Re/Max Intern., Inc. v. Smythe, Cramer Co., No. 1.03-CV-040.

• Decision Date: 20 May 2003
• Docket Number: No. 1.03-CV-040.
• Citation: 265 F.Supp.2d 882
• Parties: RE/MAX INTERNATIONAL, INC., Plaintiff, v. SMYTHE, CRAMER COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Ohio

265 F.Supp.2d 882

RE/MAX INTERNATIONAL, INC., Plaintiff, v. SMYTHE, CRAMER COMPANY, Defendant.

No. 1.03-CV-040.

United States District Court, N.D. Ohio, Eastern Division.

May 20, 2003.

COPYRIGHT MATERIAL OMITTED

Mark J. Andreini, Jones, Day, Reavis & Pogue, Cleveland, for Re/Max International, Inc., (pla).

Daniel H. Bromberg, Jones Day, Washington, DC, for Re/Max International, Inc., (pla).

Leslie W. Jacobs, Thompson Hine, Cleveland, for Smythe, Cramer Company, (dft).

Robert C. Jones, Jones, Day, Reavis & Pogue, Washington, DC, for Re/Max International, Inc., (pla).

Charles M. Kennedy, IV, Jones Day, Cleveland, for Re/Max International, Inc., (pla).

Matthew E. Liebson, Thompson Hine, Cleveland, for Smythe, Cramer Company, (dft).

Isla M. Luciano, Jones, Day, Reavis & Pogue, Cleveland, for Re/Max International, Inc., (pla).

Terence R. Quinn, Quinn, Day & Barker, Rapid City, SD, for Re/Max International, Inc., (pla).

Stephen G. Sozio, Jones Day, Cleveland, for Re/Max International, Inc., (pla).

Stephen J. Squeri, Jones, Day, Reavis & Pogue, Cleveland, for Re/Max International, Inc., (pla).

Robert F. Ware, Thompson Hine, Cleveland, for Smythe, Cramer Company, (dft).

ORDER

GWIN, District Judge.

On February 28, 2003, Defendant Smythe, Cramer Company ("Smythe, Cramer") moved the Court to dismiss Plaintiff RE/MAX International, Inc.'s ("RE/MAX") complaint against it. RE/MAX's complaint makes claims for breach of contract, tortious interference with prospective business relationships, defamation, and antitrust violations. RE/MAX also seeks declaratory relief.

Smythe, Cramer says that the Court should dismiss the entire complaint for failure to state a claim upon which the Court can grant relief. RE/MAX opposes the motion.

For the reasons that follow, the Court grants Smythe, Cramer's motion in part and denies it in part. The Court dismisses the defamation and declaratory judgment claims. Additionally, the Court dismisses the state and federal antitrust claims alleging a section 1 conspiracy between Smythe, Cramer and its current and former agents. However, the Court denies the motion as to the breach of contract and tortious interference with prospective business relationships claims.

I. Background

The underlying action involves a dispute between residential real estate brokers. Defendant Smythe, Cramer operates as a real estate brokerage firm doing business in northeast Ohio. Plaintiff RE/MAX franchises real estate brokerage systems throughout the United States and North America. In its operation, RE/MAX employs a somewhat different business structure from most real estate franchisors. RE/MAX uses a 100% Concept. Under the 100% Concept, real estate agents keep 95% to 100% of their commissions. Traditional real estate agents historically only keep 50% of their commissions. In exchange for the higher commission rate, RE/MAX agents pay monthly fees to the RE/MAX brokers with whom they affiliate for office space and other overhead expenses that traditional brokers absorb. RE/MAX agents also pay an annual membership fee to RE/MAX. Besides the higher commission rate, RE/MAX gives its agents access to RE/MAX's referral network, training, corporate relocation services, website, extranet site, software, and other technological tools. Additionally, RE/MAX agents may use the RE/MAX trademark, logo, and service marks.

1994 RE/MAX Litigation

In 1994, RE/MAX, its regional subfranchisor, and several franchisees in northeast Ohio sued Smythe, Cramer and Realty One for antitrust violations stemming from the defendants' imposition of adverse commission splits on RE/MAX brokers. With adverse splits, Smythe, Cramer and Realty One split commissions differently with RE/MAX affiliated agents who brought purchasers to a home sale with a Smythe, Cramer or Realty One listing. Lacking direct evidence that Smythe, Cramer and Realty One had tacitly agreed to mutually impose the adverse split formula, RE/MAX relied upon an economic analysis that collusion between Smythe, Cramer and Realty One necessarily occurred because a unilateral imposition of adverse splits would be self-defeating. See Re/Max Int'l, Inc. v. Realty One, Inc., 173 F.3d 995, 1009-1010 (6th Cir.1999) (discussing RE/MAX expert Martin's opinion that "if Smythe Cramer had no assurance that Realty One would also adhere to adverse splits against RE/MAX, the danger of unilateral imposition would have outweighed the potential loss of agents.") Stated otherwise, RE/MAX took the position that Smythe, Cramer needed the complicity of Realty One to enforce the adverse split policy against RE/MAX. Otherwise, Smythe, Cramer would lose money as RE/MAX affiliated agents steered their purchasing clients to listings without adverse splits. After a complicated pre-trial path that included a grant of summary judgment, a court of appeals reversal, and a mistrial, the case approached trial. Shortly before a new trial and in July 2000, RE/MAX reached a settlement agreement with Smythe, Cramer and Realty One.

Under the settlement agreement, Smythe, Cramer generally retained the ability to impose adverse splits on RE/MAX brokers for reasons applied to other brokers northeast Ohio area. But under the settlement, Smythe, Cramer could "not issue any special notice letter to a RE/MAX broker based expressly or in purpose, upon (i) its affiliation with RE/MAX International and/or (ii) its use of the RE/MAX business model."

The settlement agreement also includes an agreement to resolve disputes with arbitration. Under the agreement, any RE/MAX broker that receives a special notice letter may demand arbitration. The dispute resolution agreement specifies arbitration procedures and expressly states that the agreement's procedures are the exclusive means to resolve any claims arising from a special notice letter. Although RE/MAX and Smythe, Cramer are parties to the resolution agreement, only Smythe, Cramer and certain RE/MAX brokers are parties to the arbitration agreement. RE/MAX itself is not.

Smythe, Cramer's Adverse Split Policy & Special Notice Letters

In February 2001, Smythe, Cramer adopted a policy of issuing special notice letters and imposing adverse splits based upon the percentage of former Smythe, Cramer agents working for a broker. Based on this policy, Smythe, Cramer issued special notice letters advising of adverse splits to several brokers, including RE/MAX franchisees. One RE/MAX broker, RE/MAX Premier Properties, successfully arbitrated the special notice letter. In other cases, RE/MAX brokers demanded arbitration, but Smythe, Cramer withdrew its special notice letter before arbitration proceedings began.

In December 2002, Smythe, Cramer withdrew the policy for review and revision. Smythe, Cramer has issued no special notice letters and has not imposed any adverse splits since withdrawing the policy.

RE/MAX sues Smythe, Cramer. With its complaint, RE/MAX sets forth claims for breach of the settlement agreement, tortious interference with prospective business relationships, defamation, violations of the Sherman Act and Ohio Valentine Act, and declaratory judgment.

On February 28, 2003, Smythe, Cramer moved the Court pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss RE/MAX's entire complaint. (Doc. 17). RE/MAX opposes the motion.

On April 30, 2003, RE/MAX moved the Court to amend its complaint to "further particularize the bases for its claims and causes of action; add a prayer for injunctive relief for breach of contract; and add a cause of action for monopolization under Section 2 of the Sherman Act, 15 U.S.C. § 2, based on substantially the same underlying conduct alleged in the original Complaint."

II. Standard & Analysis

A. Standard

The Court uses the Fed.R.Civ.P. 12(b)(6) standard to judge the legal sufficiency of a claim. Under this rule, the Court presumes that all well pleaded allegations are true, resolves all doubts and inferences in favor of the pleader, and views the pleading in the light most favorable to the non-moving party. Cent States, Southeast & Southwest Areas Pension Fund v. Mahoning Natl Bank, 112 F.3d 252 (6th Cir.1997). See also In re Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir.1997) (holding that when ruling on a motion to dismiss for failure to state a claim, the court deems as admitted all factual allegations made by plaintiff, and the court must construe all ambiguous allegations in plaintiffs favor.) Courts will dismiss a claim under this rule only if it appears beyond doubt that the pleader can prove no set of facts in support of the claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Advocacy Org. For Patients & Providers v. Auto Club Ins. Ass'n, 176 F.3d 315, (6th Cir.1999).

B. Analysis

With its original complaint, RE/MAX makes six claims against Smythe, Cramer.¹ Count I alleges that Smythe, Cramer has breached the settlement agreement by creating and carrying out a prohibited adverse split policy. Count II asserts a claim for tortious interference with contractual relation and complains that Smythe, Cramer's implementation of the adverse split policy interfered with RE/MAX's potential relationships with franchisees and sales agents. Next, RE/MAX claims that Smythe, Cramer defamed RE/MAX by publishing a statement made by Jim Gilreath concerning lien practices and rental provisions of RE/MAX franchisees. With its fourth and fifth charges, RE/MAX says that Smythe, Cramer conspired with its current and former real estate agents for them not to become RE/MAX agents or franchisees. According to RE/MAX, this conspiracy violates Section 1 of the Sherman Act and the Ohio Valentine Act. Finally, Count VI of the complaint seeks a declaratory judgment that if Smythe, Cramer coerced RE/MAX brokers to boycott the recruiting of Smythe, Cramer's agents, such a boycott violates the antitrust laws.

Smythe, Cramer asks the Court to dismiss all of RE/MAX's claims against it. It seeks...