In re Appraiser Foundation Antitrust Litigation, Master No. 93-MD-973.

• Decision Date: 31 May 1994
• Docket Number: Master No. 93-MD-973.
• Citation: 867 F. Supp. 1407
• Parties: In re APPRAISER FOUNDATION ANTITRUST LITIGATION. This document relates to All Cases.
• Court: U.S. District Court — District of Minnesota

867 F. Supp. 1407

In re APPRAISER FOUNDATION ANTITRUST LITIGATION This document relates to All Cases.

Master No. 93-MD-973.

United States District Court, D. Minnesota, Fourth Division.

May 31, 1994.

COPYRIGHT MATERIAL OMITTED

D. Randall King, Merchant & Gould, Minneapolis, MN, Roy L. Shults, Mitchell Silberberg & Knupp, Los Angeles, CA, Joseph M. Alioto, Alioto Law Office, San Francisco, CA, Daniel R. Shulman, Shulman Gainsley Shulman Walcott & Davis, Minneapolis, MN, David Thomas Maddox, Fennemore Craig, Phoenix, AZ, Roy E. Paul, Susan Brown Paul, Bouhan Williams & Levy, Savannah, GA, for Nat. Ass'n of Review Appraisers and Mortg. Underwriters, Inc., Nat. Ass'n of Real Estate Appraisers, Inc.

Kathleen Dunn Sheehy, James Borden Lynch, Peter Scott Hendrixson, Michael Eugene Florey, Dorsey & Whitney, John B. Orenstein, Inter-Regional Financial Group, Minneapolis, MN, for Appraisal Foundation.

Sue R. Halverson, Fredrikson & Byron, Minneapolis, MN, David Marx, Jr., Paula J. Krasny, Anne Pramaggiore, Amy J. Feinberg, McDermott Will & Emery, Chicago, IL, John P. Wintrol, McDermott Will & Emery, Washington, DC, for Appraisal Institute, American Institute of Real Estate Appraisers.

Kathleen Dunn Sheehy, James Borden Lynch, Peter Scott Hendrixson, Dorsey & Whitney, Sue R. Halverson, Fredrikson & Byron, Minneapolis, MN, David Marx, Jr., Paula J. Krasny, Anne Pramaggiore, Amy J. Feinberg, McDermott Will & Emery, Chicago, IL, John P. Wintrol, McDermott Will & Emery, Washington, DC, for Soc. of Real Estate Appraisers.

Laurie A. Zenner, Paul Robert Hannah, Hannah & Zenner, St. Paul, MN, Jerome C. Schaefer, O'Brien Birney & Butler, Washington, DC, for American Soc. of Appraisers.

Kathleen Dunn Sheehy, James Borden Lynch, Peter Scott Hendrixson, Dorsey & Whitney, Minneapolis, MN, for Nat. Soc. of Real Estate Appraisers.

James Borden Lynch, Peter Scott Hendrixson, Michael Eugene Florey, Dorsey & Whitney, Minneapolis, MN, Thomas H. Campbell, Lewis & Roca, Phoenix, AZ, for Roy Morris.

James Borden Lynch, Peter Scott Hendrixson, Michael Eugene Florey, Dorsey & Whitney, Minneapolis, MN, for Roy G. Green.

James Borden Lynch, Peter Scott Hendrixson, Michael Eugene Florey, Dorsey & Whitney, Minneapolis, MN, David E. Hudson, Hull Towill Norman & Barrett, Augusta, GA, for Joseph S. Durant.

MEMORANDUM OPINION AND ORDER

DIANA E. MURPHY, Chief Judge.

Plaintiffs National Association of Review Appraisers and Mortgage Underwriters (NARA/MU) and National Association of Real Estate Appraisers (NAREA)¹ assert federal claims under the sections 1 and 2 of the Sherman Antitrust Act (15 U.S.C. §§ 1 and 2) and state common law claims for tortious interference with contract and prospective business relations against the defendants Appraisal Foundation (Foundation), its sponsors, and trustees. The court has jurisdiction under 28 U.S.C. §§ 1337 and 1367. Defendants² have moved for summary judgment.

I.

In 1991, NARA/MU filed an antitrust action in this court against the Foundation and its sponsors.³ The Foundation then brought a declaratory judgment action in 1992 against NAREA seeking a declaration that it had not violated the antitrust laws by refusing to admit NAREA.⁴ NAREA counterclaimed, asserting similar claims against the Foundation as in the NARA/MU action. The cases were consolidated for pretrial and trial purposes, and NAREA amended its complaint to make it identical to the NARA/MU claims. Several additional cases involving claims against trustees of the Foundation were later transferred to this district for pretrial management.⁵

The Appraisal Foundation was created in 1987 to establish uniform appraisal standards and criteria for certifying appraisers through its Appraiser Standards Board (ASB) and Appraiser Qualifications Board (AQB). Each board consists of five members appointed by the board of trustees of the Foundation. In 1989, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which expressly adopted the standards set by the ASB and AQB. 12 U.S.C. §§ 3339 (uniform standards) and 3345 (qualifications).

Plaintiffs contend that they are being unfairly excluded from the Foundation. They argue this exclusion traces back to the beginnings of the Foundation. Plaintiffs claim the predecessor of the Foundation was the North American Conference of Appraisal Organizations (NACAO). NACAO had been formed in the early 1970's by defendants and five other appraisal organizations. These groups held an annual two day meeting where they exchanged business information and ideas. Plaintiffs claim outside organizations such as NAREA and NARA/MU were excluded.

In the mid 1980's, pressure began to build for regulation of the appraisal industry after developments with savings and loan institutions caused concern. Plaintiffs contend the members of NACAO decided to form the Foundation to set standards internally in an effort to head off government regulation. The Foundation was incorporated in 1987 with each of the member organizations contributing funds on a proportional basis according to the number of members it had. The eight founding appraisal organizations were "regular members" and were entitled to appoint between one and three trustees each, depending on the size of the organization.⁶ There were also six "special members" which were organizations composed of users of appraisal services.⁷ Each special member could appoint one trustee to the board.

Plaintiffs contend that under the Foundation's constitution and by-laws, the founding members retained veto power over all actions of the trustees. The original by-laws and articles of incorporation did not provide for vetoes, but founding members had the right to vote on proposed amendments to the by-laws and articles and each appointing organization could remove its trustee before expiration of the trustee's term under certain circumstances. Original By-laws §§ 4.01 and 5.02 (Defendants' Volume III Exhibit 1). The power of a sponsor to remove its appointed trustee before the expiration of the trustee's term was eliminated when the by-laws were revised. Effective January 1992, trustees could only be removed by a two-thirds vote of the board. Revised By-laws § 6.02(f).

In January 1991, the Foundation amended its by-laws to eliminate "memberships" effective January 1992. Three different types of sponsorship were created: Appraisal Sponsors, Affiliate Sponsors, and Corporate Sponsors. Appraisal Sponsors are appraiser organizations; this is the category to which plaintiffs wish to be admitted. Affiliate Sponsors are not appraiser organizations, but rather other non-profit, tax-exempt, organizations "having a demonstrable interest in the appraisal profession." Corporate Sponsors are for-profit organizations having a "demonstrable interest" in the practical use of appraisals and appraisal practices.

The board of trustees consists of one appointed trustee for each Appraisal and Affiliate Sponsor and at least 14 at-large trustees elected by the appointed trustees from a pool of candidates nominated by all three categories of Sponsors (Appraisal, Affiliate, and Corporate). Appraisal and Affiliate Sponsors who do not meet all of the sponsorship criteria are entitled to nominate an at-large trustee, but they may not appoint anyone to the board. Corporate Sponsors may nominate an individual to serve as an at-large trustee.⁸

Defendants maintain that virtually any interested organization may participate in the Foundation in one form or another, and NAREA and NARA/MU are the only organizations that have applied but have not been admitted to sponsorship. Since January 1991 the Foundation has admitted two new Appraisal Sponsors: the American Association of Certified Appraisers (AACA) and the National Association of Master Appraisers (NAMA).⁹ Three organizations have become Affiliate members under the revised by-laws: The Mortgage Insurance Companies of America, the Farm Credit Council, and the National Association of Realtors. Organizations admitted as Corporate Sponsors include: Lender's Services, a subsidiary of the Prudential Insurance Company, and the Mortgage Guaranty Corporation. Defendants state there are no pending applications besides those of plaintiffs.

While NAREA and NARA/MU appear to defendants to qualify as Corporate Sponsors, they wish to be admitted as Appraisal Sponsors. The Foundation maintains plaintiffs simply do not meet the criteria to be Appraisal Sponsors. To qualify as an Appraisal Sponsor an applicant must:

1. be a non-profit, tax-exempt organization;

2. pay an initial fee of $18,800 and a pro rata share of the current dues assessed, and demonstrate a financial ability to pay on an ongoing basis;

3. adopt the Uniform Standards of Professional Appraisal Practice (USPAP), including the Ethics Provision;¹⁰

4. have an educational mechanism for teaching the USPAP, including the Ethics Provision, to its members and a disciplinary mechanism for enforcing them. A minimum five year history of standards, ethics, education and enforcement is preferred;

5. require all its appraisal designated members or persons seeking appraisal designations to complete at least 15 hours of classroom work on the USPAP, including the Ethics Provision, every 5 years;

6. award appraisal designation(s) but not all members must be designated;

7. must require its appraisal-designated members to achieve, in the areas of education and experience, the minimum criteria adopted by the Appraiser Qualifications Board and must require its applicants to pass an examination. In addition, an organization must require its appraisal-designated members to achieve the continuing education prerequisites adopted by the AQB.

See, defendants' Exhibit 6.

Defendants contend that both NAREA and NARA/MU are not nonprofit organizations because each is owned and controlled by Robert Johnson and operated by his management company, International Association Managers, Inc. (IAM), a...