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FREDERICK CINEMA CORP. v. INTERSTATE THEATRES CORP

May 17, 1976

FREDERICK CINEMA CORP., Plaintiff
v.
INTERSTATE THEATRES CORPORATION, Defendant



The opinion of the court was delivered by: JONES

 This is an action for alleged violations of the Sherman Act, 15 U.S.C. § 1 et seq. Particularly, plaintiff alleges a combination in restraint of trade between the three original defendants wherein they agreed to limit licensing of first-run movies in Frederick, Maryland, to two of the defendants. Plaintiff owns three movie theatres in Frederick and is engaged in the business of exhibiting first-run motion pictures. Two of the original defendants, Interstate Theatres and R/C Theatres, also own first-run movie theatres in Frederick. The other original defendant, United Artists, is a distributor of motion pictures in the Frederick area. The alleged illegal conspiracy between the defendants limited licensing of United Artists' first run motion pictures in the Frederick area to Interstate Theatres and R/C Theatres, thereby precluding plaintiff from competing for the same motion pictures from United Artists. On July 15, 1975, the complaint was dismissed as to R/C Theatres and United Artists. Presently before the Court is Interstate's motion to dismiss on the grounds that personal jurisdiction over Interstate is lacking and that venue does not lie in the District of Columbia.

 Resolution of Interstate's motion requires construction of section 12 of the Clayton Act, 15 U.S.C. § 22, the venue and process provision:

 
Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.

 Thus, venue lies in any district where the corporation is an "inhabitant," is "found," or "transacts business." Process, however, can only be served where the corporation is an "inhabitant" or is "found." To establish venue, plaintiff relies solely on defendant's transaction of business within the District of Columbia; there is no contention that defendant is an inhabitant of or is found in the District. See Pl. Opp. at 6 n.2.

 The question presented, therefore, is whether the contacts which defendant has with the District are sufficient to meet the test of transacting business here within the meaning of the statute. *fn1" In determining whether a corporation "transacts business" within a particular district, the applicable test is the "practical, everyday business or commercial concept of doing or carrying on business 'of any substantial character.'" United States v. Scophony Corp., 333 U.S. 795, 807, 92 L. Ed. 1091, 68 S. Ct. 855 (1948); see B. J. Semel Associates, Inc. v. United Fireworks Mfg. Co., 122 U.S. App. D.C. 402, 355 F.2d 827, 831 (1965).

 It is uncontested that Interstate neither owns or operates any theatres, nor exhibits any films in the District of Columbia. It is further agreed that Interstate is not qualified to do business in the District, has never had an agent in the District, maintains no corporate books, records, documents, or other materials within the District, and has never had an employee visit the District for business purposes. See Sherman Aff. Plaintiff relies principally on the contacts defendant has with film distributors in the District, which contacts are completely telephonic or by letter, and additionally relies on contacts between defendant and a popcorn and candy vendor in the District and a film transporter who delivers films to defendant's theatres in Frederick from distributors in the District.

 Initially, it is important to note that none of the contacts between defendant and the District distributors involved sales by defendant to the distributors. Rather, defendant was the lessor of the films which the distributors would send to the Maryland theatres. The manner in which the leasing and booking was carried on is also critical. The basic facts are undisputed. Interstate's Boston office (not the theatres in Maryland) undertook or handled all communications with District distributors. The process of contracting for a film is described by defendant as follows:

 
Solomon Sherman, the head film buyer for Interstate Theatres Corporation, . . . has the sole responsibility for the booking and dating of films with film distributors in the District of Columbia, with the exception that theatre managers are given the latitude to request short subjects and cartoons from the distributors for the managers' respective theatres.
 
. . .
 
Those distributors located in the District of Columbia send a contract to Interstate in Boston for Solomon Sherman's signature. The contract stipulates the playing time and terms of the engagement. Mr. Sherman affixes his signature to the contract, retains a so-called "application copy" and returns the original contract to the distributor in the District of Columbia. The distributor, in turn, sends the signed copy of the contract to its home office, which, in most cases, is located either in New York City or Los Angeles, California and is in no case located in the District of Columbia. Approval of the contract must come from the home office, which will then return the contract to its branch office in the District, from which the branch will forward an approved copy of the contract to Interstate in Boston to replace the application copy retained by Interstate.

 Answer to Pl's Interrogatory 1(d).

 Defendant would have the Court treat the branch office in the District as a "mere conduit" for transmission of messages and contracts between defendant and the distributor's home office. The artificiality of the distributors' corporate structure cannot be the basis of a determination whether defendant was transacting business in the District. Under Scophony, the Court should disregard "hair-splitting legal technicalities" in favor of a "practical, everyday business" view of the transactions at issue. In B.J. Semel, for instance, defendant argued that because it communicated with its purchasers in Washington, D.C. by phone, and shipped all its goods F.O.B. Dayton, Ohio, it was not transacting business in the District. The Court of Appeals rejected this, stating:

 
We, however, are unable to believe that the spirit of Scophony comports with allowing the seller's shipping practices to determine his ...

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