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Congress Building Corp. v. Loew's

May 31, 1957

CONGRESS BUILDING CORPORATION
v.
LOEW'S, INCORPORATED, ET AL.



Author: Swaim

Before FINNEGAN, LINDLEY and SWAIM, Circuit Judges.

SWAIM, Circuit Judge:

This action was commenced in the District Court as a private antitrust suit under Sections 4 and 16 of the Clayton Act, 15 U.S.C.A. ยงยง 15, 26, to recover treble damages for injuries alleged to have been sustained by reason of defendants' violation of the Sherman and Clayton Acts, and for injunctive relief. The District Court granted defendants' motion for summary judgment on the ground that plaintiff is not a person injured in its business or property within the meaning of Section 4 of the Clayton Act and, therefore, is not entitled to maintain this action. (Reported in CCH TRADE CASES Par. 68,513 (1956).)

Plaintiff is the non-operating owner-lessor of a motion picture theater property located in Chicago, Illinois. The theater is leased to defendant Balaban & Katz (B & K) which controls the operation of the theater. Under the terms of the lease plaintiff is entitled to a fixed minimum rental plus a percentage of the lessee's gross receipts. The lessee has at all times paid the minimum rental, but, as alleged by plaintiff, the receipts, and thus the amounts payable by the lessee under the percentage clause, have been kept down due to the illegal trade practices of the defendant-lessee B & K, certain motion picture distributors and certain affilated exhibitors in the City of Chicago. Plaintiff alleged that the defendants, including the defendant-lessee, engaged in a conspiracy to monopolize first and first subsequent run exhibition of motion pictures in the City of Chicago and to restrain trade and commerce in the licensing of motion pictures for exhibition by suppressing the competition of independent exhibitors, by the establishment of a uniform system of minimum theater admission prices to be charged by exhibitors, uniform playing positions for theaters and a uniform system for releasing motion pictures for exhibition. Plaintiff further alleged that the effect of these illegal trade practices was to relegate its theater to an inferior exhibiting position thereby depriving plaintiff of rentals under the percentage clause that it otherwise would have received.

The question of whether a non-operating lessor may maintain a treble damage action has been infrequently litigated and such decisions as there are are difficult to reconcile. In East Orange Amusement Co. v. Vitagraph, Inc., D.C.N.J., CCH Trade Cas. Par. 52,965 (1943), the lessor claimed that antitrust violations had caused his lessee to default in the payment of rent and that this default, in turn, resulted in the lessor's loss of his real estate to a mortgagee. And in Camrel Co. v. Paramount Film Distributing Corp., D.C.S.D.N.Y., CCH TRADE CASES Par. 57,233 (1944), the lessor claimed, as a result of alleged antitrust violations, injury to the rental and market value of its real estate and, in addition, injury under a percentage rental clause like that in the instant case. The District Court in each of the above cases upheld the lessor's capacity to sue by denying motions to dismiss. However, neither court gave substantial treatment to the problem. The authority of these cases may be in doubt because of later decisions by the Courts of Appeal for their respective circuits. See Harrison v. Paramount Pictures, Inc., D.C.E.D. Pa., 115 F.Supp. 312, aff'd 3 Cir., 211 F.2d 405, certiorari denied 348 U.S. 828; Melrose Realty Co. v. Loew's Inc., 3 Cir., 234 F.2d 518, certiorari denied 352 U.S. 890; Productive Inventions, Inc. v. Trico Products Corp., 2 Cir., 224 F.2d 678, certiorari denied 350 U.S. 936 (these cases will be considered shortly).

This problem was also before the court in Westmoreland Asbestos Co. v. Johns-Manville Corp., D.C.S.D.N.Y., 30 F.Supp. 389, aff'd 2 Cir., 113 F.2d 114, where it was held that the injuries to the lessor were too remote to entitle him to maintain the action. It must be noted that in the East Orange, Camrel and Westmoreland cases the lessee was also a victim of the alleged antitrust violations which is not the case here, as the defendant-lessee is alleged to have been a participant in the trade practices complained of.

Harrision v. Paramount Pictures, Inc., D.C.E.D. Pa., 115 F.Supp. 312, is the first decision to deal fully with the problems peculiar to a suit by a lessor. The lessor, a non-operating theater owner, claimed injury to the market value of her theater and injury under a percentage rental clause, as a result of alleged antitrust violations. Although the court's opinion is not explicit on this point, it appears that the lessee was alleged to be one of the co-conspirators. The court held that the lessor did not have capacity to sue on two alternative lines of argument: (1) that the interest of the lessor was such that there could be no injury in "his business or property," as required by Section 4 of the Clayton Act; (2) that even if there were injury to his business or property within the meaning of Section 4, it would be too remote to be compensable. The Court of Appeals affirmed in a per curiam opinion and adopted the reasoning of the district judge. 3 Cir., 211 F.2d 405, certiorari denied 348 U.S. 828.

The problem was next considered in Steiner v. 20th Century-Fox Film Corp., 9 Cir., 232 F.2d 190. The lessor, another non-operating theater owner, claimed that as a result of alleged antitrust violations she was forced to lease her theater for less than a reasonable rental. The prime lessee was alleged to be one of the co-conspirators and initially was made a party defendant. However, the lessor dismissed her complaint as against the lessee. There, as here, it was asserted that the lessor's interest is too remote to be compensable. The court distinguished the Harrison case and held that the lessor was entitled to maintain the action, saying:

"Here the complaint affirmatively alleges direct injury to the [lessor], not the lessee. It is said the appellees' wrongful acts operated directly upon the [lessor]. This is sufficient for the [lessor] to become a proper party to complain of the conspiracy alleged." 232 F.2d at 193.

The court distinguished the Harrison case as follows:

"The cases cited by the appellees are not factually similar to the case at bar. In Harrison v. Paramount Pictures [citation] there were no direct dealings between the plaintiff and defendant. Here the [lessor] asserts the appellees conspired with the prime lessee to force [lessor] to receive less than a reasonable rent." 232 F.2d at 193.

The court's treatment of the Harrison case is confusing. If, when the court said, "there were no direct dealings between the plaintiff and defendant" in Harrison, it meant that the lessee was not alleged to be one of the co-conspirators, it is in error. If, on the other hand, the court meant that there were no direct dealings between the plaintiff and the defendants other than the lessee, it is probably correct. The court may have well intended the latter since there is some language in the court's opinion which indicates the lessor in Steiner alleged that the defendants other than the lessee had direct dealings with her.The question then arises whether this is a significant distinction.

The problem was again considered by the Third Circuit in Melrose Realty Co. v. Loew's Inc., 234 F.2d 518, certiorari denied 352 U.S. 890, and the court adhered to the rule laid down in the Harrison case. The only reference made by the court to the Steiner case is found in Chief Judge Biggs' dissent on the petition for rehearing. 234 F.2d at 519.

The rationale of Harrison was approved by the Second Circuit in Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678, certiorari denied 350 U.S. 936. The plaintiff, a patentee, who had granted to another an exclusive license upon a royalty basis, claimed injury due to a loss of royalties on sales that might have been made save for the allaged antitrust violations of the defendant. The court held that the licensor had no standing to sue because its loss was "beyond the limit of injuries cognizable under the antitrust laws." The injury asserted by the licensor is analogous to the injury claimed by the plaintiff in the instant case under the percentage rental clause. It should be noted, however, that the licensee was also a victim of the alleged antitrust violations, and not a co-conspirator.

The Harrison rationale has been also cited with approval in Miley v. John Hancock Mutual Life Insurance Co., D.C. Mass., 148 F.Supp. 299; and Snow Crest Beverages, Inc. v. Recipe Foods, Inc., D.C. Mass., 147 F.Supp. 907.In Miley, the plaintiff, an insurance broker, claimed injury to his business due to loss of insurance premiums which he would have earned save for the alleged antitrust violations of the defendants by causing the insurance company which he was representing to lose a profitable contract. And in the Snow Crest case the plaintiff claimed injury due to loss of business as the supplier of another who was the intended victim of the alleged antitrust violations. In each of these cases the court adopted the Harrison rationale and held that the interest of the plaintiff was too remote to be compensable and, therefore, each lacked the standing to maintain the action.

The situation in the Northern District of Illinois, Eastern Division, only adds to the confusion. In two recent decisions, in cases virtually indistinguishable factually from the instant case, that court has held that a non-operating theater owner is entitled to maintain a treble damage action. Tower Building Corp. v. Loew's Inc., CCH TRADE CASES Par. ...


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