Greenbelt Homes, Inc. v. Nyman Realty, Inc.

Thompson, J., delivered the opinion of the Court. I FACTS Greenbelt Homes, Inc. (GHI), the appellant and cross-appellee, is a cooperative housing development of some 1600 units located in Greenbelt, Maryland. All but a few of the houses were built by the federal government during the 1930’s and 1940’s; GHI, which is a non-profit, non-stock Maryland Corporation, acquired the property and began operating-in 1952. GHI retains legal title to the land and buildings, pays the taxes and insurance, and supplies maintenance and various other services.

Funds for these services are obtained through monthly operating payments made by each member-owner. Through a mutual ownership contract, which is similar to a proprietary lease, see, Green v. Greenbelt Homes, 232 Md. 496 , 194 A.2d 273 (1963), each member-owner of the cooperative acquires from the corporation a right of perpetual use and enjoyment in his or her ⁴⁴ house. Under the contract, each household is also entitled to one vote in corporate affairs. GHI calls itself a "conversion” co-op and is said to be unique in that co-op members may sell the interest which they hold in their houses at market value to any buyer whom the co-op will approve for membership.

The exercise of this right is not without restriction; e.g., GHI has a right of first refusal on all sales and a member is not permitted to sell his interest at a profit until he has lived in the co-op for at least two years. GHI is also a licensed real estate broker and operates a sales office for the listing and sale of GHI houses. Nyman Realty, Inc. (Nyman), one of the appellees and cross-appellants, is a real estate agency located in Greenbelt and the successor in interest to Greenbelt Realty Company. Although Nyman bought Greenbelt Realty on January 1, 1977, it continued to operate the business under the name "Greenbelt Realty” until January 1, 1978, when the name was changed to "Nyman.” Nyman has six offices in addition' to the one located in Greenbelt and is a member of both a national and a county listing organization.

It deals in a variety of types of properties, including houses located in the GHI cooperative. At trial, the evidence showed that, at least since the early 1970’s, Nyman and its predecessor have each year listed and sold more GHI houses than any other single agency. Eric Wade Barber and Marshal A. Gielen, two of the appellees and cross-appellants, are real estate agents employed by Nyman and member-owners of GHI. Both .earn substantial portions of their income from commissions on the sale of GHI houses.

At the time of trial, Barber had contracted to sell his co-op house but had not yet settled; Gielen had listed her house for sale but had not yet obtained a buyer. A GHI member-owner who wishes to sell his interest in his house can do so in one of three ways: (1) he can act as his own agent; (2) he can list with any licensed real estate agency; or (3) he can list with the sales office operated by GHI. Prior to June 1, 1978, upon completion of a sale, the selling member ⁴⁵ paid GHI an administrative fee of $150 and an inspection fee of $65. These fees were intended to cover GHI’s costs in screening the proposed buyer, educating the buyer concerning his rights and obligations as a GHI member, completing the paperwork required to transfer the interest, and conducting a physical inspection of the house.

If the selling member listed and sold his house through the GHL sales office, GHI charged a 5-V2% commission, approximately $1100 on the average house, but waived the administrative fee. On June 1,1978, a reorganization of the GHI sales service, which had been approved by the GHI Board of Directors on January 12, 1978, became effective. This reorganization, which involved expansion of the sales staff, resulted in a significant change in the fees charged members who sold their co-op houses. The $65 inspection fee, previously charged on all sales, was abolished.

The 5-V2% commission, previously charged those members who sold through the GHI sales office, was also abolished. The $150 administrative fee, previously charged on all sales but waived where GHI was paid a commission, was increased to $550 and charged to all sellers, regardless of whether or not they used the GHI sales service. The services of the sales staff were made available to all sellers without a separate charge. Testimony at trial indicated that the increased administrative fee was intended to cover the costs of all of the services for which the charges had previously been separate, i.e., screening, educating, completing paperwork, inspecting, and maintaining the sales office.

GHI arrived at the figure of $550 by adding the costs of providing the services previously covered by the old administrative and inspection fees to the costs of operating the expanded sales office, a total of approximately $110,000 annually, and dividing that total by the number of houses transferred in an average year, approximately 200. Thus, GHI took two separate operations which, prior to the reorganization, were separately funded; merged them; and began levying a single charge which covered the costs of both operations. The principal economic effect of the reorganization was to compel all sellers to pay ⁴⁶ to support the sales office, whereas previously only those sellers who utilized its services had had to pay for its support. This created, and was obviously intended to create, an economic incentive for all selling members to list their houses with the GHI sales office.

II PLEADINGS On May 24, 1978, one week prior to the effective date of the GHI reorganization, Nyman filed a bill of complaint in the Circuit Court for Prince George’s County. The bill of complaint was subsequently amended and Barber and Gielen joined in the action as plaintiffs. As amended, the bill alleged that the combination by GHI of its administrative, inspection, and sales services in a single operation and the levying of a single mandatory charge covering the costs of the combined services violated the Maryland Antitrust Act (the Act), Md. Com. Law Code Ann. §§ 11-201 et seq., and was also ultra vires.

Nyman, Barber and Gielen claimed that they had lost listings, sales, and commissions as the result of GHI’s combination, because selling members, who were compelled to pay for the GHI sales service whether they used it or not, were choosing to list their co-op houses with GHI, rather than with brokers such as Nyman. Pursuant to §§ 11-209 (b) (2) and 11-209 (b) (4) of the Act, the amended bill sought an injunction, treble damages, costs, and attorney’s fees. Ill PROCEEDINGS At trial, the chancellor found that GHI, by its combination of services and fees, had created a tie-in which was unreasonable per se and thus a violation of § 11-204 (a) (1) of the Act. 1 He also found that the imposition of the $550 administrative fee was ultra vires, although he held that the old administrative and inspection fees totaling $215, which ⁴⁷ were charged prior to the reorganization, were not. Evidence presented at trial showed that, beginning at least five months prior to the effective date of the GHI reorganization, the number of GHI members listing their co-op houses for sale with Nyman had declined, with a corresponding decline in commissions earned by Nyman and its agents; the chancellor found that this decline had been caused by the loss of goodwill which accompanied Nyman’s name change on January 1,1978 and by a lack of available finance money.

The chancellor therefore held that Nyman, Barber, and Gielen had failed to prove that they had lost commissions as a result of the tie-in. Barber, who had contracted to sell his co-op house and who had paid GHI the administrative fee of $550, was found to have suffered damages in the amount of $335, that figure representing the difference between the $550 fee charged and the "justified charges” of $215. On the basis of these findings, the chancellor issued an order, dated January 4,1980, in which he enjoined GHI from charging its members an administrative fee which combined the costs of its sales service with its administration and inspection costs, from offering its sales service to its member-owners on other than an optional basis, and from subsidizing its real estate sales service with funds derived from any mandatory fees charged member-owners. In his order, the chancellor also awarded Barber damages of $1,005, i.e., three times his actual damages of $335, and ordered GHI to segregate the bookkeeping for its sales service from that of its other operations.

Both sides have appealed the chancellor’s order. GHI contends that the chancellor’s findings that the imposition of the combined fee was a restraint of trade in violation of § 11-204 (a) (1) and also ultra vires are not supported by the evidence. Nyman, Barber, and Gielen assert that the chancellor committed error in refusing to award damages for lost commissions; they argue in addition that the chancellor erred in finding that only a portion of the administrative fee was ultra vires; and he erred in denying attorney’s fees. ⁴⁸ IV THE LAW In interpreting the Maryland Antitrust Act, we are to be guided, but not bound, by the construction given the analogous federal statutes by the federal courts. Md. Com.

Law Code Ann. § 11-202 (a) (2); Quality Discount Tires v. Firestone Tire, 282 Md. 7, 12 , 382 A.2d 867 (1978); Cities Service Oil v. Burch, 29 Md. App. 430, 436 , 349 A.2d 279 (1975). The analogue under the federal statutes to § 11-204 (a) (1) is Section 1 of the Sherman Act, 15 U.S.C. § l. 2 See, Quality Discount Tires v. Firestone Tire, 282 Md. at 11 . It has been held that a tie-in, defined as "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier,” Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5-6 , 78 S. Ct. 514 , 2 L. Ed. 2d 545 (1958), constitutes a contract in restraint of trade which may be barred by § 1. See, Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 , 89 S. Ct. 1252 , 22 L. Ed. 2d 495 (1969); Northern Pacific Railway Co. v. United States, supra; International Salt Company v. United States, 332 U.S. 392 , 68 S. Ct. 12 , 92 L. Ed. 20 (1947).

It has also been held that, under § 1, "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” Northern Pacific Railway Co. v. United States, 356 U.S. at 5 . Where certain prerequisites exist, tie-ins are among the practices which are unreasonable per se. Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. at 498 . Those prerequisites are: "The fact of a tying agreement, the affecting of a 'not ⁴⁹ insubstantial’ amount of interstate commerce, and sufficient economic power in the market for the tying product for the seller to restrain competition in the market for the tied product.” Phillips v. Crown Central Petroleum Corp., 602 F.2d 616, 628 (4th Cir. 1979), cert. denied, 444 U.S. 1072 (1980).

See, Fortner Enterprises, Inc. v. United States Steel Corp., supra. Thus, in Northern Pacific Railway Co. v. United States, supra, where the defendant had sold or leased land on the condition that all goods produced or manufactured on that land be shipped on defendant’s railroad, provided that its services and rates were equal to those of competing carriers, the Court found that the defendant had tied together two normally separate items, i.e., the land which was sold or leased and its rail services; that the defendant had substantial economic power, by virtue of its extensive land holdings, which it used to obtain the preferential routing clauses in the contracts and leases; and, that a not insubstantial amount of commerce was affected by the practice. The Court held that this tie-in was unreasonable perse. Similarly, in Fortner Enterprises, Inc. v. United States Steel Corp., supra, the Court found evidence of a tie-in which was unreasonable per se where the defendant had made loans, through a subsidiary, to housing developers, for the purchase and development of land, which were conditioned upon the developers’ agreeing to purchase and erect upon the land prefabricated houses manufactured by the defendant.

The significance of finding a tie-in or other practice to be unreasonable per se is that it obviates the necessity for a specific showing of the practice’s unreasonable effect on competition. Id., 394 U.S. at 498 . It has also been held that a finding of per se unreasonableness precludes the defendant from demonstrating that the practice is reasonable in operation. See, AAMCO Automatic Transmissions, Inc. v. Tayloe, 407 F. Supp. 430 (E.D. Pa. 1976).

It should be noted that not all tie-ins are unreasonable perse. See, White Motor Company v. United States, 372 U.S. 253, 262 , 83 S. Ct. 696 , 9 L. Ed. 2d 738 (1963). Even where a tie-in cannot be held to be unreasonable per se, because one or more of the prerequisites to such a finding is absent, the practice may ⁵⁰ nonetheless be found to be unreasonable and thus illegal under section 1, "whenever [the plaintiff] can prove, on the basis of a more thorough examination of the purposes and effects of the practices involved, that the general standards of the Sherman Act have been violated.” Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. at 500 . V APPLICATION OF THE LAW Turning to the facts of the case at bar, we agree with the chancellor’s finding that the combination by GHI of its administrative and sales services under the mandatory administrative fee was a tie-in which was unreasonable per se and an unreasonable restraint of trade under § 11-204 (a) (l). 3 It is clear that GHI linked two normally separate items in such a manner that the tying service, i.e., the administrative and inspection services, could not be purchased from GHI without also buying the tied service, i.e., the real estate sales service.

The tied service is not one which is merely incidental or ancillary to the tying service, as is, for example, "free” delivery service provided by a department store for merchandise. See, Fortner Enterprises v. United States Steel Corp., 394 U.S. at 525 (Fortas, J., dissenting); Foster v. Maryland State Savings and Loan Association, 191 U.S. App. D.C. 226 , 590 F.2d 928 (1978), cert. denied, 439 U.S. 1071 (1979). The essential characteristic of a tie-in is the use of the economic power which one party has over the supply of the tying product to induce another party to purchase a tied product which otherwise could not be sold as successfully, because of the tied product’s price or quality relative to competing products on the market. See, Times-Picayune Pub.

Co. v. United States, 345 U.S. 594, 611 , 73 S. Ct. 872 , 97 L. Ed. 1277 (1953); cf., Cities Service Oil v. Burch, supra (Oil company alleged to have used economic power over supply of gasoline to compel its dealers ⁵¹ to purchase various accessory products from it and designated suppliers.) This characteristic is present here, where GHI sought to sell its sales service to its members by utilizing the complete control which it had over the supply of its administrative and inspection services; services which the members had to buy in order to sell their co-op houses. We agree with the chancellor’s determination that this practice constituted a tie-in. The chancellor found, and we also agree, that GHI had sufficient economic power in the market for the tying services to appreciably restrain competition in the market for the tied service. GHI was the exclusive source of the administrative and inspection services without which a member could not sell his house.

Such uniqueness and exclusiveness confers economic power. See, United States v. Lowe’s, Inc., 371 U.S.