Re/Max Intern., Inc. v. Realty One, Inc.
| Decision Date | 06 April 1999 |
| Docket Number | Nos. 96-3362,96-3469 and 96-3470,s. 96-3362 |
| Citation | 173 F.3d 995 |
| Parties | 1999-1 Trade Cases P 72,488 RE/MAX INTERNATIONAL, INC.; A.E.B.T.S., Inc., d/b/a Re/Max Crossroads Properties; T.M.A.T.N.B., Inc., d/b/a Re/Max Affinity, Inc.; D.F.I., Inc., d/b/a Re/Max Results; Joseph P. Grady, Inc., d/b/a Re/Max Xpress; McGrew Realty, Inc., d/b/a Re/Max Key Realty; Property Professionals, Inc., d/b/a Re/Max Property Professionals, Plaintiffs-Appellants/Cross-Appellees, Re/Max Northeast Ohio Limited Partnership; Zames Realty, Inc.; Realty Properties, Inc.; True Independence Partnership; R.E.P., Inc., Intervenors-Appellants/Cross-Appellees, v. REALTY ONE, INC. (96-3362/3469); Smythe Cramer Company (96-3362/3470), Defendants-Appellees/Cross-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Stephen J. Squeri (argued and briefed), Charles M. Kennedy, IV, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Barbara B. McDowell (briefed), Jones, Day, Reavis & Pogue, Washington, DC, Edward W. Cochran, Cochran & Cochran, Shaker Heights, Ohio, for Plaintiffs-Appellants/Cross-Appellees.
Jeffrey Baddeley (briefed), Richard M. Markus (argued and briefed), Joyce M. Papandreas, Porter, Wright, Morris & Arthur, Cleveland, Ohio, for Defendant-Appellee/Cross-Appellant Realty One, Inc.
John J. Eklund (argued and briefed), Thomas I. Michaels (briefed), Philip J. Carino (briefed), Maura L. Hughes (briefed), Calfee, Halter & Griswold, Cleveland, Ohio, for Defendant-Appellee/Cross-Appellant Smythe Cramer Company.
Robert O. Driscoll, Jr. (briefed), State Solicitor, Columbus, Ohio, for Amicus Curiae State of Ohio.
Peter M. Gerhart (briefed), Paul C. Giannelli (briefed), Case Western Reserve University School of Law, Cleveland, Ohio, for Amici Curiae Ohio Manufacturers' Association, Ohio Hospital Association.
Before: RYAN and BATCHELDER, Circuit Judges; CAMPBELL, District Judge. *
This is an antitrust case involving northeast Ohio real-estate brokers. Plaintiffs accuse the defendants, and one of the defendants accuses the plaintiffs, of engaging in illegal business practices designed to drive the other out of business, in violation of state and federal antitrust laws. Following extensive pretrial motion activity, and in the course of four written opinions comprising some 400 pages of discussion Plaintiffs and intervenors, whom we shall call plaintiffs or Re/Max, appeal from the entry of summary judgment against them on their state and federal antitrust claims. Defendant Realty One cross-appeals from the Fed.R.Civ.P. 12(b)(6) dismissal of its complaint for failure to state a claim on some of its counterclaims and from the Fed.R.Civ.P. 56 entry of summary judgment on others.
the district court entered judgments dismissing all of the plaintiffs' claims on summary judgment, and all but one of defendant Realty One Inc.'s counterclaims, either on summary judgment or for failure to state a claim.
We hold that, although the district court engaged in an exhaustive review of the merits of the claims in this case, it erred in disregarding important aspects of the evidence presented by the plaintiffs' expert witness, and in rejecting evidence that the defendants had the ability to exclude competition from the marketplace. We conclude that there is sufficient evidence to create a justiciable issue whether the defendants violated §§ 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1 & 2, and, therefore, summary judgment should not have been entered against the plaintiffs.
Finally, we hold that Realty One's counterclaims are not legally supportable and thus were properly dismissed.
To provide a contextual framework for our discussion of the merits of this difficult case, we first begin with a few observations concerning the unique nature of antitrust law, and then proceed to a description of the doctrinal predicates that underlie the parties' claims.
Unlike the assumption that informs most areas of tort and contract law, in the marketplace certain "harms" are not only accepted, they are encouraged. Fundamental canons of antitrust law recognize the legitimacy of permitting the natural economic forces of free enterprise to drive inefficient producers of goods and services out of the market, and replace them with efficient producers. Ordinarily, when an efficient enterprise displaces an inefficient one, we conclude that consumers' economic interests are better served, despite that the inefficient enterprise is injured or even destroyed. Conversely, when inefficiency triumphs over efficiency, consumers lose because they receive lower-quality, higher-priced products and services.
Manifestly, the judiciary is ill-suited to evaluate directly the efficiency of business practices. But antitrust doctrine provides a methodology for courts to distinguish between instances of efficiency displacing inefficiency, which is not, per se, an economic harm and for which the law offers no redress, and inefficiency displacing efficiency, which, if achieved by the use of unfair means, the law seeks to prevent or rectify. In general, then, antitrust law seeks to identify situations in which enterprise organizations rely on sheer economic power to drive out an innovative but less powerful rival, rather than attempting to do so by improving the quality or lowering the cost of their products or services.
At the heart of the disagreement between the parties to this lawsuit are disputes about (1) who is economically dominant and (2) who employs the best formula for compensating real-estate sales agents for their services. Because it is conducive to more easily understanding the nature of the two-pronged dispute between the parties, we begin by addressing the second aspect first--who employs the more efficient formula for compensating sales agents.
As most home buyers are aware, ordinarily, a real-estate agent who lists a house for sale agrees to represent the homeowner/seller, doing so for a fixed fee, called a "commission," that is a percentage of the selling price. If another real-estate agent, working for a different broker Under its system, Re/Max requires that its franchisees adopt the "Re/Max 100% Concept" which allows real-estate sales agents to receive 95% to 100% of their share of sales commissions, instead of the traditional practice of splitting commissions 50/50 with the salesperson's broker/employer. So, as in the foregoing example, if either the listing agent or the agent producing the buyer is a Re/Max sales agent, his commission, rather than being one half of 3- /2% of the sales price, or $3,500, is the full 100% of the partial commission, or $7,000. In return, Re/Max agents pay the broker/employer a flat monthly fee for desk space, telephone services, secretarial support, and the like. Re/Max contends that the 100% Concept attracts more experienced, more knowledgeable--and this is important--more efficient agents. Indeed, Re/Max recruits and hires only experienced agents, on the theory that novices could not survive without a guaranteed minimum income if commissions were not immediately forthcoming--and ordinarily they are not--when inexperienced agents are "in training" and learning the business.
brings a purchaser to the deal, the two agents usually split the commission 50/50. If, for example, the sales commission on the listing is 7% of the sales price, the listing agent splits the 7% commission 50/50 with the agent who produced the buyer. Then, ordinarily, although there can be different arrangements, each sales agent must split his or her 3- 1/2% commission 50/50 with the broker with which he is affiliated. To continue the example, if a house sells for $200,000 and the sales commission is 7%, or $14,000, the listing agent receives $7,000, and the agent representing the buyer receives $7,000. Then, under the traditional practice, each agent pays one half, or $3,500, to the broker with which he is affiliated. But Re/Max agencies, throughout the Re/Max nationwide franchise system, compensate their sales agents very differently.
We now return to the first part of plaintiffs' two-pronged antitrust argument--that defendants are economically dominant in the real-estate market or markets in question.
Re/Max contends that defendants Realty One, Inc. and Smythe Cramer Company have dominance in the northeast Ohio real-estate markets and have used that dominance to defeat Re/Max's attempt to introduce its unique and, it claims, more-efficient sales-agent compensation system. Re/Max argues that the defendants control the northeast Ohio markets in two ways: (1) by obtaining the listings for a large majority of homes for sale and (2) by attracting and employing the large majority of experienced real-estate agents. There is nothing, of course, illegal in that. What is illegal, according to Re/Max, is the means it claims the defendants have employed to perpetuate that dominance--the defendants' so-called "adverse splits" policy, which we shall explain in due course. According to Re/Max, the real and intended effect of this policy is that the defendants essentially refuse to sell homes to customers brought to them by Re/Max agents. In consequence, Re/Max argues, it cannot attract experienced agents for its sales force, because, given Realty One's policy of boycotting purchasers produced by Re/Max, experienced agents would not make enough money working for Re/Max. Without experienced agents, Re/Max argues, it is prevented from entering the northeast Ohio real-estate market.
Realty One, on the other hand (but not Smythe Cramer), counterclaims that Re/Max is attempting to become, through unfair competition, the dominant player in the northeast Ohio real-estate markets. It argues that Re/Max, with its national network of franchisees, is purposely operating at a loss in northeast Ohio by offering greater compensation to experienced agents than it can afford...
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