Kline v. Coldwell, Banker & Co.

• Citation: 508 F.2d 226
• Decision Date: 20 December 1974
• Docket Number: No. 73-2169,73-2169
• Parties: 1974-2 Trade Cases 75,436 Richard KLINE et al., Plaintiffs-Appellees, v. COLDWELL, BANKER & CO., Realtors, et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 226

508 F.2d 226

1974-2 Trade Cases 75,436

Richard KLINE et al., Plaintiffs-Appellees, v. COLDWELL, BANKER & CO., Realtors, et al., Defendants-Appellants.

No. 73-2169.

United States Court of Appeals, Ninth Circuit.

Dec. 20, 1974.

Carl Schuck (argued), Overton, Lyman & Prince, Los Angeles, Cal., for petitioners L. A. Realty Board and others.

Bridges & Bridges, Los Angeles, for petitioner Lindgren.

Seth M. Hufstedler, Beardsley, Hufstedler & Kemble, Los Angeles, Cal. (argued), for petitioners Coldwell, Banker & Co.

Daniel Fogel, Bodle, Fogel, Julber & Reinhardt, Los Angeles, Cal. (argued), for respondents-appellees.

Before DUNIWAY and TRASK, Circuit Judges, and POWELL, ^* District judge.

OPINION

TRASK, Circuit Judge:

In this proceeding under the Interlocutory Appeals Act of 1958, 28 U.S.C. 1292(b), we are called upon to decide by means of an interlocutory appeal whether this suit may be maintained as a class action under Rule 23, Federal Rules of Civil Procedure. The action was brought by plaintiffs Richard and Margo Kline, husband and wife, on behalf of themselves and all sellers of residential real estate in Los Angeles County against the Los Angeles Realty Board and its several divisions and 32 named real estate brokers representing a class consisting of all real estate brokers who were members of the Board during the 4-year period prior to the filing of the action.

Plaintiffs allege that the Board and its members conspired in violation of section 1 of the Sherman Act, 15 U.S.C. 1, to fix brokerage commissions through distribution of a recommended fee schedule to its members. Plaintiffs claim that the fee schedule fixed commissions at a higher rate than it would have been absent the schedule, causing damage to plaintiffs which they are entitled to have trebled under section 4 of the Clayton Act, 15 U.S.C. 15. During the 4-year period involved, approximately 800,000 deeds were recorded in Los Angeles County. Based upon this fact defendants estimated that upwards of 400,000 sales with approximately that number of plaintiffs could well be involved in this class suit. ¹ By virtue of the alleged conspiracy and the damages sustained the plaintiffs prayed for a judgment against the defendants as a class and each of them individually totaling $250 million actual damages trebled to $750 million or according to the proof adduced at trial, together with a reasonable attorney's fee and costs of suit.

More than 2,000 brokers who were members of the Los Angeles Realty Board and its divisions performed services during the 4-year period in the sale of residential property, which is defined as any lot or parcel of real property improved with from 1 to 12 dwelling units. Defendants denied participating in any conspiracy. The defendant Board admitted publishing and distributing a commission schedule but denied that any member was required to follow it. The fee schedule suggested a commission of six percent of the total purchase price. The foreward of the schedule states in part:

'It should be understood that no member of the Los Angeles Realty Board, or any other Realtor is in any way bound by this Schedule. The amount of the commission on any real estate transaction is a matter for the parties to that transaction and is in no way subject to the control of the Los Angeles Realty Board.'

The trial court received a motion for certification of the action as proper under Rule 23. After having considered the motion, the opposition, voluminous supporting documents and filings and after having heard extensive argument, the district court granted the motion in part and denied it in part to the following effect:

(1) The named plaintiffs Richard and Margo Kline, husband and wife, were found to be representative of a class of all persons who sold residential property within Los Angeles County, California, during the period September 24, 1966, to September 23, 1970, and used the services of one or more of the named defendant real estate brokers or brokerage firms or any member of the Los Angeles Realty Board (including its divisions) and compensated said brokers or firms for their services.

(2) The 32 named defendant real estate brokers and brokerage firms together with the Los Angeles Realty Board and its branches were determined to be representative of a defendants' class of all real estate brokers who during the same period were members of the Los Angeles Realty Board including its branches and who acted in that capacity in connection with the sale of residential real property.

(3) The district court denied Martin Simon status as a representative of a class of 'unsuccessful sellers of real property,' because it would have been inappropriate under Rule 23.

(4) The court also denied representative status to sellers of commercial and industrial property.

The court's two findings of representative status were based in part on its determination that the central issue concerned whether there was a conspiracy entered into by the defendants to fix prices for commissions in sales of residential real property in Los Angeles County. This issue, the court found, presented common questions of law and fact which predominated over any questions of law and fact affecting only individual members of the classes. A subissue, ruled the court, was whether there was a schedule of commissions prepared, published and distributed by the defendants and whether said schedule was substantially adhered to by the broker defendants. This central and subissue should not have to be tried on more than one occasion, said the court, and although individual issues did exist such as whether the individual brokers knew of the schedule and whether they conformed to it, these individual issues did not predominate over the common issues of law and fact. The court having concluded that its order involved a controlling question of law as to which there was a substantial ground for difference of opinion, certified it for immediate appeal under 28 U.S.C. 1292(b). This court has entered its order permitting the appeal. ² Defendants appeal the district court's order finding the case to be proper class action.

Without expressly so stating, the parties appear in agreement that whether this is a proper class action is to be determined under Rule 23(b)(3). We are in accord. ³ Rule 23(b) first requires that the prerequisites of Rule 23(a) must be satisfied. They are (1) that the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class. The propriety of the certification of both plaintiff and defendant classes and of the class action in general must be measured against these requirements.

It appears clear that prerequisites (1) and (2) are satisfied by both classes, and no question has been raised as to the adequacy of representation under (4). Although Mr. and Mrs. Kline represent some 400,000 sellers, they are sellers who have employed one of the defendant class members; there are 32 named brokers and brokerage corporations as well as the Los Angeles Realty Board and its branches as defendants, and it can well be assumed that the other 2,000 defendants are adequately represented by them. Whether the claims or defenses of the representatives of the named parties are typical of all the claims and defenses of the absent members of the two classes will be considered under subsection 23(b)(3), since to a considerable extent the criteria are similar. We consider, then, the additional requirements of Rule 23(b)(3): (1) whether common questions predominate over individual ones; and, (2) whether the action is 'manageable.'

I. Whether the Questions of Law or Fact Common to the Members of the Class Predominate Over Any Questions Affecting Only Individual Members.

The crux of defendants' argument is that individual questions concerning the liability of each individual broker defendant and the injury of each individual plaintiff predominate over any common questions of a conspiracy. The plaintiffs adversely contend that they can prevail on a legal theory which avoids individualized issues of defendant liability, which establishes plaintiff injury in general, and which leaves the determination of the quantum of individual recovery to a mechanical process or to separate adjudication. In short, appellees argue that they can prevail on a generalized antitrust theory (utilizing 'per se' rules) while the appellants deny this and argue that individual issues must be litigated. Resolution of this controversy requires an examination of substantive antitrust law.

In order to prevail under section 1 of the Sherman Act, 15 U.S.C. 1, and to recover treble damages under section 4 of the Clayton Act, 15 U.S.C. 15, the plaintiffs must prove both that the defendants' conduct contravened section 1 and that the plaintiffs suffered injury as a direct result of this illegal conduct. ⁴ Each of these two facets will be separately considered.

A. Establishing illegal defendant conduct.

The appellees advance two theories under which they contend that they can establish illegal conduct without individualized proofs. Both theories are based upon trade association practices and can be called the 'Membership-Ratification' theory and the 'Adherence' theory. The former relies heavily upon Phelps Dodge Refining Corp. v. FTC, 139 F.2d 393, 396-397 (2d Cir. 1943), which stated:

'. . . The issue is reduced to whether a member who knows or should know that his association is engaged in an unlawful enterprise and continues his membership without protest may be charged with complicity as a confederate. We believe he may. Granted that his mere membership does not authorize unlawful conduct by the association, once he is...