322 F.3d 1133 (9th Cir. 2003), 01-56199, Freeman v. San Diego Assn. of Realtors

Docket Nº:01-56199, 01-56231
Citation:322 F.3d 1133
Party Name:ARLEEN FREEMAN, individually and on behalf of all others similarly situated; JAMES ALEXANDER, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, and EDWARD Y. URATA, individually and on behalf of all others similarly situated, Plaintiff, v. SAN DIEGO ASSOCIATION OF REALTORS; NORTH SAN DIEGO COUNTY ASSOCIATION OF REA
Case Date:March 10, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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322 F.3d 1133 (9th Cir. 2003)

ARLEEN FREEMAN, individually and on behalf of all others similarly situated; JAMES ALEXANDER, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,

and

EDWARD Y. URATA, individually and on behalf of all others similarly situated, Plaintiff,

v.

SAN DIEGO ASSOCIATION OF REALTORS; NORTH SAN DIEGO COUNTY ASSOCIATION OF REALTORS; PACIFIC SOUTHWEST ASSOCIATION OF REALTORS, INC.; EAST SAN DIEGO COUNTY ASSOCIATION OF REALTORS; CORONADO ASSOCIATION OF REALTORS; SANDICOR, INC.; MICHAEL SPILGER; GREG BRITTON; JOEL FORREL; GWEN HOVLAND; AILEEN OYA; MARTY CONRAD; LAUREN REISER; ANITA ALKIRE; PHYLLIS GRITTS; CHRIS H. LEWIS; LOU ANN WILLIAMS; CORY SHEPARD; SARA BROWN; JOYCE V. AMICK; JERRY SCANTLIN; WALTER BACZKOWSKI; MARK MARCHAND; STEPHEN GAMES; CALIFORNIA ASSOCIATION OF REALTORS, Defendants-Appellees.

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ARLEEN FREEMAN, individually and on behalf of all others similarly situated; JAMES ALEXANDER, individually and on behalf of all others similarly situated; EDWARD Y. URATA, individually and on behalf of all others similarly situated, Plaintiffs-Appellees,

v.

SAN DIEGO ASSOCIATION OF REALTORS; NORTH SAN DIEGO COUNTY ASSOCIATION OF REALTORS; PACIFIC SOUTHWEST ASSOCIATION OF REALTORS, INC.; EAST SAN DIEGO COUNTY ASSOCIATION OF REALTORS; CORONADO ASSOCIATION OF REALTORS; SANDICOR, INC.; ANITA ALKIRE; CALIFORNIA ASSOCIATION OF REALTORS, Defendants-Appellants,

and

MICHAEL SPILGER; GREG BRITTON; JOEL FORREL; GWEN HOVLAND; AILEEN OYA; MARTY CONRAD; LAUREN REISER; PHYLLIS GRITTS; CHRIS H. LEWIS; LOU ANN WILLIAMS; CORY SHEPARD; SARA BROWN; JOYCE V. AMICK; JERRY SCANTLIN; WALTER BACZKOWSKI; MARK MARCHAND; STEPHEN GAMES, Defendants.

Nos. 01-56199, 01-56231

United States Court of Appeals, Ninth Circuit

March 10, 2003

Argued and Submitted July 9, 2002-Pasadena, California

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Appeal from the United States District Court for the Southern District of California M. James Lorenz, District Judge, Presiding. D.C. No. CV-98-00139-MJL.

COUNSEL

David Barry of Barry & Associates, San Francisco, California, argued for appellants/cross-appellees Arleen Freeman et al.

Charles B. Cohler of Lasky, Haas & Cohler, P.C., San Francisco, California, argued for appellees/cross-appellants San Diego Association of Realtors et al. Kevin C. McCann, Jeffrey F. Silverman and Jason Bergmann joined him on the brief.

Before: Alex Kozinski and Ferdinand F. Fernandez, Circuit Judges, and Samuel P. King,[*] District Judge.

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OPINION

KOZINSKI, Circuit Judge.

Competition is the mainspring of a capitalist economy. Sometimes, however, cooperation can make markets more efficient; setting industry standards and pooling market data are two examples of arrangements that often benefit consumers. Antitrust laws acknowledge these benefits, but still treat the arrangements with skepticism, for seemingly benign agreements may conceal highly anticompetitive schemes. We apply these principles to a case involving a real estate Multiple Listing Service.

Background1

Real estate agents make a living matching buyers and sellers. Up-to-date information about properties on the market is a must. Long gone are the days when agents trawled the neighborhood on horseback in search of telltale "For Sale" signs. We're now in the era of the Multiple Listing Service, or "MLS," which lets agents share information about properties on the market with the help of a computerized database. Agents who subscribe to the MLS can peruse the listings of other subscribers and post their own.2

Care and feeding of an MLS involves more than just maintaining a database. Someone must enroll new MLS subscribers, bill and collect payments, ensure that postings comply with guidelines and provide support staff to answer subscribers' questions. These "support services" are part of the necessary overhead of delivering an MLS.

Before 1992, twelve MLSs served San Diego County, each operated by a different real estate trade association serving subscribers in a particular region of the county. Some of these MLSs shared common databases of listings. The direct cost of maintaining each database was allocated among the associations using it. The associations each provided their own support services, which varied from one to the next, and they all set the prices they charged agents independently. There were four different MLS databases in total, so a real estate agent who wanted access to all properties in San Diego County had to subscribe to more than one MLS.

Eleven of the twelve MLS operators were local Associations of Realtors, professional groups with ties to the California Association of Realtors (CAR) and the National Association of Realtors (NAR).3 The Associations of Realtors provide many services in addition to MLS database access and support services to their real estate agent members. Under state law, however, they are required to offer MLS subscriptions to members and nonmembers alike. See Marin County Bd. of Realtors v. Palsson, 16 Cal. 3d 920, 937-38 (1976).

In 1990–91, these eleven associations decided to combine their databases. Not only would this give their agents access to all San Diego County properties through a single MLS, it would reduce operating costs because there would only be one database to maintain. Representatives met and decided to create a new entity called Sandicor with a single MLS database covering all of San Diego County. They considered it vital, though, that individual associations Page 1141

continue to provide local support services for the MLS. Comparing financials, they discovered that the associations' costs of providing services varied widely. The largest, San Diego Association of Realtors (SDAR), spent only $10 per subscriber per month, while two of the smallest, Fallbrook and Valley Center, spent close to $50. The representatives considered two different business models on which to operate the new common database. The first was a "decentralized" arrangement in which each association would pay its share of the database costs but determine its own support service and pricing policies. The smaller associations balked at this proposal, fearing that SDAR would undercut their prices and threaten their viability. The representatives responded by adopting the current "centralized" business model instead.

In this model, Sandicor is a corporation, and the associations own its shares and appoint its directors. The associations operate under service agreements with Sandicor that outline in general terms the support services they must perform for subscribers. Associations sign up new MLS subscribers and collect MLS fees from subscribers on Sandicor's behalf, but Sandicor determines the fee agents must pay to subscribe. Associations are prohibited from discounting Sandicor's MLS fee or crediting any portion of it against other purchases. The service agreements between Sandicor and the associations specify a support fee that Sandicor pays each association in return for the support services the association provides to subscribers. Thus, subscribers don't pay the associations for support services directly; they pay only Sandicor's MLS fee, and Sandicor then returns part of that fee as a support fee to the associations. The support fee, like the MLS fee, is assessed on a per-subscriber basis.4

The associations originally set the support fee at $25 per subscriber per month.5 This was much higher than SDAR's $10 costs but also considerably lower than Fallbrook's and Valley Center's $50 costs. This meant that Fallbrook and Valley Center would provide services to their subscribers at a loss. To make up the shortfall, the other associations agreed to pay them fixed monthly cash subsidies.

Defendants explain that this centralized model was "a fundamental matter for survival" because the smaller associations needed assurance that they could "continue to operate service centers as they had in the past and that the revenues they had received from MLS services would continue to be available." If Sandicor had adopted a decentralized format, "the far larger San Diego Association of Realtors . . . would undoubtedly have been able to offer different prices to MLS users than would Fallbrook," which would have "threatened the future viability of local service centers." Without the revenue guaranteed by the fixed support fee, "the smaller Associations would not have joined," and Sandicor would not have had a "truly regional MLS."

Plaintiffs' Suit and Proceedings Below

Arleen Freeman and James Alexander are San Diego County real estate agents who subscribe to Sandicor's MLS. They have no quarrel with Sandicor's monopoly of the MLS database itself, recognizing that the single countywide database offers Page 1142

substantial overall benefits to consumers. They claim, however, that the price of Sandicor's MLS is inflated because the support fees Sandicor pays the associations are fixed at a supracompetitive level. For example, although SDAR may spend only $10 per subscriber per month to provide support services,6 it receives more than twice that from Sandicor under its service agreement. As a result, plaintiffs claim, SDAR has made millions of dollars from inflated support fees. Real estate agents allegedly suffer because Sandicor passes on these higher support fees in the form of higher MLS fees. Plaintiffs allege that, by fixing support fees in the service agreements, defendants violated section 1 of the Sherman Act, which bars "[e]very contract . . . or conspiracy[ ] in restraint of trade or commerce among the...

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