National Ass'n of Review Appraisers and Mortg. Underwriters, Inc. v. Appraisal Foundation

• Decision Date: 10 October 1995
• Docket Number: 94-3074,Nos. 94-2689,s. 94-2689
• Citation: 64 F.3d 1130
• Parties: 1995-2 Trade Cases P 71,127 NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE UNDERWRITERS, INC., Plaintiff/Appellant, v. The APPRAISAL FOUNDATION; The Appraisal Institute; American Institute of Real Estate Appraisers; Society of Real Estate Appraisers; American Society of Appraisers; National Society of Real Estate Appraisers, Defendants/Appellees. The APPRAISAL FOUNDATION, Plaintiff/Appellee, v. NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC., Defendant/Appellant. The APPRAISAL FOUNDATION, Plaintiff, v. NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC., Defendant. NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC., Counter-Plaintiff/Appellant, v. The APPRAISAL FOUNDATION; The Appraisal Institute; American Institute of Real Estate Appraisers; Society of Real Estate Appraisers; American Society of Appraisers; National Society of Real Estate Appraisers, Counter-Defendants/Appellees. NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE UNDERWRITERS, INC.; National Association of Real Estate Appraisers, Inc., Plaintiffs/Appellants, v. Roy MORRIS, Defendant/Appellee. NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE UNDERWRITERS, INC.; National Association of Real Estate Appraisers, Inc., Plaintiff/Appellants, v. Roy G. GREEN; George Hamilton Jones, Defendants/Appellees. NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE UNDERWRITERS, INC.; National Association of Real Estate Appraisers, Inc., Plaintiffs/Appellants, v. Joseph S. DURANT, Defendant/Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1130

64 F.3d 1130

1995-2 Trade Cases P 71,127

NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE

UNDERWRITERS, INC., Plaintiff/Appellant, v. The APPRAISAL FOUNDATION; The Appraisal Institute;

American Institute of Real Estate Appraisers; Society of

Real Estate Appraisers; American Society of Appraisers;

National Society of Real Estate Appraisers, Defendants/Appellees.

The APPRAISAL FOUNDATION, Plaintiff/Appellee, v. NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC.,

Defendant/Appellant.

The APPRAISAL FOUNDATION, Plaintiff, v. NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC., Defendant.

NATIONAL ASSOCIATION OF REAL ESTATE APPRAISERS, INC., Counter-Plaintiff/Appellant, v. The APPRAISAL FOUNDATION; The Appraisal Institute;

American Institute of Real Estate Appraisers; Society of

Real Estate Appraisers; American Society of Appraisers;

National Society of Real Estate Appraisers,

Counter-Defendants/Appellees.

NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE

UNDERWRITERS, INC.; National Association of Real

Estate Appraisers, Inc., Plaintiffs/Appellants, v. Roy MORRIS, Defendant/Appellee.

NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE

UNDERWRITERS, INC.; National Association of Real

Estate Appraisers, Inc., Plaintiff/Appellants, v. Roy G. GREEN; George Hamilton Jones, Defendants/Appellees.

NATIONAL ASSOCIATION OF REVIEW APPRAISERS AND MORTGAGE

UNDERWRITERS, INC.; National Association of Real

Estate Appraisers, Inc., Plaintiffs/Appellants, v. Joseph S. DURANT, Defendant/Appellee.

Nos. 94-2689, 94-3074.

United States Court of Appeals Eighth Circuit.

Submitted May 16, 1995.

Decided Aug. 29, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied Oct.

10, 1995. ^*

Joseph Alioto, San Francisco, CA, argued (Daniel R. Shulman, Minneapolis, MN, on the brief), for appellant.

Peter Hendrixson, Minneapolis, MN, argued (Kathleen D. Sheehy and Sue Halverson, Minneapolis, MN; Paul R. Hannah and Laurie A. Zenner, St. Paul, MN; Jerome C. Schaefer and John P. Wintrol, Washington, DC; David Marx, Jr. and Anne Pramaggiore, Chicago, IL, on the brief), for appellee.

Before WOLLMAN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and BOGUE, ^** Senior District Judge.

WOLLMAN, Circuit Judge.

The National Association of Review Appraisers and Mortgage Underwriters and the National Association of Real Estate Appraisers (hereinafter referred to as the "Review Association" and "Appraisers' Association" individually, and collectively as the "Associations") appeal from the district court's ¹ orders granting summary judgment for the Appraisal Foundation and certain of its member organizations and trustees (collectively the "Foundation") on the Associations' various antitrust and tortious interference claims. We affirm.

I.

In the mid 1980s, as pressure began to increase for regulation of the appraisal industry in the wake of the nation-wide savings and loan debacle, a number of appraisal organizations decided to get together to set standards for the industry in an attempt at self-regulation. As a result of this union of interests, the Foundation was created in 1987 to establish uniform appraisal standards and criteria for certifying appraisers. The eight founding member organizations appointed between one and three trustees to the Foundation depending on their size. Other members, which were organizations composed of users of appraisal services, were allowed to appoint one trustee to the board, and two at-large trustees were elected by the appointed trustees. In 1989, Congress passed Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which charged the Foundation's Appraiser Standards Board and Appraiser Qualifications Board with promulgating industry standards for federally regulated transactions. See 12 U.S.C. Secs. 3339, 3345.

In 1991, the Foundation amended its by-laws to create three different types of sponsorship to the Foundation effective January 1, 1992--appraisal, affiliate, and corporate. Appraisal sponsors are appraisal organizations; whereas affiliate and corporate sponsors are, respectively, non-profit and for-profit organizations with a "demonstrable interest" in appraisals and appraisal practices. The board of trustees is now composed of one trustee for each appraisal and affiliate sponsor that meets sponsorship criteria, and fourteen at-large trustees selected from a pool of candidates sponsored by each category of affiliation. Since the by-laws were amended, the Foundation has admitted two appraisal and three affiliate members, as well as several corporate sponsors. About 66% of all appraisers (62,651 total) belonged to organizations affiliated with the Foundation in 1990. As of 1992, membership encompassed approximately 71% of all appraisers (70,221 total).

The Review Association filed an antitrust action under the Sherman Act, 15 U.S.C. Secs. 1 & 2, in 1991, challenging the Foundation's continuing refusal to admit the Review Association as an appraisal sponsor dating back to its initial application for membership in 1988. The Review Association claims that it meets all membership criteria and that the Foundation's control over the industry has effectively crippled the Review Association's ability to compete with other appraisal organizations that are Foundation members. The Foundation subsequently brought a declaratory judgment action against the Appraisers' Association seeking to establish that the Foundation had not violated the antitrust laws for likewise declining to grant that organization membership status. The Appraisers' Association counterclaimed, asserting claims similar to those of the Review Association. These are apparently the only two appraiser organizations that have applied but not been admitted to sponsorship in one form or another. Both are managed by the same corporate entity, International Association Managers, Inc., and are essentially controlled by the same individual and executive director, Robert G. Johnson. Ken Twitchell is the managing director of the Appraisers' Association and director of national affairs for the Review Association. The cases were consolidated with several cases brought by the Review Association against the Foundation's trustees.

II. Antitrust Claims

A.

The Associations assert that the Foundation's actions constitute a per se antitrust violation as a group boycott. The direct result of this failure to admit, according to the Associations, has been a marked decline in membership, with the Review Association's membership declining from more than 7,500 in 1990 to fewer than 3,000 members by 1993, and the Appraisers' Association seeing its membership drop from a peak of more than 20,000 in 1989 to fewer than 10,000 in 1993. These numbers take on even more meaning for the Associations when considered in light of the fact that their respective memberships had increased over the three year period prior to 1990. As further evidence of the anticompetitive nature of exclusion, the Associations contrast the declining membership of other organizations during periods those organizations were not members of the Foundation with the increased membership of those within the Foundation.

When challenged actions or practices yield a "pernicious effect on competition and lack ... any redeeming virtue" they are per se invalid. Northern Pac. Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). In such situations the actions so lack redeeming social and competitive value as to warrant being struck down "without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Id.; see Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284, 289, 105 S.Ct. 2613, 2616-17, 86 L.Ed.2d 202 (1985). The Foundation's membership criteria are inherently exclusionary and thereby necessarily restrict competition to some degree. See Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500, 108 S.Ct. 1931, 1937, 100 L.Ed.2d 497 (1988) (noting that an agreement regarding product standards is an implicit agreement not to deal in non-conforming products); Northwest Stationers, 472 U.S. at 289, 105 S.Ct. at 2616 (acknowledging that "every commercial agreement restrains trade"). When the exclusion of an organization on the purported basis of those criteria appears to serve some legitimate purpose necessary to the proper functioning of the Foundation and overall efficiency of the market, however, we will analyze that exclusion under the rule of reason to determine whether it in fact does impermissibly restrict competition. See Federal Trade Comm'n v. Indiana Fed'n of Dentists, 476 U.S. 447, 458, 106 S.Ct. 2009, 2017-18, 90 L.Ed.2d 445 (1986) (noting reluctance "to condemn rules adopted by professional associations as unreasonable per se "); Northwest Stationers, 472 U.S. at 297-98, 105 S.Ct. at 2621-22 (expulsion from wholesale cooperative does not warrant per se treatment). Organizations are free to associate, share information, and engage in self-regulation. Accordingly, in the absence of any showing that the challenged practices are anticompetitive on their face, we will apply the rule of reason to determine if there is an antitrust violation. Additionally, courts should hesitate to apply a per se rule when there is a question as to the extent of a practice's economic impact. See Indiana Dentists, 476 U.S. at 458-59, 106 S.Ct. at 2017-18; see also United States v. Brown Univ., 5 F.3d 658, 672 (3d Cir.1993) (accepting that economic harm is less certain when the market restraint is motivated by its social utility).

The Foundation's exclusion of the Associations does not appear so deleterious on its face as to be considered per se illegitimate. The Foundation was created to promote educational and ethical standards for appraisal services, and its membership criteria appear to be designed to accomplish those goals by establishing such standards and...