An Idaho federal court has considered whether class action lawsuits are the appropriate way to resolve claims that real estate brokerages improperly charged inflated commissions for transactions involving undeveloped properties because the commission amounts were based on the properties projected developed value.
Aspen Realty, Inc., Holland Realty, Sel-Equity, Co., and Park Pointe Realty, Inc. (collectively, “Brokerages”) were real estate brokerage firms that marketed a number of undeveloped lots in subdivisions on behalf of builders. When purchasers would acquire these lots, they would agree to build a house on the lot. Brokerages would receive a commission from the sale based on a percentage of the projected developed value of the property, not the actual sale price for the undeveloped lot.
Four separate class actions were brought against the Brokerages, alleging violations of the federal antitrust laws for an illegal tying arrangement. In response to these allegations, the Brokerages argued that the purchasers did not buy undeveloped lots, since each purchaser was required to enter into a construction contract at the time of purchase and it was the builders who imposed this requirement, not the Brokerages. The Brokerages also argued that it was the sellers who paid their commissions, not the buyers. A motion was filed with the trial court seeking to certify a class action on behalf of the buyers who had paid the allegedly inflated commissions for the undeveloped lots.
The United States District Court for the District of Idaho found that the lawsuits satisfied the requirements for class action and so granted the motion to certify the lawsuits as class actions. A class action is appropriate when the court determines that common questions of law or fact predominate over any issues affecting the individual members so that the class action promotes fair and efficient resolution of the claims. The requirements for a class action are: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation.
The court considered whether the allegations against the Brokerages were appropriate for a class action. The “numerosity” requirement is satisfied if there are so many members of the prospective class that “joinder” (or the combining of the lawsuits) into one lawsuit is impractical. Prior decisions have found as few as 40 people is impractical for joinder. Here, there were between 24 and 101 subdivisions involved in the class definition of each case, and so the cases would involve hundreds of class members because each subdivision contained multiple homes. The court found that the claims satisfied the numerosity requirement.
Next, the court considered the “commonality” requirement, which requires a showing that there are common questions of fact and law between the parties. The Brokerages argued that each real estate transaction was unique, as the parties negotiated the price to be paid, which could affect the amount of commissions paid. The court found that there was enough overarching similarity between the transactions to meet this requirement, as a commission was paid for each of these transactions for an undeveloped lot which was based on the lot’s projected developed price.
To satisfy the “typicality” requirement, a party must show that the claims or defenses of the representative parties are similar to those of the class. Again, the court found that there was enough similarity between these transactions to satisfy this requirement. Finally, the “adequacy of representation” step requires that the representative parties will fairly and adequately protect the interests of the class. The court did not find any conflicts of interests between the parties and their counsel, and so the court found that these lawsuits could be certified as class action lawsuits.
The Brokerages final argument was that these lawsuits were not maintainable as a class action for antitrust violations because each member of the class will need to show that they were coerced into paying the extra amounts for the inflated commissions. The Brokerages argued that such individual showings would require individualized proof, thereby negating the benefits of a class action. The court stated that individualized showings were not required, as a showing that a large number of individuals have accepted similar terms could be sufficient to show a tying lawsuit. Therefore, the court certified the lawsuits against the Brokerages as class actions.
Bafus v. Aspen Realty, Inc., 236 F.R.D. 652 (D. Idaho 2006).