Opinion ID: 104037
Heading Depth: 1
Heading Rank: 1

Heading: The major controversy here has turned on the provisions of the decree.

Text: 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 theatre outside Nashville in any town where there already is a theatre unless the owner of such theatre should voluntarily offer to sell same to either of the exhibitor defendants, and when none of said defendants, their officers, agents or servants are 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, 78-82. United States v. American Tobacco Co., 221 U.S. 106, 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 States, 309 U.S. 436, 461; United States v. Bausch & Lomb Co., 321 U.S. 707, 725, 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 theatre 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 theatres outside of 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 theatre monopolies and preventing independent theatres 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 non-competitive 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 situations (outside Nashville) upon the licensing of films in any other theatre 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, 397; Fashion Originators' Guild v. Federal Trade Commission, 312 U.S. 457, 465. Since Congress has made that choice, we cannot refuse to sustain a decree because by some other measure of the public good the result may not seem desirable. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 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. 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, [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 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, 354-360; Standard Oil Co. v. United States, supra ; United States v. American Tobacco Co., supra, pp. 186-188; United States v. Union Pacific R. Co., 226 U.S. 61, 97; United States v. Reading Co., 253 U.S. 26, 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 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. 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 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. 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.