Hyland et al v. Homeservices of America, Inc. et al
MEMORANDUM OPINION & ORDER denying 435 Motion to Compel; denying 435 Motion to Strike ; denying 435 Motion for Sanctions. Signed by Magistrate Judge James D. Moyer on 06/24/2011. cc:counsel (CSD)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CASEY WILLIAM HYLAND, et al.
CIVIL ACTION NO. 3:05-CV-612-R
HOMESERVICES OF AMERICA, INC., et al.
OPINION AND ORDER
On June 7, 2011, this court conducted a telephonic conference to hear argument on the
plaintiffs’ motion to compel answers to written discovery served on the HomeServices
defendants.1 The plaintiffs seek production of financial information related to cash flow between
the HomeServices corporate parent and its affiliates in an effort to discover information which
might establish supra-competitive brokerage fees. This court has certified a class of plaintiffs
who were sellers of residential real estate in Kentucky during a four-year period when the
defendants allegedly participated in a price-fixing conspiracy not to negotiate a 6% brokerage
fee. The defendants object to the cash-flow discovery on grounds of relevance.2 After thorough
consideration of the parties’ written memoranda and argument, the court concludes the objection
is well taken and will deny the motion to compel.
The plaintiffs seek production of documents which reflect, generally, cash flow or asset
transfer information. More specifically, the cash flow requests seek documentation of how much
capital, cash or other assets and reserves were maintained by each HomeServices defendant and
The HomeServices defendants are HomeServices of America, Inc., HomeServices of Kentucky, Inc.,
Semonin Realtors, and Rector-Hayden Realtors. The motion to compel also includes a motion to strike boilerplate
objections and a motion for sanctions. (DN 435)
Although the written responses include objections on grounds of burdensomeness, the defendants
conceded during oral argument that their objection is purely relevance.
their affiliates; the amounts owed to creditors; and the transfer of assets, revenues, or fees
between subsidiaries, affiliates, or parent entities to and from HomeServices of America.3 The
requests specifically include transactions between the parent HomeServices’s subsidiaries and its
own parent corporation, a nonparty in this suit.
The plaintiffs contend the financial information directly and narrowly relates to the class
action claim that the Homeservices parent participated, “shoulder to shoulder,” with its
subsidiaries and other defendants in a Commonwealth-wide, 15-year antitrust conspiracy to fix
the residential real estate commission rate at 6%. The plaintiffs further argue that the party
resisting discovery carries a heavy burden to prevail on their objection and that the scope of
discovery in antitrust cases is “extremely broad.” See e.g., Kellam Energy, Inc. v. Duncan, 616
F.Supp.215, 217 (D.Del. 1985) (“[T]here is a general policy of allowing liberal discovery in
antitrust cases. ...Particularly where allegations of conspiracy or monopolization are involved ...
broad discovery may be needed to uncover evidence of invidious design or pattern to
monopolize or intent to conspire in violation of the antitrust laws.”).
The magistrate judge disagrees, however, with any suggestion that the scope of discovery
is beyond careful limitation in cases alleging horizontal price-fixing conspiracies. Rather, the
discovery rules apply with equal force: parties may obtain discovery on any matter that is
relevant or potentially relevant to the claim or defense of any party. Fed. R. Civ. P. 26(b)(1).
Relevance is “construed broadly to encompass any matter that bears on, or that reasonably could
lead to other matter that could bear on, any issue that is or may be in the case.” Oppenheimer
Fund, Inc. v. Sanders, 437 U.S. 340 (1978). “[I]t is well established that the scope of discovery
The requests at issue are the Second Request for Production of Documents and Electronic Discovery,
served April 30, 2009, numbers 90-92 and 35-38. The specific requests are quoted in docket no. 443 at p. 12.
is within the sound discretion of the trial court.” Hayes v. Equitable Energy Resources Co., 366
F.3d 560, 571 (6th Cir. 2001) (quoting Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th
The plaintiffs argue this court’s previous rulings justify the scope of the requested
discovery. The magistrate judge has carefully and thoroughly reviewed these opinions, and finds
the opinion certifying the plaintiff-class salient, although not particularly dispositive, to the
discovery dispute at hand. As Judge Thomas B. Russell observed, the plaintiffs allege the
defendants “established a supra-competitive baseline of 6% for all negotiations concerning
commission. ... The key issue is determining whether Plaintiffs can prove that Defendants’
conspiracy caused the individual agents or franchisees to establish a 6% commission rate.”4
Judge Russell stated, “To the extent that Plaintiffs are successful in proving that 6% is a
conspiratorially established standard, any proof that a Defendants’ agents followed the rate
would be proof that the class members who hired that particular agent was harmed by the
On another occasion, Judge Russell aptly described the claim as one alleging that the
defendants engaged in parallel price fixing.6 Judge Russell further noted, and the plaintiffs
confirmed during oral argument, that the plaintiffs assert their claim against the corporate parent
defendant directly, through concerted action with its subsidiaries to commit wrongs against the
Judge Russell ultimately held that common issues predominate because the evidence would focus on the
actions of the defendants to enforce a conspiracy among their agents or franchisees, rather than individual plaintiff
Memorandum Opinion, Nov. 7, 2008 (docket no. 321), at 11-12. The plaintiffs further emphasize the
court’s observation that in an antitrust action the dismissals prior to giving the plaintiff ample opportunity for
discovery should be granted very sparingly. Opinion and Order, June 29, 2007 (docket no. 140), at 3.
Opinion and Order, June 29, 2007 (docket no. 142), at 6.
plaintiffs (rather than piercing the corporate veil).7
In light of Judge Russell’s prior opinions, the plaintiffs argue that the cash flow
information is relevant circumstantially to show state of mind, motive and intent to conspire,
elements of direct liability against the parent company, and to refute the defense that there are no
specific allegations of conspiratorial acts. The plaintiffs argue forcefully that cash flow between
these entities corroborates wrongful acts taken as part of a tacit conspiracy, which supports direct
liability against the HomeServices parent corporation.
The defendants argue that the requests for cash-flow information constitute “discovery
overuse” and are facially irrelevant. The HomeServices defendants have produced financial
records, data and documentation including monthly, quarterly and annual financial
documentation sales data and other records. The additional production of cash flow information,
in the defendants’ view, provides information that is not relevant to the disputed elements of this
horizontal price-fixing claim, i.e., an agreement to price fix and each defendant’s participation in
the agreement. The defendants argue the information reflecting capital reserves, cash reserves,
debts, and transfers of funds are not evidence of whether the underlying funds are supracompetitive profits. The fact of assets, debts, and transfers, the defendants argue, does not make
it more or less likely that the proceeds reflect “excess” profit levels derived from supracompetitive fees.
After thorough consideration, the magistrate judge must respectfully agree with the
defense position. During oral argument, the parties agreed there are no reported cases addressing
discovery in particular which support the proposition that cash flow requests are relevant or have
Opinion and Order, June 29, 2007 (docket no. 140), at 3.
potential relevance to any inquiry of supra-competitive gains.8 No economist or accountant has
opined that such data is necessary to establish price-fixing activity, and no reported case
validates this far-ranging financial discovery. In the magistrate judge’s view, the transfer of
assets, assuming there are transfers, do not support a reasonable inference that the earnings are
supra-competitive; it does not make a fact, supra-competitive profits, more likely than not. The
plaintiffs allege a horizontal or parallel price fixing scheme, yet seek vertical information, which
is unrelated to the core question whether the defendants participated in the alleged conspiracy.
Whether these putative ill-gotten gains stay in subsidiaries or are transferred to the parent does
not tend to show the existence of a conspiracy among the defendants.
The court being sufficiently advised,
IT IS HEREBY ORDERED that the plaintiffs’ motions to compel, to strike and for
sanctions (DN 435) are DENIED.
June 24, 2011
Copies to counsel of record
The magistrate judge agrees with the plaintiffs that the three cases cited in the defendants’ response
memorandum in support of the relevance objection offer little guidance.
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