United States v. Foley
598 F.2d 1323 (1979)
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Rule of Law:
A conspiracy among local real estate brokers to fix commission rates is subject to the Sherman Act when their services are an integral part of a substantial stream of interstate transactions, such as financing from out-of-state lenders and the movement of buyers and sellers across state lines.
Facts:
- The defendants were competing real estate brokers in Montgomery County, Maryland, a suburban area of Washington, D.C.
- All defendants belonged to the Montgomery County Board of Realtors and used its multiple listing service.
- During the summer of 1974, the prevailing real estate commission rate in the county was six percent.
- The real estate market was slow at the time, and brokers were facing reduced profit margins due to rising costs.
- On September 5, 1974, defendant John Foley hosted a dinner party for nine of the leading competing realtors in the county, including representatives from all other defendant firms.
- At the dinner, Foley announced that his firm was raising its commission rate from six to seven percent.
- Following Foley's announcement, a discussion about the rate change occurred among the guests.
- In the months following the dinner, each of the corporate defendants' firms substantially adopted a seven percent commission rate.
Procedural Posture:
- A United States grand jury indicted six corporate and three individual defendants in the U.S. District Court for the District of Maryland for conspiracy to fix prices in violation of § 1 of the Sherman Act.
- Defendants filed a pre-trial motion to dismiss for lack of subject matter jurisdiction, which the trial court denied.
- Following a nine-day trial, a jury found all defendants guilty.
- The defendants (appellants) appealed their convictions to the United States Court of Appeals for the Fourth Circuit.
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Issue:
Does a conspiracy among local real estate brokers to fix commission rates substantially affect interstate commerce, thereby bringing their conduct within the jurisdiction of the Sherman Act?
Opinions:
Majority - Phillips, Circuit Judge
Yes, a conspiracy among local real estate brokers to fix commission rates substantially affects interstate commerce. The court found that the brokers' activities were an integral part of an identifiable stream of interstate real estate transactions. Applying the test from Goldfarb v. Virginia State Bar, the court determined that the brokers' services were, as a matter of practical necessity, essential to the large volume of interstate transactions occurring in the transient market of Montgomery County. The evidence showed significant interstate activity, including buyers and sellers moving across state lines, extensive out-of-state advertising, use of national relocation services, and substantial financing from out-of-state lenders and federally-guaranteed mortgages. The court reasoned that the brokers' activities were even more integral to interstate commerce than the lawyers' in Goldfarb, as the brokers actively created the interstate market. Therefore, the price-fixing conspiracy had a substantial effect on this stream of commerce, bringing it under the jurisdiction of the Sherman Act.
Analysis:
This case significantly clarifies the jurisdictional reach of the Sherman Act over seemingly local service industries. By applying the 'integral part of an interstate transaction' test from Goldfarb, the court established that local real estate brokerage activities fall under federal antitrust scrutiny when they are intertwined with interstate finance and the movement of people. This decision serves as a key precedent for prosecuting price-fixing in other local service sectors that facilitate interstate commerce. It reinforces the principle that the 'affecting commerce' analysis is a practical one, focused on the economic realities of the market rather than the purely local nature of the service provided.
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