REAL ESTATE BROKERS AND ANTITRUST LAWS
By Timothy W. Grooms
Williams & Anderson
111 Center Street, Suite 2200 - Little Rock, Arkansas 72201
(EDITOR'S NOTE: This article has more technical information about legal matters than usually found in AREC Newsletter articles . It contains important information which the reader may wish to discuss with an attorney.)
Until recent years, real estate professionals have had little contact with the federal Sherman Antitrust Act (the "Act") However, a 1980 decision rendered by the United States Supreme Court, in addition to numerous lower federal court and state court decisions subsequent to that decision, have made it clear that the actions of real estate professionals and the professional organizations to which they belong are subject to the prohibitions and requirements of the Act. Familiarity with the provisions of the Act are critical in that violations thereof are punishable by both criminal and civil sanctions. A criminal violation of the Act is a felony punishable by imprisonment for up to three years and fines not exceeding $100,000 for individuals and $1,000,000 for corporations. Damages awarded to plaintiffs in civil actions are automatically trebled.
II. THE TEST OF ILLEGALITY
The literal language of the Act prohibits every contract, combination and conspiracy in restraint of trade. While early United States Supreme Court decisions suggested that "every" was to be taken literally, a "rule of reason" now prevails to merely prohibit those concerted actions which cause an "unreasonable restraint of trade." Nevertheless, the courts have held that certain conduct is so anti-competitive that it is not to be judged by the "rule of reason" analysis, but is instead illegal "per se." In the real estate brokerage industry, most civil and criminal litigation has centered around three challenged practices, any of which, if successfully proven, constitute "per se" violations of the Act. The balance of this article will concentrate on these three areas, involving price-fixing, group boycotts and tying arrangements.
Agreements among competing brokers to set commissions is price fixing and hence illegal per se. However, illegal price-fixing is not limited to those cases where a specific fee or commission rate is agreed upon. Rather, the prohibition extends broadly to all agreements which have the effect of raising, depressing, fixing, pegging or stabilizing the price of real estate services. Cases under the Act have not required a showing of an express agreement to adhere to an illegal plan; tacit agreement to such a plan will suffice for a violation of the Act. Real estate professionals are easy targets of price-fixing suits because studies indicate that commission rates have been relatively stable over time. Plaintiffs usually allege that such stability is due to either tacit agreement, express agreement, or other type of collusion among real estate professionals. However, it is equally convincing to this author that the fact of commission rate stability by itself should not establish a conspiracy. Indeed, the historical trend of inflexible rates may be the strongest evidence that the phenomenon is explainable solely by market forces, not by collusion. Arkansas real estate professionals should be extremely cautious to never discuss with other brokers, in any setting, commissions which they are charging to their buyer or seller clients. These discussions, which the author can envision as being potentially "pro-competitive," in that they might cause a broker to realize that he needs to lower his commission schedule to "meet the competition," are so potentially devastating in either civil or criminal proceedings under the Act that they should be avoided in all circumstances.