Re/Max Intern. v. Realty One, Inc.

• Citation: 900 F. Supp. 132
• Decision Date: 10 May 1995
• Docket Number: No. 1:94 CV 0062.,1:94 CV 0062.
• Parties: RE/MAX INTERNATIONAL, et al., Plaintiffs, v. REALTY ONE, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

900 F. Supp. 132

RE/MAX INTERNATIONAL, et al., Plaintiffs, v. REALTY ONE, INC., et al., Defendants.

No. 1:94 CV 0062.

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

May 10, 1995.

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Stephen J. Squeri, Charles D. Weller, Elizabeth A. Grove, Jones, Day, Reavis & Pogue, Cleveland, OH, for Re/Max Intern., Inc., A.E.B.T.S., Inc., T.M.A.T.N.B., Inc.

Stephen J. Squeri, Elizabeth A. Grove, Jones, Day, Reavis & Pogue, Cleveland, OH, for D.F.I., Inc., Joseph P. Grady, Inc., McGrew Realty, Inc., Property Professionals, Inc.

Edward W. Cochran, Shaker Heights, OH, George Cochran, Streetsboro, OH, for Re/Max Northeast Ohio Ltd. Partnership, Zames Realty, Inc., Realty Properties, Inc., True Independence Partnership.

Richard M. Markus, David R. Cohen, Porter, Wright, Morris & Arthur, Cleveland, OH, for Realty One, Inc.

Thomas Ignatius Michals, John J. Eklund, Philip J. Carino, Nicholas A. Rossi, Calfee, Halter & Griswold, Cleveland, OH, for Smythe Cramer Co.

M. Neal Rains, Arter & Hadden, Cleveland, OH, for M. Neal Rains.

                                             TABLE OF CONTENTS
                   I. INTRODUCTION ................................................................ 140
                  II. MOTION FOR JUDGMENT ON THE PLEADINGS FOR FAILURE TO STATE A
                       CLAIM ...................................................................... 143
                 III. DISMISSAL FOR FAILURE TO STATE A CLAIM UNDER RULE 12(b)(6) .................. 143
                  IV. REALTY ONE'S ANTITRUST ALLEGATIONS .......................................... 144
                   V. ANTITRUST INJURY AND STANDING TO SUE UNDER § 4 OF THE CLAYTON
                       ACT ........................................................................ 145
                      A. Antitrust Injury: A Proper Claim ......................................... 145
                      B. Antitrust Standing: A Proper Party ....................................... 146
                  VI. CONSPIRACY TO RESTRAIN TRADE UNDER § 1 OF THE SHERMAN ACT .............. 148
                 VII. CONSPIRACY TO MONOPOLIZE UNDER § 2 OF THE SHERMAN ACT .................. 152
                VIII. THE RECRUITMENT OF SALES AGENTS BY RE/MAX ................................... 155
                

                                             TABLE OF CONTENTS
                  IX. AGREEMENTS ON BROKER-TO-BROKER COMMISSION SPLITS ............................ 156
                   X. DISPARAGEMENT ............................................................... 159
                  XI. SHAM LITIGATION ............................................................. 159
                 XII. REALTY ONE'S STATE LAW CLAIMS ............................................... 161
                XIII. THE ANTITRUST STANDING OF RE/MAX INT'L ...................................... 162
                      A. Antitrust Injury ......................................................... 162
                      B. Antitrust Standing ....................................................... 163
                         1. The Market for Residential Real Estate Services in Northeast Ohio ..... 164
                         2. The Market for the Recruitment and Retention of Residential Real Estate
                              Agents .............................................................. 169
                XIV. CONCLUSION ................................................................... 170
                

MEMORANDUM OPINION

DOWD, District Judge.

I. INTRODUCTION

Plaintiffs, Re/Max International, Inc. ("Re/Max Int'l") and associated franchisees, A.E.B.T.S., Inc. ("Re/Max Crossroads"), and T.M.A.T.N.B., Inc. ("Re/Max Affinity"), filed a ten-count complaint against Defendants Realty One, Inc. ("Realty One") and Smythe, Cramer Company ("Smythe Cramer") asserting federal subject matter jurisdiction pursuant to 28 U.S.C. § 1337. Plaintiffs amended their complaint to join four additional Re/Max Int'l franchisees as plaintiffs — D.F.I., Inc. ("Re/Max Results"), Joseph P. Grady, Inc. ("Re/Max Xpress Realty"), McGrew Realty, Inc. ("Re/Max Key Realty"), and Property Professionals, Inc. ("Re/Max Property Professionals"); but the substance of the complaint's allegations remained the same (Docket 14). In addition to this initial group of seven, five more entities have since intervened as plaintiffs: Re/Max Northeast Limited Partnership ("Re/Max NE Ohio"), Zames Realty, Inc. ("Zames Realty"), Realty Properties, Inc., ("Realty Properties"), True Independence Partnership ("True Partnership"), and R.E.P., Inc. ("REP"). This second group of five has set forth its claims in the Second and Third Amended Complaints (Dockets 99 & 147).

Plaintiffs seek private enforcement of the antitrust laws pursuant to Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 & 26, due to Realty One's and Smythe Cramer's alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2. Plaintiffs also pursue pendent state law claims for violations of the Valentine Act, Ohio Revised Code § 1331.01 et seq.; the Ohio Deceptive Trade Practices Act, Ohio Rev.Code § 4165.01 et seq.; and for tortious interference with potential business relations. Plaintiffs assert supplemental jurisdiction under 28 U.S.C. § 1367.

In particular, the First, Second and Third Amended Complaints assert the following similar claims: Count I, conspiracy to restrain trade in violation of § 1 of the Sherman Act against Realty One and Smythe Cramer; Count II, conspiracy to monopolize in violation of § 2 of the Sherman Act against Realty One and Smythe Cramer; Count III, unlawful monopolization under § 2 of the Sherman Act against Realty One; Count IV, unlawful attempt to monopolize under § 2 of the Sherman Act against Realty One; Count V, unlawful monopolization under § 2 of the Sherman Act against Smythe Cramer; Count VI, unlawful attempt to monopolize under § 2 of the Sherman Act against Smythe Cramer; Count VII, unlawful formation of trusts under Ohio's Valentine Act against Realty One and Smythe Cramer; Count VIII, deceptive trade practices under Ohio's Deceptive Trade Practices Act against Realty One and Smythe Cramer; Count IX, unfair competition under Ohio law against Realty One and Smythe Cramer; and Count X, tortious interference with potential business relations under Ohio law against Realty One and Smythe Cramer.

Realty-One counterclaims against Plaintiffs for violations of Sections 1 and 2 of the Sherman Act, and for tortious interference with business relations and unfair competition under Ohio law. Smythe Cramer counterclaims against Plaintiffs for a declaratory judgment on the validity of various actions taken by it in this dispute. Plaintiffs have filed replies to those counterclaims denying their validity.

Re/Max Int'l, its associated franchisees and other intervening plaintiffs claim that Realty One and Smythe Cramer have engaged in anticompetitive conduct to prevent the expansion of the "Re/Max 100% Concept" and the creation of additional Re/Max affiliates in Northeast Ohio. Re/Max Int'l is a franchisor of a real estate broker business system. Re/Max franchises have established themselves nationwide including in Northeast Ohio. Realty One and Smythe Cramer are long-established real estate brokerage firms which do significant business in Northeast Ohio. Neither Realty One nor Smythe Cramer franchise their way of doing business. Plaintiffs contend that ever since they entered in the Northeast Ohio market place, Realty One and Smythe Cramer, collectively and individually, have refused to deal with them through the implementation of anticompetitive practices. Plaintiffs claim that they have been the victims of unlawful punitive, adverse commission splits. The practice of "commission splitting" in the real estate business is one that has apparently gained some acceptance in the residential real estate market in Northeast Ohio and might be summarized as follows:

Prospective home buyers approach a real estate broker to express an interest in buying a home. The real estate broker or his or her sales agent tells the home buyers that there will be no extra charge for his or her services in finding a suitable home under certain circumstances. At that point the broker presents the home buyers with two choices. One, as an agent or subagent of home sellers, the broker can show homes which are listed on the multiple listing service or "MLS." If a purchase of a MLS home is made, the broker as the agent or subagent for the home sellers will receive a percentage of the buyers' purchase price as a commission. In a case where a MLS home has been listed in the first instance with another realtor, the broker will receive a partial share of the commission, a "commission split," which is divided between the listing realtor and the broker as the listing realtor's subagent.

The second choice is that the broker may offer to act as the buyers' agent. As a buyers' agent, the broker may also use the MLS system to locate suitable homes, but the broker no longer acts as an agent or subagent for the sellers. Nevertheless, as in the previous case, the buyers' broker still expects to receive the full compensation for his or her services from a portion of the purchase price as a commission. In order to accomplish this arrangement, the buyers' broker obtains an agreement with the sellers' broker to receive a cut of the commission which the sellers' broker receives from the purchase price. The sellers' broker does not keep all of that commission percentage for himself or herself, instead the sellers' broker gives the buyers' broker a "split" of the commission tendered. The amount of this split is often posted on the MLS system. The end result is that the buyers pay the retail price for a home. The sellers receive the retail price less the commission they pay their broker. And the sellers' broker splits the commission with the buyers' broker.

In both instances, whether acting as the sellers' broker or the buyers' broker, the expectancy is that the real estate broker gets paid for his or her services from a percentage of the purchase price as a direct commission, or from a...