Penne v. Greater Minneapolis Area Bd. of Realtors

• Decision Date: 28 September 1979
• Docket Number: No. 78-1776,78-1776
• Citation: 604 F.2d 1143
• Parties: 1979-2 Trade Cases 62,820 CA 79-3319 John PENNE and Penne Realty, Inc., a Minnesota Corporation, Appellants, v. The GREATER MINNEAPOLIS AREA BOARD OF REALTORS, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1143

604 F.2d 1143

1979-2 Trade Cases 62,820

CA 79-3319 John PENNE and Penne Realty, Inc., a Minnesota Corporation, Appellants, v. The GREATER MINNEAPOLIS AREA BOARD OF REALTORS, Appellee.

No. 78-1776.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 15, 1979.

Decided Sept. 5, 1979.

Rehearing and Rehearing En Banc Denied Sept. 28, 1979.

David Essling, Johnson, Essling, Williams, Essling & Daly, St. Paul, Minn., for appellants.

James R. Safley (on brief), Robins, Davis & Lyons, Minneapolis, Minn., argued; and Barry G. Reed, Minneapolis, Minn., on brief, for appellee.

Before GIBSON, Chief Judge, HENLEY, Circuit Judge, and HANSON, ^* Senior District Judge.

HANSON, Senior District Judge.

Appellants brought this private antitrust action under 28 U.S.C. § 1337 and Sections 4, 12 and 16 of the Clayton Act against the Greater Minneapolis Area Board of Realtors (the Board) and 19 of its member firms, alleging that the defendants had contracted, combined or conspired to fix and maintain brokerage fees charged in connection with the sale of real property, in violation of Section 1 of the Sherman Act and certain Minnesota statutes. ¹ The district court ² granted the Board's motion for summary judgment and directed entry of final judgment in its favor pursuant to Rules 56 and 54(b), F.R.Civ.P. The only question presented on this appeal is whether the record presents a genuine issue of material fact concerning involvement of the Board in an alleged combination or conspiracy to fix and maintain brokerage fees. Because we conclude that it does, we reverse.

I.

Penne Realty and all defendants except the Board are real estate brokerage firms. John Penne is president of Penne Realty. (Penne Realty and Penne will be referred to herein collectively as "Penne.") The brokerage firms are in the business of bringing sellers and buyers of real estate together. The firms compete both for sellers, or "listings," and for sales. People with real estate for sale sign listing agreements with individual firms that bind the seller, among other things, to pay a commission to the listing firm when the property is sold. This commission is normally some percentage of the selling price, agreed upon between the seller and the firm with which the property is listed. Penne offers its customers rates of 4% Or 5%; the defendant firms offer their customers rates of 6% Or 7%. There is thus competition on the basis of price for sellers (listings) between Penne and the defendant firms.

The Board is a trade association that promulgates and enforces rules and regulations governing its members and provides them with various professional, educational and social services. Penne Realty and all the defendant firms are members of the Board. The directors and many of the officers of the Board are drawn from persons engaged in the real estate business; during the last six years many of these have been persons employed by firms that are defendants in this case. Members of the Board are required to submit disputes between themselves to the Board's Ethics and Arbitration Committee. This committee is also composed of persons who are members of the Board.

The most important professional service the Board offers its members is its Multiple Listing Service (MLS), in which about 400 firms participate, including Penne Realty and all of the defendant firms. The MLS is a cooperative selling service that works as follows. When a participating firm secures the right to sell a property (a listing), it normally must file the listing agreement with the MLS, along with a "listing circular" containing information about the listed property. The MLS distributes these listing circulars to other participating firms, all of which may then try to find a buyer for the listed property. Under Minnesota law only the MLS member with which the seller has listed the property is entitled to be paid the commission for its sale. If the listing firm itself finds the buyer, it keeps the entire commission. If another broker finds the buyer, the sale is called "cooperative," and the listing broker divides the commission with the broker that has found the buyer. The Board's MLS is the only such service in the Minneapolis area, and there is evidence that participation in it is necessary for a brokerage firm to compete effectively with other firms. The workings of the MLS are at the heart of this lawsuit.

One main problem comes in deciding how to divide the commission on a cooperative sale. This problem is not so severe when all firms charge at the same rate for their services. This evidently was the case in Minneapolis prior to 1969 or 1970, when virtually all firms charged 6%, and the Board required that the commission be divided 50/50 between listing and selling firms. In 1972 the Board withdrew that requirement, and it appears that at present the most usual division between firms charging at the same rate has shifted to 55/45 in favor of the listing firm.

However, when firms charge different percentages of the selling price as their commission that is, when they compete for listings on the basis of price the following problem arises. Suppose that firm A charges 4% And firm B charges 7%, and that A and B divide commissions on cooperative sales on a straight 55/45 basis. Then if A sells a B listing for $100,000, A earns 45% Of the $7,000 B collects as its fee, or $3,150. But if B sells an A listing for $100,000, B only earns 45% Of the $4,000 that A collects as its fee, or $1,800. Quite aside from the different incentives and disincentives this creates, B may think the arrangement unfair, since A, the cut-rate broker, appears to have the best of both worlds: because of its lower fee, A has an advantage in the competition for listings; and yet A benefits from B's higher fee whenever it sells one of B's listings. For these and perhaps other reasons, B might seek to alter its fee-splitting arrangement with A as follows: Instead of dividing its full 7% Commission with A when A sells one of its listings, B will divide only so much of the commission with A as A would have collected had A listed the property and charged its usual fee. Thus, if A now sells a B listing for $100,000, A only earns 45% Of $4,000, or $1,800 the same as B would earn if it sold A's listing for $100,000. This not only prevents A from benefiting from B's higher fee when A sells a B listing, but it actually benefits B. For whereas under the old arrangement B only kept $3,850, or 55% Of its $7,000 commission when A sold its listing, B Now keeps $4,200 or 74.3% Of the fee. What B loses in listings to A's price competition it may gain back from A's zeal to sell houses. And now, of course, it will be A who will feel it is being treated unfairly, since when A and B cooperate on a sale of one of B's listings, the division of the commission is almost 75/25 in favor of B, whereas when they cooperate on a sale of one of A's listings the division is only 55/45 in favor of A. Penne, who takes the part of the cut-rate broker A, refers to this latter method of dividing fees on cooperative sales as "punitive," thereby suggesting that the higher-priced firms that divide their fees with it on this basis are punishing it for its lower rates.

Until 1969 or 1970, the Board recommended that its members charge 6% On most listings. ³ When this recommended fee schedule was eliminated, some members began charging 7%. These firms did not wish to split their fees on a straight 50/50 or 55/45 basis with the firms charging less than they, as above. In January 1971 the Board adopted the following rule:

On a cooperative sale the listing firm shall divide half the gross brokerage fee received with the selling firm, after payment of the Multiple Listing fee. Listing firm shall, however, have the right to base the division of fees on the brokerage fee the selling firm regularly charges on sales of similar type properties.

This rule gave the "punitive split" ⁴ of commissions the sanction of the Board.

At about the same time that commission rates began to vary and "punitive splits" received the sanction of the Board, the Board also began to print a roman numeral in a special place on the MLS listing circulars it distributed to each MLS participant on every listed property. This roman numeral indicated the commission rate at which the listing firm was charging the seller on that listing. Thus, the circulars on Penne's listings would ordinarily have a "IV" or "V" in one corner; other firms would have a "VI" or "VII". The reason given for the institution of this form of interseller price information exchange was that each firm was entitled to know what fee it would divide with the listing firm on a cooperative sale of the given listed property.

In 1972 the Board retracted all written rules concerning the division of commissions on cooperative sales. It is clearly established in the record that since that time the Board has frequently made public pronouncements dissociating itself from both the setting of commission rates and the division of commissions on cooperative sales, and informing its member firms that they are to individually determine their commissions and the division of commission they will offer on cooperative sales. Penne has offered no evidence that since 1972 the Board has made recommendations to any of its member firms regarding the division of commissions. However, the Board has continued to print roman numerals on the MLS listing circulars, indicating the commission rate at which the listing firm is charging the seller on the listed property. ⁵ Furthermore, the "punitive split" has continued even without the official sanction of the Board. In December 1973, soon after Penne applied for admission to the Board, one of Minneapolis' largest real estate brokerage firms, Edina Realty, caused a letter to be distributed to all member firms of the MLS, announcing that it would impose "punitive" divisions of commissions on...