paramount Pictures, Inc., et al. (Appellants No. 81); with him on the brief were Louis Phillips and Albert C. Bickford. Not only did Paramount know at the time notice of termination was given that the decision in 70 F.Supp. 53 was not a final decision, but it actively participated in an appeal to the Supreme Court from at least a part of that decree.

The Supreme Court, after hearing appeals in the case, including Paramount's, said, 334 U.S. at page 156, 68 S.Ct. at page 928: "* * * But we cannot say on this record that franchises are illegal per se * * *. Hence we set aside the findings on franchises * * *."

The first question presented to this Court is whether a decree, which is subsequently set aside, is a legal cause or reason for termination of the franchise agreement.

The Court of Appeals, 9 Cir., in the case of Keller v. Hall, 111 F.2d 129, at page 131, stated the rule when it held: "* * * Moreover, the judgment theretofore rendered in the case, after it was reversed, was `without any validity, force, or effect'".

The same rule is set forth in a little different manner by the Supreme Court in the case of Arkadelphia Milling Co. v. St. Louis S. W. Ry. Co., 249 U.S. 134, at page 145, 39 S.Ct. 237, at page 242, 63 L.Ed. 517, when it said: "* * * a party against whom an erroneous judgment or decree has been carried into effect is entitled, in the event of a reversal, to be restored by his adversary to that which he has lost thereby. This right, so well founded in equity, has been recognized in the practice of the courts of common law from an early period. Where plaintiff had judgment and execution, and defendant afterwards sued out a writ of error, it was regularly a part of a judgment of reversal that the plaintiff in error `be restored to all things which he hath lost by occasion of the said judgment'; * * *."

The Supreme Court also said, in the case of Baltimore & O. R. Co. v. United States, 279 U.S. 781, at page 786, 49 S.Ct. 492, at page 493, 73 L.Ed. 954: "The right to recover what one has lost by the enforcement of a judgment subsequently reversed is well established."

The Circuit Court of Appeals of the Second Circuit, in Bondy v. Harvey, 62 F.2d 521, 522, stated the rule in another way by saying: "* * * The effect of the reversal * * * was to put the parties in the same position as if no judgment had been entered."

Consequently, we are of the opinion that the restraining order, subsequently set aside by the United States Supreme Court, was not a legal cause or reason for terminating the franchise agreement.

Plaintiff contends, however, that if it was not justified in terminating the franchise agreement because of the...