Chatham Condominium Associations v. Century Village, Inc.

• Decision Date: 02 July 1979
• Docket Number: No. 76-4286,76-4286
• Parties: 1979-2 Trade Cases 62,742 CHATHAM CONDOMINIUM ASSOCIATIONS, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees. KENT CONDOMINIUM ASSOCIATION, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees. NORTHAMPTON O CONDOMINIUM ASSOCIATION, et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees. SUSSEX CONDOMINIUM ASSOCIATIONS, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1002

597 F.2d 1002

1979-2 Trade Cases 62,742

CHATHAM CONDOMINIUM ASSOCIATIONS, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees.

KENT CONDOMINIUM ASSOCIATION, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees.

NORTHAMPTON O CONDOMINIUM ASSOCIATION, et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees.

SUSSEX CONDOMINIUM ASSOCIATIONS, etc., et al., Plaintiffs-Appellants, v. CENTURY VILLAGE, INC., etc., et al., Defendants-Appellees.

No. 76-4286.

United States Court of Appeals, Fifth Circuit.

July 2, 1979.

Michael B. Small, Rod Tennyson, West Palm Beach, Fla., for plaintiffs-appellants.

Charles Ruberg, Douglas B. Brown, Asst. Attys. Gen., State of Florida, Dept. of Legal Affairs, Tallahassee, Fla., for The State of Florida.

Gerald F. Richman, Miami, Fla., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before JONES, AINSWORTH and HILL, Circuit Judges.

JAMES C. HILL, Circuit Judge:

In this appeal we are called upon to decide another one of the difficult issues escaping from the Pandora's box of condominium antitrust litigation. ¹ Specifically, we must decide whether the district court had subject matter jurisdiction over an antitrust claim alleging an illegal tie-in between the sale of a condominium unit and the purchase of a recreational facilities lease. We find that the district court erroneously concluded that it was without subject matter jurisdiction over the antitrust claim, and we reverse.

I.

Appellants, condominium unit owners and their condominium associations (hereinafter appellants or purchasers), brought private treble damage actions ² against appellees, developers of the Century Village condominium development (hereinafter appellees or Century Village), alleging that a requirement that condominium purchasers enter into a 99-year recreational facilities lease constituted an illegal tying arrangement in violation of Section 1 of the Sherman Act, ³ 15 U.S.C.A. § 1, and Section 3 of the Clayton Act, ⁴ 15 U.S.C.A. § 14. On July 1, 1976, the district court entered an Order of Dismissal, dismissing appellants' pendent state claims and dismissing the condominium associations as parties plaintiff for lack of standing to maintain a class action on behalf of their members. In its Order the district court, Sua sponte, scheduled a preliminary hearing for the purpose of affording appellants an opportunity to present evidence of the "involvement of a not insubstantial amount of interstate commerce in the recreational facility lease which they allege in their complaints to be the tied product."

At the hearing, conducted on July 13, 1976, the court heard testimony from various witnesses and accepted a proffer of evidence prepared by appellants. The proffer showed that appellants were prepared to prove the following:

Century Village is a sprawling condominium development located in Palm Beach County, Florida. Consisting of 7,853 condominium units and inhabited by over 14,000 residents, this one square mile complex was constructed between 1969 and 1974 at a cost of approximately 125 million dollars. The construction of this project involved the significant use of out-of-state materials, personnel and financing.

Approximately ninety percent of the purchasers of condominium units were from states other than Florida and approximately fifteen percent of these out-of-state purchasers have not relocated to Florida, choosing instead to use their condominiums as a second home or investment property. These out-of-state purchasers were attracted to Century Village by an energetic advertising campaign which included the use of advertisements in out-of-state newspapers, brochures mailed through the United States mail, long-distance telephone solicitation, and billboards placed along interstate highways. In the years 1973 and 1974 alone, Century Village spent 1.5 million dollars for advertising. Most of this advertising was directed towards non-Florida residents, particularly retirees.

Prior to the sale of any of the condominium units, Century Village and each of the newly-formed condominium associations entered into a lease of the recreational facilities binding all future and subsequent purchaser-members in the condominium association to the provisions of the lease agreement. As a condition precedent to ownership, the contract of purchase also required the purchaser to execute the lease agreement. The lease agreement provided that payment of the rental for the recreational facilities lease would be a common expense, assessed by the condominium association against unit owners; failure to pay the rental fee would subject the purchaser's condominium to a lien. The annual rental fees collected by Century Village under the lease agreements totalled 4.5 million dollars, with $675,000 of that amount coming from out-of-state residents.

Finally, the proffer disclosed appellants' intention to prove that the recreational facilities leases in question foreclosed the development of competing recreational facilities that would have been constructed and operated. These facilities would have allegedly involved substantial investments from states other than Florida.

Following the conclusion of the hearing, the court permitted counsel to submit additional evidence until 5:00 p. m. on July 19, 1976. On August 9, 1976, the district court entered an order dismissing appellants' complaints due to lack of subject matter jurisdiction, concluding that "the activities complained of did not occur in the flow of interstate commerce nor did they substantially affect it." Appellants filed a motion for reconsideration and rehearing and a motion for leave to amend on August 20, 1976; the court denied these motions on September 1, 1976. This appeal followed.

II. JURISDICTION

Count I of appellants' lawsuit alleged that Century Village illegally tied the execution of a recreational facilities lease to the purchase of condominium units at the Century Village complex; this tying arrangement was alleged to be a violation of both Section 1 of the Sherman Act, 15 U.S.C.A. § 1, and Section 3 of the Clayton Act, 15 U.S.C.A. § 14. The district court concluded that it had no subject matter jurisdiction under either the Sherman Act or the Clayton Act. Because the jurisdictional tests under the two acts differ, See generally, L. Sullivan, Handbook of the Law of Antitrust § 233 (1st ed. 1977), we discuss them separately.

A. The Sherman Act.

In enacting the Sherman Act, there can be little doubt that Congress intended to exercise its power to the fullest extent under the Commerce Clause. United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 65 S.Ct. 661, 89 L.Ed. 951 (1945); United States v. South-Eastern Underwriters Association,322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944); Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311 (1940). And under current interpretations of the Commerce Clause, the scope of congressional power is expansive; when national interests are at stake, seemingly local and wholly intrastate activities have been adjudged to fall within the sweep of the commerce power. See, e. g., Perez v. United States, 402 U.S. 146, 91 S.Ct. 1357, 28 L.Ed.2d 686 (1971) (local loan sharking subject to federal criminal sanctions); Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964) (local restaurant subject to federal control because it purchased $70,000 of meat from a local supplier who, in turn, purchased it from outside the state); Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942) (Congress held to have power to control amount of wheat grown by farmers for self-consumption because the total demand for wheat on the interstate market would be reduced if farmers were allowed to grow and consume their own wheat). As the foregoing cases illustrate, the power of Congress to regulate commerce is "as broad as the need that evokes it." ⁵

Recent decisions by the Supreme Court confirm that the jurisdictional reach of the Sherman Act is coextensive with the broad-ranging power of Congress under the Commerce Clause. In Burke v. Ford, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967), Oklahoma liquor retailers sued under Section 1 of the Sherman Act to enjoin a state-wide market division by Oklahoma liquor wholesalers. Notwithstanding that unit sales to wholesalers Increased while the market division was in effect, the Supreme Court found an effect on interstate commerce sufficient to support jurisdiction:

Horizontal territorial divisions almost invariably reduce competition among the participants. When competition is reduced, prices increase and unit sales decrease. The wholesalers' territorial division here almost surely resulted in fewer sales to retailers hence fewer purchases from out-of-state distillers than would have occurred had free competition prevailed among the wholesalers. In addition the wholesalers' division of brands meant fewer wholesale outlets available to any one out-of-state distiller. Thus, the state-wide wholesalers' market division inevitably affected interstate commerce.

389 U.S. at 321-22, 88 S.Ct. at 444 (citations omitted).

In Burke, the Supreme Court was willing to assume an effect on interstate commerce where the conduct in question, horizontal market divisions, typically has an anticompetitive effect on interstate commerce. See P. Areeda, Antitrust Analysis § 183 (2d ed. 1974).

The Supreme Court's decision in Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), further illustrates the expansive jurisdictional reach of the Sherman Act. There, a county bar association's minimum fee schedule fixed prices for title examinations. Although the activity was purely local, the Court found the requisite nexus with interstate commerce to...