MovieFone gets $22 mil in judgment

MovieFone Inc. was awarded $22.7 million Wednesday in its damages suit against equipment manufacturer Pacer/Cats by a panel of the American Arbitration Assn.

The suit, filed in November 1994, alleged that Pacer/Cats violated its co-venture with MovieFone to expand and improve tele-ticketing operations. That agreement, initiated in 1992, allowed MovieFone to convert to online capabilities.

MovieFone, founded in 1989, made its initial forays into movie ticketing the following year, providing advance tickets for General Cinemas and Pacific Theaters outlets in the Los Angeles area. However, as an offline service, it was allocated a limited number of tickets per show.

According to Andrew Jarecki, MovieFone CEO, going online and being electronically connected with a circuit’s internal system was the next logical step for the company. The venture with Pacer/Cats, an eminent system leader in that field, was logical and would provide better service and eliminate pre-allocated limits via a direct tie-in to the box office. The service, combined with automatic ticket machines at selected sites, allowed MovieFone to enter other top markets and add such chains as Loews and Cineplex/Odeon.

Jarecki said that by early 1994 there was noticeable deterioration of Pacer/Cats servicing. This was simultaneous with talks between the manufacturer and Ticketmaster that would lead to the latter acquiring a majority interest and to launch a major foray into movie tele-ticketing.

Breach and violation

In its unanimous decision, the three-member panel stated, “Pacer/Cats materially breached and blatantly violated the agreement between the parties. Pacer/Cats, Ticketmaster and Wembley (Pacer/Cats’ former owner) secretly entered into a transaction to strip Pacer/Cats of the resources necessary to perform its agreement with MovieFone and under cover of this concealment, developed a common plan and purpose, the aim and object of which was to terminate the agreement and demolish the business.”

Ticketmaster CEO Fred Rosen told Daily Variety the judgment has “nothing to do with Ticketmaster. We were not part of the arbitration and we are not part of the decision. This is against Pacer/Cats, a wholly owned subsidiary of Wembley, and not one of the Pacer/Cats divisions owned by Ticketmaster. In order to enforce the judgment, they (MovieFone) will have to go to London.”

Bound commitment

However, in the arbitration board decision, the panel noted that Ticketmaster’s Pacer/Cats division CCS “is explicitly bound by its terms and liable for breaches that it committed, or were previously committed by Pacer/Cats.” The arbitrators stated that “evidence establishes, without contradiction, that since its inception, CCS has continued to do the same business under the same trade name and logo as Pacer/Cats, using the same personnel, office, phone number, stationery, business cards and other paraphernalia.”

A Ticketmaster spokesman reiterated that the decision is specifically against Pacer/Cats and, as no Ticketmaster execs were questioned in the arbitration process, it seemed unlikely the company would be involved in the settlement.

According to Jarecki, in addition to diminished service, efforts were made to scuttle MovieFone’s 1994 initial public offering and to unfavorably characterize the services it provided at trade shows and other venues. Three years ago, it decided to develop its own tele-ticketing system out of necessity. Pacer/Cats is obligated, according to the decision, to compensate MovieFone for the development costs as part of the $22.7 million award. Additionally, it has been enjoined from doing like business in the 13 cities that had been mapped out in the agreement.

In addition to expanding existing services, MovieFone plans to establish a research division for motion picture companies once it receives its judicial award.

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