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From Antitrust Law Daily, November 13, 2014

Kentucky real estate firms dodge price fixing conspiracy claims

By Greg Hammond, J.D.

A group of residential property sellers were unable to prove that various Kentucky real estate firms violated the Sherman Act by allegedly conspiring to charge supra-competitive real estate broker commissions of 6 percent, the U.S. Court of Appeals in Cincinnati has decided. A summary judgment order, entered by the federal district court in Louisville, was therefore affirmed (Hyland v. HomeServices of America, Inc., November 13, 2014, Norris, A.).

Background. Various residential property sellers filed a class action suit against HomeServices of America, Inc., McMahan Co., Inc., and other Kentucky-based real estate firms, alleging that they “combined, conspired and agreed to fix, maintain and inflate real estate broker commissions and associated fees and refused to compete on the basis of price.” Specifically, the plaintiffs alleged that the real estate firms charged a real estate broker commission of 6 percent, described the fee as “standard” or “typical,” and habitually refused to negotiate lower fees. The plaintiffs therefore claimed that they had been forced to pay artificially-inflated commissions.

The district court granted summary judgment in favor of the defendants, and the plaintiffs timely appealed. The plaintiffs argued that the district court erred in (1) granting summary judgment in favor of the real estate firms; (2) excluding the opinions of plaintiffs’ experts with respect to the question of whether collusion among the defendants was the likely economic explanation of the pricing of commissions; and (3) finding that HomeServices of America, Inc. was not responsible for the acts of its subsidiary.

Summary judgment. The court first determined that summary judgment was appropriate, because the plaintiffs failed to provide sufficient direct or circumstantial evidence to demonstrate that the real estate firms engaged in a conspiracy to fix real estate commissions at a supra-competitive 6 percent. Specifically, the appellate court agreed with the lower court, finding that the statements made by multiple realtors—used by the plaintiffs as direct evidence—were taken out of context and construed in a “highly-strained manner.” Rather, the statements relied on were “ambiguous at best” and did not establish direct evidence of a conspiracy, the court determined. Additionally, the circumstantial evidence submitted by the plaintiffs was fatally flawed because it failed to eliminate a finding that the actions complained of were equally consistent with independent, permissible conduct.

Expert testimony. The plaintiffs also appealed the lower court’s decision to exclude the ultimate opinions of their two experts—that a price-fixing conspiracy existed. Specifically, the district court found that the two experts embraced a legal conclusion that depended on antitrust doctrine, which they were not qualified to offer an opinion on. The appellate court agreed, noting that witnesses may not testify to a legal conclusion.

Subsidiary. Lastly, the appellate court found that the district court did not err in finding that HomeServices was not responsible for the acts of its subsidiary. It found that because the subsidiary did not engage in price fixing, HomeServices could not have any derivative liability.

The case number is 12-5947.

Attorneys: Christopher Lovell (Lovell Stewart Halebian Jacobson LLP) for Appellants. Robert D. MacGill (Barnes & Thornburg LLP) for HomeServices of America, Inc. Matthew C. Blickensderfer (Frost Brown Todd LLC) for McMahan Co., Inc.

Companies: HomeServices of America, Inc.; McMahan Co., Inc.

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