A Montgomery County realtor testified today that while his industry colleagues reacted "very positively" toward the idea of higher commissions at a meeting in September, 1974, they did not actually agree to raise them then or at any given time in the future.
On the second day of the trial in U.S. District Court of six real estate companies and three of their presidents on price fixing charges. William M. Ellis, a vice president of Shannon & Luchs and an unindicted co-conspirator, maintained that the increase in commissions from 6 to 7 per cent by many of the firms resulted from a decrease in sales and rising advertising rates, rather than a conspiracy.
This is the government's first criminal trial of the real estate industry under the Sherman Antitrust Act. The Justice Department alleges a conspiracy to fix real estate commission rates at artificial levels, restrain price comparisons and deprive sellers of free and open competition.
If convicted, the firms risk maximum penalties of $1 million each, and the individuals up to three years in prison and a $100,000 fine. The defendants are Bogley Inc. and its president Robert W. Lebling: Colquitt-Caruthers, Inc. and its president John T. Carruthers, Jr.: Jack Foley Realty, Inc. and its president John P. Foley, Jr.: Robert L. Gruen, Inc.: Schick & Pepe Realty, Inc. and Shannon & Luchs Co.
In his opening statement Monday U.S. Attorney Charles S. Stark had charged that there was a conspiracy, led by Foley of Potomac. He asserted that Foley set up a dinner meeting on Sept. 5, 1974, with 10 realtors at the Congressional Country Club in Bethesda where he announced his intention of raising his commission to 7 per cent. The others, Stark alleged, agreed to go along "without any written agreement" or any "solemn oath."
Ellis testified today that Foley told his colleagues after dinner words to the effect that he had always thought that if he followed good business practices and treated people well he would succeed but Ellis quoted him as saying, "I've done that, but my business is going down the tubes. I don't care what anyone else does, but I am going to raise my commission to 7 per cent" and he specified a date.
Then according to Ellis, Foley sat down. Robert W. Lebling of Gaithersburg, who was seated next to him remarked to Ellis. "It sounds like a good idea I think I might do it tomorrow."
Under cross-examination by defense counsel Ellis stressed he did not hear Lebling say positively he would raise his commission. He also said he thought Allyn J. Rickman, vice president of Shick and Pepe, was "for it". He did not recall any words by Robert Gruen. Both Rickman and Gruen have been named unindicted co-conspirators.
However, Holey's words and the subsequent discussion made enough impression on Ellis so that at one point during the dinner he turned to another guest, an attorney, and said "I don't think we should be having this conversation." The attorney, according to Ellis, replied "You can talk about these things but you cannot make an agreement."
During a recess John J. Lewin, attorney for Jack T. Foley, said the trial seemed to be going very well thus far, that the government should never have brought a criminal case against the realtors. He said he did not fear testimony from Elmer Schick and Herbert Danick, Shick and Pepe partners. The prosecutionannouced today it would grant immunity to Schick and Danick.
The U.S. attorney read several internal realty company memos to support its contention that the various firms had gone along with a conspiracy to raise commissions to 7 per cent. Robert W. Dorsey, a Bogley vice president, said the board of directors decided Sept. 27 to go to 7 per cent as of Oct. 1. Dorsey said there was no connection between Lebling's attendance at the dinner and the decision, tr for add four.
In an attempt to establish that realtors had gone to 7 per cent independently, Ellis testified that he knew that Colquitt-Carruthers was combing a 7 per cent commission which a home inspection/warranty even before the meeting. But he admitted that Tom Carruthers had telephoned him three times in January and April, 1975, to ask when Shannon & Luchs intended to raise its rates.
The second time, Ellis recalled Carruthers said to him "Bill, with all you've done (in the business) it would be a shame to find yourself out on the street." Ellis continued. "I might have replied, are you threatening me?" or"Who do you think you are?" or Go to hell!" before I slammed down the phone." The trial is expected to continue for several weeks.