Harrison's Reports (1949)

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A REVIEWING SERVICE FREE FROM THE INFLUENCE OF FILM ADVERTISING Vol. XXXI SATURDAY, APRIL 16, 1949 No. 16 AN IMPORTANT EXHIBITOR VICTORY (Editor's Note: In the October 9, 1948 issue of this paper, under the heading, "The Illegality of Exhibition Contracts as a Defense in Fraud Actions," it was pointed out that exhibitors who found themselves defendants in suits charging fraudulent percentage returns had set up a main line of defense by alleging that the suing distributors have no right to proceed against them because the exhibition contracts involved in the suits contained clauses that are in vio' lation of the anti-trust laws, and that their illegality was determined by the U. S. Supreme Court on May 3, 1948, in the Government's case against the major distributors. The article pointed out that, last September, in a case involving the Alger Theatre Circuit, which was being sued by eight distributors, Federal Judge William Campbell, of the U. S. District Court in Chicago, granted the circuit's motion for a separate hearing on the question of whether or not the licensing agreements were illegal, basing his ruling on the ground that, if they were illegal, such a determination would dispose of the entire litigation. fudge Campbell's ruling was considered a highly important development in a case of this \ind, one that was given considerable attention by Mr. Abram F. Myers, 7<{ational Alfred's general counsel, whose illuminating comments on the matter were reproduced in the aforementioned article. Mr. Myers pointed out that judge Campbell's action was merely a reference to a master, not a ruling, and up to that point settled nothing, but that it was important in that the judge at least recognized the seriousness of the defendant's contention and decided to loo\ into it before proceeding to trial on the distributors' charges. Moreover, pointed out Mr. Myers, it opened the way for the exhibitor to test the very foundations of the distributors' actions. It is apparent that judge Campbell's action caused the distributors considerable concern, for recently, rather than ris\ an adverse ruling, they petitioned the court for a dismissal of the case. The dismissal was granted, conditional upon their reimbursing the Alger circuit for attorneys' fees and other expenses incurred to defend the suit. Although dismissal of the suit does not settle the question of whether or not the exhibition contracts are illegal and, if so, whether such a finding will prevent the distributors from recovering alleged damages, it is obvious that the Alger circuit has scored an important victory. The following letter should be of great interest to the readers of Harrison's Reports.) ALGER THEATRES 225 Gooding Street La Salle, III. April 4, 1949 Mr. P. S. Harrison Harrison's Reports 1270 Avenue of the Americas New York 20, N. Y. Dear Mr. Harrison : Several months ago, E. R. Alger who is an independent exhibitor in this area was notified that he was to be sued in Federal Court unless he was willing to allow the eight Major distributors to audit his books — on the pretense of determining whether or not any percentage fraud may have taken place in the returns filed with the distributors . This, so far, was not an unusual thing to have happen in this business but the following things set it apart from the average percentage suit: 1. Along with the other theatres that Alger owns is one group of three theatres owned jointly by Alger and Publix Great States, a subsidiary of Balaban and Katz in turn owned by Paramount. All books for this company were kept by B. 6? K. in their Chicago office. This thus placed Paramount in the position of suing themselves of fraud in bookkeeping. 2. When confronted with the threat of this suit Alger felt that in the event that any monies were due in this case, he was willing to pay, but he felt that it would be to his detriment to allow the film companies to audit all of his books and records — which was demanded — for reasons which are obvious to all small exhibitors. He therefore offered to allow any well-known independent auditing firm — such as Price Waterhouse and Co. — to examine the books and determine the amount due the distributors and to pay that amount, if any was due. This offer was rejected upon the basis of the fact that no auditing company was competent to make such an audit except the majors' own auditors. This in spite of the fact that the above accounting firm audits the books of five out of the eight film companies. 3. Alger then was sued in the Federal Courts of Chicago. Long stories were released to the trade papers and the local papers in the towns in which Alger operates, containing accusations of fraud and other damaging information for business good will. These were countered in the local press but the National Trade papers were at all times luke warm about printing Alger's viewpoint in the matter. Alger then proceeded to employ as his counsel, Mr. Thomas C. McConnell of the Jackson Park Theatre fame. McConnell at once contended that the contracts on all films are illegal. This point he insisted in court must be decided because if the contract is illegal — there can be no fraud. The Judge agreed and the matter was referred to the Master in Chancery of that Court to determine this point. The Majors resisted strongly this move but were overruled. After many months of delay the Majors suddenly asked that the case be dismissed. This was after many behind the back peace moves which all involved some payment by Alger— but not involving an audit. At every turn Alger refused to pay tribute and insisted that the matter had gone to the point that since he already paid substantial attorney fees he would follow the thing through to its conclusion. He was confident that the contracts were illegal and that he would win regardless. That opinion must have been shared by the Majors, too, for they ask(cd) that the case be dropped by the court. Alger at once contended that this was not at all fair since he had expended large sums of money in attorney fees and that in addition he had spent much money and effort per (Ccmtinucd on last page)