Blough v. Holland Realty, Inc.

• Decision Date: 27 July 2009
• Docket Number: No. 08-35548.,No. 08-35542.,No. 08-35549.,No. 08-35536.,08-35536.,08-35542.,08-35548.,08-35549.
• Citation: 574 F.3d 1084
• Parties: Curtis BLOUGH; Gwendolyn Blough, Plaintiffs-Appellants, v. HOLLAND REALTY, INC., Defendant-Appellee. Gary Yasuda; Shawna Yasuda, Plaintiffs-Appellants, v. Sel-Equity Company, dba Sel-Equity Realty, dba Sel-Equity Real Estate, Defendant-Appellee. Dave Merrithew; Emily Merrithew; Michael B. Howell; Peggy Jo Howell, Plaintiffs-Appellants, v. Park Pointe Realty, Inc., dba John L. Scott Real Estate, Defendant-Appellee. Robert Bafus; Renae Bafus; Gene Dudley; Lola R. Dudley, Plaintiffs-Appellants, v. Aspen Realty, Inc., dba Coldwell Banker Aspen Realty, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

574 F.3d 1084

Curtis BLOUGH; Gwendolyn Blough, Plaintiffs-Appellants, v. HOLLAND REALTY, INC., Defendant-Appellee.

Gary Yasuda; Shawna Yasuda, Plaintiffs-Appellants, v. Sel-Equity Company, dba Sel-Equity Realty, dba Sel-Equity Real Estate, Defendant-Appellee.

Dave Merrithew; Emily Merrithew; Michael B. Howell; Peggy Jo Howell, Plaintiffs-Appellants, v. Park Pointe Realty, Inc., dba John L. Scott Real Estate, Defendant-Appellee.

Robert Bafus; Renae Bafus; Gene Dudley; Lola R. Dudley, Plaintiffs-Appellants, v. Aspen Realty, Inc., dba Coldwell Banker Aspen Realty, Defendant-Appellee.

No. 08-35536.

No. 08-35542.

No. 08-35548.

No. 08-35549.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 9, 2009.

Filed July 27, 2009.

Steve W. Berman and Craig R. Spiegel, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Philip H. Gordon and Bruce S. Bistline, Gordon Law Office, Bruce C. Jones, Jones & Swartz PLLC, and Daniel Loras Glynn, Trout Jones Gledhill Fuhrman PA, Boise, ID, for the plaintiffs-appellants.

Eugene A. Ritti, Brad P. Miller, and Jason D. Scott, Hawley Troxell Ennis & Hawley LLP, Boise, ID, for defendant-appellee Holland Realty, Inc.

Michael K. Kelley and Scott S. Shay, Haglund, Kelley, Horngren, Jones & Wilder LLP, Portland, OR, for defendant-appellee Sel-Equity Company.

Richard C. Boardman and Christine M. Salmi, Perkins Coie LLP, Boise, ID, for defendant-appellee Park Pointe Realty, Inc.

James E. Hartley and Elizabeth A. Phelan, Holland & Hart LLP, Denver, CO, and B. Newal Squyres and A. Dean Bennett, Holland & Hart, Boise, ID, for defendant-appellee Aspen Realty, Inc.

Appeals from the United States District Court for the District of Idaho, B. Lynn Winmill, Chief District Judge, Presiding. D.C. Nos. 1:06-cv-00059-BLW, 1:06-cv-00060-BLW, 1:04-cv-00121-BLW, 1:06-CV-00061-BLW, 1:06-CV-00216-BLW, 1:06-CV-00189-BLW.

Before: HARRY PREGERSON, PAMELA ANN RYMER and A. WALLACE TASHIMA, Circuit Judges.

RYMER, Circuit Judge:

Buyers of newly-constructed houses in the Boise, Idaho area claim that various realtors representing developers tied the sale of undeveloped lots to services and commissions for developed property in violation of the federal and state anti-trust laws. Applying the doctrine of "zero foreclosure," the district court granted summary judgment to the realtors because there is no market for listing and referral services among potential buyers of newly-constructed houses, thus no competition in the tied market to be harmed. We agree, and affirm.

I

Curtis Blough and his wife were in the market for a newly-constructed house. They liked an existing home built by Trademark Homes in Baldwin Park, a subdivision developed by Capital Development, but desired some modifications. Trademark had optioned other lots in this subdivision and agreed to build a house to the Bloughs' specifications. Capital Development had a deal with Holland Realty, Inc. to be the exclusive broker for the sale of lots in Baldwin Park. Holland received a flat fee from the developer for sale of lots, and Trademark agreed to pay Holland a three percent referral fee upon the sale of new homes. The Bloughs entered an agreement with Trademark to purchase the newly-constructed home on a lot within Baldwin Park; Holland's referral fee came out of funds Trademark received from the Bloughs.

Gary and Shawna Yasuda were interested in a home in a subdivision called Sedona Creek. Sedona Creek was being developed by Great Sky Development, Sel-Equity Company was the marketing agent, and Zach Evans Construction was the builder. The Yasudas entered into an agreement with Zach Evans to build a home on a lot that Zach Evans obtained from Great Sky for a price that included a three percent marketing fee for Sel-Equity. The marketing fee for Sel-Equity was based upon the price for the lot and newly-constructed home in the contract between Zach Evans and the Yasudas.

Dave and Emily Merrithew were impressed with a home design by Aspen Homes, with whom they contracted to build a house in the Bear Creek subdivision. The price included the lot and house, as well as a six percent fee based on the contract price that Aspen had agreed to pay its exclusive listing agent, Park Pointe Reality. Park Pointe split the fee with the Merrithews' agent, Century 21 First Place.

Robert and Renae Bafus thought they would buy an empty lot in the Chaumont subdivision and get a construction loan to pay Walker Building for the home, but Walker's contract included the price of the lot and the house. The developer had retained Aspen Realty as a marketing agent, and Aspen Realty also served as Walker Building's agent. The cost Walker charged for the lot and finished home included a six percent commission that was paid at the closing.

The Bloughs, Yasudas, Merrithews, and Bafuses (to whom we refer collectively as "Buyers") brought this suit as a class action against the agents representing the subdivision developers whose commissions were involved in their purchases (to whom we refer collectively as "Realtors"). Buyers seek damages and declaratory relief for a per se unlawful tying arrangement in violation of § 1 of the Sherman Act, 15 U.S.C. § 1.¹ They claim that Realtors tied "services, i.e., commissions with regard to sale of developed lots" (the tied product) to the "sales of undeveloped lots" (the tying product).

The district court certified a class for adjudication of the tying claim. It identified the tying product as sales of undeveloped lots and the tied product as Realtors' services, i.e., commissions, with regard to sale of developed lots. The class consists of those who: (1) bought undeveloped lots in subdivisions where Realtors had the exclusive right to market lots on behalf of the developer; (2) were required to build a house on the lot in order to buy the lot; and (3) were required to pay Realtors a commission based on the cost of the lot plus the actual or estimated cost of the house in order to buy the lot.

Realtors moved for summary judgment. Buyers filed an application under Federal Rule of Civil Procedure 56(f) seeking further discovery into other members of the class to determine whether any of them wanted to buy the services of a listing agent from someone other than Realtors. The district court denied Buyers' request on the ground that they had shown no plausible reason to believe that other members of the class (unlike themselves) would want to purchase the tied product from anyone else. It then ruled on the merits in Realtors' favor, concluding that Buyers failed to show that the alleged tying practice "affects a not insubstantial volume of commerce in the tied product market." Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003) (internal quotation marks omitted).

Buyers timely appealed.

II

We treat all four cases together, as the district court did, because they present the same legal issue and are factually indistinguishable. In sum, Buyers entered into agreements with homebuilders to purchase developed lots (an undeveloped lot with a newly-constructed home) in different subdivisions in the Boise, Idaho area. Realtors represented the developers of the subdivisions in allocating lots to the homebuilders. The price of the developed lot that Buyers paid to the homebuilders included a commission (or referral fee) for Realtors, typically calculated as a percentage of the total price of the developed lot. It is apparently the custom in Idaho for the seller, rather than the buyer, to pay the commission owed to the listing agent and to the selling agent (the agent assisting the buyer's search for a property) when a transaction closes. Buyers claim the Realtors engaged in a per se unlawful tying arrangement when they tied the sale of undeveloped lots (the tying product) to their services and commissions on the sale of developed lots (the tied product).

Under § 1 of the Sherman Act, "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1.

In certain circumstances, § 1 can be violated by tying two products or services together, whereby "the seller conditions the sale of one product (the tying product) on the buyer's purchase of a second product (the tied product)." Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir.2008). "Tying arrangements are forbidden on the theory that, if the seller has market power over the tying product, the seller can leverage this market power through tying arrangements to exclude other sellers of the tied product." Id. A tying arrangement "suffer[s] per se condemnation" if a plaintiff proves:

(1) that the defendant tied together the sale of two distinct products or services; (2) that the defendant possesses enough economic power in the tying product market to coerce its customers into purchasing the tied product; and (3) that the tying arrangement affects a "not insubstantial volume of commerce" in the tied product market.

Id. at 913.

The third prong of the test is at issue in this case. The injury caused by an unlawful tying arrangement is "reduced competition in the market for the tied product." Rick-Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 971(9th Cir.2008) (citing Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984)); see also Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 34-35, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006). Thus, the inquiry is "whether a total amount of business, substantial enough in terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie." Fortner Enters., Inc. v. U.S. Steel Corp., 394 U.S. 495, 501, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969); Datagate, Inc. v. Hewlett-Packard Co., 60 F.3d 1421, 1424-25 (9th Cir.1995).

We considered the third prong in Datagate. There the question was...