Six major Washington area real estate companies and three of their presidents were convicted in Baltimore federal court yesterday of conspiring to raise their commissions on home sales from 6 per cent to 7 per cent in 1974.
The increase in commissions cost home sellers in Montgomery County - where the companies are based - about $700,000, accordinag to the Maryland attorney general, who is trying to recover the money in a separate civil case.
THe companies face possible fines of up to $1 million for the criminal antitrust violations. The executives face maximum fines of $100,000 and up to three years in prison.
There is also a possibility under Maryland law that the firms and the officers could lose their real estate licenses. Should that occur, it could cause and upheaval in tahe county's real estate industry, where the companies control a massive share of tahe market. During the period covered in the indictment, the firms collectively han- dled sales of more than $350 million in the county.
Those convicted are Jack Foley Realty, Inc., John P. Foley, Jr., 46, of Potomac; Bogley, Inc., and Robert W! Lebling, 53, of Gaithersburg, the president of Bogley; Robert L. Gruen, Inc., Schick & Pepe; Colquitt-Carruthers, Inc., and John T. Carruthers, Jr., 35, of Potomac; and Shannon & Luchs Co.
Washington housing and consumer attorney Benny L. Kass said he thought the convaiction would relieve some of the peer pressure in the area's real estate industry and could "lead to more negotiated commissions."
The defendents were accused of agreeing to raise the commissions at a meeting held Sept. 5, 1974, at the Congressional Country Club in Bethesda. Such agreements, under antitrust law, are "unreasonable" restraints of trade.
The effects of the conspiracy, according to the Justice Department's charges, were to raise and maintain the rates at an artifically higah level and deprive brokers and sellers of free competition.
The defense arged unsuccessfully that the firms raised their rates independently of one another not because of a conspiracy but because of poor economic conditions. Sales of hjomes had dropped precipitantly during 1974 becuase of tight mortgage money during the recession. At the same time, the firms faced rising advertising and operating costs.
This was the first criminal trial involving the realestate industry under the Sherman Antiturst Act since Congress changed the law in 1974 to make violations felonies instead of misdemeanors. At the same time the maximum penalties were greatly increased. A similar case has been brought by the Justice Department against realtors in Syracuse, N.Y.
Judge C. Stanley Blair set Oct. 28 for sentencing in the Maryland case. The same judge earlier this month imposed the maximum fine on five independent oil companies convicted of criminal conspiracy to fix the price of gasoline.
Attorney for Foley and Lebling yesterday experessed "disappointment" at the verdict and indicated they probably would appeal. Attorneys for the other defendants could not be reached for comment late yesterday.
According to testimonly given during the trial, Foley announced at the dinner he was increasing rates to 7 per cent because his business was going "down the tubes." He added that he didn't care what anyone else did.
Witnesses for the defense testified that only one other guest, John T. Carruthers, said he was in favor of 7 per cent because, as he explained, he had already increased his commissions to that level. Others said they would stick at 6 per cent or said nothing, it was testified.
Throughout the 2 1/2 week trial and during the wait for the verdict defense lawyers seemed confident of acquittal. Members of prestigious Washington law firms, they presented a ringing defense with expert witnesses, visual aids and dramatic gestures. They seemed pleased by the mistakes in identity of witnesses made frequently by the young prosecutor Charles S. Stark, 33.
After two days of deliberation, the jury returned to the packed court-room at 2:20 p.m. yesterday. When the foreman announced the first guilty verdict there was a stunned silence among the counsel and spectators but no outward displays of emotion. On the way out, one of the defendants was heard to remark, "I really thought we had a chance."
The guilty verdicts against all the defendants came after 12 hours' deliberation. Once the jurors went back to Judge Blair for more instruction on the meaning of the terms "agreement" and "mutual understanding." After he told them they were synonymous in conspiracy law, "everything fell right in place," according to one juror. There was uananimous agreement among the jurors in the single vote taken.
The juror, who asked not to be identified, said no one specific piece of evidence had swayed their opinion, but rather the linking of all the facts.
The outcome of this trial is likely to affect the civil action brought by Maryland Attorney General Francis B. Burch. In addition to the $700,000 in refunds that suit seeks, it also seeks about $2 million in damages.
Four class-action suits also have been filed by home sellers who were charged the 7 per cent commission.
Maryland law says that a real estate license can be revoked for "conspiracy to defraud or other like offenses." It does not specifically mention antitrust violations, and lawyers for the firms are expected to argue that that precludes revocation.