Theee Movies of Tarzana v. Pacific Theatres, Inc.

• Decision Date: 28 September 1987
• Docket Number: No. 86-6211,86-6211
• Citation: 828 F.2d 1395
• Parties: 1987-2 Trade Cases 67,712 THREE MOVIES OF TARZANA, Plaintiff-Appellant, v. PACIFIC THEATRES, INC., Columbia Pictures Industries, Inc., Paramount Pictures Corp., Twentieth Century Fox Film Corp., Universal Film Exchanges, Inc., Warner Brothers Distributing Corp., MGM/UA Entertainment Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1395

828 F.2d 1395

1987-2 Trade Cases 67,712

THREE MOVIES OF TARZANA, Plaintiff-Appellant, v. PACIFIC THEATRES, INC., Columbia Pictures Industries, Inc.,

Paramount Pictures Corp., Twentieth Century Fox Film Corp.,

Universal Film Exchanges, Inc., Warner Brothers Distributing

Corp., MGM/UA Entertainment Co., Defendants-Appellees.

No. 86-6211.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 6, 1987.

Decided Sept. 28, 1987.

Maxwell M. Blecher, Los Angeles, Cal., for plaintiff-appellant.

Harry B. Swerdlow, Rosenfeld, Meyer & Susman, James L. Seal, Beverly Hills, Cal., for defendant-appellee Pacific Theatres, Inc.

Bertrand M. Cooper and Gregory P. Goeckner, Los Angeles, Cal., for defendants-appellees Columbia Pictures Industries, Inc., Paramount Pictures Corp., Twentieth Century Fox, Universal Film Exchange and MGM/UA Entertainment.

Richard C. Yarmuth, Seattle, Wash., for defendant-appellee Warner Bros. Distributing Corp. Appeal from the United States District Court for the Central District of California.

Before HALL and LEAVY, Circuit Judges, and AGUILAR, ^* District Judge.

LEAVY, Circuit Judge:

The appellant, Theee Movies of Tarzana (TMT), is a partnership which owned a six screen movie theater in Tarzana, California. The appellees are a competing movie exhibitor, Pacific Theatres, Inc. (Pacific), and several movie distributors (the distributors). TMT alleges the appellees violated Sec. 1 et seq. of the Sherman Act. 15 U.S.C. Sec. 1 et seq. (1987). At issue is the reasonableness of certain "clearances" granted to Pacific by the distributors in movie exhibition licenses.

Movie exhibitors submit bids to movie distributors for the right, or license, to exhibit particular movies. These bids usually include certain proposed terms: the guaranteed minimum the theater will pay the distributor regardless of the movie's success, division of profits between the exhibitor and distributor, the time period the movie will show, and any clearances. Clearances preclude distributors from licensing other theaters, either specifically named or encompassed in a named geographic area, from showing a movie while it is being exhibited by the theater whose bid is accepted. Distributors evaluate these terms, and other factors, in determining which theaters they will license to show particular movies.

TMT claims that the distributors and Pacific acted in concert to provide Pacific's Galleria Theater with clearances over TMT's theater, giving the Galleria an unreasonable competitive advantage. TMT alleges the appellees' conduct eliminated price competition in the relevant market and eventually drove TMT out of business.

TMT sold its theater to Mann Theaters, after which Pacific and the distributors abandoned the clearances. TMT contends this demonstrates the clearances were unreasonable. TMT seeks damages for alleged business losses.

The district court granted summary judgment and entered a judgment of dismissal in favor of all the defendants. The district court held that TMT's theater and Pacific's theater were in substantial competition, that the clearances were reasonable, and that TMT had failed to produce evidence of either a conspiracy or an antitrust injury.

FACTS

TMT owned and operated a six screen "subrun" movie theater on Ventura Boulevard in Tarzana, a community in California's San Fernando Valley, from 1972 until fall 1982. A subrun theater exhibits movies subsequent to their first run in a given area.

TMT acknowledges that the physical condition of its theater had deteriorated over the years. The theater also lacked the state of the art projection and sound systems that the first run movie theaters used. TMT's admission prices were about fifty cents less than those charged by first run theaters.

Most of the subrun movies shown by TMT had their first run at one of three theaters in Woodland Hills, a community, like Tarzana, located in the western portion of the San Fernando Valley. Until the late 1970's, only these few first run theaters existed in the Valley. Then, motion picture distribution patterns began to change nationwide. Due to the emergence of home video cassette recorders and cable television, distributors released movies simultaneously to increasing numbers of first run theaters, to enhance their chances of recouping their investment during the shorter theater release periods. Promotional costs escalated, similarly necessitating wider first run releases. These nationwide trends were accelerated in the Valley by the area's growing population.

In December 1980, Pacific opened the Galleria Theater in Sherman Oaks. The Galleria is also located on Ventura Boulevard, 4.4 miles east of TMT's theater. The Galleria is approximately a thirteen minute drive from TMT's theater. The Galleria was new, clean, and comfortable; offered first run movies; and had state of the art projection and sound systems.

Soon after the Galleria opened, Pacific began requesting clearances over TMT for all first run movies shown at the Galleria. Since the Woodland Hills first run theaters also historically requested and received clearances over TMT on first run movies, Pacific's request would normally not have had any additional effect on TMT's ability to obtain subrun movies. However, the Galleria exhibited its first run movies for a longer time period than did the Woodland Hills first run theaters. Thus, due to the Galleria's clearances, a time period existed between the end of a first run at a Woodland Hills theater and its end at the Galleria when TMT was prevented from showing the particular film. However, these movies were available to other subrun theaters in Woodland Hills over which the Galleria apparently did not have clearances.

According to various evidence, Galleria first runs lasted from one to five weeks longer than the Woodland Hills first runs. The parties dispute how many films were affected, with allegations ranging from two to thirteen films over an eighteen month period.

TMT contends that because of the Galleria's extended clearances, its ability to obtain subrun movies was "crippled" and its financial situation, previously healthy, began to deteriorate. This allegedly caused TMT to sell its assets to Mann Theaters (Mann) at the "distress" price of $1.4 million in October 1982.

Mann spent $658,000 remodeling and upgrading the theater to first run quality and renamed it Mann's Valley West (MVW). It installed new projection and sound equipment, and began aggressively bidding for first run movies. It took approximately nine months for movie distributors to license regularly Mann to exhibit first runs. MVW charges first run movie prices.

In June 1984, the Galleria stopped requesting clearances over MVW. TMT claims this is evidence that the Galleria's clearances over TMT were unreasonable. However, Pacific contends that it reluctantly withdrew its clearance requests, and only on a movie-by-movie basis, under pressure from the distributors who wanted more opportunities for exhibiting first runs.

STANDARD OF REVIEW

This court reviews a district court's grant of summary judgment de novo. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 629 (9th Cir.1987).

Summary judgment is disfavored in complex antitrust litigation if extensive factual determinations must be made concerning intent and motive. Betaseed, Inc. v. U & I Inc., 681 F.2d 1203, 1207 (9th Cir.1982). However, it is appropriate in "the absence of any significant probative evidence tending to support the complaint." First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968); Barry v. Blue Cross of Cal., 805 F.2d 866, 871 (9th Cir.1986). Then it can be applied "in the twinkling of an eye." Barry, 805 F.2d at 871 (quoting NCAA v. Board of Regents, 468 U.S. 85, 109-10 n. 39, 104 S.Ct. 2948, 2964 n. 39, 82 L.Ed.2d 70 (1984)).

DISCUSSION

Clearances are vertical non-price restraints of trade. United States v. Paramount Pictures, Inc., 334 U.S. 131, 144-46, 68 S.Ct. 915, 922-23, 92 L.Ed. 1260 (1948); Ralph C. Wilson Indus. Inc. v. Chronicle Broadcasting Co., 794 F.2d 1359, 1363 (9th Cir.1986). Vertical non-price restraints of trade are evaluated under the rule of reason. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 58-59, 97 S.Ct. 2549, 2561-62, 53 L.Ed.2d 568 (1977). The district court properly analyzed the clearances under the rule of reason.

To establish a cause of action for an unreasonable restraint of trade under the rule of reason, the plaintiff must show: "(1) An agreement among two or more persons or distinct business entities; (2) which is intended to harm or unreasonably restrain competition; and (3) which actually causes injury to competition." Reid Bros. Logging Co. v. Ketchikan Pulp Co., 699 F.2d 1292, 1296 (9th Cir.1983). The parties do not dispute that the first factor is met; the clearances are agreements between Pacific and each distributor. However, the parties do disagree on whether factors two and three are met.

A. Reasonableness of Restraint

Determining whether a particular restraint is reasonable requires a " 'thorough investigation of the industry at issue and a balancing of the arrangement's positive and negative effects on competition'." Cascade Cabinet Co. v. Western Cabinet & Millwork, Inc., 710 F.2d 1366, 1373 (9th Cir.1983) (quoting Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1050 (9th Cir.), cert. denied, 464 U.S. 849, 104 S.Ct. 156, 78 L.Ed.2d 144 (1983)). As acknowledged by courts over the years, "the whole system of runs and clearances ... purposely, and legitimately, discriminates between competing exhibitors." Naumkeag Theatres Co., Inc. v. New England Theatres, Inc., 345 F.2d 910, 912 (1st Cir.), cert. denied, 382 U.S. 906, 86 S.Ct. 241, 15 L.Ed.2d 158 (1965); see also Paramount Pictures, 334 U.S. at 145-46, 68 S.Ct. at 923-24.

Vertical restraints are reasonable if they are likely to...