Wilder Enterprises, Inc. v. Allied Artists Pictures Corp.

• Decision Date: 03 October 1980
• Docket Number: No. 79-1175,79-1175
• Citation: 632 F.2d 1135
• Parties: 1980-81 Trade Cases 63,736, 7 Fed. R. Evid. Serv. 193 WILDER ENTERPRISES, INC., a Virginia Corporation, Appellant, v. ALLIED ARTISTS PICTURES CORPORATION, American International Pictures, Inc.,Avco Embassy Pictures Corporation, Buena Vista Distribution Company, Inc.,Columbia Pictures Industries, Inc., Paramount Pictures Corporation, TwentiethCentury Fox FilmCorporation, United Artists Corporation, Universal Film Exchanges, Inc., WarnerBrothers Distributing Corporation, ABC Southeastern Theatres, Inc., GeneralCinema Corporation of Virginia, Inc., American Multi-Cinema, Inc., Appellees, and Metro-Goldwyn Mayer, Inc., General Cinema Corporation, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1135

632 F.2d 1135

1980-81 Trade Cases 63,736, 7 Fed. R. Evid. Serv. 193

WILDER ENTERPRISES, INC., a Virginia Corporation, Appellant, v. ALLIED ARTISTS PICTURES CORPORATION, American International Pictures, Inc.,Avco Embassy Pictures Corporation, Buena Vista Distribution Company, Inc.,Columbia Pictures Industries, Inc., Paramount Pictures Corporation TwentiethCentury Fox FilmCorporation, United Artists Corporation, Universal Film Exchanges, Inc., WarnerBrothers Distributing Corporation, ABC Southeastern Theatres, Inc. GeneralCinema Corporation of Virginia, Inc., American Multi-Cinema, Inc., Appellees and Metro-Goldwyn Mayer, Inc., General Cinema Corporation, Defendants.

No. 79-1175.

United States Court of Appeals Fourth Circuit.

Argued Jan. 10, 1980.

Decided Oct. 3, 1980.

Stanley E. Sacks, Norfolk, Va. (Girard C. Larkin, Jr., William L. Perkins, III, Sacks, Sacks & Perkins, Norfolk, Va., on brief), for appellant.

Lewis T. Booker, Richmond, Va. (William F. Young, L. Neal Ellis, Jr., Hunton & Williams, Richmond, Va., Daniel R. Murdock, Donovan, Leisure, Newton & Irvine, New York City, Robert M. Hughes, III, Seawell, McCoy, Dalton, Hughes, Gore & Timms, Norfolk, Va., on brief), for distributors appellees.

Norman G. Knopf, Washington, D. C. (Warren L. Lewis, Bergson, Borkland, Margolis & Adler, Washington, D. C., Thomas J. Harlan, Jr., William M. Sexton, Doumar, Pincus, Knight & Harlan, Richard B. Spindle, III, Thomas G. Johnson, Jr., Guy R. Friddell, III, Willcox, Savage, Lawrence, Dickson & Spindle, P. C., Norfolk, Va., on brief), for exhibitors appellees.

Before BUTZNER and WIDENER, Circuit Judges, and ROBERT J. STAKER, United States District Judge for the Southern District of West Virginia, sitting by designation.

BUTZNER, Circuit Judge:

In this antitrust case, Wilder Enterprises, Inc., a movie exhibitor, appeals from an order of the district court directing a verdict for three competing exhibitors and ten national film distributors at the close of Wilder's evidence. Wilder charges that the appellees deprived it of first-run films and caused the closure of its theaters by entering into an agreement to allocate first-run films in violation of the Sherman Act. 15 U.S.C. §§ 1 and 2. Viewing the evidence and all reasonable inferences that can be drawn from it in the light most favorable to Wilder, we conclude that the judgment in favor of the three exhibitors and six of the distributors must be vacated. There is sufficient proof against them to warrant submission of the case to a jury. ¹ We affirm the judgment in favor of the other appellees.

I

The exhibitor appellees are General Cinema Corporation of Virginia, Inc. (General), American Multi-Cinema, Inc. (AMC), and ABC Southeastern (ABC). They are chain or circuit exhibitors who operate in many markets, including Norfolk-Virginia Beach.

The distributor appellees, whose judgments we affirm, are Allied Artists Pictures Corporation, American International Pictures, Inc., Avco Embassy Pictures Corporation, and Buena Vista Distribution Company, Inc. We vacate the judgments in favor of Columbia Pictures Industries, Inc., Paramount Pictures Corporation, Twentieth Century Fox Film Corporation, United Artists Corporation, Universal Film Exchange, Inc., and Warner Brothers Distributing Corporation. These companies are national distributors, who license first-run films by soliciting bids or offers to negotiate from exhibitors in specific geographic markets. Frequently, the distributors' solicitation letters contain suggested minimum terms.

Wilder is an independent film exhibitor, who operated two theaters in the Norfolk-Virginia Beach market. Before 1971 it had no trouble acquiring first-run pictures from the distributors. Starting in 1971, however, Wilder's efforts to obtain films met with less success although it continued to bid or negotiate as it had in the past. During 1971 and 1972 Wilder realized that its efforts to rent first-run films were futile. As a result, it responded to the distributors' solicitations less frequently and began showing x-rated movies. From 1973 until its theaters closed in 1975, only one film distributed by an appellee was licensed to its Norfolk-Virginia Beach theaters.

Wilder attributes the failure of its theaters to an agreement by the circuit exhibitors, ABC, AMC, and General to allocate among themselves the right to bid or negotiate for films offered by the distributors and to the participation of the distributors in this division of the market. This type of agreement is commonly known as a split or split of product. After initial denials, the exhibitors stipulated to the existence of the split and the method of its operation. The stipulation disclosed that periodically the exhibitors met and decided on the basis of rotation which of the three would bid or negotiate for a specific picture; the other two would refrain from competing.

Both the exhibitors and the distributors contend that the evidence is insufficient to establish either that the distributors participated in the split or that the split infringed on Wilder's opportunity to compete. These contentions, which were sustained by the district court, are critical, and the following brief summary of the law pertaining to splits will place them in perspective.

Film distributors are free to refuse to license films to any exhibitor when their decisions are based on independent business judgment. United States v. Colgate, 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919); Lamb's Patio Theatre v. Universal Film Exchanges, 582 F.2d 1068 (7th Cir. 1978). Moreover, an exhibitor does not have a claim against other film exhibitors who, without distributor involvement, "split" the films they will bid on. Seago v. North Carolina Theatres, Inc., 42 F.R.D. 627 (E.D.N.C.1966), aff'd per curiam, 388 F.2d 987 (4th Cir. 1967). Accord, Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877 (8th Cir. 1978); Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17 (9th Cir. 1971); Viking Theatre Corp. v. Paramount Film Distributing Corp., 320 F.2d 285 (3d Cir. 1963), aff'd per curiam by an equally divided court, 378 U.S. 123, 84 S.Ct. 1657, 12 L.Ed.2d 743 (1964); Brown v. Western Massachusetts Theatres, Inc., 288 F.2d 302 (1st Cir. 1961); Royster Drive-In Theatres v. American Broadcasting-Paramount Theatres, Inc., 268 F.2d 246 (2d Cir. 1959).

An exhibitor has a cause of action when distributors participate in the split and deny the exhibitor access to films. Such an arrangement creates an impermissible horizontal conspiracy among the exhibitors operating the split and a vertical conspiracy between them and the participating distributors. It is a type of group boycott that violates the antitrust laws. Klor's v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). See Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17, 19 (9th Cir. 1971); II E. Kintner, Federal Antitrust Law §§ 10.27-.31 (1980). In short, Wilder must show that it was denied the opportunity to obtain films enjoyed by ABC, AMC, and General because the distributors participated in the split.

Only one independent exhibitor, K. W. Andrews, participated in the split. His complaint about his inability to get first-run pictures induced an officer of AMC to invite him to a meeting of the exhibitors engaged in the split. Although Andrews attended a number of meetings, he was not allowed to bid for exclusive licenses. Rather, he was permitted to bid on a day and date basis for any picture AMC got in the split. ² ABC and General declined to allow Andrews to play day and date any pictures they received in the split.

Andrews testified at length about the distributors' involvement in the split. At one of the meetings, an AMC employee called a Universal official to check on the license terms Universal was requesting for High Plains Drifter. Universal had not yet sent bid solicitation letters to exhibitors in the market. The AMC employee stated that he had received the film in the split and asked if Andrews could play the picture day and date with AMC. Andrews talked with the Universal official who asked him if he had "been allowed in." When Andrews gave an affirmative response, the official said Andrews would be allowed to play the film day and date with AMC if he could satisfy the $5,000 requested guarantee. Subsequently, when Universal sent its bid solicitation letter to all exhibitors in the market, it offered to license the film on a day and date basis. Eventually, it was licensed on those terms to AMC and Andrews. When Andrews participated in the split, bid solicitation letters for films split to AMC allowed offers to exhibit the film on a day and date basis.

The exhibitors also called distributors during split meetings to verify the release dates of pictures under consideration. If Andrews missed a split meeting, he would sometimes call the distributors to find out what films he had received in the split. Occasionally, the distributors would call him with the information. These conversations took place before bid solicitations were sent to all of the exhibitors in the market. On one such occasion an employee of Fox called Andrews to tell him that he and AMC had received Towering Inferno in the split and that the guarantee would be $50,000. Andrews said that he wasn't positive he could pay the guarantee. Fox then sent out a solicitation letter offering to license the picture on a day and date basis. Andrews was told by a Fox employee that if he couldn't pay the suggested guarantee, the picture would be licensed to AMC. When Andrews couldn't furnish the guarantee, the bid solicitation was withdrawn and reissued on an exclusive basis. Fox licensed the picture to AMC alone. On another occasion, a Columbia employee informed Andrews, prior to the solicitation letter on The Last Detail, that Andrews and AMC had received that picture in the split. Andrews said that he could play the picture, and it was licensed to...