Source: https://openjurist.org/347/us/89
Timestamp: 2019-04-18 15:05:59+00:00

Document:
PARAMOUNT PICTURES THEATRES CORP. et al.
Mr. Russell Hardy, Washington, D.C., for petitioners.
Mr. Jackson W. Chance, Los Angeles, Cal., for respondents.
This case presents a matter of federal practice involving inconsistent positions by litigants in court proceedings. We have often held that under the doctrine of res judicata a judgment entered in an action conclusively settles that action as to all matters that were or might have been litigated or adjudged therein.1 But a prior judgment between the parties has been held to operate as an estoppel in a suit on a cause of action different from that forming the basis for the original suit 'only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.'2 This latter aspect of res judicata is the doctrine of collateral estoppel by judgment, established as a procedure for carrying out the public policy of avoiding repetitious litigation.
Petitioners entered counterclaims in a suit against them by respondent. These counterclaims were dismissed by the trial court upon determination of the original suit for petitioners and against respondents. The cause of action stated in petitioners' counterclaims is based upon a controverted personal right that had not been adjudged and therefore res judicata is no bar to the claimed right of recovery. Respondent, however, in its original suit had raised an issue, determinative of its cause of action, which had been therein successfully controverted by petitioners to final judgment on the merits. Collateral estoppel stands as a bar to further litigation by the parties of this issue, and this issue was held by the trial court to be determinative of petitioners' counterclaims. Petitioners' argument that the dismissal denied a hearing of issues that might have been but were not determined by the judgment on the merits of the original action moved us to grant certiorari, limited to the issue of the counterclaims. 345 U.S. 963, 73 S.Ct. 948, 97 L.Ed. 1382.
Although federal jurisdiction was sought only on the ground of diversity, the complaint relied upon a breach of the Sherman Act, and the counterclaims were similarly bottomed on that federal law. Therefore our conclusion is reached on a consideration of federal law and procedure. It will depend upon whether or not any issue of fact or law remained for decision after the primary action was decided.3 The issue reaches us under the following circumstances.
Paramount Pictures Theatres Corp., a subsidiary of Paramount Productions, Inc., and successor to Paramount Pictures, Inc., is a New York corporation engaged in the business of operating motion picture theatres throughout the United States. These three corporations will hereinafter be referred to jointly as 'Paramount.' On August 31, 1939, Paramount leased the Paramount Downtown Theatre in Los Angeles, California, for ten years to Partmar Corp., a California corporation, petitioner here, wholly owned by Fanchon & Marco, Inc. This lease was subsequently amended in 1942 and extended to March 18, 1952. A 'film franchise agreement' was executed in conjunction with, and for the same period as, the lease. It licensed Partmar to exhibit Paramount pictures at the theatre as first 'runs' of the films, required Partmar to exhibit such pictures not less than forty-six weeks each year, and set a scale of license fees. The lease expressly provided that it was terminable at the option of Paramount if the franchise agreement 'be cancelled or terminated for any reason whatsoever.' Other provisions of the lease and agreement are not germane to the issue before this Court.
On December 31, 1946, a decree was entered in the District Court for the Southern District of New York in an equity action brought by the United States against Paramount and other major companies of the motion picture industry alleging a conspiracy to violate the Sherman Act, 26 Stat. 209, 15 U.S.C. §§ 1—2, 15 U.S.C.A. §§ 1—2. United States v. Paramount Pictures, Inc., D.C., 70 F.Supp. 53. One provision of that decree defined a 'franchise' to be a licensing agreement 'in effect for more than one motion picture season and covering the exhibition of pictures released by one distributor during the entire period of agreement' and enjoined each of the defendants in that action 'from further performing any existing franchise to which it is a party and from making any franchises in the future.' 70 F.Supp. at page 73, Decree, § II, 5.
On March 26, 1947, Paramount notified Partmar that it was cancelling and terminating the franchise agreement because of the injunction, and on April 2, 1947, notified Partmar that it was terminating the lease by reason of the termination of the franchise agreement. Partmar refused to vacate the theatre upon demand, and Paramount instituted this action on May 1, 1947, in the District Court for the Southern District of California, alleging diversity and unlawful detainer of the theatre. The complaint sought, so far as is material here, restitution of possession based on illegality of the franchise under the Sherman Act as construed in the decree in the Southern District of New York, supra, and a declaratory judgment that the lease had been properly terminated.
It thus insisted that the remunerative lease and franchise agreements were still valid and subsisting, and that Paramount had no right to possession.
The court simultaneously entered an order giving judgment for Partmar on Paramount's two counts of unlawful detainer, declaring the rights and duties of the parties under the franchise and the lease, and dismissing with prejudice Partmar's three treble damage counterclaims.
Partmar contends that the District Court erred in dismissing its counterclaims with prejudice without a separate trial as to their merits, which the trial court had previously ordered, and that such dismissal deprived it of due process of law. In particular, it argues that it was denied the valuable property right of having admitted in evidence during a trial the judgment in the case of United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260, which, it argues, would provide, under § 5 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 16, 15 U.S.C.A. § 16, prima facie evidence of the conspiracy on which the counterclaims were based. We think these contentions are without merit. The power remained in the trial court until the entry of his final judgment to set aside, for appropriate reasons, the former order for separate trial of the counterclaims.
The allegations of the counterclaim charge that as a result of 'the same conspiracy stated in the complaint' in United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260, Partmar was damaged in the terms of its lease from Paramount. Yet this very lease was sustained by the judgment in this case on the ground that it was not violative of the Sherman Act. Partmar moved to dismiss the complaint in this case after this Court's decision in the Paramount Pictures case on the ground that it 'had become moot by the demonstrated non-existence of the basic fact,' i.e., the illegality of the lease. In its brief in the trial court, petitioner stated its position clearly.
'The effect of the opinion seems to be that franchises are not unlawful per se, that is, apart from conspiracy, and that on the record in that case they were not shown to have been parts of the conspiracy.
Mr. Chief Justice WARREN, whom Mr. Justice BLACK joins, dissenting.
I cannot join in the Court's decision. Relying on the doctrine of collateral estoppel, it affirms the trial judge's dismissal of petitioner's treble damage counterclaims without a trial. The doctrine, I believe, is inapplicable to the facts of this case.
The Court correctly states the wellsettled rule that a prior judgment on a different cause of action is not conclusive as to questions which might have been but were not actually litigated in the original action.1 The inquiry, therefore, must be whether the conspiracy issue was actually litigated in the eviction suit; if it was not so litigated, the District Court's finding as to the absence of evidence of conspiracy cannot preclude petitioner on its counterclaims. The Court rests its decision on the assumptions (1) that the conspiracy issue was litigated in the eviction suit and (2) that in any event petitioner had a full opportunity to litigate the issue. Neither assumption, it seems to me, is warranted by the facts. To those facts I now turn.
The respondent, Paramount, sought to take advantage of its own violation of the federal antitrust laws by bringing an eviction suit to cancel a valuable lease held by its tenant, the petitioner, on a Los Angeles theatre. The lease provided that it was terminable if, 'for any reason whatsoever,' petitioner's franchise for the showing of Paramount's pictures should be 'cancelled or terminated.' Paramount, in its complaint charging unlawful detainer, did not allege in any respect that the franchise was invalid because part of a conspiracy; rather, the crux of the complaint was that the franchise had been terminated by the District Court decree in the Government antitrust action against Paramount and others. United States v. Paramount Pictures, Inc., D.C., 66 F.Supp. 323, D.C., 70 F.Supp. 53. After the eviction complaint had been filed, the decree in the Government action was reviewed here; the Court sustained the decree as to the existence of a nationwide conspiracy among the defendants, but reversed that portion of the decree which held that franchises were illegal per se. 334 U.S. 131, 155—156, 68 S.Ct. 915, 928, 92 L.Ed. 1260. Petitioner moved to dismiss, contending that the basis of the eviction complaint had been swept away by this Court's decision. In opposing the motion to dismiss, Paramount made an about-face and urged the illegality of the franchise on other grounds: its minimum price requirements, block booking, and restrictions on runs and clearances. Paramount alleged that these provisions of the franchise agreement, apart from any conspiracy and independent of the decree in the Government action, rendered the agreement an illegal 'contract * * * in restraint of trade' under the Sherman Act. This new theory of the case was accepted by the trial court without any change in the pleadings, and the motion was denied.
In its answer, petitioner set up as a defense that Paramount was seeking to evict petitioner in pursuance of the conspiracy enjoined in United States v. Paramount Pictures, Inc., supra, and that the effect of an eviction would be to drive petitioner out of business and thus enable Paramount to extend an unlawful monopoly over motion picture theatres. On Paramount's motion, the defense was stricken as an improper collateral attack on the right of the lessor to recover possession of the theatre.
Both actions—the eviction suit and the counterclaims—were then ready for trial. Paramount moved that the two actions be tried separately. Petitioner consented and the court so ordered, the eviction suit to be tried first.
Throughout the lengthy trial of the eviction suit, the trial judge repeatedly complained of the total absence of any evidence showing that the franchise was part of a conspiracy. His complaint went unheeded. Paramount, which had the burden of proof in the eviction suit, not only failed to introduce such evidence but never even alleged such a conspiracy. Petitioner, on the other hand, never denied the existence of the conspiracy, but argued that the franchise in itself was not invalid.3 And both times that petitioner sought to inject the conspiracy issue into the case, it was prevented from doing so. As I have already noted, petitioner's answer alleged that the eviction suit was brought in pursuance of the conspiracy; on Paramount's motion, the defense was stricken. Later when Paramount offered into evidence the decree in the Government action for the limited purpose of showing Paramount as being subject to the injunctive features of the decree, petitioner objected on the ground that the decree 'should go in as a document in toto—no part of it but the whole thing.' In support of the objection, petitioner argued that § 5 of the Clayton Act4 made the decree prima facie evidence of the conspiracy established in the Government action. Again petitioner was overruled.
Nevertheless, the court dismissed the counterclaims without trial on the ground that there was '* * * no substantial evidence of a conspiracy in this case on the part of Partmar or Paramount * * *.'6 The court thus disposed of both the eviction suit and the counterclaims on the same ground—the absence of any evidence of conspiracy.
Under these circumstances, should the doctrine of collateral estoppel be invoked against petitioner to bar a trial on its counterclaims? I believe not. The doctrine presupposes, and the Constitution requires, that the party who is estopped had his day in court in a prior action and that he then had a fair hearing in which to prove his point but failed. Surely the doctrine was never intended to estop a party who in the prior action was denied such a hearing.
That, as I see it, is precisely the situation here. The eviction suit and counterclaims had been severed for trial purposes. During the trial of the eviction suit, Paramount was the only party with any reason or justification for proving that the franchise was part of a conspiracy. Because of Paramount's failure to present such proof, the court held the lease to be valid, but at the same time gave judgment against petitioner on its counterclaims because of the same shortcoming of Paramount's proof. This Court now affirms. The anomalous result is to penalize petitioner for refusing to help Paramount win the eviction suit.
Cromwell v. Sac County, 94 U.S. 351, 352, 24 L.Ed. 195; Fayerweather v. Ritch, 195 U.S. 276, 300, 308, 25 S.Ct. 58, 64, 68, 49 L.Ed. 193; Gunter v. Atlantic Coast Line R. Co., 200 U.S. 273, 290, 26 S.Ct. 252, 258, 50 L.Ed. 477; Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104.
Cromwell v. County of Sac, supra, 94 U.S. at page 353, 24 L.Ed. 195; United States v. Moser, 266 U.S. 236, 241, 45 S.Ct. 66, 67, 69 L.Ed. 262; Treinies v. Sunshine Mining Co., 308 U.S. 66, 74, 60 S.Ct. 44, 48, 84 L.Ed. 85; Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597—601, 68 S.Ct. 715, 719, 721, 92 L.Ed. 898. Cf. Federal Trade Commission v. Cement Institute, 333 U.S. 683, 706, 68 S.Ct. 793, 806, 92 L.Ed. 1009, where the rule is recognized but its application denied because the issues differed.
See Scott, Collateral Estoppel by Judgment, 56 Harv.L.Rev. 1; Note Collateral Estoppel by Judgment, 52 Col.L.Rev. 647.
'Paramount Pictures Theatres Corporation, Paramount Pictures, Inc., Paramount Film Distributing Corporation, * * * and the defendants in United States of America v. Paramount Pictures, Inc., Equity No. 87—273, in the United States District Court for the Southern District of New York, and other persons to the defendants unknown, were, at the time of the acts and transactions stated in the complaint herein, and they now are, engaged in a conspiracy in restraint of trade and commerce among the States, in the distribution and exhibition of motion pictures, in violation of the Act of July 2, 1890, that is to say, the same conspiracy stated in the complaint in that case.
'32. This action has been brought by the plaintiff in pursuance of the aforesaid conspiracy, arrangements and agreements, and to evade and defeat the purpose to end the aforesaid conspiracy and restraint of trade for which United States of America v. Paramount Pictures, Inc., Equity No. 87—273, was instituted.
The other counterclaim is not in the record but the briefs indicate that it contained substantially the same allegation as numbers one and two.
Partmar had brought in other parties as third party defendants under Fed.Rules Civ.Proc. 14, 28 U.S.C.A. Their presence is not important in this phase of the controversy.
While Partmar did not appeal, it might have. The finding and conclusion of law just quoted were essential to the determination of Paramount's claim for possession of the theatre. Paramount's position after this Court's reversal of the franchise portion of the New York decree, was that the agreements were invalid under the federal antitrust statutes as the product of an illegal conspiracy. It is only when a finding of law or fact is not necessary for a decree that the prevailing party may not appeal and the finding does not form the basis for collateral estoppel. This is shown by the case cited to support the statement as to appeal in Lindheimer v. Illinois Bell Telephone Co., 292 U.S. 151, 176, 54 S.Ct. 658, 668, 78 L.Ed. 1182. See New York Telephone Co. v. Maltbie, 291 U.S. 645, 54 S.Ct. 443, 78 L.Ed. 1041, and cases cited. Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S.Ct. 860, 83 L.Ed. 1263, stated the practice negatively. 'A party may not appeal * * * findings * * * not necessary to support the decree.' Professor Scott, supra, note 3, at page 12, concurs in this view. Restatement, Judgments, § 68, reads: '(1) Where a question of fact essential to the judgment is actually litigated and determined by a valid and final judgment, the determination is conclusive between the parties in a subsequent action on a different cause of action, except as stated in §§ 69, 71 and 72.' Section 69(2) ('Where a party to a judgment cannot obtain the decision of an appellate court because the matter determined against him is immaterial or moot, the judgment is not conclusive against him in a subsequent action on a different cause of action.') is immaterial because the conspiracy determination was essential for Partmar's defense to Paramount's claim. See Galloway v. General Motors Acceptance Corp., 4 Cir., 106 F.2d 466. The paucity of cases in this field is explainable by the infrequent happening of a need of a prevailing party to set aside a determination necessary to a judgment in his favor.
'We think that Congress intended to confer, subject only to a defendant's enjoyment of its day in court against a new party, as large an advantage as the estoppel doctrine would afford had the Government brought suit.
See Theatre Enterprises v. Paramount, 346 U.S. 537, 74 S.Ct. 257; Monticello Tobacco Co., Inc. v. American Tobacco Co., 2 Cir., 197 F.2d 629.
Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 569, 71 S.Ct. 408, 414, 95 L.Ed. 534; Cf. United States v. Stone & Downer Co., 274 U.S. 225, 230, 47 S.Ct. 616, 71 L.Ed. 1013.
Cromwell v. Sac County, 94 U.S. 351, 353, 24 L.Ed. 195. See also Restatement, Judgments, § 68; Scott, Collateral Estoppel by Judgment, 56 Harv.L.Rev. 1, 2—3, 5—6; Note, Collateral Estoppel, 52 Col.L.Rev. 647, 652—657; Developments in the Law, Res Judicata, 65 Harv.L.Rev. 818, 840—841; Von Moschzisker, Res Judicata, 38 Yale L.J. 299, 311—312; Cleary, Res Judicata Re-examined, 57 Yale L.J. 339, 342—343; Freeman, Judgments (5th ed.) §§ 674—676.
The Court's opinion, apparently for the purpose of showing that the conspiracy issue was actually litigated, points to statements in petitioner's trial brief to the effect that Paramount had failed to establish a conspiracy in restraint of interstate commerce. It is difficult to understand how petitioner's argument at the trial that the conspiracy issue was not litigated can now be converted into proof that the issue was litigated. Petitioner's statements in its brief amounted to nothing more than a wholly justifiable contention that Paramount had failed in its burden of proof in the eviction suit; the statements merely pointed out that the franchise was valid in the absence of evidence of conspiracy and that Paramount had not even alleged a conspiracy—by pleadings, evidence, or oral argument.
38 Stat. 731, 15 U.S.C. § 16, 15 U.S.C.A. § 16.
D.C., 97 F.Supp. 552, 561.
There is yet an additional reason for not applying the doctrine of collateral estoppel here. Petitioner, as the successful party in the eviction suit, could not appeal the District Court's finding that there was no evidence of conspiracy. Lindheimer v. Illinois Bell Telephone Co., 292 U.S. 151, 176, 54 S.Ct. 658, 668, 78 L.Ed. 1182; New York Telephone Co. v. Maltbie, 291 U.S. 645, 54 S.Ct. 443, 78 L.Ed. 1041. The adverse finding was not included in the Court's decree, as in Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S.Ct. 860, 83 L.Ed. 1263. Because of this inability to appeal, the finding cannot bind petitioner in a subsequent action between the parties based upon a different cause of action. See Restatement, Judgments, § 69(2); Scott, Collateral Estoppel by Judgment, 56 Harv.L.Rev. 1, 15—18.
The Court's opinion (footnote 6) concedes that inability to appeal precludes a subsequent application of collateral estoppel, but contends that petitioner could have appealed here because the trial court's finding in the eviction suit (as to the absence of proof of conspiracy) was material to the decree in the eviction suit. The Court's opinion cites no case, in this Court or any other, holding that a successful party can appeal findings which are not inserted as part of the decree. Indeed, the opinion overlooks the very holdings of this Court on which it relies for support. In both Lindheimer v. Illinois Bell Telephone Co., supra, and New York Telephone Co. v. Maltbie, supra, the findings which the public utility sought to appeal related to the value of its property for rate-making purposes; in each case, the trial court had held that the rates fixed by a state commission were confiscatory on the basis of those findings. Yet this Court held that the public utility, as the successful party, could not appeal those findings. Surely in this case the trial judge's finding as to conspiracy was no more 'material' than the findings which this Court refused to review in Lindheimer and Maltbie.

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