Partmar Corp v. Paramount Pictures Theatres Corp

• Citation: 74 S.Ct. 414,347 U.S. 89,98 L.Ed. 532
• Decision Date: 08 February 1954
• Docket Number: No. 17,17
• Parties: PARTMAR CORP. et al. v. PARAMOUNT PICTURES THEATRES CORP. et al
• Court: United States Supreme Court

347 U.S. 89

74 S.Ct. 414

98 L.Ed. 532

PARTMAR CORP. et al.

v PARAMOUNT PICTURES THEATRES CORP. et al.

No. 17.

Argued Oct. 13, 1953.

Decided Feb. 8, 1954.

Rehearing Denied March 15, 1954.

See 347 U.S. 931, 74 S.Ct. 527.

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Mr. Russell Hardy, Washington, D.C., for petitioners.

Mr. Jackson W. Chance, Los Angeles, Cal., for respondents.

Mr. Justice REED delivered the opinion of the Court.

This case presents a matter of federal practice involving inconsistent positions by litigants in court proceedings. We have often held that under the doctrine of res judicata a judgment entered in an action conclusively settles that action as to all matters that were or might have been litigated or adjudged therein.¹ But a prior judgment between the parties has been held to operate as an estoppel in a suit on a cause of action different from that forming the basis for the original suit 'only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.'² This latter aspect of res judicata is the doctrine of collateral estoppel by judgment, established as a procedure for carrying out the public policy of avoiding repetitious litigation.

Petitioners entered counterclaims in a suit against them by respondent. These counterclaims were dismissed by the trial court upon determination of the original suit for petitioners and against respondents. The cause of action stated in petitioners' counterclaims is based upon a controverted personal right that had not been adjudged and therefore res judicata is no bar to the claimed right of recovery. Respondent, however, in its original suit had raised an issue, determinative of its cause of action, which had been therein successfully controverted by petitioners to final judgment on the merits. Collateral estoppel stands as a bar to further litigation by the parties of this issue, and this issue was held by the trial court to be determinative of petitioners' counterclaims. Petitioners' argument that the dismissal denied a hearing of issues that might have been but were not determined by the judgment on the merits of the original action moved us to grant certiorari, limited to the issue of the counterclaims. 345 U.S. 963, 73 S.Ct. 948, 97 L.Ed. 1382.

Although federal jurisdiction was sought only on the ground of diversity, the complaint relied upon a breach of the Sherman Act, and the counterclaims were similarly bottomed on that federal law. Therefore our conclusion is reached on a consideration of federal law and procedure. It will depend upon whether or not any issue of fact or law remained for decision after the primary action was decided.³ The issue reaches us under the following circumstances.

Paramount Pictures Theatres Corp., a subsidiary of Paramount Productions, Inc., and successor to Paramount Pictures, Inc., is a New York corporation engaged in the business of operating motion picture theatres throughout the United States. These three corporations will hereinafter be referred to jointly as 'Paramount.' On August 31, 1939, Paramount leased the Paramount Downtown Theatre in Los Angeles, California, for ten years to Partmar Corp., a California corporation, petitioner here, wholly owned by Fanchon & Marco, Inc. This lease was subsequently amended in 1942 and extended to March 18, 1952. A 'film franchise agreement' was executed in conjunction with, and for the same period as, the lease. It licensed Partmar to exhibit Paramount pictures at the theatre as first 'runs' of the films, required Partmar to exhibit such pictures not less than forty-six weeks each year, and set a scale of license fees. The lease expressly provided that it was terminable at the option of Paramount if the franchise agreement 'be cancelled or terminated for any reason whatsoever.' Other provisions of the lease and agreement are not germane to the issue before this Court.

On December 31, 1946, a decree was entered in the District Court for the Southern District of New York in an equity action brought by the United States against Paramount and other major companies of the motion picture industry alleging a conspiracy to violate the Sherman Act, 26 Stat. 209, 15 U.S.C. §§ 1—2, 15 U.S.C.A. §§ 1—2. United States v. Paramount Pictures, Inc., D.C., 70 F.Supp. 53. One provision of that decree defined a 'franchise' to be a licensing agreement 'in effect for more than one motion picture season and covering the exhibition of pictures released by one distributor during the entire period of agreement' and enjoined each of the defendants in that action 'from further performing any existing franchise to which it is a party and from making any franchises in the future.' 70 F.Supp. at page 73, Decree, § II, 5.

On March 26, 1947, Paramount notified Partmar that it was cancelling and terminating the franchise agreement because of the injunction, and on April 2, 1947, notified Partmar that it was terminating the lease by reason of the termination of the franchise agreement. Partmar refused to vacate the theatre upon demand, and Paramount instituted this action on May 1, 1947, in the District Court for the Southern District of California, alleging diversity and unlawful detainer of the theatre. The complaint sought, so far as is material here, restitution of possession based on illegality of the franchise under the Sherman Act as construed in the decree in the Southern District of New York, supra, and a declaratory judgment that the lease had been properly terminated.

Partmar and Fanchon & Marco, Inc., answered setting up various defenses and filed three counterclaims seeking treble damages under 38 Stat. 731, 15 U.S.C. § 15, 15 U.S.C.A. § 15, resulting from a conspiracy between Paramount and other motion picture companies in violation of the Sherman Act. The conspiracy was alleged to have resulted in the imposition of excessive terms and conditions on Partmar by the lease and franchise agreement.⁴

By order dated April 26, 1948, the District Court, upon Paramount's motion, ordered Paramount's causes of ac- tion for unlawful detainer and declaratory judgment tried separately from Partmar's counterclaims. Prior to trial on May 3, 1948, we handed down our decision on Paramount's and the other defendants' appeals from the decree of the Southern District of New York. United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260. We held inter alia that 'we cannot say on this record that franchises are illegal per se when extended to any theatre or circuit no matter how small' and set aside the District Court's findings relative to such franchises. 334 U.S. at page 156, 68 S.Ct. at page 928, 92 L.Ed. 1260. Relying on that decision Partmar and Fanchon & Marco, Inc., moved in the Southern District of California for dismissal of Paramount's action against them. Their motion was denied and the case went to trial without amendment of the pleadings in November 1950, on two issues: whether Paramount was justified in terminating the franchise agreement because of the decree in the New York Paramount case, supra; whether the lease and contract were illegal contracts under the federal antitrust statutes justifying repossession of the theatre by Paramount under California law. See, e.g., Glos v. McBride, 47 Cal.App. 688, 191 P. 67. Thus issue was joined as to the legality of the actions of Paramount and its alleged co-conspirators relative to the lease and franchise agreement, wholly apart from the New York injunction, and Paramount was in the anomalous position of attempting to prove that its agreements with Partmar violated the antitrust laws. Paramount did not limit its contention of illegality of the agreement to nonconspiratorial aspects of the antitrust laws, but argued that if the agreements were illegal in any way it had the right to possession. That Partmar recognized this position is clearly shown by its statement in its brief to the trial court that 'after the reversal of that judgment (in the New York case), the plaintiff (Paramount) took the position that the question presented was whether the franchise was violative of the Sherman Act, wholly apart from any judgment or the decisions of the District or Supreme Courts.' Partmar vigorously contended in brief and in argument that the lease of the theatre and the franchise for 'first-run' exhibitions did not in any way violate the Sherman Act. It clearly recognized that one way the franchise might be illegal would be if it were the result of a conspiracy for it argued in its brief that:

'There was no allegation or proof of conspiracy. There being no showing of interstate commerce, it is immaterial whether there was conspiracy, unreasonable clearance, fixed admission prices, block booking, or unreasonable restraint. In the absence of interstate commerce, all else was entirely beyond the purview of the Sherman Act. But, assuming that there had been no failure to prove interstate commerce, the absence of conspiracy is equally fatal. Probably the only evidence relative to conspiracy was the statement of Y. Frank Freeman, a witness for Paramount, that there were no conspiratorial arrangements between Paramount and Fox West Coast. * * * Even in a setting of conspiracy, it is doubtful that the franchise would be unlawful. * * * On the evidence in this case the Partmar franchise is neither one of a system, or made by one holding a dominant position, or pursuant to a conspiracy * * *.'

It thus insisted that the remunerative lease and franchise agreements were still valid and subsisting, and that Paramount had no right to possession.

After eighteen days of trial the District Judge on May 2, 1951, filed a memorandum opinion, D.C., 97 F.Supp. 552, 555, in which he concluded that the termination 'for any reason' clause in the lease meant for any 'legal or substantial reason,' and that the 1946 decree of the Southern District of New York 'was not a legal cause or reason...