1. The motions in the District Court to amend the findings in
this case raised questions of substance, and an appeal applied for
and allowed while such motions were pending was premature, and must
be dismissed. P.
323 U. S.
177.
2. That the District Court has allowed a premature appeal does
not deprive it of jurisdiction to allow a subsequent and timely
appeal. P.
323 U. S.
177.
3. The Sherman Antitrust Act may apply to the business of
exhibiting motion pictures, when a regular interchange of films in
interstate commerce is involved. P.
323 U. S.
180.
4. On appeal, this Court considers only the alleged errors which
have been included in the assignments of error. P.
323 U. S.
180.
5. The evidence sustains the District Court's findings of a
conspiracy of the defendant exhibitors of motion pictures, and
certain officers thereof, unreasonably to restrain interstate trade
and commerce in motion picture films and to monopolize the
exhibition of films in the areas in question, in violation of § 1
and § 2 of the Sherman Act. P.
323 U. S.
181.
Page 323 U. S. 174
(a) There was ample evidence that the combination used its
buying power for the purpose either of restricting the ability of
its competitors to license films or of eliminating competition by
acquiring the competitor's property or otherwise. P.
323 U. S.
181.
(b) Whether the distributors were technically coconspirators is
immaterial, since action by a combination of exhibitors to obtain
an agreement with a distributor whereby commerce with a competing
exhibitor is suppressed or restrained is itself a conspiracy in
restraint of trade and a conspiracy to monopolize a part of the
trade or commerce among the States, each of which is prohibited by
the Sherman Act. P.
323 U. S.
183.
(c) Even if error be assumed in the introduction of certain
evidence -- consisting of letters or reports written by employees
of certain of the major distributors to other employees or officers
in the same company stating reasons why the distributor was
discriminating against an independent and in favor of the
defendants -- there is sufficient other evidence to establish the
restraints of trade and monopolistic practices, and the burden of
showing prejudice has not been sustained. P.
323 U. S.
184.
(d) Though the findings leave much to be desired in the light of
the function of the trial court, they are supported by the
evidence, and must therefore be sustained. P.
323 U. S.
184.
6. Upon consideration of objections to provisions of the decree
in this case,
held:
(1) Lest the public interest be not adequately protected, the
decree should be revised so as to prohibit future acquisitions of a
financial interest in additional theaters outside of Nashville
"except after an affirmative showing that such acquisition will not
unreasonably restrain competition." P.
323 U. S.
185.
(2) Provisions of the decree enjoining the defendant exhibitors
from making franchises with certain distributors "with the purpose
and effect of maintaining their theater monopolies and preventing
independent theaters from competing with them," and from entering
into "any similar combinations and conspiracies having similar
purposes and objects;" from combining, in licensing films, their
closed towns with their competitive situations
"for the purpose and with the effect of compelling the major
distributors to license films on a noncompetitive basis in
competitive situations and to discriminate"
against the independents, and enjoining each defendant
exhibitor
"from conditioning the licensing of films in any competitive
situation (outside Nashville) upon the licensing of films in any
other theater situation"
are sustained. P.
323 U. S.
187.
Page 323 U. S. 175
(a) The franchise agreements and the licensing system were the
chief instruments of the unlawful practices, and it was the duty of
the court to enjoin their continuance and resumption. P.
323 U. S.
188.
(b) These provisions of the decree are not unenforceable, as too
vague and general. P.
323 U. S.
188.
(3) The divestiture provisions of the decree -- requiring each
corporate exhibitor to divest itself of the ownership of any stock
or other interest in any other corporate defendant or affiliated
corporation, and enjoining it from acquiring any interest in those
companies; requiring one of the individual defendants to resign as
an officer of any corporation (except Crescent) which is affiliated
with any defendant exhibitor and enjoining him from acquiring
control over any such affiliate by acting as officer or otherwise;
requiring another of the individual defendants to resign as an
officer of the affiliates (except one corporation of his choice)
and enjoining him from acquiring any control over the others by
acting as an officer or otherwise, and allowing a year from the
date of the decree for completion of the divestiture -- are
sustained. P.
323 U. S.
189.
(a) In this type of Sherman Act case, the Government should not
be confined to an injunction against further violations;
dissolution of the combination may be ordered where the creation of
the combination is itself the violation. P.
323 U. S.
189.
(b) Those who violate the Act may not reap the benefits of their
violations and avoid an undoing of their unlawful project on the
plea of hardship or inconvenience. P.
323 U. S.
189.
(c) The fact that minority stockholders of the affiliated
companies are not parties to the suit does not bar a separation of
the companies. P.
323 U. S.
190.
(d) The requirement that two of the defendant corporate
exhibitors sell their respective half interests in two companies
which were not made parties to the proceedings is sustained, since
it does not appear on this record that any legal right of any other
stockholder would be affected. P.
323 U. S.
190.
No. 17 dismissed.
No. 18 reversed.
No.19 affirmed.
Direct appeals under the Expediting Act from a decree against
defendants in a civil suit under the Sherman Antitrust Act. Two of
the appeals were taken by the Government, the other by certain of
the defendants.
Page 323 U. S. 176
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The United States brought this civil suit against nine
affiliated companies (whom we will call the exhibitors) operating
motion picture theaters in some 70 small towns in Alabama,
Arkansas, Kentucky, Mississippi, and Tennessee against certain
officers of these companies and against eight major distributors of
motion picture films charging them with a conspiracy unreasonably
to restrain interstate trade and commerce in motion picture films
and to monopolize the exhibition of films in this area in violation
of § 1 and § 2 of the Sherman Act. 26 Stat. 209, 15 U.S.C. §§ 1, 2.
This suit was dismissed against five of the distributors on motion
of the United States. [
Footnote
1] Of the other three, the Court found that only one had
violated the Sherman Act. The court also found that seven of the
exhibitors and three of the individual defendants had violated the
Sherman Act substantially as charged. It entered a decree against
them. From the judgment entered,
Page 323 U. S. 177
the United States, six of the exhibitors, and three individual
defendants appeal directly to this Court under § 2 of the Act of
February 11, 1903, 32 Stat. 823, 15 U.S.C. § 29, and § 238 of the
Judicial Code, as amended by the Act of February 13, 1925, 43 Stat.
936, 938, 28 U.S.C. § 345.
I. Before we come to the merits, there is a preliminary question
as to whether the appeal of the United States in No. 17 is
premature. The District Court entered a final judgment in this case
on May 17, 1943. On the sixtieth day after judgment, there were
motions pending to amend the findings. On that day, the appeal was
applied for and allowed. On August 30, 1943, the court ruled on the
motions to amend its findings. Within sixty days thereafter, the
United States applied for the appeal in No. 18, and it was allowed.
The appeal in No. 17 was filed here at the same time as that in No.
18. The appellees move to dismiss No. 17 on the ground that it was
premature, and to dismiss No. 18 on the ground that the District
Court, by allowing the first appeal, lost jurisdiction of the
cause, and was without power to allow a further appeal. We think
the motion to dismiss the appeal in No. 17 must be granted, and the
motion to dismiss the appeal in No. 18 denied.
The motion to amend the findings tolled the time to appeal if it
was not addressed to "mere matters of form, but raised questions of
substance" --
e.g., if it sought a "reconsideration of
certain basic findings of fact and the alteration of the
conclusions of the court."
Leishman v. Associated Wholesale
Electric Co., 318 U. S. 203,
318 U. S. 205.
An examination of the motion makes plain that matters of substance
were raised. The appeal in No. 17 was accordingly premature.
Zimmern v. United States, 298 U.
S. 167. But it does not follow that the District Court
had no jurisdiction to allow the appeal in No. 18. An appeal can
hardly be premature (and therefore a nullity) here, and yet not
Page 323 U. S. 178
premature (and therefore binding) below. Under these
circumstances, an appellant may rely upon the later appeal
(
Ohio Public Service Co. v. Ohio ex rel. Fritz,
274 U. S. 12) and
not run the risk of losing an appellate review on the appeal first
allowed.
Cf. Wilentz v. Sovereign Camp, 306 U.
S. 573.
II. We turn to the merits. Crescent, the principal exhibitor,
[
Footnote 2] owns 50% of the
stock of Cumberland and Lyric. The majority of Crescent's stock is
owned by defendant Sudekum, by certain of his relatives, and by
defendants Stengel and Baulch. Prior to 1937, Crescent owned almost
two-thirds of the stock of Muscle Shoals; since that time, Muscle
Shoals was run as a partnership in which Sudekum's wife had a
half-interest. Defendant Stengel, Sudekum's son-in law, is the
record holder of all of Rockwood's stock. Rockwood owns 50% of the
stock of Cherokee and Kentucky, and of five other theater
corporations. Rockwood was operated as a "virtual branch" of the
Crescent business under the immediate supervision of Stengel.
Sudekum is president of Crescent, Cumberland, and Lyric; Stengel is
an officer and director of Kentucky and Cherokee. Sudekum was paid
$200 a week by Cherokee "for his advice and assistance in running
the business." Each of these companies was an exhibitor operating
motion picture theaters.
In the five-year period ended in August, 1939, when this bill
was filed, the exhibitors experienced a rather rapid growth -- in
the number of towns where their theaters were operated, in the
number of towns where they operated without competition, in their
earnings and surplus. The United States claims that that growth was
the product
Page 323 U. S. 179
of restraints of trade in violation of § 1 of the Sherman Act
and of monopolistic practices in violation of § 2.
The District Court found that each of the seven exhibitors had
violated the Sherman Act by
"A. Creating and maintaining an unreasonable monopoly of the
business of operating theaters in the towns of Tennessee, Northern
Alabama, and Central and Western Kentucky, in which each has
theaters."
"B. Combining its closed towns with its competitive situations
in licensing films for the purpose and with the effect of
compelling the major distributors to license films on a
noncompetitive basis in competitive situations and to discriminate
against its independent competitors in licensing films."
"C. Coercing or attempting to coerce independent operators into
selling out to it, or to abandon plans to compete with it by
predatory practices."
The court found that these violations were effected (a) by
combining with each other and with certain major distributors in
making franchises --
i.e., term contracts for the
licensing of films, with the purpose and effect of maintaining
their theater monopolies and preventing independents from competing
with them; (b) by combining with each other for the purpose of
dividing the territory in which theaters might be operated by any
of them; (c) by combining with each other for the purpose and with
the effect of eliminating, suppressing, and preventing independents
from competing in the territory in which each operated, and (d) by
combining with each other and with certain major distributors in
licensing films for the purpose and with the effect of maintaining
their theater monopolies and preventing independents from competing
with them. Three of the individual defendants were found to have
participated actively in these violations.
Page 323 U. S. 180
Interstate commerce was found to have been employed in
consummating the conspiracy. In the selling season each year, the
distributor's salesmen solicit contracts from the exhibitors for
the distributor's approval by the home office. As the films are
released for exhibition, prints are sent to the numerous exchanges
located in various states and delivered by them to the exhibitors
in their respective areas. [
Footnote 3] The exhibitor ordinarily returns the print to
the distributor's exchange from which it is supplied to other
theaters. The findings are wholly adequate to establish that the
business of the exhibitors involves a regular interchange of films
in interstate commerce. As we shall see, that course of business
may be sufficient to make the Sherman Act applicable to the
business of exhibiting motion pictures.
Interstate Circuit v.
United States, 306 U. S. 208.
Cf. Binderup v. Pathe Exchange, 263 U.
S. 291. The crucial issues in the present case relate to
the evidence and the appropriateness of the decree.
III. The defendants assert that the United States failed to
prove the allegations of the complaint, as amplified by the bill of
particulars. But no such error was assigned. The only assignments
on this phase of the case relate to subsidiary findings which are
parts of sixteen of the one hundred and eighty-seven findings of
fact contained in one hundred and twenty printed pages. Hence, they
are the only ones we will consider.
Seaboard Air Line R. Co. v.
Watson, 287 U. S. 86,
287 U. S. 91;
E. R. Squibb & Sons v. Mallinckrodt Chemical Works,
293 U. S. 190;
Rule 9, 275 U.S. 600. We have examined them, and conclude that they
do not constitute reversible error. If any modifications were made
in these subsidiary findings, they would not be basic or essential
ones.
Page 323 U. S. 181
The crux of the government's case was the use of the buying
power of the combination for the purpose of eliminating competition
with the exhibitors and acquiring a monopoly in the areas in
question. There was ample evidence that the combination used its
buying power for the purpose either of restricting the ability of
its competitors to license films or of eliminating competition by
acquiring the competitor's property or otherwise. For example, the
defendants would insist that a distributor give them monopoly
rights in towns where they had competition, or else defendants
would not give the distributor any business in the closed towns
where they had no competition. The competitor, not being able to
renew his contract for films, would frequently go out of business
or come to terms and sell out to the combination with an agreement
not to compete for a term of years. The mere threat would at times
be sufficient, and cause the competitor to sell out to the
combination "because his mule was scared." In that way, some of the
affiliates were born. In summarizing various deals of this
character, the District Court said,
"Each of these agreements not to compete with Crescent or its
affiliates in other towns extended far beyond the protection of the
business being sold, and demonstrated a clear intention to
monopolize theater operation wherever they or their affiliates
secured a foothold. [
Footnote
4] "
Page 323 U. S. 182
The same type of warfare was waged with franchise contracts with
certain major distributors covering a term of years. These gave the
defendants important exclusive film licensing agreements. Their
details varied. But, generally, they gave the defendant exhibitors
the right to first-run exhibition of all feature pictures which
they chose to select in their designated towns. Clearances over the
same or nearby towns were provided,
i.e., a time lag was
established between the showing by the defendant exhibitors and a
subsequent showing by others. The opportunity of competitors to
obtain feature pictures for subsequent runs was further curtailed
by repeat provisions
Page 323 U. S. 183
which gave the defendant exhibitors the option of showing the
pictures in their theaters a second time. In reviewing one of these
franchise agreements, the District Court concluded,
"The repeat-run clause in the franchise was completely effective
in preventing the sale of a second-run of any Paramount features to
any opposition theater."
We are now told, however, that the independents were eliminated
by the normal processes of competition; that their theaters were
less attractive; that their service was inferior; that they were
not as efficient businessmen as the defendants. We may assume that,
if a single exhibitor launched such a plan of economic warfare he
would not run afoul of the Sherman Act. [
Footnote 5] But the vice of this undertaking was the
combination of several exhibitors in a plan of concerted action.
They had unity of purpose and unity of action. They pooled their
buying power for a common end. It will not do to analogize this to
a case where purchasing power is pooled so that the buyers may
obtain more favorable terms. The plan here was to crush competition
and to build a circuit for the exhibitors. The District Court found
that some of the distributors were co-conspirators on certain
phases of the program. But we can put that circumstance to one
side, and not stop to inquire whether the findings are adequate on
that phase of the case. For it is immaterial whether the
distributors technically were or were not members of the
conspiracy. The showing of motion pictures is, of course, a local
affair. But action by a combination of exhibitors to obtain an
agreement with a distributor whereby commerce with a competing
exhibitor is suppressed or restrained is a conspiracy in restraint
of trade, and a conspiracy to monopolize
Page 323 U. S. 184
a part of the trade or commerce among the States, each of which
is prohibited by the Sherman Act. And, as we have said, the course
of business which involves a regular exchange of films in
interstate commerce is adequate to bring the exhibitors within the
reach of the Sherman Act.
Interstate Circuit v. United States,
supra.
The exhibitors, however, claim that the findings against them on
the facts must fall because of improper evidence. The evidence to
which this objection is directed consists of letters or reports
written by employees of certain of the major distributors to other
employees or officers in the same company stating reasons why the
distributor was discriminating against an independent in favor of
the defendants. The United States asserts that these letters or
reports were declarations of one conspirator in furtherance of the
common objective, and therefore admissible as evidence against all
under the rule of
Hitchman Coal & Coke Co. v.
Mitchell, 245 U. S. 229,
245 U. S. 249.
And it is argued that it makes no difference that these
distributors were dismissed out of the case (
Delaney v. United
States, 263 U. S. 586,
263 U. S.
590), since they were charged with being coconspirators,
and since the findings are, with certain exceptions, adequate to
support the charge. We do not come to that question. The other
evidence established the position of the distributors and their
relations to the theaters involved, what the distributors in fact
did, the combination of the defendants, the character and extent of
their buying power, and how it was in fact used. This other
evidence was sufficient to establish the restraints of trade and
monopolistic practices; the purpose, character, and extent of the
combination are inferable from it alone. Thus, even if error be
assumed in in introduction of the letters and reports, the burden
of showing prejudice has not been sustained.
The defendants finally object to the findings on the ground that
they were mainly taken verbatim from the
Page 323 U. S. 185
government's brief. The findings leave much to be desired in
light of the function of the trial court.
See United States v.
Forness, 125 F.2d 928, 942, 943. But they are nonetheless the
findings of the District Court. And they must stand or fall
depending on whether they are supported by evidence. We think they
were.
IV. The major controversy here has turned on the provisions of
the decree.
A.
Objections of the United States. The United States
objects to the provision of the decree that no defendant exhibitor
shall acquire a financial interest in any additional theater
outside Nashville in any town where there already is a theater
"unless the owner of such theater should voluntarily offer to
sell same to either of the exhibitor defendants, and when none of
said defendants, their officers, agents, or servants is guilty of
any of the acts or practices prohibited by paragraph nine (9)
hereof."
Paragraph 9 referred to enjoins the defendants "from coercing or
attempting to coerce independent operators into selling out to it,
or to abandon plans to compete with it by predatory practices." It
asks that there be substituted for that provision one which the
District Court had earlier approved restraining such acquisitions
"except after an affirmative showing that such acquisition will not
unreasonably restrain competition."
The Court at times has rather freely modified decrees in Sherman
Act cases where it approved the conclusions of the District Court
as to the nature and character of the violations.
Standard Oil
Co. v. United States, 221 U. S. 1,
221 U. S. 78-82;
United States v. American Tobacco Co., 221 U. S.
106,
221 U. S.
184-188. We recognize, however, that there is a wide
range of discretion in the District Court to mould the decree to
the exigencies of the particular case, and, where the findings of
violations are sustained, we will not direct a recasting of the
decree except on a showing of abuse of discretion.
See Ethyl
Gasoline Corp. v. United
Page 323 U. S. 186
States, 309 U. S. 436,
309 U. S. 461;
United States v. Bausch & Lomb Optical Co.,
321 U. S. 707,
321 U.S. 725,
321 U. S. 728.
We think this is a case where we should act lest the public
interest not be adequately protected by the decree as cast.
The generality of this provision of the decree bids fair to call
for a retrial of a Sherman Act case any time a citation for
contempt is issued. The crucial facts in each case would be subtle
ones, as is usually true where purpose and motive are at issue.
This type of provision is often the only practical remedy against
continuation of illegal trade practices. But we are dealing here
with a situation which permits of a more select treatment. The
growth of this combine has been the result of predatory practices
condemned by the Sherman Act. The object of the conspiracy was the
destruction or absorption of competitors. It was successful in that
endeavor. The pattern of past conduct is not easily forsaken. Where
the proclivity for unlawful activity has been as manifest as here,
the decree should operate as an effective deterrent to a repetition
of the unlawful conduct, and yet not stand as a barrier to healthy
growth on a competitive basis. The acquisition of a competing
theater terminates at once its competition. Punishment for contempt
does not restore the competition which has been eliminated. And,
where businesses have been merged or purchased and closed out, it
is commonly impossible to turn back the clock. Moreover, if the
District Court were to supervise future acquisitions in this case,
it would not be undertaking an onerous and absorbing administrative
burden. The burden would not seem more onerous than under the
alternative provision where in substance the issue would be
violation of the Sherman Act
vel non.
These considerations impel us to conclude that the decree should
be revised so as to prohibit future acquisitions of a financial
interest in additional theaters outside of
Page 323 U. S. 187
Nashville "except after an affirmative showing that such
acquisition will not unreasonably restrain competition."
B.
Objections of the Defendants. (1) The decree enjoins
the defendant exhibitors from making franchises with certain
distributors "with the purpose and effect of maintaining their
theater monopolies and preventing independent theaters from
competing with them," and from entering into "any similar
combinations and conspiracies having similar purposes and objects."
The decree also enjoins them from combining, in licensing films,
their closed towns with their competitive situations
"for the purpose and with the effect of compelling the major
distributors to license films on a noncompetitive basis in
competitive situations and to discriminate"
against the independents. The decree also enjoins each defendant
exhibitor "from conditioning the licensing of films in any
competitive situation (outside Nashville) upon the licensing of
films in any other theater situation."
It is argued that these provisions will aggrandize the
distributors at the expense of the exhibitors, that, if such
measures are taken they should be taken against the distributors,
that they deprive the exhibitors of group purchasing power, that
the franchise agreements are normal and necessary both for
distributors and exhibitors, and that these provisions of the
decree are so vague and general as to greatly burden the conduct of
these businesses.
It is not for us, however, to pick and choose between competing
business and economic theories in applying this law. Congress has
made that choice. It has declared that the rule of trade and
commerce should be competition, not combination.
United States
v. Trenton Potteries Co., 273 U. S. 392,
273 U. S. 397;
Fashion Originators' Guild v. Federal Trade Commission,
312 U. S. 457,
312 U. S. 465.
Since Congress has made that choice, we cannot refuse to sustain a
decree because by some other measure of the public
Page 323 U. S. 188
good the result may not seem desirable.
United States v.
Socony-Vacuum Oil Co., 310 U. S. 150,
310 U. S.
221-222. The duty of the Court in these cases is "to
frame its decree so as to suppress the unlawful practices and to
take such reasonable measures as would preclude their revival."
Ethyl Gasoline Corp. v. United States, supra, p.
309 U. S. 461. The
chief weapons used by this combination in its unlawful warfare were
the franchise agreements and the licensing system. The fact that
those instruments could be lawfully used does not mean that the
defendants may leave the court unfettered. Civil suits under the
Sherman Act would indeed be idle gestures if the injunction did not
run against the continuance or resumption of the unlawful practice.
And it is hard to see how the decree could be made less general and
more specific. If it is a burden which cannot be lightened by
application to the court for exercise of the power which it has
reserved over the decree, it is a burden which those who have
violated the Act must carry. And the fact that there may be
somewhere in the background a greater conspiracy from which flow
consequences more serious than we have here is no warrant for a
refusal to deal with the lesser one which is before us.
(2) Serious complaint is made of the divestiture provisions of
the decree. It requires each corporate exhibitor to divest itself
of the ownership of any stock or other interest in any other
corporate defendant or affiliated corporation, [
Footnote 6] and enjoins it from acquiring any
interest in those companies. Sudekum is required to resign as an
officer of any corporation (except Crescent) which is affiliated
with any defendant exhibitor, and he is enjoined from acquiring
control over any such affiliate (except Crescent) by acting as
officer or otherwise. Stengel is required to resign as
Page 323 U. S. 189
officer of the affiliates (except one corporation of his
choice), and is enjoined from acquiring any control over the others
by acting as an officer or otherwise. A year from the date of entry
of the decree is allowed for completing this divestiture.
It is said that these provisions are inequitable and harsh
income tax wise, that they exceed any reasonable requirement for
the prevention of future violations, and that they are therefore
punitive.
The Court has quite consistently recognized in this type of
Sherman Act case that the government should not be confined to an
injunction against further violations. Dissolution of the
combination will be ordered where the creation of the combination
is itself the violation.
See Northern Securities Co. v. United
States, 193 U. S. 197,
193 U. S.
354-360;
Standard Oil Co. v. United States, supra;
United States v. American Tobacco Co., supra, 221 U.S. at
221 U. S.
186-188;
United States v. Union Pacific R. Co.,
226 U. S. 61,
226 U. S. 97;
United States v. Reading Co., 253 U. S.
26,
253 U. S. 63;
United States v. Lehigh Valley R. Co., 254 U.
S. 255;
United States v. Southern Pacific Co.,
259 U. S. 214;
United States v. Corn Products Refining Co., 234 F. 964,
1018. Those who violate the Act may not reap the benefits of their
violations and avoid an undoing of their unlawful project on the
plea of hardship or inconvenience. That principle is adequate here
to justify divestiture of all interest in some of the affiliates,
since their acquisition was part of the fruits of the conspiracy.
But the relief need not, and, under these facts, should not, be so
restricted. The fact that the companies were affiliated induced
joint action and agreement. Common control was one of the
instruments in bringing about unity of purpose and unity of action,
and in making the conspiracy effective. If that affiliation
continues, there will be tempting opportunity for these exhibitors
to continue to act in combination
Page 323 U. S. 190
against the independents. The proclivity in the past to use that
affiliation for an unlawful end warrants effective assurance that
no such opportunity will be available in the future. Hence, we do
not think the District Court abused its discretion in failing to
limit the relief to an injunction against future violations. There
is no reason why the protection of the public interest should
depend solely on that somewhat cumbersome procedure when another
effective one is available.
The fact that minority stockholders of the affiliated companies
are not parties to the suit is no legal barrier to a separation of
the companies.
United States v. American Tobacco Co.,
supra. No legal right of one stockholder is normally affected
if another stockholder is required to sell his stock. And no
exception to that rule has been shown to exist here. Only business
inconvenience and hardship are asserted. It is said, however, that
the decree requires Rockwood and Cherokee (two defendant
exhibitors) to sell their respective half-interests in two
companies which were not made parties to the proceedings. The
argument is that the latter companies are indispensable parties if
such divestiture is required. Reliance is placed on
Minnesota
v. Northern Securities Co., 184 U. S. 199. In
that case, Minnesota brought an original action in this Court
alleging that the acquisition by Northern Securities Co. of the
majority stock of two railroad companies effected a consolidation
of the railroads in violation of Minnesota law. Minnesota asked,
among other things, for an injunction against Northern Securities
Co.'s voting the stock of those companies. The Court held that the
two railroad companies were indispensable parties, and, since the
jurisdiction of the Court would have been defeated if they were
joined, leave to file the bill was denied. Denial of the right of a
majority stockholder to vote his stock would deprive the
corporation of a board of directors
Page 323 U. S. 191
elected in accordance with state law. If such a step were taken,
the corporation should be a party so that all corporate interests
might be represented.
Minnesota v. Northern Securities Co.
goes no farther than that. Here, there is no showing of any
complication of that order. If such a complication appeared, the
District Court could bring in the two affiliates as parties in
order to effectuate the decree.
United States v. Southern
Pacific Co., supra, p.
259 U. S. 241.
But, on this record, it does not appear that, if Rockwood and
Cherokee are required to sell their half-interests in those
companies, any legal right of any other stockholder would be
affected.
Cf. Morgan v. Struthers, 131 U.
S. 246.
We have considered the other contentions, and find them without
merit.
The appeal in No. 17 is dismissed.
The judgment in No. 18 is reversed.
The judgment in No.19 is affirmed.
It is so ordered.
MR. JUSTICE FRANKFURTER, MR. JUSTICE MURPHY, and MR. JUSTICE
JACKSON took no part in the consideration or decision of these
cases.
MR. JUSTICE ROBERTS dissents.
*Together with No.19,
Crescent Amusement Co. et al. v.
United States, also on appeal from the District Court of the
United States for the Middle District of Tennessee.
[
Footnote 1]
This was done after a consent decree had been entered against
five of the major distributors in
United States v. Paramount
Pictures, Inc. This dismissal did not eliminate the charge
that these distributors had conspired with the defendant exhibitors
to restrain and monopolize trade. And some of the distributors,
though dismissed from the case, were found to be coconspirators
with the exhibitors in making franchise agreements and in licensing
films for the purpose of maintaining the exhibitors' theater
monopolies and of preventing the independents from competing.
[
Footnote 2]
Crescent is used for Crescent Amusement Co.; Cumberland for
Cumberland Amusement Co.; Lyric for Lyric Amusement Co., Inc.;
Cherokee for Cherokee Amusements, Inc.; Kentucky for Kentucky
Amusement Co., Inc.; Muscle Shoals for Muscle Shoals Theaters, and
Rockwood for Rockwood Amusement Co.
[
Footnote 3]
The defendant exhibitors, during the five year period preceding
the filing of this suit, paid about 90% of their total film rental
to the eight major distributors.
[
Footnote 4]
The expansion of the combination during this period was
summarized by the District Court as follows:
"On August 11, 1934, the defendant exhibitors and their
affiliates operated in thirty-two towns in Tennessee (excluding
Nashville), Kentucky, and Alabama, in six of which they had
competition. On August 11, 1939, the defendant exhibitors and their
affiliates, with the exception of Strand, heretofore dismissed as a
defendant, operated in seventy-eight towns in Tennessee (excluding
Nashville), Kentucky, Alabama, and North Carolina, in five of which
they had competition, and the only towns in which they have
competition today, outside of Nashville, are Gadsden, Alabama,
Harriman, Gallatin, and McMinville, Tennessee, and Franklin,
Kentucky. In two of these towns -- Gadsden, Alabama, and Harriman,
Tennessee -- the independent theaters have opened since the filing
of this suit, and two more -- Franklin, Kentucky, and Gallatin,
Tennessee -- are towns which Crescent entered less than two years
before the filing of this suit."
"Of the forty-five towns in Tennessee listed in the 1940 census
as having populations between 2,500 and 10,000, Crescent and its
affiliates now operate theaters in all but nine. The independents
operating in three of those nine towns have already been approached
by Sudekum emissaries with the suggestion that they sell to one of
the defendant exhibitors."
Their financial growth was found to be "out of all proportion"
to their physical expansion:
"During the five-year period immediately preceding the suit, the
Crescent and Rockwood companies each experienced a phenomenal
growth in earnings and surplus which was out of all proportion to
the increase in gross receipts and gross assets resulting from
physical expansion of the business and improving general economic
conditions. During the five-year fiscal period from June 30, 1934
to June 30, 1939, Crescent's total assets were less than doubled,
but its surplus was increased thirty times. During the last fiscal
year of said period, its gross receipts were less than twice the
amount of its gross receipts for the first fiscal year of said
period, but its net profits (exclusive of dividends received) were
more than five times those of the first year. During the five-year
period, its net earnings (exclusive of dividends received) averaged
about 35 percent per annum on its capitalization."
[
Footnote 5]
A union of the exhibitor with a distributor in such a program
would, of course, constitute a conspiracy under the Sherman Act, as
held in
Interstate Circuit v. United States, 306 U.
S. 208.
[
Footnote 6]
Defined in the decree to exclude certain companies.