2301 M Cinema LLC v. Silver Cinemas Acquisition Co.
2301 M Cinema LLC v. Silver Cinemas Acquisition Co.
Opinion of the Court
I. Introduction
To show a film, a movie theater must obtain a license from the film's distributor. The case before the Court involves the competitive market between theaters for exclusive licenses to show specialty films. Plaintiffs-2301 M Cinema d/b/a West End Cinema ("West End Cinema"), the Avalon Theatre Project, Inc. ("the Avalon"), the Denver Film Society, and the Cinema Detroit (collectively, "plaintiffs")-bring this action against Silver Cinemas Acquisition Co. d/b/a Landmark Theatres and its parent corporation 2929 Entertainment, LP (collectively, "Landmark"). Plaintiffs allege that Landmark violated federal antitrust law by using its national market power to coerce film distributors into granting Landmark exclusive licenses, preventing plaintiffs and other independent theaters from showing specialty films. Plaintiffs' four-count complaint charges Landmark with: (1) circuit dealing in violation of Section 1 of the Sherman Act; (2) using its monopoly power in violation of Section 2 of the Sherman Act; (3) attempting to use its monopoly power in violation of Section 2 of the Sherman Act; and (4) interfering with plaintiffs' business relations.
Pending before the Court is Landmark's motion to dismiss plaintiffs' complaint. See Defs.' Mot., ECF No. 16. After careful consideration of the motion, the response, the reply thereto, and the applicable law, Landmark's motion to dismiss is GRANTED IN PART and DENIED IN PART .
II. Background
Plaintiffs are four independent, community theaters that primarily show specialty films. Compl., ECF No. 1 ¶¶ 14-17. Specialty films include "independent films, art films, foreign films, and documentaries." Id. ¶ 24. Unlike mainstream commercial films, specialty films are not intended to appeal to a broad audience and are therefore released less widely than commercial films. Id. The first plaintiff, West End Cinema, operated in the District of Columbia from 2010 until 2015. Id. ¶ 14. In 2015, West End Cinema was "forced" out of business, allegedly by Landmark's anticompetitive licensing practices. Id. Landmark leased the West End Cinema's space and has since opened a Landmark theater *130in its place. Id. The Avalon is another independent theater located in the District of Columbia. Id. ¶ 15. The Denver Film Society is a nonprofit organization located in Denver, Colorado that provides specialty film programming via "year-round screening, film festivals, and other special events." Id. ¶ 16. It operates the Sie FilmCenter, a specialty film theater. Id. Finally, Cinema Detroit is a non-profit specialty film theater located in Detroit, Michigan. Id. ¶ 17.
Defendant Landmark is a Delaware corporation and subsidiary of 2929 Entertainment, LP. Id. ¶ 18. It operates fifty-one specialty film theaters in twenty-two geographic markets nationwide. Id. It is "the largest specialty film movie theater chain in the country" and is purportedly opening new theaters on a regular basis. Id.
Both plaintiffs and Landmark are "exhibitors," the industry term for movie theaters. Id. ¶ 21. Exhibitors must negotiate with film distributors for licenses to exhibit films at their theaters. See id. ¶ 22. Distributors are the entities responsible for marketing the film; they act as a "middleman" between the production studio and the exhibitor. Id. ¶ 5. Generally, a distributor's income for each film is tied to the revenue earned by the exhibitor during its run of the film. See id. ¶¶ 75-76. License agreements between distributors and exhibitors specify the terms under which the exhibitor may show a particular film. See id. ¶¶ 21-22, 25. In some instances, license agreements may include "clearances," or an exclusive right to show a film. Id. ¶ 25. In acquiescing to a clearance, a distributor agrees not to license a film to any other exhibitor, or to specific exhibitors, in the same geographic market. Id. Clearances are generally negotiated either for the first few weeks a film is shown, a "first-run" clearance, or for the entire period a film is screened by an exhibitor, a "day and date" clearance. See id. ¶¶ 21, 25, 28. Clearances must be negotiated on a theater-by-theater, film-by-film basis. Therefore, exhibitors may not engage in circuit-dealing, whereby "a dominant movie theater chain," known as a "circuit," "uses its market power to obtain preferential agreements, particularly clearances, from distributors for the licensing of films ... in multiple geographic markets." Id. ¶ 28 (citing United States v. Paramount Pictures ,
Plaintiffs allege that Landmark, as the "dominant theater 'circuit' for the exhibition of specialty films in the United States," leverages its market position to obtain clearance agreements nationwide. Id. ¶¶ 29, 30. Rather than negotiating clearances on an individual theater-by-theater, film-by-film basis, plaintiffs assert that Landmark obtains "blanket clearances" for more than one film or theater from distributors that accede to Landmark's demands for fear of retribution and loss of Landmark's business. Id. ¶ 29. Plaintiffs seek an injunction, treble damages, costs and fees, and actual damages. See id. ¶¶ 89-90, 97-98, 102-04, 112-13.
III. Standard of Review
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Browning v. Clinton ,
Despite this liberal pleading standard, to survive a motion to dismiss, a complaint "must contain sufficient factual matter, accepted *131as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal ,
"[W]hen ruling on a defendant's motion to dismiss [pursuant to Rule 12(b)(6) ], a judge must accept as true all of the factual allegations contained in the complaint." Atherton v. D.C. Office of the Mayor ,
"To survive a 12(b)(6) motion to dismiss a claim in an antitrust case, plaintiffs must do more than simply paraphrase the language of the antitrust laws or state in conclusory terms that the non-movant has violated those laws." WAKA LLC v. DC Kickball ,
IV. Analysis
Landmark moves to dismiss the plaintiffs' complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), putting forth several arguments. See Defs.' Mot., ECF No. 16. First, it contends that 2929 Entertainment should be dismissed, because the complaint does not allege that the parent corporation was responsible for the actions of its subsidiary. Id. at 29.
A. Defendant 2929 Entertainment, LP is Dismissed Without Prejudice
Landmark argues that its parent corporation 2929 Entertainment should be dismissed *132because the complaint does not allege that it was responsible for the actions of its subsidiaries. Defs.' Mot., ECF No. 16 at 29. Plaintiffs agree and reserve the right to seek leave to amend the complaint and add 2929 Entertainment as a defendant as discovery unfolds. Pls.' Opp'n, ECF No. 17 at 37. Therefore, the Court GRANTS Landmark's motion and dismisses without prejudice defendant 2929 Entertainment, LP from this action.
B. Plaintiffs Sufficiently Allege a Circuit Dealing Claim
Landmark argues that Count I must be dismissed because plaintiffs fail to state a plausible circuit dealing claim in violation of Section 1 of the Sherman Act. Defs.' Mot., ECF No. 16 at 13-25. First, Landmark argues that plaintiffs fail to allege that Landmark wielded its national circuit power to coerce distributors to agree to clearance agreements. Id. at 13-19. Landmark also argues that plaintiffs do not allege that it negotiated any unlawful blanket clearances covering more than one theater or film. Id. Instead, it contends that plaintiffs merely allege a series of theater-by-theater, city-by-city negotiated clearance agreements for individual films, a lawful industry practice. Id. at 14-18. Plaintiffs respond that they allege "six specific instances of Landmark's circuit dealing at work." Pls.' Opp'n, ECF No. 17 at 10. Moreover, plaintiffs argue that they allege that Landmark coerces and penalizes distributors, forcing them to enter into unlawful clearance agreements to avoid retribution. Id. at 19-21.
Alternatively, Landmark argues that plaintiffs fail to allege concerted action or agreement between Landmark and the distributors. Defs.' Mot., ECF No. 16 at 19-22. Instead, Landmark contends that plaintiffs' allegations merely "indicate unilateral decision-making." Id. at 21. Plaintiffs argue that the complaint alleges that distributors agree to provide blanket clearances for fear of retribution, even though such clearances are against the distributors' own economic interests. See Pls.' Opp'n, ECF No. 17 at 24-27.
Finally, Landmark argues that plaintiffs fail to allege an injury to competition and consumers. Defs.' Mot., ECF No. 16 at 22-25. Landmark contends that plaintiffs merely assert individual harm, an insufficient antitrust injury. See id. Plaintiffs respond that the complaint alleges injury to competition by way of decreased output and revenue for distributors and increased prices, fewer choices, and decreased quality for consumers. Pls.' Opp'n, ECF No. 17 at 29.
1. Coercive Use of National Power
Circuit dealing constitutes a per se violation of the Sherman Act, as "[t]he inclusion of theatres of a circuit into a single agreement gives no opportunity for other theatre owners to bid for the feature in their respective areas and ... is therefore an unreasonable restraint of trade." United States v. Paramount Pictures ,
An exhibitor may also engage in circuit dealing by "unlawful monopoly leveraging," Cobb Theatres ,
Plaintiffs sufficiently allege that Landmark leverages its monopoly power by coercing film distributors to accept clearances agreements that favor Landmark and to deny plaintiffs' requests to show specialty films. See, e.g. , Compl., ECF No. 1 ¶¶ 4, 63. Rather than negotiating clearances on an individual theater-by-theater, film-by-film basis, as Landmark must, plaintiffs assert that Landmark wields its circuit power to obtain exclusive clearances against independent theaters. See id. ¶¶ 29, 64. First, plaintiffs allege that Landmark, as the largest specialty film exhibitor in the nation, exerts considerable influence over distributors. See id. ¶ 18. Landmark has fifty-one theaters in twenty-two major geographic markets nationwide. Id. ¶ 71. Specifically, plaintiffs allege several major markets in which Landmark occupies the majority of the specialty film exhibitor market, including St. Louis (80%), Houston (60%), Philadelphia (54%), Detroit (60%), Denver (73%), and the District of Columbia (68%). Id. ¶¶ 44-62. Taking such allegations in the light most favorable to plaintiffs, the Court must infer that distributors may be inclined to accede to Landmark's demands.
Next, plaintiffs allege that Landmark uses its considerable market power to deny smaller competitors, like plaintiffs, access to the market. See id. ¶ 71 ("Landmark's message to the distributors is clear: if you license a specialty film to any one of the plaintiffs when Landmark intends to exhibit that film, Landmark can and will use its national circuit power to retaliate against you by refusing to play that film or other films at various, if not all, of the 51 Landmark theaters in 22 major geographic markets throughout the country."). Despite Landmark's arguments to the contrary, plaintiffs allege that distributors must agree to Landmark's clearance demands or risk damaging their relationship with the largest specialty film exhibitor. For example, "distributors have informed plaintiffs that the only reason they were refusing to license a particular specialty film was because of clearances demanded by Landmark, and not because they desired to restrict the number of theaters playing the film." Id. ¶ 75 (emphasis added); see Cobb Theatres ,
Landmark contends that plaintiffs do not allege facts to suggest that Landmark actually threatened distributors. Defs.' Reply, ECF No. 18 at 12. But plaintiffs need not specifically allege any threats made by Landmark to state a plausible claim. See Griffith , 334 U.S. at 107-08,
In sum, such alleged conduct may plausibly "eliminate the opportunity for the small competitor to obtain the choice first runs, and put a premium on the size of the circuit." Paramount , 334 U.S. at 154,
Plaintiffs also allege that Landmark plausibly engaged in circuit dealing by negotiating blanket clearance agreements that unlawfully "cover exhibition in two or more theatres in a particular circuit." Paramount , 334 U.S. at 154,
As such, the Court finds that plaintiffs allege sufficient facts to state a plausible circuit dealing claim. The Court is not persuaded by Landmark's arguments to the contrary, all of which rely on cases resolved with the benefit of discovery. See Defs.' Mot., ECF No. 16 at 17-19 (citing Orbo Theatre Corp. v. Loew's Inc. ,
Indeed, plaintiffs' allegations are not unlike those made by Landmark in its 2016 complaint charging Regal Entertainment Group ("Regal") with anticompetitive conduct and circuit dealing. See Landmark Theatres v. Regal Entm't Grp. , Civ. No. 16-123-CRC.
2. Concerted Action
Landmark also argues that plaintiffs do not allege a viable circuit dealing claim because plaintiffs do not allege facts permitting a plausible inference of concerted action or agreement between Landmark and the distributors. Defs.' Mot., ECF No. 16 at 19-22. Instead, Landmark contends that plaintiffs' allegations "at best ... indicate unilateral decision-making" in that Landmark prefers to not show the same films at the same time as plaintiffs and that distributors prefer to honor Landmark's preferences. Id. at 21-22.
Under Section 1 of the Sherman Antitrust Act, "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."
Plaintiffs allege "enough factual matter (taken as true) to suggest that an agreement was made." Bell Atl. Corp. v. Twombly,
Landmark argues that the plaintiffs merely allege unilateral action, as both Landmark and the distributors are acting independently for distinct, self-interested reasons. As such, it contends that its conduct can be explained by market forces. See Defs.' Mot., ECF No. 16 at 21-22. For example, Landmark argues that it prefers not to show the same films at the same times as plaintiffs. See
The Court is not persuaded by Landmark's reliance on Cinema Village Cinemart, Inc. v. Regal Entertainment Group , an unreported case from the Southern District of New York, in which the district *137court judge granted Regal's motion to dismiss, in part because the plaintiff failed to allege concerted action. Defs.' Mot., ECF No. 16 at 20-21 (discussing Civ. No. 15-5488,
3. Antitrust Injury
Finally, Landmark argues that the Court must dismiss the plaintiffs' circuit dealing claim because plaintiffs fail to allege an antitrust injury. Defs.' Mot., ECF No. 16 at 22-25. Landmark argues that plaintiffs only allege that their individual theaters have been harmed, while antitrust law requires plaintiffs to allege that Landmark's anticompetitive conduct hurts competition and consumers. Id. at 22-23.
It is "clear that a plaintiff claiming federal antitrust violations must plead and prove 'more than injury casually linked to an illegal presence in the market.' " WAKA ,
Throughout the complaint, plaintiffs allege harm to competition and consumers. "[A]ctual anticompetitive effects include, but are not limited to, reduction of output, increase in price, or deterioration in quality." Cobb Theatres ,
Additionally, plaintiffs allege that consumers have fewer exhibitor choices and endure increased movie prices and decreased theater quality as a result of the unlawful clearance agreements. See, e.g., id. ¶¶ 8-9, 73-82. For example, plaintiffs contend that consumers have fewer quality choices in the specialty film exhibitor market; if a consumer seeks to see a film shown by Landmark, the consumer will be unable to enjoy the film at another theater. Id. ¶ 78. If a Landmark theater sells out, a consumer may not be able to enjoy the film at all. See id. ¶ 79. Moreover, plaintiffs *138allege that the decreased competition causes higher ticket and concession prices. Id. ¶ 79. Finally, as a result of Landmark's alleged anticompetitive conduct, consumers may have to travel further to see a film. See id. ; see also id. ¶ 65 (alleging that patrons in metropolitan Denver must travel an additional 6.5 miles to see a film at a Landmark theater). As Landmark stated in its opposition to Regal's motion to dismiss, it is "bedrock antitrust law that forcing consumers to travel well outside their market-at considerable inconvenience and expense-to get access to the product they desire does harm their welfare." Landmark's Opp'n, ECF No. 17 at 43 (Civ. No. 16-123). In sum, the plaintiffs sufficiently state an antitrust injury by "point[ing] to the specific damage done to consumers in the market." Cobb Theatres ,
Finally, Landmark disputes the accuracy of plaintiffs' allegations, arguing that plaintiffs misunderstand the relevant economic consequences of the clearance agreements. Defs.' Mot., ECF No. 16 at 22-25. For example, Landmark contends that the number of films available to the public increased as a result of "interbrand competition." Defs' Mot., ECF No. 16 at 23. In so arguing, however, Landmark again relies on summary judgment cases in asking the Court to make factual determinations regarding actual economic effects at the motion to dismiss stage. Again, the Court may not do so.
The Court therefore DENIES Landmark's motion to dismiss Count I of the complaint.
C. Plaintiffs Sufficiently Allege Monopolization
Landmark also argues that plaintiffs fail to state monopolization (Count II) or attempted monopolization (Count III) claims pursuant to Section 2 of the Sherman Act. Defs.' Mot., ECF No. 16 at 25-28. Landmark argues that plaintiffs do not allege two necessary elements of a Section 2 claim: (1) leveraging conduct; and (2) monopoly power.
"[T]he use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor, is unlawful." Griffith,
1. Leveraging Conduct
Landmark argues that plaintiffs do not state that Landmark leveraged any monopoly power because the complaint does not allege that it combined its open and closed towns when negotiating with distributors. Defs.' Mot., ECF No. 16 at 26-27. "When the buying power of the entire circuit is used to negotiate films for [an exhibitor's] competitive as well as [its]
*139closed [or non-competitive] towns, [the exhibitor] is using monopoly power to expand [its] empire." Griffith,
Plaintiffs' Section 2 claims rely on the same allegations of anticompetitive behavior as their Section 1 claim. Compare Compl., ECF No. 1 ¶¶ 83-90 with id. ¶¶ 92-104. To that end, Landmark essentially repeats its argument that plaintiffs do not allege that Landmark leverages its monopoly power in non-competitive markets to negotiate favorable clearance agreements in competitive markets. Defs.' Mot., ECF No. 16 at 26-27. As thoroughly discussed, however, supra Sec. B.1, the Court finds that plaintiffs allege sufficient facts to infer that Landmark engaged in monopoly leveraging conduct. Indeed, at this stage of the proceedings, the Court cannot agree with Landmark that "there are no allegations that Landmark took advantage of its position in closed geographic markets to strengthen its hand in negotiations with distributors." Id. at 27. As discussed, plaintiffs allege that Landmark is the dominant specialty film exhibitor and that it wields its considerable market power to obtain favorable clearance agreements in competitive markets nationwide. See, e.g. , Compl., ECF No. 1 ¶¶ 18, 70-72, 75.
Nevertheless, Landmark argues that plaintiffs' Section 2 claims must fail because the complaint "does not identify Landmark's closed [or non-competitive] towns, if any" and because plaintiffs "say nothing about the competitive makeup of the other 15 markets where Landmark exhibits specialty films." Defs.' Mot., ECF No. 16 at 27. However, plaintiffs are not required to plead such specific facts at this early stage of the litigation. In Cobb Theatres , the district court denied the defendant's motion to dismiss even though the plaintiffs had not specifically identified non-competitive markets.
2. Monopoly Power
Finally, Landmark argues that plaintiffs' Section 2 claims must fail because the complaint does not adequately allege that Landmark possessed, or had a dangerous possibility of possessing, monopoly power. Defs.' Mot., ECF No. 16 at 27-28. Monopoly power is the "existence of power to exclude competition when it is desired to do so." Griffith , 334 U.S. at 107,
*140United States v. Microsoft Corp. ,
The Court disagrees that plaintiffs do not allege facts regarding Landmark's monopoly power. As the Court has discussed, plaintiffs allege that Landmark is the largest specialty film exhibitor in the nation. See Compl., ECF No. 1 ¶ 18. Landmark does not dispute that allegation; it agrees that it has fifty-one theaters in twenty-two major geographic markets nationwide. See Defs.' Mot., ECF No. 16 at 10; see also Compl., ECF No. 1 ¶ 71. Moreover, plaintiffs describe several markets in which Landmark occupies the majority of the specialty film exhibitor market. See Compl., ECF No. 1 ¶¶ 44-62. Such allegations are sufficient at this early stage of the proceedings. For example, in Cobb Theatres , the district court denied the defendant's motion to dismiss in part because the plaintiff alleged that the defendant had "69% share of [the] market," an amount sufficient to infer monopoly power.
Not only do plaintiffs allege that Landmark possesses a "dominant share" of the national market, but plaintiffs also allege that high entry barriers protect Landmark's monopoly and prevent access to the market. See Microsoft ,
The Court therefore DENIES Landmark's motion to dismiss Counts II and III of the complaint.
D. Plaintiffs Sufficiently Allege Tortious Interference
Both parties agree that plaintiffs' tortious interference claim "rises and falls" with plaintiffs' Sherman Act claims. Defs.' Mot., ECF No. 16 at 28 (one paragraph argument relying on its previous arguments); see Pls.' Opp'n, ECF No. 17 at 36-37 ("Landmark's only argument for dismissing plaintiffs' tortious interference claim is derivative of its earlier arguments").
Because the Court concludes that plaintiffs state claims under the Sherman Act, the Court DENIES Landmark's motion to dismiss Count IV of the complaint.
V. Conclusion
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART Landmark's motion to dismiss. The Court GRANTS Landmark's motion to dismiss, in so far as defendant 2929 Entertainment, LP is dismissed from the action without prejudice. The Court DENIES Landmark's motion to dismiss Counts I, II, III, and IV of the plaintiffs' complaint. An appropriate Order accompanies this Memorandum Opinion.
SO ORDERED.
When citing electronic filings throughout this opinion, the Court cites to the ECF page number, not the page number of the filed document.
Landmark's case against Regal was settled before the district court resolved Regal's motion to dismiss. See Stipulation, ECF No. 19 (Civ. No. 16-123).
Moreover, the Court is not persuaded by Landmark's misplaced reliance on Six West Retail Acquisition, Inc. v. Sony Theatre Management Corp. See Defs.' Mot., ECF No. 16 at 27 (citing Civ. No. 97-5499,
Reference
- Full Case Name
- 2301 M CINEMA LLC v. SILVER CINEMAS ACQUISITION CO.
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- 6 cases
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- Published