Why Movie Theaters Decided to Sue New Jersey for the Right to Reopen

Regal Cinemas

Movie theaters have been banking on a grand end-of-summer reopening to begin recovering from the closures forced by the coronavirus pandemic. The plan has been to remind consumers about what they missed about the theatrical experience by luring them back to cinemas with the promise of watching Christopher Nolan’s sci-fi adventure “Tenet” or Disney’s action epic “Mulan.”

But that can’t happen if major markets such as New York City remain closed, and it’s become increasingly difficult for exhibitors to game out their next steps without having more clarity on when certain states will allow theaters to welcome back customers. On Tuesday, the National Association of Theatre Owners, the exhibition industry’s main lobbying arm, and major chains such as AMC and Regal targeted a critical part of the Tri-state area, suing New Jersey Gov. Philip Murphy for allowing churches to reopen, but not movie theaters.

The choice of venues was strategic. New Jersey is a major source of revenue — its nearly 100 theaters represent 2.5% of the overall box office — and it also accounts for a portion of the New York metro area, the nation’s biggest source of ticket sales. Exhibitors worried that suing New York, which also has yet to set a date for a state-wide re-opening of cinemas, would enrage Gov. Andrew Cuomo, who’s seen as more volatile than the mild-mannered Murphy, and set back the industry’s cause. Moreover, if the theaters prevail in their constitutional argument, it will put pressure on the five other states that have yet to set a timetable for theaters to come back online to provide firmer guidelines. Theater chains are considering additional suits in other states, but hope that the New Jersey case will establish a firm precedent, according to individuals familiar with the litigation.

It’s hard to predict how a judge will rule. Eugene Volokh, a professor at the UCLA School of Law who focuses on the First Amendment, said the theaters were making a “legally plausible argument” in seeking to be treated the same as church services.

“I think it’s very hard for the government to say a certain kind of speech is really valuable to people and other kinds of speech they can do without,” he said.

But Leslie Garfield Tenzer, a professor at Pace University’s law school, said the government will succeed if it can show a rational basis for its order.

“I don’t think that the theaters are going to be successful,” she said.

Nomi Stolzenberg, a professor at USC’s Gould School of Law, argued that the theaters are piggy-backing on conservative legal theories, which are typically advanced on behalf of religious institutions, in claiming that the state is discriminating against them. She argued that the suit highlights the absurdity of that form of argument.

“A world in which it makes sense for movie theaters to say they’re the victims of discrimination is a world that has lost all sense,” she said.

Several churches have filed similar lawsuits during the pandemic, claiming that government orders to shut down violate the free exercise of religion. So far, courts been reluctant to grant requests for restraining orders and have generally deferred to health authorities. But Harmeet Dhillon, a conservative attorney who has filed several such lawsuits, said the suits can persuade governments to back off even if courts don’t go along.

“What the governors in all the states I’ve sued have done is change their orders. They try to moot out the issues,” she said. “I would not be surprised to see the governor of New Jersey respond to this by coming out with a revised order, and then claiming they were going to do it anyway.”

The case has been assigned to Judge Brian R. Martinotti, an Obama appointee who serves on the U.S. District Court in Trenton.

Theaters are under pressure to provide investors with more specifics about when new releases will hit their screens, and that’s seen as largely dependent on having nearly every major metropolitan area ready to return to moviegoing.

“Studios are waiting for more theaters to reopen and theaters are waiting for studios to put out new films,” said Shawn Robbins, chief analyst with BoxOfficePro.com. “When 50 states have 50 different timelines for reopening, it’s hard to know how and when that will happen. It’s the big X-factor.”

As theaters have been shuttered for weeks, they’ve also burned through millions of dollars, paying rents and overhead expenses without bringing in any income. Stocks for publicly traded companies such as AMC and Regal parent company Cineworld have been brutalized as investors have expressed their skepticism about the long-term health of the sector by selling off shares.

“The longer theaters stay closed, the more questions they face around their liquidity and solvency,” said Tuna Amobi, senior equity analyst with CFRA Research. “They’re in a bind.”

The industry also feels that it’s been treated unfairly by public health officials. Chains such as AMC and Regal have released elaborate plans, including enhanced cleaning procedures, a commitment to operating their theaters at limited capacity, and improved ventilation. However, churches, bars and restaurants, which they argue are more difficult to maintain social distancing in, have been allowed to reopen in many states. In their lawsuit, the exhibitors allege that New Jersey has “provided no explanation for their treatment of entities with similar risk levels regarding COVID-19, and none exists.”

A spokesperson for the National Association of Theatre Owners declined to comment and a spokesperson for Gov. Murphy also declined comment on “pending litigation.” However, even if the exhibition sector is successful in its suit, it still faces other challenges. The plan to reopen was initially devised in the spring and was predicated on the assumption that coronavirus cases would have spiked and be on a downward trajectory. Instead, the U.S. has hit record rates of infection in recent weeks, with the epicenter of the virus moving from New York to Arizona, Texas and Florida. Other states, such as California, that originally seemed to have escaped the worst of COVID-19, are now seeing cases surge. It’s possible that some of these regions could force theaters, which have been allowed to open and are playing “Indiana Jones” movies and “Harry Potter” sequels, to close again. That also puts into question whether or not “Tenet” and “Mulan” can debut in August if several markets are stricken with the coronavirus.

“The whole plan was based on the number of cases going down, but that didn’t happen,” notes Eric Handler, an exhibition industry analyst with MKM Partners. “I don’t see how ‘Tenet’ can open on Aug. 12. I don’t see how things are going to change enough in the next month. Exposure rates are going up. This can’t happen until we flatten the curve.”