Hyland v. Homeservices of Am., Inc.

• Decision Date: 13 November 2014
• Docket Number: No. 12–5947.,12–5947.
• Parties: Casey William HYLAND, et al., Plaintiffs, Christopher R. Burnette; Mystic Burnette, Plaintiffs–Appellants, v. HOMESERVICES OF AMERICA, INC.; HomeServices of Kentucky, Inc.; Semonin Realtors; Rector–Hayden Realtors; McMahan Company, Inc., d/b/a Coldwell Banker McMahan Company, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

771 F.3d 310

Casey William HYLAND, et al., Plaintiffs

Christopher R. Burnette; Mystic Burnette, Plaintiffs–Appellants

v.HOMESERVICES OF AMERICA, INC.; HomeServices of Kentucky, Inc.; Semonin Realtors; Rector–Hayden Realtors; McMahan Company, Inc., d/b/a Coldwell Banker McMahan Company, Defendants–Appellees.

No. 12–5947.

United States Court of Appeals, Sixth Circuit.

Argued: March 18, 2014.

Decided and Filed: Nov. 13, 2014.

Rehearing En Banc Denied Feb. 19, 2015.^*

ARGUED:Christopher Lovell, Lovell Stewart Halebian Jacobson LLP, New York, New York, for Appellants. Robert D. MacGill, Barnes & Thornburg LLP, Indianapolis, Indiana, for Appellees HomeServices of America. Matthew C. Blickensderfer, Frost Brown Todd LLC, Cincinnati, Ohio, for Appellee McMahan Company ON BRIEF:Christopher Lovell, Lovell Stewart Halebian Jacobson LLP, New York, New York, for Appellants. Robert D. MacGill, Karoline E. Jackson, Barnes & Thornburg LLP, Indianapolis, Indiana, for Appellees HomeServices of America. Matthew C. Blickensderfer, Frost Brown Todd LLC, Cincinnati, Ohio, for Appellee McMahan Company.

Before: COLE, Chief Judge; NORRIS and GIBBONS, Circuit Judges.

OPINION

ALAN E. NORRIS, Circuit Judge.

Class representatives Christopher and Mystic Burnette appeal three rulings by the district court that resulted in judgment for defendant real estate firms, all of which operate in Kentucky. The fourth amended complaint alleged that defendants violated Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, by participating in a horizontal conspiracy to fix the commissions charged in Kentucky real estate transactions at an anti-competitive rate. The certified class consists of people who sold residential real estate in Kentucky from October 11, 2001, to October 11, 2005, and used the services of defendants.

Plaintiffs contend that the district court erred 1) by granting summary judgment to defendants; 2) by excluding the opinions of plaintiffs' experts with respect to the ultimate question of whether collusion among the defendants was the likely economic explanation of the pricing of commissions; and 3) by finding that defendant HomeServices of America, Inc., was not responsible for the acts of its subsidiary, HomeServices of Kentucky, Inc.

For the reasons that follow, we affirm the judgment of the district court.

I.

Plaintiffs filed suit in October 2005. On November 7, 2008, the district court certified the class alluded to above. We declined an invitation for interlocutory review of that order.

The crux of the allegation brought by plaintiffs is that defendants violated the Sherman Act by conspiring to charge a supra-competitive real estate broker commission of 6% and thereby injured sellers of residential property.

Several of the original named defendants have reached settlement agreements. The remaining defendants consist of the McMahan Company, Inc. (d/b/a Coldwell Banker McMahan Co.) (“McMahan”); HomeServices of Kentucky, Inc. (“HSK”), which owns and operates Kentucky realtor defendants Semonin Realtors and Rector–Hayden Realtors; and HomeServices of America, Inc., (“HSA”), which is the parent company of HSK.

To become a real estate agent in Kentucky, an individual must be licensed by the Commonwealth's Real Estate Commission (“KREC”). Agents typically join local realtors' boards, such as the Greater Louisville Association of Realtors, the Lexington–Bluegrass Association of Realtors, and the Kentucky Association of Realtors (“KAR”).

In 1991, the KREC passed a regulation (the “Rebate Ban”) that prohibited licensed real estate brokers in Kentucky from offering any item or thing of value, including rebates, to induce clients to retain their services. The United States Department of Justice filed suit in 2005 against the KREC alleging that the Rebate Ban violated Section 1 of the Sherman Act.¹ That suit was settled and the Rebate Ban was abolished.

This action was filed shortly thereafter. The fourth amended complaint alleges that defendants “combined, conspired and agreed to fix, maintain and inflate real estate broker commissions and associated fees and refuse to compete on the basis of price.” Specifically, defendants “have charged a real estate broker commission of 6%, have described this 6% fee as the ‘standard’ or ‘typical’ fee, and have habitually refused to negotiate a lower fee.” According to the complaint, this collusion resulted in sellers being forced to pay artificially inflated commissions.

The district court relied upon plaintiffs' expert, Dr. Gary French, to set out the elements of the alleged conspiracy:

[T]he alleged conspiracy has two related elements: (1) fixing the buyer's broker commission at 3%; and (2) fixing the listing commission at a minimum of 6%. According to Dr. French, due to the visibility of the offered buyer's broker commission on the MLS [Multiple Listing Service], those listing brokers not offering at least 3% to a buyer's broker could be detected and policed. If a listing broker did not offer at least 3% to a buyer's broker, then a buyer's broker would not be interested in showing the property.... [T]he KREC Rebate Ban helped maintain commission rates at the conspiratorial standard during the Class Period by ensuring that Defendants did not cheat on their price-fixing agreement by providing a rebate or discount off of the stated fee.

District Court Memorandum Opinion at 2–3, filed July 18, 2012 (citations omitted).

The record developed below is voluminous and contains evidence that supports each side's claims. Plaintiffs point to a number of evidentiary items that they believe the district court improperly discounted. Unlike cases based solely upon circumstantial inferences, plaintiffs contend that direct evidence supports a conclusion that defendants actually agreed to fix prices. See In re Text Messaging Antitrust Litig., 630 F.3d 622, 627 (7th Cir.2010) ( Section 1 “does not require sellers to compete; it just forbids their agreeing or conspiring not to compete.”); see also Re/Max Int'l, Inc. v. Realty One, Inc., 173 F.3d 995, 1009 (6th Cir.1999). In plaintiffs' view, they submitted extensive evidence of communications among defendants concerning breaches of the National Association of Realtors' rule regarding the ban against brokers discussing commission levels, pricing structures, or marketing practices of other brokers. Specifically, they refer to deposition testimony of principal brokers to the effect that realtors often discussed fees and commissions when they met.

In addition, plaintiffs point to a KREC hearing held on November 28, 2000, in Louisville. Among other things, Arvel “Jerry” McMahan, the principal broker for the McMahan Company, spoke about the dangers to the profession of internet brokers who offer cut-rate commissions. In his words, “the most unprofessional thing we can do in this business is cut our commission. I think we ought to be worth what we charge in the services that we offer.” Similar sentiments were expressed by a representative of Semonin. In plaintiffs' view, “[a] reasonable juror could easily find that the plain meaning of Defendants CBMcMahan's and Semonin/HSK's improper words reflected at the very least either (a) unity of purpose, or (b) a common design and understanding, or (c) a meeting of the minds, between Defendants CBMcMahan and Semonin not to cut commissions.” Appellant Brief at 10 (emphasis omitted). In short, plaintiffs contend that they have produced direct evidence of price fixing in the form of the KREC hearing transcript.

In further support of that contention, they point to the complaint against the KREC filed by the Department of Justice challenging the Rebate Ban, in which the DOJ averred that the ban “enabled Brokers to raise, fix, peg, or stabilize the prices and rates at which Brokers are compensated. The Rebate Ban is the result of agreements, combinations, or conspiracies among its Commissioners and others, and it unreasonably restrains competition to the detriment of consumers.” DOJ Complaint at ¶ 4. As already noted, this complaint resulted in the abolition of the Rebate Ban.

Plaintiffs paint the following general picture of the evolution of real estate commissions in Kentucky from the 1970s through the class period. During the 1990s, a shift occurred in the relationship between buyer's brokers and listing agents. Formerly, a buyer's broker was essentially a cooperating broker working with the listing agent. In the 1990s, however, a buyer's broker's role changed and he or she became a fiduciary of the buyer while the listing broker's allegiance was to the seller. Throughout both periods, the typical commission remained at 6% despite the fact that persons in other commission-driven occupations—e.g., travel agents and stockbrokers—saw their commissions erode. An MLS listing and other sale-related documents, such as a HUD–1 form, permitted realtors to determine commission levels, thereby allowing the industry to police those agents who might be providing rebates or other incentives to drum up business. This impetus manifested itself in the Rebate Ban. At bottom, plaintiffs' contention—supported by expert testimony, depositions, and documents—allegedly is that defendant firms colluded to keep commissions at an artificially inflated rate.

In response, defendant McMahan emphasizes that it considers itself a “full-service” real estate broker with eleven offices in Kentucky during the class period. In addition to listing property, it would suggest repairs to the owner in order to make the home more attractive, hold open houses, and engage in advertising efforts. Unlike a cut-rate internet broker, a full-service broker provided a wider range of services to the client, thereby justifying a higher commission. Principal agent Jerry McMahan oversaw the operation of the various offices, although the managing brokers in those locations had responsibility for the day-to-day operations.

According to McMahan, commissions derive from both the cost of doing business and historical...