The Supreme Court yesterday ruled that real estate brokers may be sued under federal antitrust laws if they conspire to fix the fees involved in the buying and selling of homes.
Consumer groups say the decision may bring more competition to the real estate industry and help force down brokerage commission rates, which tend to be uniform across the country.
More immediately, the decision lessens the chance that the court will overturn the 2-year-old price-fixing convictions of six of the Washington area's largest brokers. Their appeal, now pending before the court, turns in part on the same questions answered yesterday in the case of McLain versus the Real Estate Board of Greater New Orleans.
The industry argued that real estate sales are strictly local transactions, not within the reach of federal power in the antitrust field.
The court held, however, that such sales may be so intertwined with mortgage financing, title insurance and other activities that are part of interstate commerce that the brokers are subject to federal regulation.
The National Association of Realtors attacked yesterday's decision as just another example of federal encroachment. "It's more of a setback for the concept of federalism than it is for the real estate industry," said William North, the association's lawyer. "What they've really said is that there is no longer any such thing" as purely local or intrastate commerce.
The real estate industry has argued all along that its prices are not fixed, but tend to be uniform because of basic economics and market conditions.
But consumer groups and the federal government believe otherwise. In civil and criminal suits and investigations around the country, they have attacked the uniform fees as price-fixing.
With "remarkable uniformity," Consumers Union told the court, real estate brokers' commissions are set at either 6 or 7 percent throughout the country,"regardless of the skill of the broker or the difficulty of selling a particular home." That, in itself, "implies widespread price fixing," the consumer group said.
The fees in New Orleans, where the case originated, were uniformly 6 percent. But James Jefferson McLain, a University of New Orleans economist, and three associates who brought the price-fixing suit, never got a chance to prove antitrust violations because a U.S. District Court judge there said the brokers were not subject to the federal law, and threw the case out before trial. That decision was upheld by the 5th U.S. Circuit Court of Appeals.
Chief Justice Warren E. Burger, joined by all the justices except Thurgood Marshall, who did not participate, returned the case to the District Court with guidelines that appear to leave little choice for it or for lower courts everywhere in the future.
If real estate transactions involve title insurance, interstate mortgage money or federal loan guarantees, the court said, they have an effect on interstate commerce and are subject to regulation under the Sherman Act. All but the most isolated real estate sales meet one, if not all, of those criteria.
"The broad authority of Congress under the commerce clause has, of course, long been interpreted to extend beyond activities actually in interstate commerce to reach other activities that while, wholly local in nature, nevertheless substantially affect interstate commerce," the court said. n
The decision was expected by most court observers. It continues a virtually unbroken line of cases in which various businesses and occupations have been swept into the federal commerce jurisdiction.
In 1975, for example, lawyers and their system of charging uniform fees for title searches fell to the antitrust laws as a result of the court's decision in Goldfarb vs. the Virginia State Bar.
The court has yet to decide whether to hear the appeals of the Washington area real estate brokers convicted two years ago in U.S. District Court in Balatimore. But John P. Foley Jr. (Jack Foley Realty), John T. Carruthers Jr. (Colquitt-Carruthers Inc.), Robert W. Lebling (Bogley Inc.), Robert L. Gruen Inc., Shannon and Luchs Co. and Schick and Pepe Inc. staked much of their appeal on the same argument used by the New Orleans brokers, which was rejected by the court yesterday.
The Washington area firms were convicted in 1977 on a criminal charge of conspiring to raise their commissions from 6 to 7 percent in 1974. They were accused of agreeing to raise rates at a meeting held that September at the Congressional Country Club in Bethesda.
At the dinner, according to testimony, Foley announced he was increasing rates to 7 percent because his business was "going down the tubes." He added that he didn't care what anyone else did.
Asked yesterday to comment on how the Supreme Court's decision in the New Orleans case would affect the Montgomery County appeal, an attorney close to the case said, "I have a suspicion it will bode ill for Montgomery County on the interstate commerce question."
He said attorneys for the defense have asked the Supreme Court to review the case on other grounds as well, including that of criminal intent. Another source connected with the defense said he did not think the effect of the New Orleans case would be that dramatic on the Montgomery County case.
John T. Carruthers Jr., who was convicted along with his firm, Colquitt-Carruthers Inc., remarked yesterday. "If the Supreme court decides to hear our case, I hope it may be heard on its own merits and that the court will look at all aspects, not just interstate aspects. If the Supreme Court decides purely on interstate issues, it would be a shame." Carruthers maintained that he and his codefendants had done no wrong and there was no criminal intent involved.
He continued, "It may be a good sign the justices didn't decide our case at the same time [as New Orleans], but then again, it may be wishful thinking on my part." He concluded, "Though we are prepared for the worst, we should have a good opportunity at it [the case] going the other way."