ALAN E. NORRIS, Circuit Judge.
Class representatives Christopher and Mystic Burnette appeal three rulings by the district court that resulted in judgment for defendant real estate firms, all of which operate in Kentucky. The fourth amended complaint alleged that defendants violated Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, by participating in a horizontal conspiracy to fix the commissions charged in Kentucky real estate transactions at an anti-competitive rate. The certified class consists of people who sold residential real estate in Kentucky from October 11, 2001, to October 11, 2005, and used the services of defendants.
Plaintiffs contend that the district court erred 1) by granting summary judgment to defendants; 2) by excluding the opinions of plaintiffs' experts with respect to the ultimate question of whether collusion among the defendants was the likely economic explanation of the pricing of commissions; and 3) by finding that defendant HomeServices of America, Inc., was not responsible for the acts of its subsidiary, HomeServices of Kentucky, Inc.
For the reasons that follow, we affirm the judgment of the district court.
Plaintiffs filed suit in October 2005. On November 7, 2008, the district court certified the class alluded to above. We declined an invitation for interlocutory review of that order.
The crux of the allegation brought by plaintiffs is that defendants violated the Sherman Act by conspiring to charge a supra-competitive real estate broker commission of 6% and thereby injured sellers of residential property.
Several of the original named defendants have reached settlement agreements. The remaining defendants consist of the McMahan Company, Inc. (d/b/a Coldwell Banker McMahan Co.) ("McMahan"); HomeServices of Kentucky, Inc.
To become a real estate agent in Kentucky, an individual must be licensed by the Commonwealth's Real Estate Commission ("KREC"). Agents typically join local realtors' boards, such as the Greater Louisville Association of Realtors, the Lexington-Bluegrass Association of Realtors, and the Kentucky Association of Realtors ("KAR").
In 1991, the KREC passed a regulation (the "Rebate Ban") that prohibited licensed real estate brokers in Kentucky from offering any item or thing of value, including rebates, to induce clients to retain their services. The United States Department of Justice filed suit in 2005 against the KREC alleging that the Rebate Ban violated Section 1 of the Sherman Act.
This action was filed shortly thereafter. The fourth amended complaint alleges that defendants "combined, conspired and agreed to fix, maintain and inflate real estate broker commissions and associated fees and refuse to compete on the basis of price." Specifically, defendants "have charged a real estate broker commission of 6%, have described this 6% fee as the `standard' or `typical' fee, and have habitually refused to negotiate a lower fee." According to the complaint, this collusion resulted in sellers being forced to pay artificially inflated commissions.
The district court relied upon plaintiffs' expert, Dr. Gary French, to set out the elements of the alleged conspiracy:
District Court Memorandum Opinion at 2-3, filed July 18, 2012 (citations omitted).
The record developed below is voluminous and contains evidence that supports each side's claims. Plaintiffs point to a number of evidentiary items that they believe the district court improperly discounted. Unlike cases based solely upon circumstantial inferences, plaintiffs contend that direct evidence supports a conclusion that defendants actually agreed to fix prices. See In re Text Messaging Antitrust Litig., 630 F.3d 622, 627 (7th Cir.
In addition, plaintiffs point to a KREC hearing held on November 28, 2000, in Louisville. Among other things, Arvel "Jerry" McMahan, the principal broker for the McMahan Company, spoke about the dangers to the profession of internet brokers who offer cut-rate commissions. In his words, "the most unprofessional thing we can do in this business is cut our commission. I think we ought to be worth what we charge in the services that we offer." Similar sentiments were expressed by a representative of Semonin. In plaintiffs' view, "[a] reasonable juror could easily find that the plain meaning of Defendants CBMcMahan's and Semonin/HSK's improper words reflected at the very least either (a) unity of purpose, or (b) a common design and understanding, or (c) a meeting of the minds, between Defendants CBMcMahan and Semonin not to cut commissions." Appellant Brief at 10 (emphasis omitted). In short, plaintiffs contend that they have produced direct evidence of price fixing in the form of the KREC hearing transcript.
In further support of that contention, they point to the complaint against the KREC filed by the Department of Justice challenging the Rebate Ban, in which the DOJ averred that the ban "enabled Brokers to raise, fix, peg, or stabilize the prices and rates at which Brokers are compensated. The Rebate Ban is the result of agreements, combinations, or conspiracies among its Commissioners and others, and it unreasonably restrains competition to the detriment of consumers." DOJ Complaint at ¶ 4. As already noted, this complaint resulted in the abolition of the Rebate Ban.
Plaintiffs paint the following general picture of the evolution of real estate commissions in Kentucky from the 1970s through the class period. During the 1990s, a shift occurred in the relationship between buyer's brokers and listing agents. Formerly, a buyer's broker was essentially a cooperating broker working with the listing agent. In the 1990s, however, a buyer's broker's role changed and he or she became a fiduciary of the buyer while the listing broker's allegiance was to the seller. Throughout both periods, the typical commission remained at 6% despite the fact that persons in other commission-driven occupations — e.g., travel agents and stockbrokers — saw their commissions erode. An MLS listing and other sale-related documents, such as a HUD-1 form, permitted realtors to determine commission levels, thereby allowing the industry to police those agents who might be providing rebates or other incentives to drum up business. This impetus manifested itself in the Rebate Ban. At bottom, plaintiffs' contention — supported by expert testimony, depositions, and documents — allegedly is that defendant firms colluded to keep commissions at an artificially inflated rate.
In response, defendant McMahan emphasizes that it considers itself a "full-service" real estate broker with eleven offices in Kentucky during the class period. In addition to listing property, it would suggest repairs to the owner in order to
According to McMahan, commissions derive from both the cost of doing business and historical context. In the past, the industry used a 6% commission for homes and a 10% commission for vacant land. This policy was not derived from consultation or agreement with other brokers. Agents with the firm were free to negotiate commissions outside of the standard 6% if the transaction merited. For instance, potential repeat customers might receive a favorable rate, as would those whose homes required some "wiggle room" in order to close the sale. Coldwell Banker, McMahan's owner, often approved those reduced commissions.
For its part, HSK notes that it, too, is a full-service brokerage firm that owns both Rector-Hayden and Semonin. Since 2003, it has done business in Louisville under the "Semonin" name and in Lexington as "Rector-Hayden." According to HSK, it needs to compete for the best agents and, in order to pay them accordingly, must generate maximum income from commissions. To refute a point made by plaintiffs, HSK argues that it must continue to pay buyer's brokers a commission of 3% or else risk losing them to listing agents who pay better commissions. However, HSK does not require its agents to charge the standard rate of 6%. Like McMahan, it will on occasion approve a commission under that rate for deal-specific reasons. Moreover, it does not share its internal pricing goals with other firms.
Finally, it contends that the real estate market is inelastic: homeowners do not decide to sell their homes based upon commission rates but on other factors. Thus, HSK cannot create more demand for its services by decreasing its commissions. Given this consideration, there is no incentive for it to decrease its commission rate. In short, legitimate, non-collusive reasons govern the setting of commission rates in Kentucky.
The rule governing whether summary judgment is appropriate is familiar: "The court shall grant summary judgment if the movant shows that 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). We review the grant of summary judgment de novo, but draw all reasonable inferences in favor of the non-moving party. Pierson v. Quad/Graphics Printing Corp., 749 F.3d 530, 535-36 (6th Cir.2014). That said, if the non-moving party is unable to present sufficient evidence to permit a reasonable jury to find in its favor, summary judgment is appropriate. Id. at 536 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
In this case, plaintiffs contend that the district court erroneously held them to a heightened standard by misreading Matsushita Electric Industrial. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Indeed, in its discussion of the circumstantial evidence presented by plaintiffs, the district court noted that a "stringent" summary judgment standard is appropriate in Section 1 Sherman
Matsushita, 475 U.S. at 585-88, 106 S.Ct. 1348 (citations and footnotes omitted).
In Spirit Airlines v. Northwest Airlines, Inc., we acknowledged that the Supreme Court had observed that summary judgment is "appropriate where the antitrust claim simply makes no economic sense," but went on to note that Matsushita "does not increase the non-movant's burden on a motion for summary judgment." 431 F.3d 917, 930-31 (6th Cir.2005) (quotation omitted). Moreover, we have recently cautioned that summary judgment is generally discouraged in the antitrust context "due to the critical `role that intent and motive have in antitrust claims and the difficulty of proving conspiracy by means other than factual inference.'" In re Se. Milk Antitrust Litig., 739 F.3d 262, 270 (6th Cir.2014) (quoting Expert Masonry, Inc. v. Boone Cnty., Ky., 440 F.3d 336, 341 (6th Cir.2006)).
While courts must continue to construe facts in favor of the non-movant, even in the antitrust context, they cannot ignore the clear teaching of Matsushita that "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Matsushita, 475 U.S. at 588, 106 S.Ct. 1348 (citing
Although the district court's allusion to a "stringent" summary judgment standard in the antitrust context is imprecise, we are not overly troubled by the use of the adjective in the course of a lengthy opinion. Rather, we now turn to ask, in the course of our de novo review of its opinion, whether it applied the correct legal standard set out in Matsushita, Re/Max International, and Spirit Airlines in reaching its decision. For the reasons outlined below, we conclude that it did.
The district court noted that the existence of an agreement is the hallmark of a Section 1 Sherman Act claim. Mem. Op. at 5 (quoting In re Baby Food Antitrust Litig., 166 F.3d 112, 117 (3d Cir. 1999)), (Page ID 21908). This agreement, in turn, can be found when the conspirators have a unity of purpose, common understanding, or a "meeting of minds in an unlawful arrangement." Am. Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946).
Antitrust cases under Section 1 involve two modes of analysis depending on the nature of the claim. The "rule of reason" governs most allegations of restraints on trade. Under this analysis the court evaluates specific information about the industry, "its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." In re Cardizem CD Antitrust Litig., 332 F.3d at 906 (quotation omitted). A "restraint" is unlawful it if is "unreasonable." In re Se. Milk Antitrust Litig., 739 F.3d at 270. In some cases, however, those restraints "are deemed unlawful per se because they have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit." In re Cardizem CD Antitrust Litig., 332 F.3d at 906 (quotation omitted). Horizontal price-fixing, which is alleged in this case, falls generally under the per se category. Nat'l Coll. Ass'n v. Bd. of Regents, 468 U.S. 85, 100, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984).
An antitrust conspiracy can be established by either direct or circumstantial evidence. Re/Max Int'l, 173 F.3d at 1009. We turn first, as did the district court, to plaintiffs' alleged direct evidence.
The district court began its review of the evidence by noting that direct evidence in the Section 1 antitrust context "must be evidence that is explicit and requires no inferences to establish the proposition or conclusion being asserted." See In re Baby Food Antitrust Litig., 166 F.3d at 118. In other words, direct evidence is "tantamount to an acknowledgment of guilt" while circumstantial evidence includes "everything else, including ambiguous statements." In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 662 (7th Cir.2002).
The district court turned first to the public hearing mentioned earlier that was held before the KREC on November 28, 2000. Plaintiffs maintain that the transcript of this hearing represents direct evidence
The district court assessed this evidence and concluded that it did not constitute "direct evidence that Defendants conspired to fix real estate commissions at a supra-competitive 6%." Mem. Op. at 13. The court observed that it had reviewed the transcript of the KREC meeting and found that plaintiffs have taken remarks made by individual realtors "out of context and construed them in a highly-strained manner." Id. at 14.
We agree with this assessment. Like the district court, we view Jerry McMahan's statements at the hearing as ambiguous at best and they therefore do not establish direct evidence of a conspiracy. McMahan was highlighting the fact that his "full-service" firm offered more to its clients than his internet rivals and thereby justified its higher commission rate. Also absent in the record is any comment by McMahan suggesting that brokers negotiate among themselves their respective commission rates. With respect to those who spoke about having undergone harassment for offering lower rates, the district court observed that these speakers are not parties to this action, nor did they implicate defendants. Furthermore, "[a] finder of fact would need to infer that a buyer's broker fee of 3% always resulted in a supra-competitive full commission rate of 6% and that these individuals were harassed for failing to set a full commission rate of 6%." Mem. Op. at 15.
In short, it is our assessment, consonant with that of the district court, that the "direct" evidence relied upon by plaintiffs falls far short of the standard that it be "explicit and require[] no inferences." In re Baby Food Antitrust Litig., 166 F.3d at 118. With that, we turn to the much closer issue of whether the proffered circumstantial evidence precludes summary judgment for defendants.
Evidence of "conscious parallelism," also referred to as "oligopolistic price coordination," can support such a claim based upon circumstantial evidence. In re Baby Food Antitrust Litig., 166 F.3d at 121. As the district court put it, "When competitors in a [concentrated] market establish their prices, not by agreement, but rather in a consciously parallel fashion, this may provide probative evidence of an understanding between competitors to fix prices." Mem. Op. at 16 (citations omitted). However, that is not necessarily the case: "Because of their mutual awareness, oligopolists' decisions may be interdependent although arrived at independently." Id. (citation on omitted). Thus, "`[t]he law is settled that proof of consciously parallel business behavior is circumstantial evidence
This court has set out the following considerations, sometimes referred to as "plus factors," in determining when circumstantial evidence amounts to a finding of concerted action: 1) whether defendants' actions, if taken independently, would be contrary to their economic interests; 2) product uniformity; 3) whether the defendants have been uniform in their actions; 4) whether the defendants have exchanged or have had the opportunity to exchange information relative to the alleged conspiracy; and 5) whether the defendants have a common motive to conspire or have engaged in a large number of communications. See Re/Max Int'l, 173 F.3d at 1009; Wallace v. Bank of Bartlett, 55 F.3d 1166, 1168 (6th Cir.1995). "However, circumstantial evidence alone cannot support a finding of conspiracy when the evidence is equally consistent with independent conduct." Re/Max Int'l, 173 F.3d at 1009. The district court noted that these five factors are considered to discern whether the "supra-competitive 6% commission rate was conscious and not the result of independent business decisions." Mem. Op. at 17 (Page ID 21920).
The district court then reviewed evidence of parallel pricing behavior and the plus factors. It found them to be insufficient to withstand summary judgment. In reaching this conclusion, the court relied upon these conclusions:
Having reviewed this evidence, which it characterized as circumstantial, the court held that "[p]laintiffs have not presented sufficient evidence to meet the stringent summary judgment standard in § 1 antitrust cases." Id.
We quote from the district court's memorandum opinion at length for two
Finally, we are mindful that plaintiffs have come forward with a good deal of circumstantial evidence that supports its theory of collusion. What is missing, however, is the critical element mentioned in Matsushita and reiterated in Re/Max International: countering the conclusion reached by the district court that the conduct at issue was also consistent with permissible competition and therefore does not support an inference of antitrust conspiracy. Matsushita, 475 U.S. at 588, 106 S.Ct. 1348.
In this case, there were three expert witnesses: Drs. French and Yavas for plaintiffs; and Dr. Kleinrichert for defendants. Both sides filed motions to exclude testimony of these experts in whole or in part. In the end, the district court granted defendants' motion to exclude the expert testimony of Drs. French and Yavas with respect to their ultimate opinions that a price-fixing conspiracy existed. Memorandum Opinion & Order at 23, filed July 3, 2012.
With respect to Dr. French's opinions, the district court held as follows:
Mem. Op. at 11 (citation omitted). The court reached an identical conclusion with respect to Dr. Yavas.
Federal Rule of Evidence 704(a) states that "[a]n opinion is not objectionable just because it embraces an ultimate issue." Fed.R.Evid. 704(a). Nonetheless, a witness may not testify to a legal conclusion. Berry v. City of Detroit, 25 F.3d 1342, 1353 (6th Cir.1994). Our review on this issue is for an abuse of discretion. Pluck v. BP Oil Pipeline Co., 640 F.3d 671, 676 (6th Cir.2011).
We detect no abuse of discretion on the part of the district court. For the most part, the district court rejected defendants' challenge to the expert testimony. Given that the experts were free to testify at length as to all the other aspect of the real estate market, the exclusion of the challenged testimony, which called for a legal conclusion, is within the purview of the district court.
Among the other things considered by the district court was the liability of HSA for actions taken by HSK in the alleged price-fixing conspiracy. The district court rejected liability for HSA on these grounds:
Mem. Op. at 44-46 (citation omitted).
This issue need not detain us long, particularly in light of the cursory argument advanced by plaintiffs on appeal. First, because we hold that HSK did not engage in price fixing, HSA has no derivative liability. Moreover, our independent review of the record makes clear to us that, as the district court concluded, there is insufficient evidence to support piercing the corporate veil.
The judgment of the district court is
15 U.S.C. § 1.