Brief for Respondents — Lawlor v. National Screen Service Corp.

i j

IN THE crak

Supreme Court of the United States

October Term, 1954.

No. 163.

CHARLES LAWLOR and MITCHELL PANTZER, Co-

Partners Trading as INDEPENDENT POSTER ExX-

CHANGE, Petitioners,

NATIONAL SCREEN SERVICE CORPORATION, et al.,

Respondents.

On Writ of Certiorari to the United States Court of Appeals

for the Third Circuit.

BRIEF FOR RESPONDENTS.

Lous NIZER,

WaLter S. Beck,

Attorneys for Respondent, National

Screen Service Corporation,

Wa. A. SCHNADER,

Kart G. Harrison,

Epwarp W. MULLINIX,

Attorneys for Respondents, ( olum-

Ina Pictures Corporation, Locw's

Incorporated, Paramount — Film

Mistributing Corporation, RKO

Radio Pictures, Inc., T C F Film

C erporation (formerly Twen-

tieth Century-Fox Film ( orpora-

ton), United Artists Corporation

and Universal Film Exchanges,

Inc.,

Lovis J. GorrmMan,

Mitcuenrt, EL Panzer,

Ittorneys for Respondent, Warner

Bros. Pretures Distributing Cer-

poration

INDEX TO BRIEF.

Page

I er lta ae Ss ie eu ee ie ova eae 1]

IND MN 6 oes i Nes oun ieee endo enesesaweees ]

Leena CII. s,s yn y's ceueeen kan eneabeuebeo 2

een OO WHOS ond i nk eee wkanse cue Veekeetsiees 3

Pr OP PIED, o.oo ko cane aces nb ese esaseaneee et 8

a Ee a ee nny ney 1]

I. The Dismissal With Prejudice of the Prior Action Is

Res Judicata and a Bar to This One ............. 1]

II. The Alleged Co-Conspirators Who Were Not Made

Parties to the Prior Action May Also Rely on the

i eS 8 ee errr 16

II]. Petitioners Are Estopped From Maintaining the Pres-

ent Action by Their Acceptance, Renewal and Re-

tention of the Benefits of Their Sublicense From

a feet eter yer cere res eee a #2

Re ee ee oie er ee ee ei 25

TABLE OF CASES CITED.

Adriaanse v. United States, 184 F.2d 96% (2d Cir. 1950) ..

Bernhard v. Bank of America, 19 Cal. 2d 807, 122 P. 24 892

SOE sda ace hal cae a ere e eee tenths seek

Bigelow vy. Old Dominion Copper Mining and Smelting Co., 225

ai Wao IRE -F'o i'e sho oviad is ee eee hae eu alee wae ee

Bruszewski v. United States, 181 F. 2d 419 (3d Cir. 1950),

cert. dented, 340 U. 8. 865 (1950) ......5....5525055- 17,

Buckeye Powder Co. v. E. 1. Du Pont De Nemours Powder Co.,

Ok Whe a AD hoi Savarese Pause re eadeb ewan eee

Chipman v. Montgomery, 63 N. Y. 221 (1875) .............

Coca Cola Co. v. Pepsi Cola Co., 36 Del. 124, 172 Atl. 260

Bn OE Pe Ee PES eer aay an Onn ear

Connecticut Importing Co. v. Frankford Distilleries, 101 I. 2d

Pee ee NY WEEE ols oc di a pee 2s Siac e erate arene ueek

Dickerson v. Colgrove, 100 U. S. 578 (1879) .. ............

Emery v. Fowler, 99 Me. 326 (1885) ....... ccc cc ccecese

Good Health Dairy Products Corp. v. Emery, 275 N.Y. 14, 9

ee Be Fh gg rere rr errr eT Tee rrr

Insurance Co. v. Mowry, 96 U. S. 544 (1877) .............

Jones v. Valisi, 111 Vt. 481, 18 A. 2d 179 (1941) 2.0.02...

Lawieeg w. Lowwe, Z5o U.S. 322 (0918) oo ce ccc csccacekeness

Mahoning Investment Co. v. United States, 3 F. Supp. 622 (Ct.

Ci. 1933), cert. denied, Z91 U. S. 675 (1934) ........4.. ;

pecicom v. Clapp, 141 U.S. 429 C1G91) occ ncccceteceveiens

Portland Gold Mining Co. v. Stratton’s Independence, 158 Fed.

gi fe fg Brey Per oe Pee ee ee

Ryerson v. United States, 312 U.S. 405 (1941) 22.02.0202...

Silva v. Brown, 319 Mass. 466, 66 N. FE. 2d 349 (1940) 2.2...

Suckow Borax Mines Consolidated, Inc. v. Borax Consolidated

Ltd., 185 F. 2d 196 (°%h Cir. 1950), cert. denied, 340 U. S.

DE ED 065 x5 6 45 oo 000567 thea R Kee Leta Oke dae

United States v. Bausch & Lomb Optical Co., 321 U. S. 707

ERPEOE Soba es on 5 FUNC Od aD NEES REP SRRE RK) anewhee

United States v. International Building Co., 345 U. S. 502

EE -5Win'ans soa 6a dk bd achawer ae ieeweeneens

United States ex rel. The International Contracting Co. v.

Sa. Tae U). e COED 6 onc oun ti cr cde sas ceedas

Page

18

United States v. Parker, 120 U.S. 89 (1887) ............... 13,14

AUTHORITIES CITED.

2 Freeman, Judgments § 757 (5th ed. 1925) .......

Restatement, Contracts § 516(e) (1932) .........

Restatement, Judgments § 46, comments a, b (1942)

‘tegen ene

Baer ne =f

IN THE

Supreme Court of the United States.

October Term, 1954.

No. 163.

CHARLES LAWLOR axpn MITCHELL PANTZER, Co-

Partners Trapinc as INDEPENDENT POSTER

EXCHANGE,

Petitioners,

Vv.

NATIONAL SCREEN SERVICE CORPORATION, et au.,

Respondents.

On Writ or CERTIORARI TO THE United States Court or

APPEALS FOR THE THIRD CIRCUIT.

BRIEF FOR RESPONDENTS.

OPINIONS BELOW.

The opinion of the district court (R. 76) is not re-

ported officially but is reported in CCH Trade Cases [1952-

1953] § 67,619. The opinion of the court of appeals (R.

153) is reported at 211 F. 2d 934.

STATUTES INVOLVED.

The claim asserted by petitioners in their prior suit

and here is a claim purporting to arise under the antitrust

laws, but the questions presented do not involve the inter-

pretation or application of those laws.

2 Questions Presented

QUESTIONS PRESENTED.

1. Where petitioners earlier sued for injunction and

damages under the antitrust laws, charging that certain

exclusive contracts between National Sereen and the pro-

ducer respondents constituted a conspiracy violative of the

Sherman Act, and then settled their claim by entering judg-

ment of dismissal with prejudice and accepting a sublicense

to distribute National Sereen’s products manufactured by

it under then-existing as well as subsequent exclusive con-

tracts,—is their second action, asserting the same basie

claim of :nvalidity of National Sereen’s exclusive contracts,

barred as res judicata or may they relitigate the same con-

tention? And does not res judicata apply to those whose

participation in the alleged conspiracy was pleaded in the

prior complaint though they were net named as parties?

2. Where the prior antitrust suit attacked certain ex-

clusive contracts between respondents coneerning the

manufacture and distribution of copyrighted advertising

poster materials, contending that they constituted a con-

spiracy in violation of the Sherman Act, and the settle-

ment of the suit was based on a sublicense under which

petitioners acquired the materials, are petitioners estopped

to sue again and question the validity of the same exclusive

contracts between respondents in view of their (a) entering

into the sublicense under which they were to acquire not

only the materials then being produced under respondents’

existing exelusive contracts, but also those as to which

additional exclusive contracts might be made by respond-

ents in the future, and (b) voluntarily renewing the license

at its expiration, under which license they have been carry-

ing on their business for 12 vears to the present time in

competition with National Sereen,—thus aecepting the full

benefit of National Sereen’s business arrangements?

Statement of the Case “8

STATEMENT OF THE CASE.

In April 1942, the petitioners and other poster renters

brought an antitrust suit for injunetion and damages in

the District Court for the Eastern District of Pennsyl-

vania against respondent National Sereen Service Corpo-

‘ration (National Sereen) and three motion picture pro-

ducers (respondents or affiliates of respondents in the

present ease) (R. S86 ef seg.). The gravamen of their com-

plaint was that National Sereen had embarked on an

‘illegal scheme’? to monopolize trade in the distribution

of certain motion picture poster advertising materials re-

lating to the defendant producers’ motion pictures (R.

98-99),

At one time, each of the respondent producers it..-f

manufactured and distributed these copyrighted advertis-

ing materials to exhibitors (R. 44).

In 1939, Paramount Pictures, Ine.’ licensed to National

Sereen the exclusive right to make and distribute for it, its

advertising materials (R. 46, 52). In 1940, RKO Radio

Pictures, Inc. (a respondent here) also made an agree-

ment, solely for its material (R. 46,52). In effect, these two

motion picture companies discontinued their own manu-

facture and distribution of the materials and turned this

function over to National Sereen.?

1. The then parent of the respendent Paramount Film Distribut-

ing Corporation (R. 19).

2. The reasons underlying these decisions by Paramount and

RKO Radio appear in the opinion of Judg> MeGranery in the district

court (R. 61). Judge MeGranery pointed out that the undisputed

facts presented to bim showed that the reasons (not only with respect

to these producers but also as tu those who k, licensed National

Screen) were legitimate business reasons, that the producers acted

independently (R. 69-70), ard that National Screen was the only

existing concern qualified to undertake the services which the pro-

ducers required (R. 61). Petitioners have conceded that they “have

never manufactured nor do they desire to manufacture any acces-

sorties” (R. Ol n. 2).

4 Statement of the Case

In December 1940, petitioners started their poster rent:

ing business in Philadelphia (R. 43, 47).

Karly in 1942, Loew’s Incorporated (also a respondent

here) entered into an exclusive license agreement with Na-

tional Screen to manufacture and distribute its advertising

material.

Thereafter petitioners brought their 1942 antitrust suit

against National Screen, Paramount Pictures, Inc., RKO

Radio Pictures, Ine. and Loew’s Incorporated.

The complaint in that case (R. 87 et seq.) charged that

the exclusive licenses from Paramount, RKO Radio and

Loew’s were illegal and steps in National Sereen’s pro-

gram to monopolize the distribution of advertising ma-

terials (R. 94, 98) and that by entering into those license

agreements the producer defendants had conspired to aid

in the establishment of such a monopoly (R34, 98-99).

The complaint further charged that National Screen was

then negotiating with other motion picture producers,

specifically naming Universal Pictures Company, Ince.,

Columbia Pictures Corporation, Twentieth Century-Fox

Film Corporation and Warner Bros. Pictures, Ine. (all

respondents or affiliates of respondents here) (R. 94-95,

19, 20), and that it was National Sereen’s declared pur-

pose to obtain exclusive licenses from «all producers of

motion pictures (R. 95). The complaint concluded with

the allegation that the defendants were continuing their

‘“illegal acts and practices’’, and that unless such aets and

practices were restrained, the petitioners would suffer fur-

ther damage (R. 103).

The complaint therefore sought injunctive relief, both

preliminary and permanent (R. 103-105), as well as treble

damages. Specifically, petitioners asked that National

Screen and the producers which had already licensed Na-

tional Screen be enjoined from continuing the exelusive

license arrangements under attack, and that the court re-

strain National Screen from consummating any further

Statement of the Case v

exclusive agreements ‘‘similar to those alleged herein to be

illegal’? (R. 104).

One year later, in April 1942, the suit was settled,

The settlement contract (R. 18, 28 ef seq.), or sub-

license agreement as it has been called, recited that National

Screen was the licensee under exclusive licenses from mo-

tion picture producers for the manufacture and distribution

of copyrighted material owned by the motion picture pro-

ducers (R. 23), that it was anticipated National Screen

might in the future enter into exclusive license agreements

with other motion picture producers (R. 24), and that the

parties desired to enter into a license for distribution by the

petitioners of advertising materials manufactured by Na-

tional Sereen under its then-existing exclusive licenses as

well as under any exclusive ‘icenses which it might acquire

in the future (R. 24).

The sublicense provided that National Sereen would

supply the advertising materials to the petitioners (R. 25,

26), at prices specified therein (R. 27, 39),—which were

lower than the prices poster renters paid when they ac-

quired such materials from motion picture producers which

were distributing them (R. 110-113, 130-137). The peti-

tioners covenanted that they would not thereafter contest

the validity or scope of the licenses then or thereafter held

by National Sereen for distribution of advertising materials

(R. 26). The sublicense was for a term of three years, to

April 30, 1946 (R. 37).

Pursuant to the settlement of the litigation, the case

was dismissed by stipulation and order of the court dated

April 26, 1943 (R. 84). The dismissal, as provided not only

in the stipulation but also in the district court’s order, was

with prejudice (R. 84).

As had been alleged in the complaint in the prior

case and anticipated by the sublicense agreement settling

the case, and as petitioners expected and desired (R. 24,

143), National Sereen subsequently, and at different times

over a peried of years, entered into exclusive license agree-

6 Statement of the Case

ments with the other producer respondents (or affiliates):

Universal in 1944 (R. 53), Columbia in 1945 (R. 91), United

Artists and Warner Bros. in 1946 (R. 52), and Twentieth

Century-Fox in 1947 (R.52).) When each new license agree

ment was male, petitioners, as provided in their sublicense

agreement, were supplied with materials relating to the

pictures of these companies (R. 117).

The sublicense agreement, originaily for a term of

three years (R. 37), was voluntarily renewed in 1946 by

Nauioual Sereen and petitioners for a further period of

five years extending to April 30, 1951 (R. 107, 151), and it

will net be disputed that petitioners have been supplied

with materials to this date.

More than six vears later, in August 1949, while the

sublicense agreement was in full force, petitioners com-

meneced their second action under the antitrust laws, the

present suit charging the same conspiracy to monopolize

by means of the same exclusive agreements which were the

subject of their first action.

Their amended complaint (R. 6 et seq.) alleges that

National Sereen has now acquired exclusive licenses from

ail of the producer respondents (R. 11). and repeats the

claim that the exelusive agreements between National

Screen and the preducers constitute a conspiracy to monop-

olize (R. 16, 18-20).

As in the prior case, the present amended complaint

seeks to enjoin continuance of the exclusive contracts be-

tween National Sereen and the producers and asks for

treble damages (R. 20-22).

The amended complaint pleads the prior action and

its settlement, but asserts that petitioners entered into the

sublicense agreement ‘‘against their will and only because

they believed that if they refused to enter into the agree-

ment they would be forced to abandon their business alto-

gether’’, and that the sublicense was not a fair or equitable

settlement of the litigation but was intended to be a means

Statement of the Case ‘

of perpetuating and extending National Screen‘s alleged

scheme of monopolizetion (R. 18).

But in depositions both petitioners hove admitted, eon

trary to the allegation in their amended co aplaint, that they

chose to accept the settlement of their ‘town free will’ CR.

122), *‘voluntarily after considering the matter carefully”

(R. 114-115, 129), that the settlement was a business choice

made under the guidance of their counsei (R. 116), and

that they ‘‘were in complete agreement with respect to the

settlement that was executed and the release which was

given pursuant to it and the stipulation discontinuing the

action with prejudice in the Federal Court’? (2. 127-128).

Moreover, petitioners conceded that most of their co-

plaintiffs wanted the settlement (R. 121-122) and that their

own counsel had indicated to them that they had no ease

and that he would withdraw if they did not aecept the

settlement (R. 147, 122, 140-142).

Petitioners have admitted that from the date of the

settlement their business has progressed, earning larger

profits as the years went on (R. 116, 149-151). The record

shows that their annual gross more than doubled between

1942, the vear before petitioners obtained the sublicense,

and 1949, the vear the present action was commenced (R.

150). And, of course, the profits increased as well (Ro 151).

Petitioners have never sought cancellation of the settlement

agreement (R. 123), nor have they ever taken any legal

steps to set aside the settlement (R. 116). On the contrary,

they testified that they expected National Sereen to live up

to the sublicense contract (R. 128, 158).

On respondents’ motion to dismiss, Chief Judge

Kirkpatrick (R. 76 et seq.) held the prior action res

judicata of this one on the ground that the same cause

of action was asserted in both suits sinee both were ‘* based

upon anti-trust violations by means of the same exclusive

license contracts to National Sereen’’ (R. 76-77). The

Court of Appeals for the Third Cireuit (Judges Goodrich,

M-Laughlin and Hastie), in an opinion by Judge Goodrich,

affirmed unanimously (R. 153 et seq.).

s Summary of Argument

SUMMARY OF ARGUMENT.

I. This case does not involve any question of collateral

teppel. Since petitioners’ suit is direeted against the

same alleged conspiracy claimed to have been effectuated

by the same exclusive agreements as Was their prior suit

for injunctive relief, the Judgment of dismissal with, preju-

dice of the prier suit is res judicata and a complete bar.

The identity of the present claim with the prior one

has been found by both courts below and has been

conceded by petitioners in the courts below. The sole

distinction asserted by petitioners is that they are seeking

damages for a period subsequent to the dismissal of the

prior action. Petitioners’ present and prior cause of

action is and always has been premised upon National

Screen’s exclusive contracts which petitioners asserted and

now again assert constitute an illegal conspiracy violative

of the Sherman Act.*

The consent dismissal with prejudice of the prior claim

for injunctive relief would have no meaning at all, if not-

withstanding such dismissal petitioners are permitted to

reassert the same contention as to the alleged invalidity

of the exelusive contracts and to seek damages for con-

tinuation of the very arrangements which petitioners par-

ticipated in under the license agreement accepted in settle-

ment and in which it was expressly provided that peti-

tioners’ sublicense would automatieally embrace all future

exclusive arrangements procured by National Sereen. A

holding that dismissal with prejudice of a claim for in-

junctive relief against an allegedly invalid business ar-

rangement has no effect, would create a serious obstacle

to the settlement of litigation and frustrate the policy of

3. Petitioners’ claim was never valid. Among other reasons,

exclusive contracts are not illegal per se United States v. Bausch &

Lomb Optical Co., 321 U.S. 707 (1944) ; Restatement, Contracts

§ 516(e) (1932). Since the only questions involved on this appeal

are res judicata and estoppel in pais. we shall not pursue the merits

further.

Summary of Argument i)

terminating litigation and encouraging settlements. On

the other hand, the decisions below, barring these _peti-

tioners, are in no way inconsistent with the policy of the

antitrust laws because this is an action asserting a mere

private right on their part. There is no effect on the rights

of other private plaintiffs or on the rights of the United

States.

II. Petitioners’ claim is and always has been based

on the same ground, namely the alleged illegality of ex-

clusive license agreements between National Sereen and

each of the producer respondents. That claim having

been resolved against petitioners and in favor of National

Screen by the 1943 judgment, petitioners may not renew

the claim of illegality on the ground that some of the pro-

ducer respondents which are parties to the contracts were

not formally named as defendants in the prior action. This

is especially so where, as here, the alleged illegal exclusive

contracts of the respondents were all specifically charged

by the prior action. Reliance on res judicata by the new

defendants is fully justified either (1) under modern doc-

trines which have liberalized the requirement of mutuality

or (2) under the traditional exception to that requirement

where ihe liability of the prior defendants is determinative

of the liability of the subsequent defendants as it is here

inasmuch as the lability of all the respondents is dependent

upon their icentical relationship with National Screen.

III. Independent]; of res judicata, petitioners are

estopped from maintaining this action. The applicable

principle of estoppel is that aeceptance of the benefits of

a transaction precludes a party ‘com challenging the valid-

itv of that transaction. Here, the estoppel arises out of

petitioners’ sublicense and their voluntary renewal of it

in 1946. By the express provisions of the sublicense, peti-

tioners (a) recognized the validity of, and covenanted not

to challenge either National Sereen’s existing exclusive

10 Summary of Argument

licenses or any exclusive licenses which it might thereafter

aequire, (b) obtained a supply of materials manufactured

under the existing exclusive licenses, and (¢c) aequired the

right to obtain, and did obtain a supply of materials manu-

factured under exclusive licenses thereafter entered into

by National Sereen with other producer respondents.

Having voluntarily, and under the advice of their own

counsel, entered into the 1943 settlement and accepted its

benefits, petitiuners may not now attack the very same

exclusive licenses on which that settlement was premise’.

The respondents may not thus be punished for buying their

peace.

Argument 1]

Argument.

I.

THE DISMISSAL WITH PREJUDICE OF THE PRIOR

ACTION IS RFS JUDICATA AND A BAR TO THIS

ONE.

The judgment below, and its unanimous affirmance by

the court of appeals, rested solely and firmly on the identity

of the present cause of action with that in the prior ease

and the consequent effect of the 1943 dismissal with preju-

dice as res judicata of the present action.*

The identity of the cause of action was cogently de-

scribed by the trial judge. He said (R. 78-79):

‘*The cause of action asserted in the present case

is, to all intent and purposes, identical with that of the

1942 action. The conspiracy charged is the same con-

spiracy. The contracts by which it was alleged to have

been accomplished are the same contracts; and the same

evidence, the same witnesses and the same documents

would be necessary in the trial in both cases. The fact

that additional defendants have been added does not

change it. The unlawful acts charged against the de-

fendants in the 1942 action were not merely the making

of the consummated and then existing license contracts

with three of the present defendants, but the complaint

also charged that those licenses were a step in a general

illegal scheme of monopolization and that the defend-

ants were at that time engaged in the process of ex-

tending the monopoly by negotiating similar contracts

with other major producers, by which National Screen

would acquire the exclusive distribution of all motion

4. There is no question of collateral estoppel in this case,---as

beth of the courts below readily recognized (R. 78, 154).

12 Argument

picture advertising matter. The additional defendants

sued in the present action are, admittedly, the other

major producers referred to. * * *’’5

The court of appeals not only agreed but, supplementing

Judge Kirkpatrick’s view, said (R. 157):

ce * * But we think in substance the complaint is

the same and that what plaintiffs object to is an alleged

combination of the defendants to do illegal things harm-

ful to the plaintiffs’ business and acts done pursuant

to that combination. Since plaintiffs by their consent

judgment in 1942 had an adjudication against their

claim at that time we do not think they improve their

position by reiterating essentially the same complaint

in 1949.”’

In light of the foregoing statement, petitioners are in

error when they assert (p. 7) that the court of appeals

failed to answer in direct terms the question whether the

cause of action is the same.

Indeed, in the courts below, petitioners themselves econ-

ceded the identity of the basie claim asserted in the prior

and present actions. Thus, in their court of appeals brief,

petitioners admitted (p. 6 n. 6):*

‘‘Plaintiffs concede that the exclusive license

agreements on which this [prior] action was based

were substantially the same as the contracts on which

the instant action is based. In fact, in the case of

Loew’s the same contract appears in both actions.’’

Moreover, one of the petitioners himself testified that

he understood the grievances which he was asserting in the

5. Wherever boldface type is used in this brief, the emphasis

is ours.

6. Copies of petitioners’ brief to the court of appeals have been

lodged with the clerk of this Court.

Argument 13

prior action and that he knows the same grievances are

asserted in the present action (R. 126).

In an effort to create the appearance of different causes

of action, petitioners speciously argue (p. 7) that sinee the

damages they now seek for a period subsequent in time to

the prior judgment could not have been ineluded in the

first action, ‘‘therefore the causes of action could not have

been the same’’,

But petitioners disregard the crucial fact that a con-

sent judgment with prejudice is the “equivalent of a re-

traxit at common law’’ [2 Freeman, Judgments 6757 (5th

ed. 1925)] and amounts ‘‘to such an adjustment of the

merits of the controversy * * * as will constitute a defence

to another action brought upon the same cause of action.’

United States v. Parker, 120 U. S. 89, 95 (1887). Conse-

quently, the prior judgment judicially established between

the parties that the exclusive agreements between National

Sereen and the producer respondents did not constitute an

actionable conspiracy against petitioners. Accordingly,

there can be no alleged damages for any subsequent period

arising out of agreements which the prior consent judgment

adjudicated were not wrongful or actionable.

Petitioners’ only contention in seeking reversal of the

judgment below is that the district court and the court of

appeals were wrong in holding that petitioners’ present

suit is on the same cause of action as their prior one. The

only cases cited by petitioners as supporting the contention

that there is a new cause of action are Lawlor v. Loewe, 235

U.S. 522, 536 (1915), and Connecticut Importing Co. v.

Frankford Distilleries, 101 F’. 2d 79, 81 (2d Cir. 1939). But

neither case dealt even remotely with identity of causes of

action. The sole question in both cases was the right of a

plaintiff, who had established a violation of the antitrust

laws, to recover damages accruing after commencement of

the action. In the instant case, petitioners are attempting

to maintain an action based on the same exclusive contracts

14 Argument

which the judgment in the prior action established were

not tortious as against them. Where a wrong has been

established, its continuance remains actionable. Where the

status of certain contracts has been held lawful, their eon-

tinuance cannot become actionable (see Judge Kirkpatrick’s

analysis, R. 79-80).

United States v. International Building Co., 345 U. S.

5902 (1953), upon which petitioners rely, involves the doe-

trine of collateral estoppel arising out of a prior determina-

tion of a fact in a trial of a different cause of action.

In the present action, the courts below correctly con-

cluded that the causes of action being identical it was un-

necessary to inquire whether collateral estoppel could be

invoked since the more comprehensive principle of res

judicata was clearly applicable. It was because res judicata

applied,—and not collateral estoppel,—that both courts be-

low relied upon United States v. Parker, 120 U.S. 89 (1887),

and deemed United States v. International Building Co.,

345 U.S. 502 (1953), inapplicable (R. 78, 155).

In contending that there are different causes of ac-

tion, petitioners also ignore the fact that their prior action

sought injunctive relief which, if granted, would have

restrained the very same exclusive agreements of which

they complain in their present action. It is the accepted

general rule that a judgment for the defendant in a suit

seeking injunctive relief is a bar to relitigation of the

same claim. Restatement, Judgments ‘46, comments a, b

(1942). Significantly, petitioners fail to cite a single case

involving a claim for injunctive relief.

If petitioners were permitted to maintain their present

action, it would necessarily mean that the dismissal with

prejudice of the prior action for injunctive relief was withi-

out significance. Petitioners could have accepted the sub-

license agreement, gone through the motions of the dis-

missal with prejudice, and the very next day started a new

Argument 15

antitrust suit for the identical injunctive relief which they

had abandoned with prejudice the day before.

Such conduct would shock the conscience of equity.

And a rule of law permitting it would have far-reaching

consequences. If this Court should hold that a voluntary

dismissal with prejudice of a claim for injunctive relief

does not bar reassertion of the same claim at a later date

and har recovery of damages thereafter accruing, it will be

impossible to settle many cases, private antitrust cases in

particular.

There are many situations in which a plaintiff who

challenges the lawfulness of a course of conduct is willing

that it continue insofar as he is concerned if he obtains

sifficient concessions from a defendant desirous of avoiding

burdensome litigation, But incentive for buying one’s

peace would be destroyed if settlement were merely entrap-

ment, and the grievance survived the mutual intention of

the parties to terminate the quarrel. Such a rule would

be contrary to public policy which encourages settlement

of litigation.

Respect for the doctrine of res judicata does not vio-

late the policy of the antitrust laws, nor is it inimical to

their enforcement, as petitioners suggest (p. 8). This is

purely a private suit in the business and pecuniary interest

of these petitioners, barred by the rulings of the courts

below solely because of these petitioners’ own deliberate

conduct, their own voluntary agreement in 1943 that it

should be barred. Others who think themselves aggrieved

are free to sue.”. The United States is free to sue. In this

case we are concerned solely with the uneonscionable in-

sistence of the present petitioners,—who voluntarily settled

7. This is a particularly significant consideration in the present

case because there are four companion cases, brought by poster

renters, pending in the district court, in which no res judicata de-

fense has been or can be asserted (Civil Action Nos. 11,138, 11,376,

11,597, 11,678).

16 Argument

their claim, entered judgment dismissing the complaint with

prejudice, accepted the benefits of a setth ment contract,

and renewed their sublicense agreement three years later,—

that they may at the same time disregard judgment and

settlement benefits and sue again on the same grievance.

II.

THE ALLEGED CO-CONSPIRATORS WHO WERE NOT

MADE PARTIES TO THE PRIOR ACTION MAY

ALSO RELY ON THE DEFENSE OF RES JUDI.

CATA.

Three of the producer respondents (or affiliates) were

named as parties to the prior action. The claim there, for

injunction against producers’ continued use of National

Screen to perform their former functions in the production

and distribution of advertising materials, was dismissed

with prejudice in exchange for an agreement that National

Screen would thereafter supply the materials to petitioners.

Stated differently, petitioners dismissed with prejudice

their action to enjoin continuation of an alleged conspiracy

to permit National Screen to monopolize the distribution

of the advertising poster materials by obtaining exclusive

licenses from all motion picture producers.

Had petitioners been able to establish their claim, not

only would the three then-existing licenses have been en-

joined, but National Screen would have been enjoined also

from entering into the later exclusive contracts with the

other five producer respondents. .But the consent judgment

of dismissal judicially established that the later contracts

could not be enjoined by these petitioners. The mere cireum-

stance that petitioners failed to name some of the pro-

ducers as formal parties defendant in the prior action can-

not vitiate the legal effect of the judgment to which peti-

tioners consented.

Argument 17

Petitioners, realizing the force of these facts, did not

even raise or argue this question in the court of appeals.*

That court nevertheless did discuss and approve the dis-

trict court’s holding.

The district court and the court of appeals, in holding

petitioners barred as against all respondents, adopted

and followed the reasoning of Judge Hastie in the case

of Bruszewski v. United States, 181 F. 2d 419 (3d Cir.

1950), cert. denied, 340 U. S. 865 (1950). In that ease,

Judge Hastie rejected the technical requirement of mutual-

ity as a condition to use of res judicata as a bar. <A long-

shoreman, injured while working on a vessel owned by the

United States, sued the steamship company which was

servicing the ship under a General Agency Service agree-

ment. When he lost that suit, he sued the United States for

the same injury. The court held that he was barred by

the prior decision, even though there was no mutuality

(since the United States would not have been bound hy a

judgment against the steamship company) and no pr-vity

between the United States and the steamship company.

Judge Hastie said, 181 F. 2d at 422:

‘Where different plaintiffs sue the same defendant

in successive suits, many courts have questioned the

fairness of invoking res judicata against the defendant

unless a significant relationship ean be found between

the plaintiffs. Bui where, as in this ease, res judicata is

invoked against a plaintiff who hes twice asserted es-

sentially the same claim against different defendants,

courts have, as indica:ed in the cases above cited, en-

larged the area of res judicata beyond any definable

categories of privity between the defendants. Cer-

tainly the cases already cited show that the moving

party has been bound by prior adjudication against

him in situations where the relation between successive

8. See their brief in that court, copies of which have been lodged

with the clerk of this Court.

18 Argument

defendants was no closer or more significant than that

between the United States and Isthmian Steamship

Company here. We are in accord with this develop-

ment of the law away from formalism which impedes

the achievement of fair and desirable results.”’

Similar reasoning has been adopted by other courts.

Coca Cola Co. v. Pepsi Cola Co., 36 Del. 124, 172 A. 260

(1934); Good Health Dairy Products Corp. v. Emery, 275

N. Y. 14, 18, 9 N. E. 2d 758, 759 (1937). Cf. the opinion of

Judge Augustus Hand for the court in Adriaanse v. United

States, 184 F. 2d 968 (2d Cir. 1950).

Under the view of these cases, the petitioners here are

barred as against all respondents, without regard to the

factual relationship among the respondents under pett-

‘‘oners’ own allegations. That view, as so forcefully

presented in Judge Hastie’s Bruszewski opinion, best serves

the policy of ending litigation and should, we submit, he

approved by this Court.

However, it is not necessary in this case to go that far,

because here the relationship of all the producer respond-

ents to National Screen is such that the case falls within a

well established exception to the requirement of mutuality,

—an exception which this Court recognized in Bigelow v.

Old Dominion Copper Mining and Smelting Co., 225 U.S.

111 (1912), relied on by petitioners (p. 8).

In the Bigelow case, an action was brought in a fede. al

court in New York against Lewisohn to recover unlawful

profits realized by him and his associate, Bigelow. A simi-

lar action was brought ‘tn a Massachusetts court against

Bigelow. In the New York action Lewisohn’s demurrer

was sustained. The Massachusetts court held that Bigelow

was not protected by the judgment in favor of Lewisohn

in the federal court in New York. This Court affirmed,

holding that the full faith and credit clause of the Constitu-

tion did not :equire the Massachusetts court to hold the

Argument 19

New York judgment in favor of Lewisvhn a bar to the Mas-

sachusetts action by the same plaintiff again « Bigelow.

While reaffirming and applying the rule that the applieabil-

ity of res judicata generally requires mutuality, the Court

recognized (225 U.S. at 127-128) that:

**An apparent exception to this rule of mutuality

has been held to exist where the liability of the defend-

ant is altogether dependant upon the culpability of one

exonerated in a prior sult, upon the same facts, when

sued by the same plaintiff. See Portland Gold Mining

Co. v. Stratton’s Independence, 158 Fed. Rep. 63, where

the cases are collected. The unilateral character of

the estoppel of an adjudication in such eases is justi-

fied by the injustice which would result in allowing a

recovery against a defendant for conduct of another,

when that other has been exonerated in a_ direct

ethaliaids

In holding that the case before it fell within the rule

rather than the exception, the Court said, at 128:

“It is 1.90 evident to need argument that the rem-

edy of this plaintiff does not depend upon the eulpable

eonduct of Lewisohn, but upon Bigelow’s own wrong,

whether alone or in cooperation with Lewisolin, * * *”’

Under the facts of the instant case, as pleaded in the

prior and present complaints, the producer respondents

eould not have been liable to petitioners if National Sereen

was not liable, since the gravamen of the complaini was

the contracts between National Sereen and the producers.

Thns, petitioners’ remedy against any producer must d--

pend on the producer's action in entering into a contract

with National Sereen and cannot depend on the producer's

action alone. See Buckeye Powder Co. v. E. I. Du Pont De

Nemours Powder Co., 248 U.S. 55, 62 (1918).

In short, the liability of the additional producers who

have been named in the present action ‘tis altogether de-

20 Argument

pendant upon the euipability of’? National Sereen and there-

fore unilateral application of res judicata against peti-

tioners, who dismissed their prior action against National

Screen, is justified.®

The exception to the general rule of mutuality noted in

the Bigelow case has a long history and a considerable body

of supporting authority. See, as typical cases in which

mutuality of estoppel has been held not necessary for the

application of res judicata, Bernhard v. Bank of America,

19 Cal. 2d 807, 122 P. 2d 892 (1942); Silva v. Brown, 319

Mass. 466, 66 N. EB. 2d 349 (1946); Jones v. Valisi, 111 Vt.

481,18 A. 2d 179 (1941). In Bernhard v. Bank of Anierica,

supra at 812-813, 122 P. 2d at 895, the court expressed the

rule as follows:

“o* * * The courts of most jurisdictions [have

recognized| a broad exception to the requirements of

mutuality and privity, namely, that they are not ueces-

sary where the liability of the defendant asserting the

plea of res judicata is dependent upon or derived from

the liability of one who was exonerated in an earlier

suit brought by the same plaintiff upon the same facts.

* * * The cases justify this exception on the ground

that it would be unjust to permit one who has had his

day in court to reopen identical issues by merely switch-

ing adversaries.”’

It is apparent from review of the cases cited under

this point of our argument that the overwhelming judicial

tendency has been to find a way to grant relief against the

kind of repetitious litigation which would be permissible

under strict application of the mutuality requirement. The

9. It is perhaps unnecessary to add that the applicability of res

judicata in the present case would not be affected by the fact that

the first suit was disposed of by petitioners’ consent. Portland Gold

Mining Co. v. Stratton’s Independence, 158 Fed. 63, 65 (8th Cir.

1907}, cited in the Bigelow case.

Argument 21

legal paths to that result have varied. The Bruszewski view

completely discards the requirement of mutuality. Other

cases recognize the requirement, but allow an exception for

dependent liability. And even those authorities which pay

complete lip service to technical mutuality still reach a

desirable result by a broad approach to the concept of

‘“‘privity’’. See Judge Goodrich’s coneurring opinion in

the Bruszewski case, 181 F. 2d at 423; Emery v. Fowler,

39 Me. 326 (1885), and the cases there discussed (pp. 329-

331).

But whatever the legal path, the result is the same.

The facts of this case require that result. For here the

prior judgment has judicially established that petitioners

have no cause of action based on the exclusive contracts.

Therefore, all of the respondents which are parties to sueh

contracts are entitled to the bar of the 1943 judgment. The

trial court and the court of appeals properly so held.

III

PETITIONERS ARE ESTOPPED FROM MAINTAINING

THE PRESENT ACTION BY THEIR ACCEPTANCE,

RENEWAL AND RETENTION OF THE BENEFITS

OF THEIR SUBLICENSE FROM NATIONAL

SCREEN.

Independently of res judicata, petitioners are barred

from maintaining the present action by estoppel in pais,—

under the familiar principle that one who accepts the bene-

fits of a transaction with full awareness of the facts may

not thereafter be heard to challenge the validity of the

transaction.

In this case, in voluntarily and deliberately settling

and terminating the prior action petitioners not only con-

sented to entry of the judgment of dismissal with preju-

dice, but at the same time obtained a sublicense agree-

ment from National Sereen (R. 18) which gave peti-

tioners a full supply of the materials which National

22 Argument

Sereen manufactured under its exclusive agreements

with the producer respondents (K. 23-40). Moreover,

in that very sublicense agreement, petitioners not only

expressly recognized the validity of respondents’ then

existing and future exelusive contracts and covenanted not

to challenge them (R. 26) but procured thereunder the right

to receive,—and did in fact receive (R. 117),—from Na-

tional Sereen all materials which National Sereen there-

after manufactured under subsequently acquired exclusive

contracts with other motion picture producers (R. 24, 26).

Furthermore, shortly prior to May 1916, when the

original sublicense agreement with petitioners would have

terminated, petitioners procured from National Sereen a

renewal of the sublicense (R. 107, 151).

Three vears later, in the midst of the renewal period,

petitioners instituted the present action for triple damages

in which they attack as invalid the very same exclusive

contracts which they have expressly agreed were valid as

to them. The iaw is clear that by the aeceptance of the

sublicense and its renewal, petitioners are estopped from

challenging the validity of the exelusive contracts out of

which National Sereen’s sublicense to petitioners arises.

This Court has applied this principle in a case in whieh

the plaintiff sought to set aside a settlement of prior litiga-

tion. In McLean v. Clapp, 141 U.S. 429, 482-423 (1891), it

was held:

‘<# * * The settlement was a new contract between

[plaintiff] and Clapp, and the law is clear that he ean-

not take the benefits of that contract and repudiate its

burdens. * * *

s* * * THis conduct, after full knowledge, ratified

and affirmed the settlement * * *’’.

In United States «7 rv]. The International Contracting

Co. v. Lamont, 155 U.S. 303 (1894), this Court held that the

International Company, which had entered into and per-

formed a dredging contract, was estopped to assert the in

Arquinent y

validity of that contract and to claim higher compensation

on the basis of a previous bid which had not resulted in a

contract. Mr. Justice White explained the estempel prin

ciple as follows, at S0Q-310:

oe ° * He entered of his own accord into the see

ond contract and has acted under it and hes taken ad

vantages which resulted from his aetion under it, hav-

ing received the compensation whieh was te be paid

under its terms. Having done all this, he is estopped

from denying the validity of the contract. * * * Nor

does the fact that in making hi-< seeond contract. the

relator protested that be bad rights under the first

better his position. Tf had any such right~ and

desired to mattioeh them, he should have abstained

from putting himself in a position where he voluntarily

took advantage of the second opportunity to secure

the work... A party eannot avoid the legal consequence -

of his acts by protesting at the time he does them that

he does not intend to subject himself to such conse

‘

quenees, ®° * °°

A ease strikingly in point on the application of estoppel

in an antitrust case is Suckow Borax Mines Consolidated.

Inc. v. Borax Consolidated Ltd., 185 F. 24 106 (9th Cir.

1950), cert. denied, 340 U.S. 94% (1951). There, plaintiffs

charged a conspiracy to monopolize the mining. processing

and distributing of borax. Although the conspiracy Was

alleged to have begun in 1929 and continued until 1945 (185

F. 2d at 199-200). the court held that the plaintiffs were

bound by a general release given in 1942.) The complaint

alleged that the conspiracy and the acts of monopolization

which had continued until! 1945 included coercive induce

ment of the 1942 release (i/. at 200). Simultaneously with

the giving of the release, the plaintiffs had entered into an

agreement with one of the defendants, whereby plaintiffs

sold certain property. The eourt referred to this agree

ment as a ‘‘settlement agreement’? (7d. at 201). but it did

not have the striking additional attribute. of che instant

24 Argument

settlement agreemeat which expressiv recognized the valid

ity of the exclusive contracts and any future contracts with

other producers for the right to manufacture their poster

advertising ANCCOSSOTIES.

Nevertheless, the court held that this agreement in

conjunetion with the release as to past grievances const)

tuted a complete defense. The language of the court of

appeals (185 FL 2d at 208) is precisely pertinent here:

‘The record induces the firm conviction that by

the 1942 agreement and sale, the parties thereto were

voluntarily wiping the slate completely clean of con-

troversies hy a full settlement of any and all existing

differences between them. We are not aware of any

principle of law which requires private monopolists to

be treated in any different fashion than other tort

feasors in the matter of entering into binding private

settlement agreements arising out of demands against

them for damages. Snel: settlements in no wise ob-

struct possible criminal prosecutions which might be

instituted by the Government, nor do they defeat the

Congressional purpose of allowing private claimants

in this class of aetions the right of redress of their

ee @ @99

vrievanees in our courts.

Fer additional cases to the same effect, see Insurance

Co. v. Mowry, {4} U.S. 544. 547 (1877); Dickerson v. Col-

grove, 1) 1S. STS, S80 (1879): Mahoning Investment Co.

v. United States, 3 f°. Supp. 622 (Ct. CL. 1983), cert. dented,

20} US. 675 (1934): Chipman v. Montgomery, 63 N.Y. 221,

234-2385 (1875).

Since the courts below deemed res jadicata completely

dispositive of the eanse, they did not deal with the doctrine

at estoppel, although the district court reviewed the ele

ments of estoppel present in this case (R83). We submit

that the estoppel arising from these elements likewise pre

eludes maintenance of this aetion and therefore provides

an additional, independent ground in support of the judg-

Conclusion 20

ment below. This Court, of course, may affirm that judg-

ment on any ground. Ryerson v. United States, 312 U. S.

405, 408 (1941).

CONCLUSION.

Affirmanee is earned first, on the traditional legal doc-

trine which seeks to put terminus and finality to litigation

and abjures relitigation under whatever devious guise; and

second, on the traditional equitable doctrine that one may

not enter into a settlement, persist in its gains for a deeade,

and simultaneously attack it collaterally without disavow-

ing its continuing benefits and seek punitive relief as if such

settlement had never been made.

Respectfully submitted,

Louis N1zer,

Water 8S. Beck,

Attorneys for Respondent, National

Screen Service Corporation,

Wm. A. Scunaper,

Fart G. Harrison,

Epwarp W. Mvurnrx,

Attorneys for Respondents, Colum-

bia Pictures Corporation, Loew’s

Tucorporated, Paramount Film

Distributing Corporation, RKO

Radio Pictures, lne., T CF Film

Corporation (formerly Twen-

tieth Century-fox Film Corpora-

tron), United Artists Corporation

and Universal Film Exchanges,

Inc.,

Lovis J. GorrmMan,

Mitrcuett E. Panzer,

Attorneys for Respondent, Warner

Bros, Pictures Distributing Cor-

voration.,

January 22, 1955.