Sandicor lawsuit dismissed

Court decides that consolidation of MLSs did not lead to price fixing.

by Ralph Holmen   In an important ruling for REALTOR® associations, a California federal district court has ruled that an MLS and its member associations did not violate federal antitrust laws.

Prior to 1991, San Diego County, Calif., had 12 MLSs, 11 of which were operated by the 11 REALTOR® associations within the county. In 1991, the associations decided to centralize their operations into one MLS. A separate corporation, Sandicor, was formed. Sandicor entered into "service-center" agreements with each of the associations pursuant to which they provided services to allow participants to access and use the MLS.

In 1998, Arleen Freeman, Edward Urata, and James Alexander ("plaintiffs") filed a lawsuit claiming that Sandicor and the associations violated federal antitrust laws as well as certain state laws. A second amended complaint was filed in March 1999. Discovery was taken, following which the associations and Sandicor moved to dismiss the second amended complaint and filed motions seeking judgment in their favor. The plaintiffs also filed a motion for judgment in their favor.

The United States District Court, Southern District of California, ruled in favor of the associations and Sandicor and dismissed all of the federal antitrust claims. The court first considered the associations and Sandicor’s argument that the court lacked subject-matter jurisdiction over this lawsuit because the allegations in the complaint did not involve interstate commerce. The court rejected this argument, ruling that the court, in considering federal antitrust allegations, had to determine whether there was a connection between the defendants’ general business activities and interstate commerce. Since homes listed in the Sandicor MLS from 1995-97 resulted in sales of $23 billion and involved $10 billion of mortgage financing, the court found there was a sufficient connection between Sandicor’s business activities and interstate commerce to give the court subject-matter jurisdiction over the lawsuit.

The court next considered whether the associations engaged in an unlawful conspiracy or agreement to fix prices as a result of Sandicor establishing the price to be paid to the associations operating as service centers for MLS users. As a service center, the associations performed functions such as record-keeping, inputting listings, and answering questions. The plaintiffs argued that the prices charged for operating these service centers were inflated and violated Section 1 of the federal antitrust statute, the Sherman Act. The court rejected this argument, concluding that the associations were merely fulfilling their agreement with Sandicor to provide service-center functions, which are a necessary part of Sandicor’s MLS services. Therefore, the MLS fees paid by participants were not unlawfully set by the associations, but instead were the countywide fees charged by Sandicor for providing a countywide MLS. Thus, there was no conspiracy by the associations to fix prices.

The court also rejected the plaintiffs’ argument that Sandicor was merely a shell, which allowed the associations to fix prices for MLS services. The court found that when the associations created Sandicor, they agreed to consolidate their MLSs and act together to create a pro-competitive, single, countywide MLS. Because the MLS was a pro-competitive product, the court ruled that the associations acted as a single economic enterprise with respect to the countywide MLS fees to be charged. Since the plaintiffs failed to show that there were multiple entities with their own economic interests, the court ruled there could not be a conspiracy because a conspiracy must involve at least two parties. Therefore, the court ruled in favor of the associations and Sandicor on the Section 1 price-fixing claims.

Next the court considered the plaintiffs’ allegations that Sandicor and the associations conspired to monopolize the MLS market in violation of Section 2 of the Sherman Act. To make a case under Section 2, the court stated that the plaintiffs must show that there was a monopoly, the monopoly was acquired or maintained by exclusionary conduct, and the monopoly caused antitrust injury. The plaintiffs conceded that Sandicor was a "natural monopoly," meaning it was a monopoly that was not formed by exclusionary conduct. The court rejected, however, the plaintiffs’ argument that Sandicor’s prices were excessive, since there was no evidence of exclusionary conduct required to find a Section 2 violation. The court also rejected the plaintiffs’ other Section 2 arguments, which were "refusal-to-deal" allegations (involving Sandicor’s refusal to make one of the plaintiffs an MLS service provider) and a refusal to adopt a proposed business plan (proposed by one of the associations), finding that both sets of allegations were supported only by conclusionary language and, regardless, did not constitute violations of Section 2. Thus, the court ruled in favor of the associations and Sandicor on all of the federal antitrust claims. The court then dismissed all of the remaining state-law claims because without the federal claims, the court did not have jurisdiction to consider these claims.

The California Association of REALTORS® and NAR’s Legal Action Committee contributed to Sandicor’s successful defense.

Reprinted with permission from The Letter of the Law, ©National Association of REALTORS®.

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