Realcomp II, Ltd. v. ACE Am. Ins. Co.

• Decision Date: 09 September 2014
• Docket Number: Case No. 12–cv–11280.
• Citation: Realcomp II, Ltd. v. ACE Am. Ins. Co., 46 F.Supp.3d 736 (E.D. Mich. 2014)
• Parties: REALCOMP II, LTD., Plaintiff, v. ACE AMERICAN INSURANCE CO., Defendant.
• Court: U.S. District Court — Eastern District of Michigan

46 F.Supp.3d 736

REALCOMP II, LTD., Plaintiff

v.ACE AMERICAN INSURANCE CO., Defendant.

Case No. 12–cv–11280.

United States District Court, E.D. Michigan, Southern Division.

Signed Sept. 9, 2014.

Brian D. O'Keefe, Hyman Lippitt, Harvey R. Weingarden, Lippitt O'Keefe, PLLC, Birmingham, MI, James D. Wilson, Wilson Young, Detroit, MI, for Plaintiff.

Edward P. Gibbons, Kari A. Timm, Walker Wilcox Matousek, LLP, Chicago, IL, Thomas F. Myers, Garan Lucow, Detroit, MI, for Defendant.

ORDER GRANTING ACE AMERICAN'S MOTION FOR SUMMARY JUDGMENT (document no. 16), DENYING REALCOMP'S MOTION FOR SUMMARY JUDGMENT (document no. 14), AND DISMISSING CASE

STEPHEN J. MURPHY, III, District Judge.

Realcomp II, Ltd., purchased a Professional Liability Insurance Policy from ACE American Insurance Co., with effective dates of January 1, 2010 to January 1, 2011. During this period, Realcomp was named as a defendant in the civil action Eugene Allan, et al. v. Realcomp II, Ltd., et al., No. 10–14046 (E.D.Mich.). Realcomp brought the current declaratory judgment action in diversity, alleging that ACE American is obligated under the insurance policy to defend Realcomp. ACE American responded by arguing that the case falls under one of the insurance policy's exclusion clauses, relieving it of the duty to defend. The parties cross-moved for summary judgment. The Court, having reviewed the papers, concludes that a hearing is not necessary to resolve the motions. See E.D. Mich. LR 7.1(f)(2). For the reasons stated below, the Court will grant ACE American's motion for summary judgment and dismiss the case.

BACKGROUND

The plaintiff, Realcomp II, Ltd., is a corporation whose shareholders are comprised of associations and boards of realtors. Realcomp's customers subscribe to Realcomp's residential brokerage services, including access to a multiple-listing service (“MLS”), “a database of information about properties for sale ... that can be viewed and searched by all other local brokers who practice in the area and participate in the MLS.” Realcomp II, Ltd. v. FTC, 635 F.3d 815, 820 (6th Cir.2011) (internal quotations and citations omitted). The database facilitates information sharing among brokers representing home buyers and sellers.

The dominant business model for a real estate broker working on behalf of a person selling a home is an Exclusive Right to Sell (“ERTS”) contract. In that type of arrangement, the listing, or selling, broker is the exclusive sales agent for a certain period of time. If a home is sold within the time period, the listing broker collects a fee. The fee is usually split with a cooperating, or buying, broker, with whom the listing broker negotiates to complete the transaction. But the fee paid by the seller is independent of whether or not the listing agent finds a cooperating agent with whom to work. Therefore, if the home is sold to an unrepresented buyer, the listing agent still receives the entire agreed-upon fee.

Certain brokers saw the ERTS contract model as inefficient, and began proposing alternative models. One model is an Exclusive Agency (“EA”) agreement. Under an EA contract, a broker agrees to take less or no compensation if a property is sold without further assistance from the listing broker. No fees are paid to a cooperating broker unless one is actually used. As a trade-off, certain services that are typically performed by listing brokers in ERTS deals are either not provided or are paid for on an as-needed basis by sellers. In addition to EA agreements, there are a number of other alternative fee systems, all falling under the general heading of “discount” brokerage arrangements, that place market pressure on the traditional ERTS model by cutting back on fees typically associated with selling a home. One can conceptualize the ERTS model as “full-service/bundled” arrangements, and non-traditional models such as the EA as “non full-service/unbundled” arrangements that present possible customers with varying services at generally lower prices.

On October 12, 2006, the Federal Trade Commission (“FTC”) filed an administrative complaint against Realcomp. The FTC alleged that Realcomp discriminated in favor of brokers using ERTS arrangements over those offering EA and other discount contracts in violation of § 5 of the Federal Trade Commission Act. Section 5 tracks § 1 of the Sherman Act. 15 U.S.C. § 45 ; see Realcomp II, Ltd., 635 F.3d at 824 (“[T]he same analysis applies to both violations of Section 1 of the Sherman Act and Section 5 of the FTC Act.”). Realcomp allegedly created policies that prevented listings from being placed on feeds to publicly accessible websites unless they met certain “minimum services” criteria in their arrangements with home sellers. The requirements blocked discount brokers from appearing on the websites, since the essence of their business was offering fewer services than a broker in an ERTS arrangement. Choking off the flow of discount broker listings to the public had a serious impact on the business of discount brokers, which are dependent on attracting the attention of non-represented buyers and eliminating the “middleman” role played by other brokers to provide a lower price to their clients. The FTC ultimately found that Realcomp's rules constituted an illegal restraint of trade. In re Realcomp II, Ltd., No. 9320, 2007 WL 6936319 (F.T.C. Oct. 30, 2009). And the Sixth Circuit affirmed under a full rule-of-reason analysis in Realcomp II, Ltd.

On May 14, 2007, a civil action was filed against Realcomp in the case of Home Quarters Real Estate Group, LLC v. Michigan Data Exchange, Inc., et al., No. 07–12090, in the Eastern District of Michigan. The plaintiff was the Home Quarters Real Estate Group, LLC (“Home Quarters”), a discount brokerage service, and the defendants were Michigan Data Exchange, Inc., and Realcomp. The complaint alleges that Michigan Data Exchange and Realcomp engaged in unlawful actions in restraint of trade by shutting out access by Home Quarters to the defendants' MLS data, and implementing new access policies that eventually put Home Quarters out of business. Compl. ¶ 20–27, Home Quarters (No. 07–12090).

The defendant, ACE American Insurance Co., is an insurance company that provides, among other things, liability insurance for covered associations such as Realcomp. ACE American issued Realcomp a Professional Liability Insurance Policy (the “Policy”) from January 1, 2010 to January 1, 2011. The Policy is a renewal of prior policies of comparable coverage beginning January 1, 2008.

On October 8, 2010, the civil action Eugene Allan, et al. v. Realcomp II Ltd., et al., No. 10–14046 (E.D.Mich.) (the “Underlying Action”) was filed and based upon the same underlying set of circumstances as the FTC action. Allan and others alleged the Defendants engaged in a contract, combination, or conspiracy in restraint of trade or commerce under the Sherman Act.

On October 18, 2010, Western Wayne Oakland County Association of Realtors, on behalf of Realcomp, notified ACE American of the Underlying Action. Realcomp filed a claim to defend against the Underlying Action shortly thereafter, and ACE American subsequently denied Realcomp's claim by letter dated November 18, 2010. ACE American Nov. 18, 2010 Letter, Ex. B, ECF No. 14. Realcomp brought the instant declaratory judgment action on March 21, 2012. The parties have now cross-moved for summary judgment.

STANDARD OF REVIEW

Summary judgment is warranted “if the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute over material facts is “genuine” “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To show that a fact is, or is not, genuinely disputed, both parties are required to either “cite [ ] to particular parts of materials in the record” or “show[ ] that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1). In considering a motion for summary judgment, the Court must view the facts and draw all reasonable inferences in a light most favorable to the nonmoving party. 60 Ivy St. Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987).

DISCUSSION

In their cross-motions for summary judgment, the parties agree that the case revolves around whether either of two exclusion clauses in the Policy apply to the Underlying Action. ACE American argues that either or both of Exclusion I or Exclusion R apply, relieving it of the duty to defend Realcomp; Realcomp argues neither apply.

I. Legal Standards

In Michigan, an insurance contract is treated and interpreted like any other written contract. Comerica Bank v. Lexington Ins. Co., 3 F.3d 939, 942 (6th Cir.1993) (citing Hall v. Equitable Life Assurance Society, 295 Mich. 404, 295 N.W. 204 (1940) ).¹ A court “must look at the contract as a whole and give meaning to all terms.” Fed.- Mogul U.S. Asbestos Pers. Injury Trust v. Cont'l Cas. Co., 666 F.3d 384, 390 (6th Cir.2011) (quoting Auto–Owners Ins. Co. v. Churchman, 440 Mich. 560, 566, 489 N.W.2d 431 (1992) ). “Policy language in an insurance contract is to be given its ordinary meaning unless it is apparent from a reading of the whole instrument that a different or special meaning was intended.” Comerica Bank, 3 F.3d at 942 (citing Sump v. St. Paul Fire & Marine Ins. Co., 21 Mich.App. 160, 175 N.W.2d 44 (1970) ).

A court will “construe ambiguous terms in the light most favorable to the insured.” N. Am. Specialty Ins. Co. v. Myers, 111 F.3d 1273, 1278 (6th Cir.1997) (citing Advance Watch Co., Ltd. v. Kemper Nat'l. Ins. Co., 99 F.3d 795, 799 (6th Cir.1996) ). But a term or policy is considered ambiguous only “if it is susceptible to two different reasonable interpretations.” Comerica Bank, ...