Regional Multiple Listing Service of Minnesota, Inc. v. American Home Realty Network, Inc.
Filing
366
MEMORANDUM OPINION AND ORDER denying 146 Counterclaim Defendants Edina Realty and HomeService's Motion to Dismiss/General (Written Opinion). Signed by Judge John R. Tunheim on March 31, 2014. (HAZ)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
REGIONAL MULTIPLE LISTING
SERVICE OF MINNESOTA, INC., d/b/a
NorthstarMLS,
Civil No. 12-965 (JRT/FLN)
Plaintiff/Counterclaim Defendant,
v.
AMERICAN HOME REALTY
NETWORK, INC.,
MEMORANDUM OPINION
AND ORDER DENYING
COUNTERCLAIM DEFENDANTS’
MOTION TO DISMISS
Defendant/Counterclaim Plaintiff,
v.
EDINA REALTY, INC. and
HOMESERVICES OF AMERICA, INC.,
Counterclaim Defendants.
Chad A. Snyder, Adam P. F. Gislason, Matthew D. Schwandt, and
Michael H. Frasier, SNYDER GISLASON FRASIER LLC, 233 Park
Avenue South, Suite 205, Minneapolis, MN 55415; Christopher R. Miller,
AMERICAN HOME REALTY NETWORK INC., 222 Seventh Street,
Second Floor, San Francisco, CA 94103; Daniel E. Gustafson, Karla M.
Gluek, and Amanda M. Williams, GUSTAFSON GLUEK PLLC, 120
South Sixth Street, Suite 2600, Minneapolis, MN 55402; and L. Peter
Farkas, FARKAS + TOIKKA LLP, 1011 Thirtieth Street N.W.,
Washington, D.C. 20007, for defendant/counterclaim plaintiff.
Mark R. Bradford, Jeffrey R. Mulder, and Stanford P. Hill, BASSFORD
REMELE, PA, 33 South Sixth Street, Suite 3800, Minneapolis, MN
55402, for counterclaim defendants Edina Realty, Inc. and HomeServices
of America, Inc.
Plaintiff Regional Multiple Listing Service of Minnesota, Inc. (“RMLS”) initiated
this copyright infringement action against defendant American Home Realty Network,
28&MK
Inc. (“AHRN”), alleging that AHRN uses photographs and other copyrighted materials
from RMLS’s real estate listing service without permission. AHRN, in turn, brought
counterclaims against RMLS, alleging that it violated federal and state antitrust and trade
practices laws by conspiring to exclude AHRN from its network. RMLS moved to
dismiss AHRN’s counterclaims, but the Court denied its motion. AHRN later added
Edina Realty, Inc., (“Edina Realty”) a member of RMLS, and its parent company
HomeServices of America, Inc. (“HomeServices”) as third-party counterclaim defendants
(collectively “Counterclaim Defendants”) to the antitrust claims.
The Counterclaim
Defendants now similarly move to dismiss the claims asserted against them. The Court
will also deny this motion, finding that AHRN’s allegations adequately state claims of
antitrust violations against Edina Realty and HomeServices.
BACKGROUND 1
I.
PARTIES
RMLS is a real estate listing service company through which more than 13,000
real estate brokers and agents in Minnesota and western Wisconsin pool and disseminate
information on homes available for sale in their regions. (Compl. ¶ 8, Apr. 18, 2012,
Docket No. 1; Second Am. Countercl. ¶ 20, Apr. 4, 2013, Docket No. 95.) RMLS is a
cooperative run by local member-brokers and is affiliated with the National Association
1
The Court’s previous orders provide a full discussion of the facts related to this case.
See, e.g., Reg’l Multiple Listing Serv. of Minn., Inc. v. Am. Home Realty Network, Inc., Civ.
No. 12-965, 2013 WL 3367132 (D. Minn. July 5, 2013); Reg’l Multiple Listing Serv. of Minn.,
Inc. v. Am. Home Realty Network, Inc., Civ. No. 12-965, 2012 WL 4470286 (D. Minn. Sept. 27,
2012). The Court will recite here only those facts relevant to this motion.
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of Realtors (“NAR”). (Second Am. Countercl. ¶ 20.) It is governed by a Board of
Governors comprised of members appointed by the member-brokers. (Id. ¶ 16.)
RMLS operates NorthstarMLS to provide real estate brokers and agents with real
estate listing information by sending to member-brokers’ consumer-facing website a data
feed that includes the broker’s own listings and the listings of all other NorthstarMLS
members. (Second Am. Countercl. ¶¶ 16, 20; Compl. ¶ 9.) Agents and brokers also use
NorthstarMLS for access to real estate listings and information in their respective
markets. (Compl. ¶ 9.) Further, RMLS makes available brokers’ offers of cooperation,
which are the commission splits that listing brokers will pay other brokers who represent
a buyer. (Second Am. Countercl. ¶ 20.)
According to AHRN’s allegations, Edina Realty is the largest real estate company
in Minnesota and the largest member of RMLS.
(Id. ¶ 2.)
It is a subsidiary of
HomeServices. (Id.) Edina Realty has three members on the RMLS Board of Governors,
one of whom is the board’s chairman. (Id. ¶ 17.) AHRN alleges that HomeServices is
the parent company of Edina Realty and the second-largest real estate brokerage firm in
the United States, owning subsidiary firms in California, Indiana, Iowa, Kentucky,
Minnesota, Missouri, North Carolina, and Pennsylvania. (Id. ¶ 3.)
Defendant and counterclaim plaintiff AHRN owns NeighborCity, another online
residential real estate service. (Id. ¶ 5.) NeighborCity offers three primary services to its
visitors: information about properties for sale, connection with buyer-side real estate
agents for prospective buyers, and, through its AgentMatch software system,
performance metrics, rankings, and statistics regarding real estate agents. (Id. ¶¶ 5-14.)
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II.
COUNTERCLAIMS
After RMLS brought its initial complaint against AHRN for copyright violations, 2
AHRN brought counterclaims against RMLS, alleging violations of the Sherman Act,
15 U.S.C. §§ 1 et seq. (Count I); Minnesota antitrust statutes, Minn. Stat. §§ 325D.49 to
325D.66 (Count II); the Cartwright Act, Cal. Bus. & Prof. Code §§ 16720, 16726
(Count III); and the Minnesota Deceptive Trade Practices Act, Minn. Stat. § 325D.44
(Count IV). (Second. Am. Countercl. ¶¶ 61–78.)
RMLS moved to dismiss the counterclaims against it, but the Court denied the
motion. Reg’l Multiple Listing Serv. of Minn., Inc. v. Am. Home Realty Network, Inc.
(“RMLS I”), Civ. No. 12-965, 2013 WL 3367132 (D. Minn. July 5, 2013), modified on
other grounds by 2013 WL 6481201 (D. Minn. Dec. 10, 2013), 2014 WL 67952 (D. Minn.
Jan. 8, 2014). AHRN subsequently amended its counterclaims to add Edina Realty and
HomeServices as Counterclaim Defendants. (Second Am. Countercl. at 1, 7.) Edina
Realty and HomeServices now move to dismiss the counterclaims against them.
III.
COUNTERCLAIM AGAINST RMLS
The Counterclaim Defendants contend that AHRN’s claims against them are
fundamentally different than the original claims against RMLS, and, accordingly, that the
2
RMLS alleges that AHRN willfully infringed RMLS’s copyrighted material by
displaying the material on NeighborCity. On September 27, 2012, the Court entered a
preliminary injunction against AHRN. Reg’l Multiple Listing Serv. of Minn. v. Am. Home Realty
Network, Inc., Civ. No. 12-965, 2012 WL 4470286, at *11 (D. Minn. Sept. 27, 2012), amended
by 2013 WL 3367132 (D. Minn. July 5, 2013), modified by 2013 WL 6481201 (D. Minn.
Dec. 10, 2013), 2014 WL 67952 (D. Minn. Jan. 8, 2014). The proceedings regarding RMLS’s
direct claims against AHRN are not relevant to the counterclaim issues addressed in this Order.
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claims should be dismissed even though the Court already denied the motion to dismiss
the same claims against RMLS. The Court will outline below some of the primary
allegations relevant to the counterclaims against RMLS and the Court’s previous
conclusions regarding the adequacy of those allegations.
A.
Agreement Not to License Information to AHRN
AHRN alleged that RMLS and its participant brokers entered into a continuing
agreement to suppress competition in the marketplace. (First Am. Countercl. ¶ 26,
Dec. 21, 2012, Docket No. 73.)
First, AHRN alleged that RMLS and its brokers
collectively agreed to refuse to give AHRN a license to access data feeds containing real
estate listing data. (Id.) According to AHRN, RMLS and its members allow nonmember third parties to access its database information, but they have endorsed and
participated in a decision to enforce restrictions on which non-member third parties can
access the information. (Id. ¶¶ 27-28.) AHRN alleged that they base their decision on
the third party’s business model. (Id. ¶ 28.) Among those restrictions is a requirement
that third parties not allow access to any third party that provides buyer-side referrals
(i.e., real estate agents not affiliated with the listing broker). (Id. ¶¶ 27-28.) In other
words, RMLS and its members will not allow access to third parties like AHRN, because
AHRN makes referrals to the agent it determines is best suited for the buyer regardless of
the agent’s affiliation with the listing broker. (Id.) AHRN alleged that it contacted all of
the third-parties that receive MLS data feeds to seek access to the data prior to this suit,
and those third parties refused to extend the license on account of this alleged restriction
on third-parties. (Id. ¶ 31.) Further, AHRN alleged that no reasonable alternative sources
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of complete real estate data are available that would enable AHRN to conduct its
business. (Id. ¶ 23.)
AHRN asserted that this restriction on which third parties may receive data
promotes an anticompetitive business model and destroys other innovative businesses in
their attempt to enter the real estate market because RMLS and its participants control
who has access to critical real estate data. (Id. ¶ 19.) AHRN alleged that consumers
suffer when new business models are forced out of the market. (Id. ¶ 25. (quoting the
U.S. Department of Justice as saying “‘[n]ew business models are emerging that allow
consumers to save thousands of dollars when they buy or sell a home,’ but ‘competition
also suffers when brokers exclude low-cost rivals from the multiple listing service
(MLS), which limits price competition’”).)
B.
Agreement to Assert Sham Copyrights
Second, AHRN alleged that RMLS and its participant members agreed to assert
sham copyright claims to the NorthstarMLS listing data in order to suppress competition
by intimidating businesses, like AHRN, that seek to compete with their current business
model. (Id. ¶ 26.) AHRN alleged that RMLS asserts copyrights over information that “is
not copyrightable, not properly registered in compliance with the Copyright Act, or not
owned by [RMLS].” (Id. ¶ 42.)
In support of its conspiracy theory regarding the sham copyrights, AHRN referred
to the NAR annual meeting on November 11 to 14, 2011, where member listing services
– including RMLS – allegedly discussed the threat AHRN posed to the industry and their
intent to shut down AHRN. (Id. ¶ 33.) According to AHRN, “[f]ollowing the annual
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NAR meeting, . . . [it] received more than 30 similar cease and desist letters from MLSs
and brokers across the country.” (Id. ¶ 34.) In each letter, the sender claimed that AHRN
was improperly using information over which the sender held a copyright. (Id.) AHRN
claimed that it disputed the copyright assertions but responded to each of the MLS letters
with an offer to purchase a license to the allegedly copyrighted material. (Id. ¶ 35.)
AHRN alleges that all of the MLSs and brokers refused to discuss a licensing agreement,
in furtherance of their group boycott against AHRN. (Id. ¶ 36.) AHRN further alleges a
conspiracy based on a meeting of the NAR Board of Directors that took place on May 19,
2012. (Id. ¶¶ 38-39.) At that meeting, the Board voted to institute new rules to further
exclude competitors like AHRN from receiving MLS data and to fund the instant action
and a substantially similar action against AHRN in United States District Court for the
District of Maryland. (Id. ¶ 39 (identifying specific statements in the meeting minutes as
support for its conspiracy allegations).)
C.
RMLS I
The Court in RMLS I found that these allegations sufficed to state a claim against
RMLS for violation of § 1 of the Sherman Act.
After concluding that the Noerr-
Pennington doctrine did not immunize RMLS because AHRN adequately pleaded that
the sham exception applied, the Court found that AHRN adequately pleaded a plausible
conspiracy, both between RMLS and other listing services across the country and the
NAR, and between RMLS and its member-brokers. RMLS I, 2013 WL 3367132 at *11*15. With regard to a conspiracy between RMLS and its member-brokers, the Court
found:
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The gravamen of AHRN’s counterclaim is that RMLS and its memberbrokers colluded to use RMLS as a vehicle to assert false copyright claims
that impeded AHRN’s business model and to exclude companies like
AHRN from accessing the universe of listings needed to compete.
Furthermore, AHRN has alleged that RMLS and its member-brokers
dissuaded brokers and agents within RMLS’s service area from entering
referral agreements with AHRN. Through these allegations, AHRN has
sufficiently alleged that RMLS and its coconspirators engaged in concerted
action under the Sherman Act.
Id. at *15 (internal citation omitted). The Court further found that AHRN adequately
alleged an unreasonable restraint of trade under either a per se rule of illegality or a rule
of reason analysis. Id. at *16. Under a per se analysis, the Court found that AHRN’s
allegations plausibly amounted to a group boycott because
RMLS and its coconspirators cut off access to the supply necessary to
enable the boycotted firm to compete. Specifically, AHRN alleges that
RMLS and its co-conspirators have cut off access to information that is
critical to any business attempting to compete with them. These allegations
satisfy the element of cutting off a supply necessary for AHRN and similar
businesses to compete.
Id. at *17 (internal quotations, citation, and alteration omitted). The Court also found that
AHRN had alleged that RMLS and its coconspirators possessed a dominant position in
the relevant market and that the challenged practices were not justified by plausible
arguments that they were intended to benefit the market by making it more efficient and
competitive. Id. In the alternative, the Court found under a rule of reason analysis that
RMLS’s business model had anticompetitive effects because its protection of memberbrokers’ ability to keep commissions from both sides of the transaction increases the
price of buying a home to consumers by excluding competitors such as AHRN. Id. at
*18.
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IV.
NEW ALLEGATIONS AGAINST COUNTERCLAIM DEFENDANTS
After oral argument on the counterclaims against RMLS but before the Court’s
decision in RMLS I, AHRN amended its counterclaims to add Edina Realty and
HomeServices as Counterclaim Defendants on the Sherman Act and state antitrust claims
(but not Count IV for violation Minnesota Deceptive Trade Practices Act). (Second Am.
Countercl. at 27-33.)
The Second Amended Counterclaim adds Edina Realty and
HomeServices to many of the allegations against RMLS and adds several specific
allegations against Edina Realty and HomeServices. AHRN added Edina Realty and
HomeServices to its allegations that RMLS and participant brokers entered into a
continuing agreement to suppress competition in the marketplace (id. ¶ 29), allow nonmember third parties access to the data feed information but restrict which third parties
can access the information, including AHRN (id. ¶¶ 30-31), agreed to assert sham
copyright claims to the listing data against AHRN (id. ¶ 37), and collectively refused to
discuss any licensing of the listing data with AHRN (id. ¶ 38).
In addition to adding Edina Realty and HomeServices to its allegations against
RMLS generally, AHRN added new allegations about specific actions taken by both
Edina Realty and HomeServices. AHRN alleges that HomeServices sent a letter on
behalf of Edina Realty and its other subsidiaries on January 5, 2012 demanding that
AHRN cease all “infringement of copyrights.” (Id. ¶ 59.) According to AHRN, the letter
did not describe what copyrighted material had been wrongfully used by AHRN, and
AHRN received no response when it asked HomeServices to identify such material. (Id.)
Accordingly, AHRN assumed that the letter was a “threat of litigation, [] sent to
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intimidate AHRN into ceasing its competition with Edina Realty and other brokers.”
(Id.)
AHRN also points to a letter sent by Edina Realty on June 11, 2012, stating that it
was rescinding any agreements that its agents or brokers had entered into with AHRN,
and that Edina Realty had no interest in entering any future agreements with AHRN. (Id.
¶ 39.) AHRN alleges that HomeServices’ January 5, 2012 letter also retracted any
agreement between AHRN and any agents of the brokerage companies it owns. (Id.)
Counterclaim Defendants now move to dismiss all claims against them under
Federal Rule of Civil Procedure 12(b)(6). The Court will deny the motion to dismiss
because, in light of the Court’s prior analysis of very similar claims against RMLS, the
Court finds that AHRN’s allegations against Edina Realty and HomeServices adequately
state a claim under § 1 of the Sherman Act.
ANALYSIS
I.
STANDARD OF REVIEW
In reviewing a motion to dismiss brought under Rule 12(b)(6), the Court considers
all facts alleged in the complaint as true to determine if the complaint states a “‘claim to
relief that is plausible on its face.’” See, e.g., Braden v. Wal-Mart Stores, Inc., 588 F.3d
585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between possibility and plausibility” and
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therefore must be dismissed. Id. (internal quotation marks omitted). Although the Court
accepts the complaint’s factual allegations as true, it is “‘not bound to accept as true a
legal conclusion couched as a factual allegation.’” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). Therefore, to
survive a motion to dismiss, a complaint must provide more than “‘labels and
conclusions’ or ‘a formulaic recitation of the elements of a cause of action.’” Iqbal, 556
U.S. at 678 (quoting Twombly, 550 U.S. at 555).
II.
SHERMAN ACT
Section 1 of the Sherman Act provides that “[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. To
establish a claim under Section 1 of the Sherman Act “a plaintiff must demonstrate
(1) that there was a contract, combination, or conspiracy; (2) that the agreement
unreasonably restrained trade under either a per se rule of illegality or a rule of reason
analysis; and (3) that the restraint affected interstate commerce.” Insignia Sys., Inc. v.
News Am. Mktg. In–Store, Inc., 661 F. Supp. 2d 1039, 1062 (D. Minn. 2009). Because
Section 1 of the Sherman Act “does not prohibit [all] unreasonable restraints of trade . . .
but only restraints effected by a contract, combination, or conspiracy,” Copperweld Corp.
v. Independence Tube Corp., 467 U.S. 752, 775 (1984), “‘[t]he crucial question’ is
whether the challenged anticompetitive conduct ‘stem[s] from independent decision or
from an agreement, tacit or express,’” Twombly, 550 U.S. at 553 (alterations in original)
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(quoting Theatre Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 540
(1954)).
In RMLS I, the Court concluded that “[t]he gravamen of AHRN’s counterclaim is
that RMLS and its member-brokers colluded to use RMLS as a vehicle to assert false
copyright claims that impeded AHRN’s business model and to exclude companies like
AHRN from accessing the universe of listings needed to compete.” RMLS I, 2013 WL
3367132 at *15. Thus, the Court has already determined that AHRN adequately alleged
that RMLS and its member-brokers colluded to eliminate AHRN’s access to the real
estate listing information compiled and shared by these brokers. Because Edina Realty is
a member-broker of RMLS there can be no dispute at this stage of the case that the
allegations in AHRN’s counterclaim are sufficient to allow the Court to draw the
reasonable inference that Edina Realty engaged in a conspiracy that could satisfy the first
element of a Sherman Act claim. 3 See Morris v. Am. Nat’l Can Corp., 988 F.2d 50, 52
(8th Cir. 1993) (explaining law of the case doctrine, that “‘when a court decides upon a
rule of law, that decision should continue to govern the same issues in subsequent stages
in the same case’” (quoting Arizona v. California, 460 U.S. 605, 618 (1983))).
Rather, the newly-added Counterclaim Defendants challenge the adequacy of
AHRN’s pleadings on two other grounds: first, that the allegation that HomeServices sent
a cease and desist letter (on Edina Realty’s behalf) does not alone adequately plead
restraint of trade, and second, that the group boycott allegation must fail because AHRN
3
As the Court will explain below, the allegations against Edina Realty also suffice to
state a claim against its parent company, HomeServices, because AHRN alleges that
HomeServices took direct action to participate in the anti-competitive conspiracy by sending a
letter to AHRN on Edina Realty’s behalf. See infra Part II.C.
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has never sought licensing from Edina Realty, AHRN fails to allege that Edina Realty
and HomeServices have sufficient market power, and it is not a violation of the Sherman
Act for a competitor to refuse to gratuitously share with a competitor. None of these
arguments suffice to dispose of AHRN’s claims at this preliminary stage.
A.
Cease and Desist Letters
In its July 5, 2013 order, the Court found that AHRN had sufficiently alleged that
RMLS engaged in a conspiracy with its member-brokers to assert false copyright claims
that “impeded AHRN’s business model” and excluded “AHRN from accessing the
universe of listings needed to compete.” RMLS I, 2013 WL 3367132 at *15. Edina
Realty and HomeServices argue that this conclusion should not extend to them, however,
because they have not asserted any copyright infringement claims against AHRN. (Mem.
in Supp. of Mot. to Dismiss at 4, July 29, 2013, Docket No. 148.) They acknowledge that
HomeServices (on behalf of Edina Realty) sent a cease and desist letter to AHRN, but
claim that sending such a letter to a third party does not restrain trade or otherwise create
antitrust liability. (Id. at 5.)
As the Court previously found with regard to RMLS, allegations of the assertion
of sham copyrights suffice to plead a restraint on trade because without license to publish
photos and descriptions from RMLS’s listing data (including those for which Edina
Realty allegedly holds the copyright), AHRN cannot operate its business in the areas
served by Edina Realty and RMLS. (Second Am. Countercl. ¶ 26 (“[T]here are no
reasonable alternative sources of complete real estate data for the relevant areas other
than from the MLS or directly from the brokers . . . .”); see also Robertson v. Sea Pines
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Real Estate Cos., 679 F.3d 278, 282 (4th Cir. 2012) (“Particularly in an area served by
only one MLS, access to MLS resources may be critical for a brokerage to successfully
participate in the relevant real estate market.”).) That Counterclaim Defendants sent a
cease and desist letter, but did not institute a copyright infringement action like RMLS,
does not preclude the Court’s analysis with regard to RMLS from similarly applying to
Counterclaim Defendants.
First, the fact that Counterclaim Defendants’ assertion of copyright ownership
against AHRN came in the form of a cease and desist letter rather than a lawsuit for
copyright violation is immaterial here, as cease and desist letters typically initiate or give
notice that copyright litigation may follow if the sender’s demands are not met. Cf.
Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367, 1376-77 (Fed.
Cir. 2004) (“pre-litigation communications alleging patent infringement” are treated as
actual litigation for Noerr-Pennington purposes); CVD, Inc. v. Raytheon Co., 769 F.2d
842, 851 (1st Cir. 1985) (“[T]he threat of unfounded trade secrets litigation in bad faith is
sufficient to constitute a cause of action under the antitrust laws, provided that the other
essential elements of a violation are proven.”).
Second, Counterclaim Defendants argue that a single cease and desist letter cannot
amount to an unreasonable restraint of trade. But AHRN has sufficiently alleged that the
cease and desist letter was part of a larger conspiracy intended to preclude AHRN from
doing business in the real estate brokerage industry in the area covered by RMLS.
AHRN alleges that it “received more than 30 similar cease and desist letters from MLSs
and brokers across the country – including from RMLS, Edina Realty, and its parent,
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HomeServices,” and that “[e]ach letter claimed that AHRN was improperly using
information.”
(Second Am. Countercl. ¶ 37; see also id. ¶ 59 (alleging that
HomeServices, writing on behalf of Edina Realty and other subsidiaries, sent the
January 5, 2012 letter demanding that AHRN cease its alleged “infringement of
copyrights” and that “[t]he letter, with its threat of litigation, was sent to intimidate
AHRN into ceasing its competition with Edina Realty and other brokers”).) AHRN
alleges that these cease and desist letters form part of one of the two ways the anticompetitive scheme is effectuated, and were “for the purpose of preventing competitors
from making lawful use of the information and thus suppressing competition in the
market for real estate brokerage referrals and the market for real estate agent services.”
(Id. ¶ 62.)
The allegations here are comparable to those the Fourth Circuit found to
sufficiently allege Sherman Act § 1 liability in Robertson v. Sea Pines Real Estate
Companies, Inc., 679 F.3d 278 (4th Cir. 2012). There, putative class plaintiffs brought
§ 1 claims against real estate brokerages who were members of and served on the board
of a regional listing service (“MLS”), alleging that the brokerages conspired, via the
MLS, to pass bylaws and rules that were designed to “exclude innovative, lower-priced
competitors and thus insulate the defendants from competitive pressures posed by
brokerages that offered a larger menu of service choices and alternative pricing to their
customers.”
Id. at 283.
In concluding that the brokerages, although acting via
representatives on the board of the MLS, could be considered separate actors for the
purposes of § 1 liability, the court concluded that the members’ efforts to exclude
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innovative competitors via MLS rules fell within the scope of § 1. Id. at 286. The court
observed that
the power of MLS board members to pass restrictive membership rules can
also threaten economic harm to nonmembers and deprive the real estate
market of the competitive forces that are at the heart of our national
economic policy. Where MLS members have the power to exclude other
competitors from access to its pooled resources, there exists the potential
for significant competitive harms alongside the competitive advantages of
an MLS. Section one is therefore an appropriate mechanism to ensure that
the concerted action of MLS members retains a procompetitive character.
Id. (internal citations and quotations omitted). The attempts to restrict access to listing
data here, either by cease and desist letters or by full-on copyright lawsuits, are
comparable to the rules and bylaws in Sea Pines Real Estate – they serve to exclude new
and innovative competitors from accessing the pooled resources of the listing service.
This is distinct from the claims in Schachar v. American Academy of
Ophthalmology, Inc., which addressed not a tangible limitation on ophthalmologists’
possible business activities, but rather a position taken by a group of ophthalmologists.
870 F.2d 397, 398 (7th Cir. 1989). As the court observed, the defendant there “did not
require its members to desist from performing the operation or associating with those
who do,” and thus the fact that no plaintiffs contended that the defendant prevented him
from “doing what he wished or imposed sanctions on those who facilitated the work,”
required granting summary judgment for the defendant. Id. at 398-99. In contrast, the
allegations here, if true, would support a claim that Counterclaim Defendants and other
brokers who were a part of RMLS in fact precluded AHRN from operating its business
by limiting its access to information necessary to its operation without legal basis. This is
precisely what the court in Schachar contemplated would amount to an antitrust
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violation: when “one group of suppliers diminishes another’s ability to peddle its wares.”
Schachar, 870 F.2d at 399. The Court therefore concludes that AHRN’s allegations that
Counterclaim Defendants participated in a scheme to limit AHRN’s access to real estate
listing data by sending a cease and desist letter sufficiently state a claim for a conspiracy
in restraint of trade in violation of § 1 of the Sherman Act.
B.
Group Boycott
The Counterclaim Defendants also challenge the sufficiency of AHRN’s
allegations that their activity amounts to an illegal group boycott. The Court in RMLS I
found that RMLS’s conspiratorial activities amounted to an unreasonable restraint of
trade either under the per se rule as a group boycott or under rule of reason analysis.
RMLS I, 2013 WL 3367132 at *16-*19. 4
With regard to group boycott, the Court
concluded that AHRN sufficiently alleged that RMLS and its coconspirators (which
included member-brokers such as Edina Realty) “cut off access to information that is
critical to any business attempting to compete with them,” and dominated the “market
and information regarding home listings,” and furthermore that their activities were not
intended to enhance overall efficiency or make the market more competitive, but rather to
preserve the extant business model of referring customers to listing brokers. Id. at *17.
4
Because the Court concluded that rule of reason analysis supported the unreasonable
restraint of trade element in the alternative to group boycott as a per se restraint, see RMLS I,
2013 WL 3367132 at *17, the Court would not be required to dismiss AHRN’s claims against
the Counterclaim Defendants even if the group boycott theory were to fail. The Court will not
rely on this alternative ground, however, because it finds that AHRN has adequately stated a
Sherman Act § 1 claim based on group boycott against the Counterclaim Defendants such that it
should be permitted to advance the theory at later stages of litigation.
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The Counterclaim Defendants make three arguments in support of their claim that,
despite this finding, AHRN’s pleadings against Edina Realty and HomeServices do not
sufficiently allege that they participated in a group boycott. None of these arguments
preclude the Court’s group boycott analysis in RMLS I from applying to the Counterclaim
Defendants. 5 First, they argue that AHRN never sought licensing of listing data from
Edina Realty, but rather only referral agreements from Edina Realty’s independent
contractors. This is a distinction without a difference – the referral agreements (which
AHRN alleges Edina Realty refused to enter into and later repudiated any that existed,
(see Second Am. Countercl. ¶ 39)), like the licenses, would have afforded AHRN access
to real estate listing information.
The Court’s previous group boycott analysis
encompasses “information that is critical to any business attempting to compete with
[RMLS and its member-brokers],” which is the property listing information, regardless of
whether AHRN sought to access it by licensing agreements with RMLS or by referral
agreements with member-brokers and their independent contractors.
Furthermore,
although Counterclaim Defendants argue that AHRN has never asked Edina Realty to
license data, AHRN alleges that “Edina Realty and its parent, HomeServices, refused to
even discuss a licensing agreement.”
(Second Am. Countercl. ¶ 39.)
Although
Counterclaim Defendants may dispute this allegation as a matter of fact, taking this
allegation as true the Court will not conclude that the distinction between licensing
5
The group boycott issue centers on Edina Realty rather than HomeServices or their
collective action, but, as the Court will explain in Part III.C, AHRN sufficiently states this claim
against HomeServices as Edina Realty’s parent company.
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agreements and referral agreements defeats the sufficiency of AHRN’s Sherman Act
claims against Edina Realty and HomeServices.
Second, Counterclaim Defendants argue that AHRN has failed to allege group
boycott because it has failed to allege that Edina Realty or HomeServices have sufficient
market power such that they could have abused that market power to induce suppliers and
customers to not do business with AHRN. As the Court noted in RMLS I, AHRN alleges
that “MLS’s, including RMLS, have substantial market power,” as “[t]hey control nearly
all of the listing information for properties within their geographic service areas.”
(Second Am. Countercl. ¶ 65; see also RMLS I, 2013 WL 3367132 at *17.) With respect
to the Counterclaim Defendants, AHRN alleges that Edina Realty is the “largest real
estate company in the state of Minnesota, and the largest member of RMLS,” and that it
has “three members on the RMLS Board of Governors, one of whom is its chairman, and
is the largest member of RMLS,” such that it and HomeServices “have significant
influence over RMLS.” (Id. ¶¶ 2, 17.) These allegations permit the Court to plausibly
infer that Edina Realty and HomeServices maintain substantial power in the relevant
market, both independently as the largest real estate company in Minnesota and through
their influence over RMLS as the largest member of RMLS and a significant presence on
its board. Furthermore, specifically with regard to the restrictions that form the basis of
the group boycott allegations, AHRN alleges that “Edina Realty, as RMLS’s largest
member, and acting under the direction of HomeServices, has endorsed and participated
in the decision to enforce [the] restrictions.” (Id. ¶ 31.)
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Counterclaim Defendants’ reliance on TheMLSonline.com, Inc. v. Regional
Multiple Listing Service of Minnesota, Inc., 840 F. Supp. 2d 1174 (D. Minn. 2012), does
not alter this analysis. There, the court found that the plaintiff failed to state a claim for a
Sherman Act violation on the basis that the defendants (including RMLS and Edina
Realty) repeatedly pursued ethics violations against the plaintiff on account of the
plaintiff’s supposedly unauthorized use of “MLS” in its title and website.
840
F. Supp. 2d at 1181-82. The court found no allegations sufficient to support a claim for
group boycott because the plaintiff alleged no facts regarding defendants’ market power
nor “any attempts by Defendants to influence the behavior of customers or suppliers.” Id.
at 1181. Other than the common defendants, that case bears little resemblance to the
facts here – as the court concluded, ethics complaints or the threat of ethics complaints
did not hinder the plaintiff’s ability to participate in real estate business in the state – the
plaintiff remained a member of the Minnesota realtor association and maintained access
to the RMLS listings.
Id. at 1182.
Here, AHRN has alleged that RMLS and the
Counterclaim Defendants hold significant market power and that the alleged collective
action was designed to prevent AHRN from participating at all in the real estate
brokerage or listing business in this area.
Finally, Counterclaim Defendants argue that AHRN fails to “state a claim because
competitors cannot be forced to cooperate with each other. And it would turn antitrust
law on its head to use it to compel one company to license its intellectual property to its
competitors, even if the Court assumes that is what AHRN asked Edina Realty to do
here.” (Mem. in Supp. of Mot. to Dismiss at 9.) This argument misses the point,
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however, as AHRN’s claims do not seek antitrust liability for Edina Realty’s refusal to
provide access to its listing data via referral agreements alone, but rather for Edina
Realty’s participation in a conspiracy with other brokers and with RMLS to collectively
restrict all access to the listing data, which is essential for AHRN to operate its business
in the relevant market. Here, where AHRN alleges that competitors – Edina Realty and
other member-brokers – already do share information with each other, but refuse to share
it with a business seeking entry into the market, the fact that Edina Realty may be a
competitor of AHRN’s does not alone relieve its potential § 1 liability. See Sea Pines
Real Estate Cos., 679 F.3d at 286 (“Where MLS members have the power to exclude
other competitors from access to its pooled resources, there exists the potential for
significant competitive harms alongside the competitive advantages of an MLS.”
(internal quotations marks omitted)); cf. Am. Needle, Inc. v. Nat’l Football League, 560
U.S. 183, 196-202 (2010) (thirty-two NFL teams are competitors in one sense, as they
“compete with one another, not only on the playing field, but to attract fans, for gate
receipts and for contracts with managerial and playing personnel,” but can still be liable
under § 1 for conspiring together). The Court therefore concludes that, in accordance
with its decision in RMLS I, AHRN has adequately stated a claim for Sherman Act § 1
liability based on a group boycott against Edina Realty (and, therefore, as the next section
will address, also against HomeServices).
C.
HomeServices
In addition to the substantive arguments about the adequacy of AHRN’s § 1
Sherman Act claims, HomeServices argues that all claims against it must be dismissed
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because “AHRN alleges no additional facts to take this case out of the general rule that a
parent company is not liable for the acts of its subsidiaries.” (Mem. in Supp. of Mot. to
Dismiss at 10.) Courts have generally held that, in order for antitrust allegations against a
subsidiary to be fairly made against the parent company, there must be allegations that
the parent company actually engaged in anti-competitive conduct and not merely that it
served as parent to its wholly-owned subsidiary. See, e.g., H.J., Inc. v. Int’l Tel. & Tel.
Corp., 867 F.2d 1531, 1549 (8th Cir. 1989) (parent could not be held liable for claims
against subsidiary, including Sherman Act claims, “without proof that it performed acts
sufficient to create liability, or actively influenced [the subsidiary] in its violations”
(emphasis in original)); Arnold Chevrolet LLC v. Tribune Co., 418 F. Supp. 2d 172, 178
(E.D.N.Y. 2006) (“in the antitrust context, courts have held that absent allegations of
anticompetitive conduct by the parent, there is no basis for holding a parent liable for the
alleged antitrust violation of its subsidiary” and collecting cases). Courts have repeatedly
found that, where a plaintiff alleges only that a parent wholly owns a subsidiary or
generally alleges that the parent company participated in the conspiracy, without specific
examples, plaintiff fails to state a claim against the parent for the subsidiary’s actions.
See, e.g., Arnold Chevrolet LLC, 418 F. Supp. 2d at 178; RSM Prod. Corp. v. Petroleos
de Venezuela Societa Anonima (PDVSA), 338 F. Supp. 2d 1208, 1216 (D. Colo. 2004).
Here, however, AHRN alleges that HomeServices took specific action, separate and apart
from Edina Realty’s actions, that generally furthered the alleged anti-competitive
conspiracy. AHRN alleges that HomeServices sent a letter on behalf of Edina Realty and
other subsidiaries to AHRN’s CEO on January 5, 2012, demanding that AHRN cease its
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alleged “infringement of copyrights,” in an attempt to “intimidate AHRN into ceasing its
competition with Edina Realty and other brokers.” (Second Am. Countercl. ¶ 59; see
also Decl. of Chad A. Snyder, Ex. 1, Aug. 21, 2013, Docket No. 165.) 6 This allegation
amounts to “direct and independent participation in the alleged conspiracy,” and is
sufficient to state a claim against HomeServices at this stage.
In re Pa. Title Ins.
Antitrust Litig., 648 F. Supp. 2d 663, 688 (E.D. Pa. 2009).
C.
Minnesota and California Antitrust Law Claims
The Counterclaim Defendants also move to dismiss AHRN’s claim of violations
of the Minnesota Antitrust Law of 1971, Minn. Stat. § 325D.49, and the California
Cartwright Act, Cal. Bus. & Prof. Code § 16720. These statutes are modeled after the
Sherman Act and are interpreted consistently with the Sherman Act. See, e.g., State v.
Alpine Air Prods., Inc., 490 N.W.2d 888, 894 (Minn. Ct. App. 1992) (“Minnesota courts
have consistently held that Minnesota antitrust law is to be interpreted consistently with
the federal courts’ construction of federal antitrust law.” (citing Keating v. Philip Morris,
Inc., 417 N.W.2d 132, 136 (Minn. Ct. App. 1987); State v. Duluth Bd. of Trade, 121
N.W. 395, 399 (Minn. 1909))); Corwin v. Los Angeles Newspaper Serv. Bureau, Inc., 484
P.2d 953, 959 (Cal. 1971) (the Cartwright Act was “patterned after the Sherman Act . . .
and decisions under the latter act are applicable to the former”). The Counterclaim
6
The Court properly considers the letter itself at this stage because it is a document
“necessarily embraced by the complaint,” because its contents are alleged in the complaint and
neither party questions its authenticity. Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151
(8th Cir. 2012). The Court does not, however, consider the additional email chain referenced by
AHRN in its Memorandum in Opposition to the Motion to Dismiss, (see Mem. in Opp. to Mot.
to Dismiss at 10-11, Aug. 21, 2013, Docket No. 164; Snyder Decl., Ex. 2) as neither the
existence of those emails, nor their content, are alleged in the counterclaims.
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Defendants’ arguments as to why these claims should be dismissed are the same as those
regarding the Sherman Act claim, so the Court will not dismiss these claims for the same
reasons it will not dismiss the Sherman Act claim. Cf. RMLS I, 2013 WL 3367132 at
*19.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Counterclaim Defendants Edina Realty and HomeService’s
Motion to Dismiss [Docket No. 146] is DENIED.
DATED: March 31, 2014
at Minneapolis, Minnesota.
__________
_________
JOHN R. TUNHEIM
United States District Judge
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