Monday, July 9, 2007

Louisville Price-Fixing Class Action - Preliminary Ruling

In 2005 Casey W. Hyland, Graham Pullen and Christopher R. Burnette filed an antitrust class action complaint against numerous real estate brokerages in the United States District Court for the Western District of Kentucky. My understanding is that only Mr. Burnette remains as a named plaintiff in the case, per a December 22, 2006 order, which clarified an earlier ruling. The most recently filed complaint names the following entities as defendants:

1. HomeServices of America, Inc.
2. HomeServices of Kentucky, Inc.
3. Semonin Realtors
4. Rector Hayden Realtors
5. RE/MAX International, Inc.
6. RE/MAX Connections
7. RE/MAX Properties East
8. Century 21 Real Estate LLC (f/k/a Century 21 Real Estate Corporation)
9. Cendant Corporation
10. NRT Inc.
11. Coldwell Banker Real Estate Corporation
12. Coldwell Banker McMahan
13. RE/MAX Alliance

I have not reviewed the latest complaint, but note that it consists of a single count alleging a per se Section 1 violation. According to a recent ruling “the Plaintiffs are purchasers and sellers of real estate in . . . Kentucky sometime between January 1, 1991 through the present, and as such, the Plaintiffs seek to represent a class of persons and/or entities who purchased and/or sold real estate during this class period. The Purchaser-Plaintiffs allege that they each indirectly paid a 6% commission to their respective brokers. Both parties concur that the sellers of the real estate, not the Purchaser-Plaintiffs, paid the 6% commission to their agents, and the agents subsequently split the commissions with the brokers of the Purchaser-Plaintiffs following completion of the sales.

“The Plaintiffs characterize the dealings between the agents and brokers as illegal price-fixing, claiming that these transactions are violations of Section 4 of the Clayton Antitrust Act and Section 1 of the Sherman Act.”

On June 28, 2007, District Judge Russell ruled upon several pending motions to dismiss, most of which related to service and jurisdiction. The main exception though was the court's ruling upon a joint motion to dismiss the amended complaint. Therein the Defendants contended, in part, that the Plaintiffs have not properly pled an antitrust claim against them because the actual basis of the Plaintiffs' amended complaint stems from the state rebate regulation, which they argue implicates the state action doctrine.

In their response to the motion, the Plaintiffs argued that the crux of their amended complaint is not based on the Defendants' abiding by the state rebate regulation, but instead focuses on the claims that the Defendants allegedly engaged in illegal price fixing by conspiring to charge a 6% commission across the board, without any willingness to negotiate with customers, even though the costs of providing services has decreased while prices of real property in Kentucky has increased.

The Court stated that “[a]t this juncture, in construing the complaint in favor of the Plaintiffs, the Court finds that the Plaintiffs amended complaint has sufficiently set out an antitrust claim against the Defendants . . . the Plaintiffs have sufficiently pled an antitrust claim against the Defendants by properly alleging a conspiracy amongst the Defendants, who the Plaintiffs claim have a large share of the market, to illegally “price fix” within the Louisville real estate market by setting their commissions at 6%, while prohibiting any negotiations on the rate in order to eliminate price competition, and therefore, causing the class of plaintiffs financial harm . . . the Plaintiffs have pled a proper antitrust claim against the Defendants under FRCP 8, and that claim shall go forward at this time.”

Thus the complaint survived the defendants' motion to dismiss, and the parties will now presumably proceed with discovery. It remains to be seen whether plaintiff will file a motion for class certification (I tend to think he will), and, if so, whether he will first engage in class discovery before serving any substantive discovery requests. Because the court's ruling also barred certain claims as untimely under the Clayton Act's four year statute of limitations, the class definition would need to be narrowed. Once substantive discovery does commence, I would expect it to proceed much faster than it has, for example, in the USA v. NAR suit, mainly because of the per se standard that would likely apply, and because the case apparently only relates to transactions in the Louisville area.

Regardless, the is the only case presently pending that I am aware of that includes express price-fixing allegations against real estate brokers and agents relating to commissions. The court's denial of the defendants' motion to dismiss is a partial but impressive victory for plaintiff and the purported class. His complaint might also serve as a blueprint for future cases relating to alleged commission-fixing.


  1. I was surprised to hear that this is the only case pending revolving around the allegation of price fixing arrangements among realtor's in regard to their commissions. Given the amount of discussion about the prevalence of the 6% realtor's commission, I had expected there would be more litigation pending involving this issue.

  2. I also find it amazing that there are not more suits of this kind across the nation. Large corporate real estate firms dictate what agents are allowed to charge because their very survival requires it. What is even more amazing is that the co-op buyer commission in the vast majority of the nation is "fixed". In most areas if there will be commission negotiation it is only on the listing side. The buyer's co-op is untouchable if you want the property to be shown by buyer's agents. With discount brokers the sellers forego representation to save money and end-up paying the buyers agent so that the buyers have representation. This is unfortunate since sellers are dealing with their largest asset in what can be a complicated process. If there is going to be a change in business practice that brings forth savings for buyers and sellers it will be when buyers commit to an agency agreement that will allow the buyer's agent commission to be negotiable within the purchase negotiation. And, that will never happen because those that can bring about that change are those that stand to loose.

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