State v. Hossan-Maxwell, Inc., HOSSAN-MAXWEL

Citation181 Conn. 655,436 A.2d 284
Decision Date05 August 1980
Docket NumberHOSSAN-MAXWEL,INC
CourtSupreme Court of Connecticut
Parties, 1980-2 Trade Cases P 63,471 STATE of Connecticut v., et al.

Richard Hanna, Danbury, for appellant (named defendant).

Steven M. Rutstein, Asst. Atty. Gen., Hartford, with whom were Robert M. Langer, Asst. Atty. Gen., and, on the brief, Carl R. Ajello, Atty. Gen., for appellee (plaintiff).

Before COTTER, C. J., and BOGDANSKI, PETERS, HEALEY and PARSKEY, JJ.

COTTER, Chief Justice.

The issue presented in this appeal concerns the applicability of the Connecticut Anti-Trust Act; General Statutes §§ 35-24 through 35-45; to restrictive covenants included in the sale of sixty- four subdivision housing lots. The state brought suit alleging that the restrictive covenants at issue were in restraint of trade in violation of General Statutes §§ 35-26, 35-28(d) and 35-29 because they illegally tied real estate brokerage services to the sale, resale or lease of the subdivision lots. In the first count of the complaint, the state alleged that the exclusive sales and leasing rights conferred by the covenant constituted a combination or conspiracy to boycott all other licensed real estate brokers in violation of General Statutes §§ 35-26 and 35-28(d). In a second count the state alleged that the defendants' arrangement was an attempt to monopolize the market for real estate brokerage services in violation of General Statutes § 35-27. The trial court granted the state's motion for summary judgment as to the first count against the defendants James F. Hartnett, Bren Construction Co., Inc., Jansen Realty, Inc. and Hossan-Maxwell, Inc. It is from the judgment in favor of the plaintiff on the first count that only the defendant Hossan-Maxwell, Inc., appeals.

The material facts are not in dispute. 1 On July 15, 1966, James F. Hartnett recorded a "Declaration of Covenants and Restrictions" upon certain parcels of land in New Milford known as Dean Heights. Paragraphs 19 and 20 of that declaration require a grantee of any of the sixty-four lots who decides to sell or lease the property through any person to whom a commission would be payable to give exclusive sales and leasing rights to Hartnett for a period of three months. 2 By the express terms of the declaration of covenants, the exclusive rights were intended to run with the land and to bind the immediate grantee and all subsequent purchasers. 3

On May 14, 1973, Hartnett conveyed all right, title and interest in the declaration of covenants to Bren Construction Co., Inc. Seven days later, Bren assigned certain of its rights to Jansen Realty, Inc. On November 4, 1974, Jansen and Bren jointly assigned to Hossan-Maxwell, Inc., all their interest concerning the brokerage services. In February, 1976, Robert Hossan, the president of Hossan-Maxwell, Inc., informed a Dean Heights homeowner that her efforts to sell her home through a competing real estate broker violated Hossan-Maxwell's exclusive brokerage rights and that Hossan-Maxwell would take steps to prevent sales through any other broker.

I

A tying arrangement is an agreement by a party to sell one product but only on the condition that the buyer also purchase a different (tied) product, or at least agree that he will not purchase that product from any other supplier. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545. Since it is undisputed that a tying arrangement exists, we first consider the defendant's claim that the Connecticut act does not apply to arrangements involving services. General Statutes § 35-29 provides that "(e)very lease, sale or contract for the furnishing of services or for the sale of commodities, or for the fixing of prices charged therefor, or for the giving or selling of a discount or rebate therefrom, on the condition or understanding that the lessee or purchaser shall not deal in the services or the commodities of a competitor or competitors of the lessor or seller, shall be unlawful where the effect of such lease or sale or contract for sale or such condition or understanding may be to substantially lessen competition or tend to create a monopoly in any part of trade or commerce and where such goods or services are for the use, consumption or resale in this state." Thus, in light of the clear wording of General Statutes § 35-29, the defendant's claim that the Connecticut act does not apply to services is without merit. 4

II

Our construction of the Connecticut Anti-Trust Act is aided by reference to judicial opinions interpreting the federal antitrust statutes. Elida, Inc. v. Harmor Realty Corporation, 177 Conn. 218, 226-27, 413 A.2d 1226; Mazzola v. Southern New England Telephone Co., 169 Conn. 344, 348, 363 A.2d 170. Cf. Wilson v. Freedom of Information Commission, 181 Conn. 324, 435 A.2d 353.

Tying arrangements are among the small group of practices which courts have found to be "unlawful in and of themselves." Northern Pacific Ry. Co. v. United States, supra, 5; International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; Elida, Inc. v. Harmor Realty Corporation, supra, 177 Conn. 227, 228, 413 A.2d 1226. The justification for the per se approach is that "(t)ying agreements serve hardly any purpose beyond the suppression of competition." Standard Oil Co. v. United States, 337 U.S. 293, 305, 69 S.Ct. 1051, 1058, 93 L.Ed. 1371. Nonetheless, "(it is only) when certain prerequisites are met, (that) arrangements of this kind are illegal in and of themselves, and no specific showing of unreasonable competitive effect is required." Fortner Enterprises, Inc. v. United States Steel Corporation, 394 U.S. 495, 498, 89 S.Ct. 1252, 1256, 22 L.Ed.2d 495 (hereinafter Fortner I ). The classic formulation of these prerequisites was expressed by Justice Black in Northern Pacific Ry. Co. v. United States, supra, 356 U.S. 6, 78 S.Ct. 518. In that case, brought under § 1 of the Sherman Antitrust Act; 15 U.S.C. § 1; tying arrangements were deemed per se illegal, "whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a 'not insubstantial' amount of interstate commerce is affected." Northern Pacific Ry. Co. v. United States, supra, 6, 78 S.Ct. 518.

Although both tests must be met to constitute a violation of § 1 of the Sherman act, under § 3 of the Clayton Antitrust Act; 15 U.S.C. § 14; a tie-in is per se illegal if either condition is met. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 608, 609, 73 S.Ct. 872, 880, 97 L.Ed. 1277; Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1214 (9th Cir.); Advance Business Systems & Supply Co. v. SCM Corporation, 415 F.2d 55, 61-62 (4th Cir.), cert. denied, 397 U.S. 920, 90 S.Ct. 928, 25 L.Ed.2d 101; ILC Peripherals Leasing Corporation v. International Business Machines Corporation, 448 F.Supp. 228, 230 (N.D. Cal.). Since General Statutes § 35-29 is patterned after § 3 of the Clayton act; 5 14 H.R. Proc., Pt. 9, 1971 Sess., p. 4182 (remarks of Rep. David H. Neiditz); Brodigan, "The Connecticut Antitrust Act," 47 Conn.B.J. 12, 15 (1973); and specifically includes the provision of services within its ambit, we believe that it is appropriate to adopt the Clayton act test in determining whether a violation of § 35-29 has occurred. Thus, the declaration of covenants and restrictions is unlawful per se if either condition under Northern Pacific Ry. Co. v. United States, supra, 356 U.S. 6, 78 S.Ct. 518, is met; 6 that is, if (1) the party has sufficient economic power in the tying product, or (2) a not insubstantial amount of commerce is affected. If the restraint violates both tests, the tying arrangement violates General Statutes § 35-26 as well as § 35-29.

A

The tying of brokerage services to the sale of residential development of real estate is automatically illegal under § 35-29 whenever a substantial volume of commerce in the tied product is restrained. Advance Business Systems & Supply Co. v SCM Corporation, supra. The amount of commerce affected is not measured by reference to the size of the tied product market. Moore v. Jas. H. Matthews & Co., supra, 1216. "... (N)ormally the controlling consideration is simply whether a total amount of business, substantial enough in terms of dollar- volume so as not to be merely de minimis, is foreclosed to competitors by the tie, for as (the Supreme Court) said in International Salt, (supra, 332 U.S. 396, 68 S.Ct. 15) it is 'unreasonable, per se, to foreclose competitors from any substantial market' (through use of) a tying arrangement." Fortner I, supra, 394 U.S. 501, 89 S.Ct. 1258.

In the case at hand, the dollar volume of business foreclosed to competitor real estate brokers is not insubstantial. Houses have been built on fifty-seven of the sixty-four building lots in the Dean Heights development. The defendant's affidavit states that an average of 10 to 15 percent of the homes will be sold each year if the development is typical of the real estate market in New Milford. The affidavit further states that the average commission on the sale of a home is 6 percent of the selling price. If we take the defendant at his word, an average of seven homes in the Dean Heights development will be sold each year at an average price (as of 1976) of $50,000. The total commerce involved each year is $350,000 and the annual volume of real estate commissions foreclosed is $21,000. The not insubstantial test has been met by showing dollar volumes which total $60,800; United States v. Loew's, Inc., 371 U.S. 38, 49, 83 S.Ct. 97, 104, 9 L.Ed.2d 11; and estimated sales of $86,377. Detroit City Dairy v. Kowalski Sausage Co., 393 F.Supp. 453, 472 (E.D. Mich.). See also Anderson Foreign Motors v. New England Toyota, 475 F.Supp. 973, 987 (D.Mass.), describing the "very liberal interpretation" of the "not insubstantial" test by the United...

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