Next Generation Realty, Inc., v. Iowa Realty Co., Inc.: Antitrust Allegations against Association Rejected

In a case previously summarized in The Letter of the Law, Iowa’s highest court has affirmed a lower court’s judgment in favor of the Des Moines Area Association of REALTORS® (“Association”) and its ability to enforce its rules. Click here to read the prior summary.

Next Generation and Iowa Realty Company, Inc. (“Iowa Realty”) are both brokerage firms operating in the Iowa area. Next Generation operates its business using primarily a flat-fee model (consumers are charged a one-time flat fee for selling the home), whereas Iowa Realty uses a traditional brokerage model (commission is based on the home's selling price). Homebuyer's Consultants ("Homebuyer's") was an exclusive buyer's representative firm affiliated with Next Generation and started in 1998, going out of business that same year. Evidence gathered during the course revealed that Iowa Realty had approximately 70% of the real estate listings for the Des Moines area, while Next Generation had approximately 2.5%.

Both Next Generation and Iowa Realty participated in the multiple listing service offered by the Association ("MLS"). Next Generation listed property for a flat fee, and accepts both “office exclusives” as well as listings that are submitted to the MLS. Under an office exclusive listing, only Next Generation may sell the home and earn a fee. The flat fees charged to consumers by Next Generation are generally lower than those charged by other brokers, in part because, with respect to the office exclusive listings of Next Generation, no cooperative fee is offered or paid to another MLS participant in connection with sale of the property. Almost all of Next Generation's listings are office exclusives.

Because Next Generation took most of its listings on an office exclusive basis, and thus did not offer a commission on the sale of such properties to other MLS participants, Iowa Realty adopted a policy of not offering to Next Generation any cooperative commission on the sale of their listings by Next Generation. Next Generation sued Iowa Realty claiming that such refusal to offer to share commissions on the sale of Iowa Realty and First Iowa listings violated the antitrust laws.

The MLS had a policy of requiring submission to the MLS within 48 hours not only listings offered through the MLS to other participants, but also any office exclusives that the participants held out of the MLS. MLS imposed a fee for placing a listing into the MLS of $6/per listing, while in 2000 the MLS imposed a fee for submission of office exclusives of $35/per listing. The MLS collected the office exclusive data so that it could advise members that a property was listed on an office exclusive basis. The MLS claimed that the difference between the two fees was justified because of the administrative burden on the MLS staff to review local papers to verify that all office exclusives were being properly reported to the MLS. The MLS stated that an office exclusive reporting requirement had been in its MLS rules since the 1970s, and that all office exclusives were required to be reported to the MLS within 48 hours of a participant taking an office exclusive listing.

In March 2000, the Association's Board of Directors distributed a notice to all MLS participants that on April 15, 2000, the MLS would begin enforcing the rule imposing a fee on submission of office exclusives. Next Generation met with the Association to discuss the office exclusive policy, and Next Generation agreed to turn over all office exclusive listings twice per week. However, the Association determined in May 2001 that Next Generation was not properly reporting all office exclusives and so Next Generation was fined $20,160.00 for unpaid office exclusive listing fees. In July 2001, the Association sent a letter to Next Generation informing it that if the unpaid fees were not paid within ten (10) days, it could be terminated from the MLS. Ultimately, the Association suspended Next Generation's MLS access in September 2001, at which time the outstanding office exclusive listing fees amounted to $36,120.00. The Association sent a letter to Next Generation notifying them of the suspension and stating that if the amount remained unpaid for three months following the suspension, Next Generation's membership in the Association would automatically terminate, pursuant to the Association's bylaws. Next Generation did not pay the fees, and so its membership in the Association was automatically terminated in January 2002.

Following the Association's termination of Next Generation's membership, Next Generation added the Association as a defendant to its lawsuit against Iowa Realty for alleged violations of the state's antitrust laws. Among other things, the new claims in the lawsuit alleged that Iowa Realty entered into a conspiracy with the Association to deny Next Generation membership in the Association. The trial court ruled in favor of Iowa Realty and the Association, and Next Generation appealed.

The Supreme Court of Iowa affirmed the rulings of the trial court. The court considered the antitrust allegations brought by Next Generation. While Next Generation based its lawsuit on a state antitrust statute, the Iowa legislature has directed the courts to construe the statutory language in a manner consistent with those decisions made under the federal Sherman Act. Looking at the relevant authorities, the court found that antitrust laws were designed to protect competition in the marketplace, not the individual interests of specific competitors. Only when the alleged anticompetitive actions harms consumers does an antitrust injury occur. While antitrust law does not serve as the basis for individual harms, contract and tort law are intended to help individuals protect their own interests.

Looking at the evidence before the trial court, the court found no evidence that the consumers were denied access to the services of real estate brokers by the alleged misconduct of Iowa Realty and the Association. Indeed, the court noted that the evidence showed that Next Generation’s market share increased between 1996 to 2001, while Iowa Realty’s market share declined. Additionally, there were the same number of real estate brokerage firms working in Des Moines during 2001 as there were in 1996.

The court also rejected Next Generation’s price fixing allegations. While there appeared to be a common commission rate for real estate brokerage services in the Des Moines market, there was no evidence that MLS participation played any role in the establishment of this practice. Instead, the court found that this was a long established business practice which pre-dated the MLS. Thus, the court found that Next Generation had failed to show an antitrust injury or evidence of price fixing, and thus the court affirmed the rulings of the lower court in favor of the Association and Iowa Realty.

Next Generation Realty, Inc., v. Iowa Realty Co., Inc., No. 84/03-0470, 2004 WL 1936470 (Iowa Sept. 1, 2004). ). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].

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