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«INTRODUCTION Since the beginning of organized real estate brokerage practice, real estate brokers have enjoyed fairly uniform commission rates.’ ...»

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DO ANTITRUST LAWS APPLY TO THE REAL

ESTATE BROKERAGE INDUSTRY?*

**NORMANG.MILLER

***PETERJ. SHEDD

INTRODUCTION

Since the beginning of organized real estate brokerage practice,

real estate brokers have enjoyed fairly uniform commission rates.’

During the past decade, they also have relied heavily on their

multiple listing services as a central clearinghouse and source of

market information. The multiple listing service and uniform commission rates have stimulated extensive antitrust litigation.

Nevertheless, legal pressures against antitrust violations have had a relatively minor impact on the real estate brokerage industry. This article examines (1)the bases for the legal issues that have been raised and (2) the economic environment as an explanation why the brokerage commission schedule has been unThe authors wish to thank Robert Corley, Hugh Nourse, and Lee Reed for their helpful discussion and criticisms.

* * Assistant Professor of Real Estate, University of Georgia.

*** Assistant Professor of Legal Studies, University of Georgia.

I For example, in 1962 a popular real estate text stated the following: “All real estate boards have regular schedules of commissions for most types of deals and contingenciea.

A newcomer to the business should immediately get in touch with his nearest board, secure a copy of the commiseion schedule, and abide by it.” S. MCMICHAEL, To How BUSINESS (1962). As a result of the legal pressuree discuased

OPERATE REALESTATE

A 333 within this paper, similar statements are less likely to appear in the real estate texta of today.

I Vol. 17 1 American Business Law Journal changed by legal action. Two possible antitrust violations within the brokerage industry will be discussed. First, can market information gained from the multiple listing service be reserved only for the members of the local realty board who have joined the multiple listing service?2 Second, does the existence of uniform commission rates necessarily indicate illegal price f i ~ i n g ? ~

SERVICE

THEMULTIPLE

LISTING

Most local Boards of Realtors‘ have formed a multiple listing service (MLS), wherein Realtors can share information concerning the various properties each has listed. Traditionally, access to MLS information was strictly limited to the local Board members who joined the MLS.5 If membership in the local Board was not open to all brokers, nonmember brokers were automatically excluded from sharing MLS information. Several lawsuits have dealt with the restrictive access to the MLS system because that information is vital to small firms and sole brokers.’ Indeed, restrictions on joining the local Board of Realtors can, in essence, result in a firm’s or broker’s inability to compete fairly. This is especially true when there are few brokers in a given Several plaintiffs have argued that similar restrictions to the multiple listing service’s information is a concerted refusal to deal in restraint of trade. For a full discussion of this subject, see notes 5-17 infra, and the accompanying text.

See notes 21-52 infra, and accompanying text.

’ Realtors are real estate brokers who are members of the Realtor association. “Realtor” is a tradename used by members only.

See Minard, Reol Estate. F~RBEB, Sept. 4, 1978, a t 43-44, (hereinafter cited as Minard)

wherein he writes:

All the coziness (between MLS members and the National Association of Realtors) ended, legally. in the late l W s, when the courts struck down both NARs requirements that MLS members be NAR members and that commissions be fixed. But the legacy lives on. Local MLS boards continue to be dominated by NAR loyalista who also tend to be executives in well-established realty firms.

According to an executive a t one Chicago MLS, the area’s Northwest Surburban Board of Realtora limits membership in the Northwest Surburban MLS to its members-who must be realtors. “If you’re not a realtor, you can’t join,” says the executive. Even in more enlightened MLS systems the Old Guard must approve your application. Naturally they prefer their own kind. Says a nationally known realtor who asks that his name not be used: “The interaction between the NAR and the local MLS today is no longer exactly nepotism, but it’s the next thing to nepotism.” ’ For an excellent discussion of this subject, see Austin, Real Estate Boards and MultiL.

ple Listing Systems as Restraints of Trade. 70 COLUM. Rev. 1325 (1970).

1 Antitrust and Real Estate Brokerage / 315 locale. The California Court of Appeals expressed thie result as

follows:

There are very few brokers in Glendale involved professionally in the selling and buying of single-family residences in any significant quantity who are not members of the Board. In fact, in the expert opinion of a long-time leading Glendale realtor, a real estate broker practicing his profession in Glendale must have access to the Board’s multiple listing service if he or she is to compete effectively against fellow brokers enjoying such access.’ The majority of state courts that have considered the legality of restricting access to a MLS have concluded that such restraints are illegal due to unreasonableness. Very few courts have held that such a restraint of trade was lawful, and these decisions were based on unusual circumstances. Prior to discussing these uncommon cases, the majority position is described first.





Illegal Restraints of Trade-Restricting Access to MLS The first case to deal with the propriety of an MLS controlled by a realty board was Grillo u. Board of Realtors of Plainfield Area.8 This case is representative of the analysis that most courts have followed. In Grillo, a New Jersey broker who was a nonniember of the Plainfield Area’s Board sought to enjoin the prohibition of nonmembers from using the Board’s MLS. This plaintiff also sought a declaration that the Board was an unlawful association in restraint of trade, in addition to actual and punitive damages.

Although the court felt that the MLS concept was useful, it held that the restrictive use was suspect as a concerted refusal to deal.

The court wrote:

The multiple listing service can potentially stimulate competition in the real estate field by placing listings in the hands of all brokers in the area. Yet under the rules and regulations governing multiple listing each member of the Board has agreed that he will not supply information about properties for which he has obtained sale listings to non Glendale Bd. of Realtors v. Hounsell, 72 Cal. App. 3d 210, 213, 139 Cal. Rptr. 830, 832 (1977). This court concluded this Board’s restrictive tie between Board membership and access to its MLS was an illegal restraint of trade.

a 91 N.J. Super. 202, 218-19, 219 A.2d 635 (1966). For a detailed discussion of this case, see Comment, Restraint of Trade-Private Associations-Exclusive Multiple Listing Service as a Concerted Refusal to Deal and a Tortious Interference with Nonmember Broker’s Right to Practice His Profession, 21 RL~TGERS REV.547 (1967).

L.

1 Vol. 17 1 American Blrsiness Law Journal member brokers, but only to other members of the Board through the multiple listing service. The commitment to furnish information about properties for sale only to fellow members may be characterized as a concerted refusal to deal with nonmembers, or as a group boycott.’ After discussing the landmark federal Sherman Act cases dealing with the principle of concerted refusal to deal,’O the court held this Board’s MLS to be a restraint of trade.

Before deciding the fate of this restraint of trade, the court held that the rule of reason applied rather than the per se doctrine.” Even under the rule of reason, the board’s requirement that only members share the MLS information was found unreasonable and, thus, illegal. The realty Board argued that it was attempting to assure that only qualified salespeople and brokers became board members. This argument was rejected since the state’s licensing requirements had pre-empted the local Board’s regulations on qualifications.’* The New Jersey Superior Court enjoined the operation of the Board’s MLS until all nonmembers of the realty Board were permitted to participate without restraint (other than reasonable cost) in the Board’s MLS. The court awarded actual damages but denied punitive damages because there was no evidence of malice in the Board’s actions.

Reliance on the rule of reason to determine the legality of a restraint of trade has been the most common analysis used by state courts in MLS cases.13 However, a t least one court held that * 91 N.J. Super. 202, 218-19, 219 A.2d 635, 644 (1966).

See Silver v. N.Y. Stock Exch., 373 U.S. 341 (1963);Klor’s, Inc. v. Broadway-Hale I* Stores, Inc., 359 US. 207 (1959); Associated Press v. United States, 326 U S. 1 (1944).

‘I The per se doctrine means that an act, such as a restraint of trade, is illegal regardless of any benefit it might provide society. See, e.g., United States v. Trenton Potteries, 273 US.392,395-402 (1927). wherein the Court held that any attempt to fix even a price below the market value is per se illegal. Rule of reason differs from per se analysis in that restrainta of trade must be found unduly and unreasonably restrictive of competition before they are declared illegal. See Standard Oil Co. of N.J. v. United States, 221 US. 1 (1911).

I* The court wrote: “Insofar as the Board seeks through ita combination to protect the public in real estate dealings, it is proceeding as an extra-governmental body in a preempted field. The grounds stated by the Board do not justify the combination.” 91 N.J.

Super. 202, 225, 219 A.2d 635. 648 (1966). For similar holdings on this pre-emption of brokers’ and saleapples’ qualification, see Marin County Bd. of Realtors, Inc. v. Palsson, 16 Cal.3d 920, 939, 130 Cal. Rptr. 1, 12-13, 549 P.2d 833, 844-845 (1976); Collins v. Main Line Bd. of Realtors, 452 Pa. 342,351, 304 A.2d 493, 497 (1973)’ cert. denied 414 US. 979 (1973).

See Marin County Bd. of Realtore, Inc. v. Palsson, 16 Cal. 3d 920, 932-38, 130 Cal.

1979 f Antitrust and Real Estate Brokerage f 317 excluding nonmembers from participating in a MLS was a restraint of trade that was illegal per se.14 Legal Restraints of Trade-Restricting Access to MLS Very few reported cases hold that restricted MLS access is permissible. The factual settings of these cases are readily distinguishable from the more typical case. For example, in Grempler u. Multiple Listing Bureau of Hartford County, Inc., the Maryland Court of Appeals held that the by-laws of the Multiple Listing Bureau of Hartford County reasonably restricted membership to brokers who had a business office in Hartford County. The court, therefore, ruled that the appellant-broker who maintained her office in adjoining Baltimore County was reasonably excluded from this MLS Bureau.I5This result appears proper since it would stretch the realm of reasonableness to require a rural, smalltown real estate Board and its MLS to accept all applicants from the adjoining metropolitan area of Baltimore.

A second favorable decision for the real estate Board was Barrow u. Grand Rapids Real Estate Board." As is typical, a nonmember of the local Board sought to enjoin that Board's restriction of its MLS to members only. This apparently was a poor case to challenge limited access to a MLS. The Grand Rapids Board of Realtors had rejected only nine applicants over a twelve year period. Furthermore, only 50% of all real estate sales were made through the MLS, and many Grand Rapids' real estate brokers were not Board members. In other words, competition between participants and non-participants of Grand Rapids' Rptr. 1, 8-12, 549 P.2d 833, 840-844 (1976); Collins v. Main Line Bd. of Realtors, 452 Pa.

342, 348-50, 304 A.2d 493, 496 (1973); Glendale Bd. Realtors v. Hounsell, 72 Cal. App. 3d 210,139 Cal. Rptr. 830 (1977); Pornanowski v. Monmouth County Bd. of Realtors, 152 N.J.

Super. 100, 106-07, 377 A.2d 791, 794-795 (1977).

I Oates v. Eastern Bergen County Multiple Listing Service, Inc., 113 N.J. Super. 371, ' 382-87, 273 A.2d 795, 801-803 (1971). See also Collins v. Main Line Bd. of Realtors, 452 Pa. 342, 353-58, 304 A.2d 493, 501-504 (1973) (concurring opinion).

I5 Grempler v. Multiple Listing Bureau of Hartford County, Inc., 258 Md. 419,266 A.2d 1 (1970). See also United States v. Realty Multi-List, Inc., 1978-1 Trade Cases 7 62,091 (CCH) (M.D. Ga. 1978).

I( 51 Mich. App. 75, 214 N.W.2d 532 (1974). See also Brown v. Indianapolis Bd. of Realtors, 1977-1 Trade Cases 7 61,435 (CCH) (S.D. Ind. 1977).

318 I Vol. 17 I American Business Law Journal MLS was healthy and vigorous. Therefore, the court found that any restraint of trade that may have existed was not illegal.17 Do Antitrust Laws Apply to the MLS System?

From the foregoing discussion, the question posed in the subheading can be answered with an emphatic “yes.” The vast majority of decided cases on this point held that participation in a MLS cannot be limited to local Realtors if membership in their local Board is not open to all qualified brokers. Courts have called this restrictive nature of the MLS concept an unreasonable restraint of trade in that it amounts to an illegal concerted refusal to deal.‘*

COMMISSION

S m c THE RATE The phenomenon of uniform real estate commission rates often results in charges that brokers are guilty of price fixing. Several court decisions which deal with this issue are discussed infra.lg Most commonly, claims of price fixing against real estate brokers and salespeople have been brought pursuant to the federal Sherman Antitrust Actem The Sherman Act Section one of the Sherman Act provides that any contract, conspiracy, or other combination that results in a restriction of interstate trade is illegal.*’ Collusion between competitors on prices to be charged likely will result in a per se antitrust violaI’ See Barrow v. Grand Rapids Real Eetate Bd., 51 Mich. App. 75, 93-95, 214 N.W.2d 532, 542 (1974).

’’ See notes 6-17 supra, and accompanying text.

I’ See notes 22-52 infra, and accompanying text.

15 U.S.C. Q 1, et seq.



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