At the time, the settlement, was promoted as fair to all sides.
Each of 3,300 Montgomery County homeowners who had paid an extra one percent sales commission due to illegal rate fixing in the 1970s would be entitled to a certificate authorizing a home sale at one percent below the normal commission of six percent. The compensation would come when selling another house, or by selling the certificate itself to a third party who could use it in the same way.
The six firms convicted of price fixing, meanwhile not to be broken financially by having to pay huge damages out of pocket.
This was how contending lawyers settled class action suits that resulted from the 1977 conviction of six county reality firms for violating federal antitrust laws. Now three years later, at least some of the homeowners charge that the settlement, far from setting their claims fairly, has so far given them next to nothing.
A year after the first certificates were mailed out to the approximately 1,800 homeowners affected by the price-fixing who could be traced, only eight have been redeemed and returned to the trustees. And only three of those were redeemed by one of the six companies, the rest passing through other brokers willing to accept the one percent discount.
A number of certificate holders hoping to sell say they have encountered problems finding a buyer willing to offer a substantial price or finding any buyer at all. "The bustling bazaar has so far escaped my attention," said former Gaithersburg homeowner George Carr, who has received "exactly one nibble" in eight months of trying to sell his certificate through a "clearinghouse" created as part of the settlement.
Del. Luiz Simmons (R-Montgomery) has called on the Maryland Attorney General office to review the settlement that he calls a "consumer sham."
The agreement, that concluded one of the class-action suits stipulated that there would be a review of "the entire redemption program" if less than 30 percent had been redeemed as of January 31. Currently less than one half of one percent have been returned to the trustees and retired.
The case had its origins in a 1974 dinner at the Congressional County Club where, according to federal prosecutors, a group of realtors conspired illegally to raise commission rates from 6 percent to 7 percent. The action boosted their income by about $700,000, it was said, and led the way for numerous other brokers to raise their rates as well.
Convicted at the 1977 trial were Jack Foley Realty, Inc.; Bogley, Inc.; Colquitt-Carruthers, Inc. (since incorporated into Merrill Lynch Realty/Chris Coile Inc.); Robert L. Gruen, Inc.; Shannon & Luchs Co.; and Schnick & Pepe Realty, Inc. Fines were levied on the six companies, and executives from three of the firms were fined and placed on probation.
The federal indictments gave rise to class action suits in civil courts, which were eventually settled with the certificate scheme. Under the deal the defendants also agreed to pay the plaintiffs' legal costs and to operate the clearinghouse to assist people in selling their certificates before they expire on December 31, 1985.
Other real estate firms protested this scheme, saying it would attract business to the six firms unfairly. It was ruled that any broker should be allowed, to accept them. Eventually close to 100 other companies signed up -- opening the way, paradoxically, for the other firms in effect to pick up compensation payments for the defendant firms.
Executives at three of the convicted firms -- Bogley, Schick & Pepes and Robert Gruen -- declined comment on Simmons' charges. But Gordon Carey, general manager of Merrill Lynch Realty/Chris Coile Inc., the firm that took over defendant Colquitt-Carruthers, suggested that Simmons' charges are premature, since the certificates are good for almost five more years.
Many people have received compensation by selling their certificates on an active market that has grown up, Carey said. "Its just like trading stocks and bonds."
Carey also suggested that because real estate prices are rising and the certificates are worth one percent of a house's market value, the holders may be reluctant to cash them in at present. "The longer that people hold onto it, the more it's worth . . . If I had a piece of scrip, I wouldn't redeem it."
Carey also cautioned that the actual number of certificates redeemed is higher than eight, because brokers hold onto them from the time a house is put up for sale until the time the closing documents are signed, typically three to four months. His firm, he said, is currently processing three.