Flagship Theatres’ Cinemark lawsuit a test for independent chains

The new theater owners had high-minded ambitions when they upgraded a rundown multiplex in the resort town of Palm Desert into a seven-screen theater with a French cafe and named it the Palme d’Or, after the top award at the Cannes Film Festival: to create “the desert’s premiere address for cinephiles,” with a wide selection of top art house, specialty and foreign films that often played only in far-off Los Angeles.

And the owners themselves had impressive show business credentials. They included Bryan Cranston, the Emmy-winning star of the television series “Breaking Bad”; Alise Benjamin, co-producer of the Oscar-winning film “Ray”; and Steve Mason, a nationally known host of an ESPN radio talk show in Los Angeles.

Instead, they find themselves locked in a legal battle with Cinemark, the Texas-based movie theater chain with some 3,850 movie screens across the nation. Their lawsuit alleges that Cinemark, which operates the 15-screen River Cinema in nearby Rancho Mirage, is illegally muscling them out of the marketplace by threatening to retaliate against movie studios that book films into the Palme d’Or. The suit, initially dismissed in Los Angeles County Superior Court, was recently revived by an appellate court. No trial date has been set.

“It’s like they’re Starbucks and we’re a small coffee house and they’re preventing us from getting our coffee beans,” said Cranston in a telephone interview from Toronto, where he was filming the remake of “Total Recall.” “We’re fighting for our existence.”

But this is more than a David-versus-Goliath battle in the desert. The case is being closely watched by independent theater owners across the country who feel increasingly squeezed by the top four major theater chains, Regal Entertainment, AMC Entertainment, Cinemark and Carmike Cinemas, who operate about 50% of the screens in the United States. Some of the industry’s top distribution executives could be called to testify about the normally behind-the-scenes deal-making between studios and theater chains.

Movie lovers also have a stake in the conflict, according to Mason, who says independents like the Palme d’Or are much more likely to program smaller films, foreign-language offerings and documentaries than the large chains, which favor studio blockbusters and other mass-market products.

“If we don’t have healthy independent theaters, we’re going to wind up with five screens of ‘Transformers’ at every theater in the country and there will be no room for these smaller, diverse films,” he said. “It’s about bringing diverse films to the marketplace.”

Flagship Theatres, which bought the Palme in 2003 and filed the lawsuit in 2006, contends that films it was prevented from showing included “Kill Bill,” “Cinderella Man,” “The Da Vinci Code” and “Valentine’s Day.” Mason said the restrictions eased once the suit was filed, but still persist.

Last weekend, the Palme d’Or, which now has 10 screens, was showing “Higher Ground,” an American indie about one woman’s struggle with her faith; “The Debt,” a remake of an Israeli thriller; the documentary “Chasing Madoff”; and three French films along with some studio movies, like “Contagion” and “The Help.” Like many similar specialty theaters, the Palme d’Or tries to balance the risk of programming less-popular films by also showing more mainstream movies.

Mason said he and his partners realized how bad the situation was when they struggled to convince Universal Pictures to allow them to show “Ray,” even though one of the owners helped produce it. “It was an unbelievable fight to get that to happen,” he said, adding that it took two months of often heated phone calls before Universal relented.

A spokeswoman for Universal declined to comment, but the studio has previously denied any wrongdoing in connection with booking films at the Palme.

In court filings, Cinemark has argued that its business practices are lawful and that the company did not have sufficient strength in the Coachella Valley market to stifle competition. Cinemark executives were not available for interviews, but in a statement said that the Court of Appeal’s ruling was “legally flawed and flies in the face of established modern antitrust law” and that it would appeal to the California Supreme Court, if necessary.

The lawsuit claims that Cinemark is engaged in an industry practice called “circuit dealing,” in which theater chains leverage their size and buying power to prevent distributors from booking movies at theaters owned by their rivals. It alleges that Cinemark and a previous owner of River Cinema pressured distributors by threatening to not play movies elsewhere in their circuit if the distributors didn’t agree to bar the films from the Palme d’Or. Circuit dealing was outlawed in 1948 in a Supreme Court ruling that held it violated antitrust law by stifling competition and limiting consumer choices.

The case has touched a chord among small independent theater operators across the country, who’ve complained for years about big theater chains putting the squeeze on them by abusing an industry tradition known as clearance, a legal and less expansive practice than circuit dealing, in which chains ask studios for exclusive rights to show a movie within a certain radius, usually about two or three miles around their theaters.

“It’s a common problem,” said Russ Collins, director of the Art House Convergence, a conference catering to art house theaters held with the Sundance Film Festival.

“Just about any independent operator has run up against this because clearances are ill defined,” added Greg Laemmle, president of the Laemmle Theatres, the Los Angeles-based art house cinema chain. He cited his own experience closing the Laemmle Grande 4-Plex theater downtown after Regal opened its L.A. Live multiplex at the Staples Center. “When Regal opened we were told that we would be cleared, that we would not have access to the films that we previously played.”

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