The Justice Department asked the Supreme Court recently to rule that the antitrust laws cover the real estate brokerage business, which earns commissions estimated at $15 billion annually.
The department filed a friend-of-the-court brief in a case from New Orleans that the justices have agreed to hear in the term starting in October.
In a related case from Montgomery County, Md., brokers convicted of criminal price fixing -- in the form of an agreement to raise their commissions on residential sales from the prevailing 6 percent to 7 percent -- have asked the court to review their convictions.
The 4th U.S. Circuit Court of Appeals upheld the convictions on the assumption that Sherman Act of 1890 covered the brokers' business. The opposite assumption was made by the 5th U.S. Circuit Court of Appeals in the New Orleans civil case
The 5th Circuit's ruling will be the first to be tested in the high court. If it is affirmed, the local brokers will be home free; if it is reversed, the convictions probably will be upheld.
The 5th Circuit case began with a class action alleging that the Real Estate Board of New Orleans, Inc., and its members conspired to fix, raise and stabilize the price of their brokerage services and to inflate the price of homes. The commission rate was usually 6 percent in the four-year time period at issue, which ended in 1975.
The plaintiffs -- James J. McLeain and others -- had one central problem: showing that real estate brokerage is sufficiently within interstate commerce to be encomdpassed by the federal antitrust law.
They confronted the problem by saying that the fefendants, aiding in the buyingand selling thousands of parcels of real estate in the New Orleans area each year, provided services to client moving to and from other states, and also helped them obtain financing and title insurance "from sources outside the state of Louisiana. . . ."
U.S. District Judge Edward J. Boyle Sr. never addressed the merits of the complaint. Instead, he dismissed it on the grounds that the activites of the brokers neither occurred in nor affected interstate commerce.
Furthermore, Boyle held as a matter of law that the movement of brokers' clients across state lines didn't establish that the Sherman Act applied to the brokers. As for financing and title insurance, he said, the brokers' role in procuring them is "incidental" rather than "intergral" to the financing process and consequently insufficient to show an effect on interstate commerce.
Last November, the 5th Circuit affirmed, 3 to 0, with an opinion that real estate brokerage is "entirely local in character." Furthermore, the appellate court said, "real property is the quintessential local product."
In the friend-of-the-court brief for the United States, Solicitor General Wade H. McCree Jr. said that the Sherman Act exercise all of the power that Congress has over interstate commerce.That power, he emphasized, "is broad indeed." He described it this way -- in arguing that, at all events, the complaintants should have had a chance to go to trial:
"It reaches farmers who grow wheat to bake their own bread, because otherwise the farmers would buy wheat from elsewhere. It reaches the seating arrangements of small, family owned restaurants, because they sometimes serve interstate travelers with food that comes from out of state
"And it reachs the activites of real estate brokers. Brokers solicit and serve customers moving from one state to another. They transact business with interstate referral services. They share commissions across state borders.
"The product with which they deal is financed through an interstate lending market. The loans are guaranteed by the federal government. An increase in the price of commissions and the real estate itself will reverberate through these channels of interstate commerce.
"It will influence how many people move, how much they pay, who loans money (and how much), and how great a risk the United States assumes through its guarantees.
"And the commerce at issue is substantial -- billions of dollars of federally guaranteed loans, millions of state:to-state moves yearly, billions of dollars of funds supplied through interstate loans.
"It may be that New Orleans brokers affect only a small part of this interstate commerce. But if interstate commerce is at stake in the industry as a whole, Congress possesses a commerce power over the entire industry. And because the Sherman Act expreses the entire commerce power, it applies to the activities of the New New Orleans brokers."