Carl Sandburg Village Condominium v. First Condominium Development: Federal Court Finds No Tying Arrangement Between Condominium Developer and Management Company
In Carl Sandburg Village Condominium Assciation No. 1 v. First Condominium Devel. Co., the Seventh Circuit addressed tying arrangements concerning the sale of condominiums and the use of a particular management company. The court held that the plaintiffs failed to show that the developers sold both the tied and tying product or service, and that no Sherman Antitrust Act violation had occurred.
In 1979, First Condominium Development Company (FCDC) purchased and converted the Carl Sandburg Village from rental apartments to condominium units. During the development process, FCDC established Carl Sandburg Village Condominium Associations No. 1 and No. 2 (CSVC) in order to manage and maintain the property's common elements. CSVC consented to be parties to condominium management agreements with Arthur Rubloff and Co. (Rubloff). Individual owners were subject to this agreement by virtue of their status as members of CSVC. Rubloff was appointed managing agent for two years at a monthly fee of $5.25 per unit. In 1982, CSVC sued FCDC and Rubloff for alleged Sherman Antitrust Act.
The Seventh Circuit stated that to establish the per se illegality of a tying arrangement, the CSVC must show that: (1) the tying arrangement is between two distinct products or services; (2) defendant has sufficient economic power in the tying market to appreciably restrain free competition in the market for the tied product; and (3) a not insubstantial amount of interstate commerce is affected. The court also stated that an illegal tying arrangement will not be found where alleged tying company has absolutely no economic interest in sales of a tied seller. Furthermore, the court held that the economic interest requirement is not met where a plaintiff merely alleges that the tying seller is receiving a profit from the transaction as a whole. In this case, CSVC failed to allege that FCDC had an economic interest in Rubloff. Thus, the court held that FCDC, as seller of the tying product (condo units), did not have a sufficient economic interest in the tied product (management services), and that there was no per se violation.
Turning to Rule of Reason analysis, the Seventh Circuit stated that similar to per se analysis, CSVC's failure to allege FCDC ownership of Rubloff was determinative. The Seventh Circuit affirmed the holding of the lower court that a plaintiff who is unable to allege the economic interest element will be unable to establish that the defendant is using its market power in the tying product market to alter the competitive structure of the tied product market.
Carl Sandburg Village Condominium Ass’n No. 1 v. First Condominium Devel. Co., 758 F.2d 203 (7th Cir. 1985).