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Plaintiffs' Attorneys Look West

3 Jul, 2002 By: Joan Villa

Attempting to rebound from a defeat in federal court in San Antonio, Texas, plaintiff attorneys for a group of independent video retailers vow to press forward with price discrimination and conspiracy charges in a similar Los Angeles action that will once again pit independent video retailers against five Hollywood studios and Blockbuster Video.

“These are all individual cases that rise or fall on their own merits, and California will not be bound by this,” contended lead plaintiff counsel Jim Moriarty of the Houston firm Moriarty/Leyendecker. “California is very protective of their small businesses, and they have independent and stronger antitrust rules than even the federal authorities.”

U.S. District Court Judge Edward Prado, presiding for the Western District of Texas, granted defendants' motion for a directed verdict and abruptly ended an antitrust trial for lack of evidence late last month. Plaintiffs will appeal the decision, Moriarty said.

Blockbuster and the studios praised the ruling as vindication that defendants did not conspire to provide revenue-sharing deals to Blockbuster beginning in 1997 that were not offered to independent retailers. Warner Home Video and MGM Home Entertainment settled with both Texas and California plaintiffs for a reported $15 million, while Blockbuster, Viacom Inc. and the home video divisions of Paramount, 20th Century Fox, Columbia TriStar, Universal Studios and Buena Vista (Disney) are still defendants in the Los Angeles case.

“We feel like we felt at the outset,” said Blockbuster EVP and general counsel Edward Stead at the close of trial. “The plaintiffs' claims had no validity, and we won.”

Meanwhile, Blockbuster will seek to recover filing costs estimated near $250,000 from the three video retailer plaintiffs who lost the Texas action.

While the chain is legally entitled to recover the fees, Moriarty attacked the move as “malicious” because two of the retailers are in bankruptcy — John Merchant of 49'er Video in Sacramento, Calif., and David Stevenson of The Big Picture Video in Syracuse, N.Y. The third retailer is Ronald Cleveland of Lonestar Video in San Antonio.

“All that does is guarantee we'll take it up on appeal,” Moriarty added.

A pretrial conference is scheduled for early next month for the Los Angeles Superior Court case, where Judge Victoria Chaney previously denied to certify 250 retailers as a class. Many of those plaintiffs have been industry leaders or active in the Video Software Dealers Association (VSDA) including Joan Riebli of Movie Merchants, Sonoma, Calif.; Mark Tusher of Alamo Video, Simi Valley, Calif.; Richard Woodroof formerly of Captain Video, Stamford, Conn.; and Herman Junkerman of Movie Man Video, Glassboro, N.J. Merchant, Stevenson and Cleveland are not plaintiffs in the California case.

“The defendants are going to argue, ‘we've litigated this, and we've won,’ observed antitrust expert Keith Rounsaville, who heads the antitrust division for law firm Akerman Senterfitt out of Orlando, Fla. “The studios and Blockbuster have won one round, but that doesn't mean they're going to necessarily prevail in Superior Court in California.”

For one, Los Angeles Superior Court is not bound by precedent set in federal court in Texas, he noted, but rather by case law under California's Cartwright Act, which takes a different view of antitrust standards than the federal Sherman Act. California's Superior Court also would look to precedent from the much more liberal 9th Circuit Court, which recently found the Pledge of Allegiance unconstitutional, than it would from Texas' more conservative 5th Circuit, he added.

However, Judge Prado's decision will carry weight because it “shows that at least one finder of fact, after having heard the plaintiffs' evidence of conspiracy, concluded that there was no evidence,” Rounsaville said. As a result, the value of any settlement, if one were to be offered by the remaining defendants, would be “significantly diminished,” he concluded.

Even given the outcome, San Antonio plaintiff Merchant said he would “certainly do it all again.” Although he is “disappointed” for the retailers who have gone out of business, he believes the case sent a message to the studios.

“I think they know now that before they make a pricing decision, they'll have to look over their shoulders,” he said. “This was always about a level playing field and those of us who want to stay in the business really need to have a level playing field in order to effectively compete and I think we've demonstrated to what lengths we will go to make sure we can get one.”

Supplier executives speaking on condition of anonymity agreed with Merchant's assessment.

“You don't get called into a major class action lawsuit and come away cocky,” said one. “I don't think the [studios'] take-away is carte blanche, but to be smart on antitrust and pricing.”

Meanwhile, retailers continue to sound off, posting often angry letters on Video Store Magazine's online discussion forum.

“It just seems odd that so many independent video stores have gone out of business, however Blockbuster celebrated opening their 8,000th store,” wrote Randy Roberts of El Paso, Texas. “How can they be doing so well and the rest of the industry doing so poorly without favorable deals?”

Marty Dwyer, a California Superior Court plaintiff from Glendale, Ariz., lamented that “the judge and the jurors didn't seem to hear our side of the story in this case.”

Blockbuster made the case during the San Antonio trial that revenue-sharing deals with studios was just one part--albeit a vital one--of a multipart strategy to improve the company's struggling business in 1997. The company opened many more stores, committed $100 million to advertising, expanded its inventory and increased its pay to attract better employees.

What do you think about the judge's decision to dismiss the independent retailers' antitrust claims against Blockbuster and the studios? What does this mean to the industry? Sound off here!

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