Dudley v. Aspen Realty, Inc., D. Idaho, Case No. CV-04-121-S-BLW, 11/30/07

Defendants were realtors in Boise, Idaho. The realtors based their commission charges on the price of both an undeveloped lot, and the price of the home to be built on the lot at a subsequent time. The plaintiffs, purchasers of undeveloped lots, brought an action under the federal antitrust laws alleging an illegal tie between the commission charged for the sale of the undeveloped lot, and the commission charged on the home which would be built on the lot. The trial court granted motions for summary judgment, based upon the court's finding that there was no claim, as the degree of foreclosure was "zero". Under no set of facts, would any of the plaintiffs have purchased the alleged tied product, namely commissions to be paid on a home to be located on the undeveloped lot, from any other seller. This being the case, there was zero foreclosure, and zero claim. Dudley v. Aspen Realty, Inc., D. Idaho, Case No. CV-04-121-S-BLW, 11/30/07.

In each of four consolidated cases, the defendant realtor had an exclusive arrangement with the developer of the subdivision. It provided that each plaintiff allegedly could buy an undeveloped lot if, but only if, he or she agreed to build a house on the lot, and further, agreed to pay a commission based upon not only the price of the undeveloped lot, but the actual or estimated cost of the house. The plaintiffs argue that they were damaged in their business or property in that in each case, they paid more commission than they would have paid had the commission price been based solely on the price of the undeveloped lot.

In granting summary judgment, the court began its analysis by noting that an essential element of a tying claim is that the challenged practice "affects of not insubstantial volume of commerce in the tied product market". The court reasoned that there must be a not "insubstantial volume of commerce," that has an effect on the tied product market. This implies that there must be actual foreclosure to a defendant's competitors. The defendant's competitors are foreclosed in that they lose opportunities to make sales within the relevant tied product market. Plaintiff purchasers under the alleged tying arrangement are injured in their business or property in that they are required to buy a product that they would otherwise not wish to buy, or would only wish to buy from a defendants competitors.[1]

In granting summary judgment, the court adopted the reasoning of Professor Areeda, and his analysis that:

"When all buyers are forced to take a tied product they do not want and would not have purchased elsewhere, tied-market foreclosure is zero and thus does not satisfy even the minimal requirements for per se illegality."[2]

Professor Areeda terms this "zero foreclosure". In adopting Professor Areeda's analysis, the court noted that where no purchaser would have otherwise purchased the tied product, even from a competitor of the defendant, there can be no adverse impact on competition, as no portion of the market which would otherwise have been available to other sellers has been foreclosed.

The court notes that Professor Areeda's discussion of zero foreclosure is based upon the United States Supreme Court's decision in Jefferson Parish Hosp. Dist. No. 2 v. Hyde.[3]The court notes that there is an inconsistency in Jefferson Parish in that "at first blush" Professor Areeda's reliance "seems misplaced". The court notes that Jefferson Parish tells us that an essential characteristic of a tying arrangement is that a buyer is coerced into taking a product "the buyer either did not want at all or might have preferred to purchase elsewhere on different terms".[4]The Supreme Court thus has suggested both that a tying claim may lie when the tied product is wholly unwanted, and has also suggested that there could be no such claim because there can be no adverse impact on competition in the market for the tied product.

In parsing this seeming inconsistency, the court notes that the question "is not whether plaintiffs had standing to bring their tying claims", but rather whether the tie, and allegedly forcing plaintiffs to buy plaintiff's real estate services based upon the value of a home to be later erected on the unfinished lot, foreclosed other realtors from selling that same product.[5]Citing Paladin Associates, Inc. v. Montana Power Co.[6], the court notes that where there is "zero foreclosure", there is zero tying claim. This is because there cannot be any adverse affect on competition.[7]The defendants met their summary judgment burden in demonstrating that as a matter of law, no one would have paid a commission on the hypothetical house. As the commission services could never have been earned from any source, there could not be any foreclosure, and thus no impact on a cognizable relevant market. Thus, the court resolved the seeming inconsistency within the language of Jefferson Parish, and as Professor Areeda opined, there was "zero foreclosure".