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Klickads, Inc. v. Real Estate Board of New York

August 6, 2007

KLICKADS, INC., D/B/A BROKERSNYC, PLAINTIFF,
v.
REAL ESTATE BOARD OF NEW YORK, INC., BROWN HARRIS STEVENS RESIDENTIAL SALES, LLC, TERRA HOLDINGS, LLC, HALSTEAD PROPERTY, LLC, WILLIAM B. MAY, CO., INC., HERON PROPERTIES REALTY LTD., FOX RESIDENTIAL GROUP, INC., PRUDENTIAL REAL ESTATE AFFILIATES, INC., STRIBLING & ASSOCIATES LTD., STEVEN SPINOLA, HALL S. WILKIE, BARBARA FOX, BELLMARC REALTY, ON-LINE RESIDENTIAL, INC., REALPLUS, LLC, SOUTHEBY'S INTERNATIONAL REALTY, INC. AND THE CORCORAN GROUP, INC., DEFENDANTS.



The opinion of the court was delivered by: Sand, J.

OPINION

Plaintiff, Klickads, Inc., d/b/a BrokersNYC (BrokersNYC), a listings information technology (IT) firm that sells listings databases and other IT products to real estate brokerage firms in New York, brought this antitrust action against the Real Estate Board of New York, Inc. (REBNY), a real estate industry trade association, several brokerage firms that are members of REBNY and their employees, and two of its competitors, RealPlus LLC and On-Line Residential, Inc. (OLR), alleging violations of section 1 and section 2 of the Sherman Act, 15 U.S.C. §§ 1-2 (2000), violation of New York's Donnelly Act, N.Y. Gen. Bus. Law § 340, and tortious interference with economic relations. Before the Court is defendants' motion for summary judgment on all claims.

I.

Unless otherwise noted, the following facts are not disputed in any material way: Prior to 2002, residential real estate brokers in Manhattan did not necessarily share their exclusive sales or rental listings with other brokers. In order to capture the entire commission on a transaction, many listing brokers tried to find a buyer themselves rather than offer the listing to other brokers who would then share in the commission if they found a buyer. Brokers who did share listings, did so on a voluntary ad-hoc basis. Unlike many localities throughout the country, the majority of brokers in Manhattan do not subscribe to a centralized multiple listing service (MLS) through which they would be required to share exclusive listings with other subscribers through a centralized database. Sharing listings through some sort of mandatory co-brokerage agreement, like an MLS, helps property sellers by placing their listing in front of a wider audience of buyers and helps buyers by increasing the pool of properties available through a single broker. In short, an MLS has many procompetitive virtues. See, e.g., Pomanowski v. Monmouth County Bd. of Realtors, 89 N.J. 306, 318 (1982).

Because Manhattan has no centralized MLS database that all subscribing brokers can access, each brokerage firm must maintain its own database of listings. Some firms do this in-house with their own listings management systems, which allow them to electronically store, access, and search listings. These firms must therefore purchase computer systems from a listings IT vendor and employ listings staffs to compile listings, enter them into the database, and remove old listings. Other firms (especially smaller firms) outsource their listings management to companies, like plaintiff and defendant OLR, that employ a listings staff to maintain a listings database and then sell subscriptions to brokerage firms to access that database. By outsourcing to vendors like plaintiff, brokerage firms can avoid the high upfront cost of acquiring an in-house listings management system.

In 2002, REBNY, a trade association whose members make up the bulk of residential real estate brokers in Manhattan, implemented mandatory co-brokerage rules requiring its members to share their exclusive residential listings with other REBNY members within 72 hours. Initially, REBNY members were permitted to share their listings by fax, by email, or, if they were RealPlus customers, electronically through RealPlus's R.O.L.E.X. data transmission system. When listings were shared by fax or email, each firm had to manually input the shared listings into their own listings database.

Defendant RealPlus, a listings management IT vendor owned by Eric Gordon and Terra Holdings (the parent company of brokerage defendants Brown Harris Stevens and Halstead), developed a data transmission system called R.O.L.E.X., which allows listings data to be shared seamlessly between different in-house listings management systems, thus eliminating the need for listings staff to manually input listings transmitted by R.O.L.E.X. from one RealPlus system to another. RealPlus also created interfaces with the in-house listings management systems at four large brokerage firms-defendants Prudential Douglas Elliman, Corcoran, Stribling, and Bellmarc-allowing them to use R.O.L.E.X. to share listings with each other and with RealPlus systems.

In April 2003, REBNY changed the co-brokerage rules to no longer allow listings to be shared by fax. Around that time, at the request of several REBNY members who used defendant OLR's service as their listings database, REBNY created a universal email address for OLR allowing listings to be shared by email directly with OLR. Although plaintiff requested that REBNY create a similar email address for BrokersNYC and later forwarded requests from several REBNY members who used BrokersNYC's services, REBNY did not create a universal email address for BrokersNYC. In an internal memo dated April 29, 2003, REBNY outlined a "twenty-five firm policy" for listings IT vendors seeking a universal email address. In sum, REBNY would only provide a universal email address if the vendor could show that it had at least twenty-five clients who were currently members in good standing of REBNY's co-brokerage program. (Mem. from Deborah Beck, Friedman Decl. Ex. 82.) The memo also noted that only OLR and RealPlus had over twenty-five clients who were REBNY members. (Id.)

In June 2004, REBNY announced that as of January 2005 all listings would have to be exchanged over the R.O.L.E.X. data transmission system. Around the same time, REBNY was engaged in discussions with Eric Gordon and Terra Holdings, the owners of RealPlus, about purchasing either the R.O.L.E.X. standard or an equity stake in RealPlus. In these negotiations, RealPlus consistently took the position that other than the four firms that already had a R.O.L.E.X. interface (defendants Prudential Douglas Elliman, Corcoran, Stribling, and Bellmarc) who would be grandfathered in, no additional interfaces would be created and all brokerage firms wishing to use R.O.L.E.X. would have to use RealPlus as their listings management system. (See, e.g., Friedman Decl. Exs. 99, 101, 105.)

Eventually, however, at REBNY's request, RealPlus agreed to create a R.O.L.E.X. interface for OLR giving OLR customers access to real time seamless listings updates, just like RealPlus customers. In an email to RealPlus owner Eric Gordon, Dianne Ramirez, President of Halstead and Co-Chair of the board of directors of the residential division of REBNY, explained that REBNY wanted RealPlus to create an interface for OLR to appease a "major player" brokerage firm CitiHabitats, an OLR customer, and to avoid a potential antitrust lawsuit by OLR. (Friedman Decl. Ex. 103.) Plaintiff and another listings IT vendor, VLS (which has since gone out of business), made several requests for a data interface with R.O.L.E.X. on the same terms as OLR and offered to pay any costs that would be incurred in creating such an interface. RealPlus, however, did not create an interface and REBNY declined to do anything to encourage RealPlus to create an interface with plaintiff or VLS.

Once REBNY had mandated the use of R.O.L.E.X. to exchange listings, the only way for brokerage firms who did not use RealPlus or OLR to participate in the co-brokerage arrangement, which was renamed the REBNY Listing Service (RLS), was to use a link on the REBNY website to input and access listings data. Although the website link was open to all REBNY members, including plaintiff's clients, it was an inferior alternative to an interface with R.O.L.E.X. While R.O.L.E.X. provided real time and seamless updates to users' listings databases, the data available on the website was only updated periodically and still required listings staff to input manually the listings from the website into an in-house listings database. Thus brokers who did not use RealPlus or OLR had to give up access to crucial real time updates to listings data.

According to plaintiff's expert, in 2002 sales for plaintiff, RealPlus and OLR each represented about a third of the market for listings IT services in Manhattan, which plaintiff contends is the relevant market for antitrust analysis. By 2006, plaintiff claims that RealPlus's market share in Manhattan had grown to over 70% while plaintiff's had fallen to 13%. (Ludwick Decl. ¶ 18.) RealPlus and OLR's shares of the national market for listings IT services, which defendants contend is the relevant market for antitrust analysis, is slight. Plaintiff alleges that the brokerage defendants collectively make up over 80% of the residential real estate brokerage market in Manhattan and control the board of the residential division of REBNY.

II.

Section 1 of the Sherman Act provides: "Every 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 (2000). "To establish a § 1 violation, a plaintiff must produce evidence sufficient to show: (1) a combination or some form of concerted action between at least two legally distinct economic entities; and (2) such combination or conduct constituted an unreasonable restraint of trade either per se or under the rule of reason." Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90, 95-96 (2d Cir. 1998).

A. Concerted Action

To meet the concerted action requirement of a section 1 claim, plaintiff must show that at least two distinct legal entities formed a "conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984). Concerted action may be proven by direct evidence of an explicit agreement or by circumstantial evidence of an informal or tacit agreement. See Apex Oil Co. v. DiMauro, 822 F.2d 246, 252-53 (2d Cir. 1987); see also Reazin v. Blue Cross Blue Shield of Kansas, Inc., 899 F.2d 951, 963 (10th Cir. 1990). However, the range of permissible inferences that can be drawn from ambiguous evidence is limited in an antitrust case. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). To survive a motion for summary judgment, a plaintiff must point to evidence "that tends to exclude the possibility that the alleged conspirators acted independently." Id.

Plaintiff points to two types of concerted action that it argues give rise to section 1 liability. First, plaintiff argues that the rules and actions of REBNY as an association of brokers constitute concerted action by its member firms-namely the brokerage defendants. More specifically, plaintiff argues that the member brokerage firms agreed through REBNY that they would use only one type of transmission system (R.O.L.E.X.) provided by only two suppliers on the approved vendors list pursuant to the twenty-five firm rule (RealPlus and OLR) to exchange listings ...


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