A Kentucky federal court has considered a class-action lawsuit brought by home sellers who claimed that local brokerages had conspired to fix commission rates in violation of federal antitrust laws.
A group of home sellers (collectively, "Sellers") filed a lawsuit against a number of local brokerages and some of their corporate parent companies. The lawsuit alleged that the brokerage firms had entered into an illegal arrangement to fix commission rates, demonstrated by the fact that they all charged a similar rate and the commission rates hadn't decreased despite a rise in the average home sale price.
A number of the brokerage firms settled with the Sellers, and so the only remaining parties in the litigation were: HomeServices of America ("HSA"), HSA's subsidiary HomeServices of Kentucky ("Subsidiary"), and Coldwell Banker McMahan Company ("CBMC"). The remaining brokerages filed a motion seeking judgment in their favor.
The United States District Court for the Western District of Kentucky entered judgment in favor of the brokerages, ruling that the Sellers had failed to produce evidence demonstrating the existence of a price fixing conspiracy. Section 1 of the Sherman Act prohibits, among other things, every "conspiracy...in restraint of trade or commerce."
A horizontal price-fixing conspiracy such as alleged here by the Sellers is considered per se illegal if the alleging party demonstrates the existence of such a conspiracy. In order to order to avoid summary judgment before the case goes to trial, a party in an antitrust price-fixing case must show more than mere possible inferences of illegal conduct in setting prices; instead, the evidence must tend to exclude the possibility that the parties acted independently.
The court examined the direct evidence produced by the Sellers. First, the Sellers presented a transcript of speech given by the owner of CMBC on why his firm wouldn't lower its commissions and also why the state should not repeal its ban on rebates to consumers (which was subsequently repealed in 2005).
Because other brokers were present during this speech and one of the other brokers gave a speech agreeing with the CMBC owner, the Sellers claimed that this presented evidence of an agreement to fix commissions. The Sellers also cited testimony from brokers who did offer lower commission who claimed that they were harassed by other real estate professionals about their charging lower commissions. However, none of the brokers could identify the real estate professionals who had allegedly harassed them.
The court found that none of this constituted direct evidence of a conspiracy because it did not show any actual agreement to fix prices and instead required one to infer such an agreement. Therefore, the court ruled that the Sellers had failed to produce any direct evidence of a price-fixing conspiracy.
Next, the court looked at the circumstantial evidence produced by the Sellers. In order to use circumstantial evidence to show a price-fixing conspiracy, courts look at a variety of factors to determine whether such a conspiracy existed, such as: defendants acting against their own economic interest; exchange of information related to the conspiracy; and whether the defendants have been uniform in their actions.
All of the Brokerages had office policies setting commissions at similar fixed levels. The Sellers also argued that the brokerages' refusal to work with "for sale by owner" ("FSBO") properties and the failure of brokers to lower their commissions for higher priced properties demonstrated them acting against their self-interest, which the Sellers pointed to as evidence of a conspiracy to fix prices.
The court found that none of the circumstantial evidence produced by the Sellers demonstrated a conspiracy. While the brokerages all had policy's fixing commission rates at a similar level, the data collected showed that the average commission for all the brokerages was below the amount specified in the office policies, had dropped over the years as the average sales price increased, and the Brokerages had even in some instances collected a higher commission than set forth in the office policies.
The court also determined that the brokerage's failure to drop commission rates further did not demonstrate them acting against their self-interest; instead, they could have legitimate business reasons for not doing this, as they could undercut their own business model by lowering their rates.
Similarly, the court stated that the brokerage's decision to not work with FSBOs could be a legitimate business decision, as the FSBOs could be seen as attempting to use the services of the brokerage without paying for them. Because the evidence only demonstrated that there was a similar commission rate charged by the brokerages but failed to establish any attempt at illegal price-fixing, the court ruled that the Sellers had failed to establish a price-fixing conspiracy.
The court also found that the allegations against HSA were not supported by the evidence. The Sellers needed to present evidence that HSA was a direct participant in the price-fixing conspiracy, since a parent cannot enter into a conspiracy with its own subsidiaries. The court found that there was no evidence that HSA had participated in setting commission rates at its subsidiaries. Thus, the court entered judgment in favor of the brokerages and dismissed the Seller's lawsuit.
Hyland v. HomeServices of Am., No. 3:05-cv-00612-TBR-JDM (W.D. Ky. July 18, 2012). [Note: This opinion is not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]