Gateway Associates, Inc. v. Essex-Costello, Inc.

• Decision Date: 28 August 1974
• Docket Number: No. 74 C 1185.,74 C 1185.
• Citation: 380 F. Supp. 1089
• Parties: GATEWAY ASSOCIATES, INC., a corp., et al., Plaintiffs, v. ESSEX-COSTELLO, INC., a corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

380 F. Supp. 1089

GATEWAY ASSOCIATES, INC., a corp., et al., Plaintiffs, v. ESSEX-COSTELLO, INC., a corporation, et al., Defendants.

No. 74 C 1185.

United States District Court, N. D. Illinois, E. D.

August 28, 1974.

Ronald L. Futterman, Pressman & Hartunian, Chicago, Ill., for plaintiffs.

Eugene L. Resnick, and R. W. Hillsberg, Chicago, Ill., Paul W. Meinhardt, and John D. Kightlinger, Arlington Heights, Ill., Franz & Franz, Crystal Lake, Ill., Henry A. Preston and Dale R. Crider, Sidley & Austin, Jenner & Block, Chicago, Ill., Mark. J. Muscarello, Elgin, Ill., for defendants.

MEMORANDUM OPINION

AUSTIN, District Judge.

This antitrust action is presently before the Court on the following defense motions: (1) to dismiss Counts I and II (Sherman Act Claims) for lack of subject-matter jurisdiction; (2) to dismiss Counts III through V (state antitrust and common law tort claims) for lack of pendent jurisdiction; (3) to strike Counts IV and V as being improperly joined; (4) to join two persons as indispensable parties defendant or else dismiss the action; (5) to dismiss the action as to some defendants for lack of personal jurisdiction; (6) to dismiss Counts I through V for failure to state a claim upon which relief may be granted; and (7) to stay the proceedings pending arbitration.

I.

The alleged facts in this case are as follows:

Defendant Crystal Lake Associated Listing Service ("ALS") is an unincorporated trade association of real estate brokerage firms in the Crystal Lake, Illinois area. Among other things, ALS operates a multiple listing service whereby its members pool their listings and agree to split real estate commissions (generally on a 50-50 basis) when one member obtains a buyer for property originally listed with another. Only members may subscribe to the ALS listing service; but firms outside the Crystal Lake area are generally allowed to participate in the real estate commission generated by a sale on a 50-50 basis when they provide a buyer for property listed by an ALS member. As a whole, ALS accounts for over 80%, or $60,000,000.00, of the total sales of real property listed with brokers in the Crystal Lake area. The other defendants are realty brokerage firms and associated brokers and owners who are all ALS members.

Plaintiff Gateway Associates, Inc. ("Gateway") is a realty brokerage firm operating in the Crystal Lake area. The individual plaintiffs are real estate brokers who founded Gateway in December of 1973 after leaving the employ of some of the defendant firms.

As a general rule, a real estate firm which seeks buyers for a residence listed with it has a substantially greater chance of making a rapid sale if it has access to a multiple listing service such as that provided by ALS. Thus, ALS membership appears to be both desirable and necessary for the successful operation of a real estate brokerage firm in Crystal Lake. Most homeowners who put their property up for sale know which firms subscribe to a multiple listing service; and usually, they engage one of them as their real estate agent.

Shortly after Gateway began operating in the Crystal Lake area, the defendants allegedly commenced certain anticompetitive activities which form the core of plaintiffs' claims. Briefly, they are as follows: (1) discriminating between Gateway and other non-members of ALS with regard to the percentage of shared real estate commissions; (2) boycotting Gateway house tours and excluding Gateway from their tours; (3) denying Gateway ALS membership; (4) refusing to exchange listing sheets with Gateway; (5) attempting to coerce Gateway to charge the uniform commission rates set by ALS by making the percentage of shared commissions higher for those non-members of ALS who adhere to the fixed rate than for those who charge a lower rate; (6) ignoring contract offers submitted by Gateway for its customers; (7) attempting to prevent Gateway from showing ALS listings to prospective buyers who have retained Gateway as their agent; (8) making defamatory remarks with regard to Gateway and its employees, and attempting to induce Gateway customers to break their contracts with Gateway; (9) in general, harassing Gateway employees and engaging in predatory conduct so as to prevent them from engaging in their work.

II.

A. LACK OF SUBJECT-MATTER JURISDICTION — COUNTS I AND II.

Actually, defendants move to dismiss Counts I and II for failure to state a claim because, they contend, plaintiffs inadequately allege the involvement of interstate commerce. However, their argument is directed at the jurisdictional aspects rather than the substantive aspects of interstate commerce in a Sherman Act claim. Accordingly, the motion shall be considered as one pursuant to F.R.Civ.P. 12(b) (1) to dismiss for lack of subject-matter jurisdiction.

Plaintiffs' "trade and commerce" allegations read as follows:

"15. Because of the transient nature of a significant portion of the population of Crystal Lake, Illinois, and its surrounding areas, a substantial number of persons using the services of the defendants in connection with real estate purchases and sales are persons moving into the Crystal Lake area from places outside the State of Illinois, and persons moving from the Crystal Lake area to places outside of the State of Illinois. At all times mentioned herein, defendants attempt to, and do, attract buyers and sellers from other states, and, in fact, many completed sales of real estate in which defendants have participated as brokers involve buyers or sellers from outside the State of Illinois. In 1973, a not insubstantial portion of the nearly $60,000,000 in sales of real estate accounted for by ALS members involved persons who were either moving to Crystal Lake from outside the State of Illinois, or from Crystal Lake to locations outside the State of Illinois.

"16. As a part of their services, the defendants advertise their real estate listings and brokerage services nationally in magazines and newspapers widely circulated throughout the United States, and on billboards located at airports and other places of interstate transportation in order to solicit out-of-state buyers and sellers. Such advertising is intended to, and does, affect the aforesaid interstate movement of persons and commerce. They also solicit buyers and sellers by interstate use of mails and telephone.

"17. The defendants solicit directly multistate corporations engaged in interstate commerce. These corporations employ highly mobile persons in many parts of the United States who, when they move from state to state, in accordance with the demands of their employment, require homes in Crystal Lake, Illinois, or the surrounding area, or who must sell homes located in that area in order to relocate in other states. Such advertising, solicitation, purchases and sales affect the interstate commerce of American corporations and other businesses and also affect the interstate movement of persons engaged in interstate commerce.

"18. Many defendants are participating in nationwide multiple listing or relocation servies, whereby listings obtained by them are transmitted across state lines and listings obtained by out-of-state brokers are transmitted to them in Illinois across state lines. These activities tend to create nationwide exposure for the purchase and sale of real estate located in Crystal Lake, Illinois and surrounding areas.

"19. In connection with their services, defendants negotiate or participate in the negotiation of real estate sales among out-of-state buyers and sellers. Thus, they negotiate such terms as price, financing, security, dates of surrender and possession, etc., all of which affect the flow of persons and commerce to and from the State of Illinois.

"20. As an additional part of their service, defendants often assist their clients in securing financing necessary for the purchase of real estate in Crystal Lake, Illinois and surrounding areas and in obtaining property and title insurance for it. Such financing and insurance is frequently obtained from sources outside of Illinois and moves in interstate commerce into the State of Illinois through the activities of the defendants.

"21. Substantial amounts of money flow into Crystal Lake, Illinois and its surrounding areas from outside the State of Illinois as secondary mortgage money, based upon completed transactions in the sale of real estate by the defendants, said transactions being secured by Conventional FHA insured and VA guaranteed mortgages.

"22. Defendants collect and remit monies mailed to and from places outside the State of Illinois in connection with the sale and financing of real estate sales."

When the issue is whether jurisdiction exists in an antitrust suit, the focus is on whether the defendants' conduct — unreasonably restrictive of competition or not — has a sufficient impact on interstate commerce to justify regulation under the commerce clause, Gough v. Rossmoor Corporation, 487 F.2d 373, 376 (9th Cir. 1973); and the question is not whether the acts complained of affect a business engaged in interstate commerce, but rather, whether that conduct affects the interstate commerce of that business. Page v. Work, 290 F.2d 323, 330 (9th Cir. 1961), cert. denied, 368 U.S. 875, 82 S.Ct. 121, 7 L.Ed.2d 76.

There are two tests to determine whether interstate commerce is involved: (1) whether the acts complained of occurred within the flow of interstate commerce, or (2) whether the acts, although wholly intrastate, substantially affect interstate commerce. See, e. g., Burke v. Ford, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967); Radient Burners, Inc. v. Peoples Gas Co., 364 U. S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); Las Vegas Merchant Plumbers Association v. United States, 210 F.2d 732 (9th Cir.), cert. denied, 348 U.S. 817, 75 S.Ct. 29, 99 L.Ed. 645 (1954); Kallen v....