United Artists Corp. v. Odeon Bldg., Inc.

• Decision Date: 06 June 1933
• Parties: UNITED ARTISTS CORPORATION v. ODEON BUILDING, INC., ET AL.
• Court: Wisconsin Supreme Court

212 Wis. 150

248 N.W. 784

UNITED ARTISTS CORPORATION

v.ODEON BUILDING, INC., ET AL.

Supreme Court of Wisconsin.

June 6, 1933.

Appeal from an order of the Circuit Court for Dodge County; C. M. Davison, Circuit Judge.

Action by the United Artists Corporation against Odeon Building, Inc., and another. From an order overruling plaintiff's demurrer to defendants' answer, plaintiff appeals.--[By Editorial Staff.]

Affirmed.

In this action, commenced July 7, 1931, the plaintiff seeks to recover the sum of $1,335 alleged to be due it as rentals for certain motion picture films and records which it agreed to furnish under seven separate rental contracts, but which defendants refused to accept.

The amended complaint alleges, in substance: (1) That the plaintiff is a corporation engaged in the business of leasing motion picture films to motion picture exhibitors and is authorized to transact business in Wisconsin; (2) that the defendant Odeon Building, Inc., is a corporation having its principal place of business at the city of Beaver Dam and is engaged in the business of exhibiting motion pictures and operating two theaters owned by it at said city; (3) that prior to the 12th day of June, 1930, the defendant Jack Yeo was the lessee of both of said theaters for a term expiring August 14, 1932; (4) that on or about March 12, 1930, the plaintiff and the defendant Jack Yeo entered into seven written contracts by the terms of which the plaintiff agreed to lease to defendant Jack Yeo certain motion picture films and records for the price of $1,335; (5) that thereafter the defendants Odeon Building, Inc., and Jack Yeo entered into a written agreement whereby it was agreed, among other things, that the lease theretofore entered into by them should be terminated on August 14, 1930, and the Odeon Building, Inc., would assume the contracts theretofore made or entered into for the furnishing of films for the said theaters, and to hold the said Yeo free and clear of all liability because of any of such contracts; (6) that the plaintiff has at all times performed all of the terms and conditions of said seven contracts; and (7) that the plaintiff has made due demand for the sum of $1,335, and that no part thereof has been paid.

The defendants answered admitting the allegations contained in paragraphs 1, 2, 3, 5, and 7 of the complaint, but alleged that all of the said contracts were illegal and void by reason of the fact that they were obtained by the plaintiff from the defendant Yeo by duress and compulsion, in that the plaintiff, in conspiracy with other motion picture film and record producers, who produced and controlled upwards of 95 per cent. of all films and records for motion pictures made in the United States, refused to lease to said defendant any films or records unless the defendant agreed to enter into the particular contracts for all of the films and records named therein, which plaintiff insisted defendant Yeo must take; that the defendant would have been unable to procure any films or records for the theaters he was then operating unless he had acquiesced in the plaintiff's demands and consented to sign the contracts, as the plaintiff demanded; that the conspiracy between the plaintiff and the other motion picture film producers was an unlawful, illegal conspiracy in contravention of the laws of the United States and of the state of Wisconsin against unlawful conspiracy and restraint of trade.

The defendants further alleged that the said contracts were void and unenforceable because they contained a certain provision known as the “Arbitration Provision” which is copied in the margin.¹

Defendants further alleged that the arbitration provision had theretofore been held void and unlawful by the Supreme Court of the United States, and that the inclusion of said arbitration provision in said contracts rendered them null and void and unenforceable.

The defendant demurred to the answer on the ground that it did not state facts sufficient to constitute a defense. From an order dated August 20, 1932, overruling plaintiff's demurrer to the answer, the plaintiff appealed.

C. A. Markham, of Beaver Dam, and Mason & Priestley and T. N. Burke, all of Madison, for appellant.

Bender, Trump, McIntyre & Freeman, of Milwaukee, for respondents.

NELSON, Justice.

[1] The question for decision is whether the allegations of the answer, assumed upon demurrer to be true, constitute a defense to the plaintiff's alleged cause of action. The plaintiff sued to recover the full amount of certain rentals for films and records for which defendant Yeo had contracted but which defendant Odeon Building, Inc., had refused to accept.

It appears that the contracts entered into were the standard exhibition contracts, adopted by the moving picture industry and used at that time by practically all distributors of films and records. Each of the contracts contained the arbitration clause recited in the margin. That particular clause was held to be illegal and to evidence a conspiracy in restraint of trade in violation of the Sherman Anti-trust Act, § 1 (15 USCA § 1) in United States v. Paramount Famous Lasky Corp. (D. C.) 34 F.(2d) 984, affirmed in Paramount Famous Lasky Corp. v. United States, 282 U. S. 30, 51 S. Ct. 42, 75 L. Ed. 145. That case was a suit in equity brought by the United States to restrain an alleged conspiracy in restraint of trade, and to enjoin the defendant named and numerous other defendants from further engaging in such conspiracy. The conspiracy charged was predicated upon acts of the defendants in adopting and agreeing to use and in using exclusively certain uniform contracts for the leasing of motion picture films to theater owners throughout the United States containing provisions for the determination, by arbitration, of all claims and controversies arising under said contracts, and in adopting and enforcing by collective action certain rules governing the procedure and practice to be followed in the arbitration of such claims. Since the decision was rendered in that case a number of controversies between individual distributors and exhibitors have arisen in which exhibitors have sought to defend actions brought under such standard contracts to recover rentals for films furnished and used, but not paid for, or to recover damages resulting from the refusal of an exhibitor to accept films on the ground that such contracts are wholly illegal and void. In all of the cases referred to, which will be considered hereafter, the eighteenth section of the standard contract (hereafter called the “arbitration clause or provision”) has been held to be illegal, but the courts have not been in accord as to what effect should be given to the arbitration clause in controversies arising between individual distributors and exhibitors.

The plaintiff, while conceding that the arbitration clause was held illegal in the suit brought to enjoin the conspiracy in United States v. Paramount Famous Lasky Corp., supra, contends that, in an action brought by an individual distributor against an individual exhibitor, a different situation arises, and that in such a case the court should hold that the illegal arbitration clause is separable from the remainder of the contract, since it simply relates to the remedy to be pursued in case a dispute arises between the parties, and that, eliminating the illegal arbitration clause, a complete valid contract remains which should be enforced by the courts.

The defendants on the other hand contend that the arbitration clause is illegal, and that that clause may not be separated from the other provisions of the contract and eliminated therefrom because the illegal clause permeates the entire contract and is so vitally a part thereof as to render the enforcement of the contract improper.

In Columbia Pictures Corporation v. BiMetallic Inv. Co. (D. C.) 42 F.(2d) 873, District of Colorado, the plaintiff sought to recover damages for the failure and refusal of the defendant to accept and pay for certain films for which it had contracted. Defendant, in support of its demurrer, argued that the contract was illegal as held by Judge Thacher in U. S. v. Paramount Famous Lasky Corp., supra. The court, however, held that, eliminating the arbitration clause, the contract was one that the parties might lawfully enter into, and, since the arbitration clause was not invoked by the plaintiff and was not called to the attention of the court by any pleading, it was not in issue.

In Paramount Famous Lasky Corp. v. National Theatre Corp., 49 F.(2d) 64 (Circuit Court of Appeals Fourth Circuit), the plaintiff sought to recover for certain films furnished for which the defendant refused to pay. The defendant demurred to the declaration on the ground that the plaintiff had failed to comply with a condition precedent to suit in that it had not submitted the matters in controversy to arbitration as provided in the contract. The District Court below sustained the demurrer. On appeal, however, the court held that, since the contract containing the arbitration clause had been enjoined by the District Court, United States v. Paramount Famous Lasky Corp., supra, arbitration was thereby prevented, and arbitration therefore could no longer be considered as a condition precedent to bringing suit. The court further stated in support of its judgment reversing the District Court :

“Again we think that the learned judge below was in error for another reason, and that is that the contract, as far as it related to the lawful and unlawful parts, was divisible. That this was the opinion of Judge Thacher, in the case of United States v. Paramount Famous Lasky Corporation, supra, is shown by the excerpt from his decree. That such a provision, as the one in question here, is separable from the rest of the contract, is borne out by a number of decisions. Western Union Telegraph Co. v. Pennsylvania Co. (C. C. A.) 129 F. 849, 68 L. R. A. 968;Atlanten...