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026 HARVARD BUSINESS REPORTS
of the members of the association, operating a large number of theaters, began to negotiate with the Metro-Goldwyn-Mayer Pictures Corporation for the purchase of some of its pictures in violation of the operating agreement. The association applied to the New York Supreme Court for an injunction to prohibit the distributor from selling to this member on the ground that it caused the member to violate its contract with the association. This application was refused on July 26, 1928.
In July and August many members of the association were approached by representatives of bankers, by a veteran theater operator, and by the Fox Film Corporation, which were interested in acquiring theaters in Metropolitan New York. Prior to the formation of the association many of the members had been in serious financial difficulty. When these opportunities to sell appeared, many members were persuaded that the easiest way out of their financial difficulties was to sell their equities. The association was not in a position to render financial assistance to its members. Even though better pictures were obtained by the services of the association, many of the members still had to overcome serious financial trouble.
The opportunities to sell appealed to some of the members to such an extent that they lost all interest in the association. The officers of the association found that each week it was increasingly difficult to stir the enthusiasm of the members towards the activities of the association. In view of the difficulties the committee was having in buying the needed pictures, the officers of the association recognized that it would be impossible to accomplish the objectives of the association with a disinterested membership. If an attempt were made to continue the activities of the association and to force members to abide by the operating agreement, it was feared that irreparable harm would be done to members who required immediate financial assistance.
At a meeting of the association on September 21, 1928, the president outlined the difficulties under which the association was operating and suggested that it be disbanded. His suggestion was accepted and the members decided to disband the association on December 1, 1928 and release the members from their obligations under the operating agreement.
Commentary: This case illustrates the circumstances under which a cooperative buying association apparently was not able to succeed.