RE/MAX Int'l, Inc. v. Smythe, Cramer Co.: Ohio Lawsuit between RE/MAX and Smythe, Cramer Proceeds
An Ohio federal court has considered allegations made by a national franchisor of real estate brokerages against a large real estate brokerage firm operating in Ohio arising from a 2000 settlement agreement between the parties
RE/MAX International, Inc. ("Franchisor") is a franchisor of real estate brokerage firms throughout North America. The Franchisor uses a concept of paying commissions that varies from the traditional real estate brokerage model, where licensees retain almost all of their commissions and in return pay monthly fees to their broker for office space and other office-support related expenses. The licensees also pay the Franchisor an annual fee and receive access to resources offered by the Franchisor, such as a national referral network.
Smythe, Cramer Company ("Brokerage") is large Ohio brokerage firm which uses a more traditional brokerage business model. In 1994, the Franchisor's regional subfranchisor and several franchisees in northeast Ohio filed a lawsuit against the Brokerage and another Ohio brokerage firm, based on the brokerages' practice of paying a lower commission split with licensees associated with the Franchisor. The lawsuit alleged that the brokerages had entered into an illegal agreement to pay these lower commissions, in violation of the antitrust laws.
After a complicated procedural history, the parties settled the lawsuit. The settlement agreement ("Agreement") provided that the brokerages could pay a lower commission split to the Franchisor's representatives, so long as its decision to pay the lower commission split was similar to the payment method it applied to other brokers. The decision to pay the lower commission amount could not be based solely on the fact the licensee was associated with the Franchisor, and the Agreement also provided that any disputes between the Franchisor's representatives and the brokerages were to be resolved by arbitration.
In 2001, the Brokerage adopted a policy of paying a lower commission split to brokers who had left the firm. Following the adoption of this policy, letters were sent to brokers formerly affiliated with the Brokerage informing them of this new policy. The policy affected several of the Franchisor's Ohio franchises. Eventually, the Brokerage withdrew this policy. The Franchisor filed a lawsuit against the Brokerage alleging breach of the Agreement as well as violations of both the state and federal antitrust laws. The Brokerage filed a motion to dismiss the lawsuit.
The United States District Court, Northern District of Ohio, dismissed part of the Franchisor's lawsuit but allowed some of the allegations to proceed. The court first considered the Franchisor's allegations over the Brokerage's alleged breach of the Agreement. The Brokerage made three arguments on why these allegations should be dismissed. First, the Brokerage argued that the Franchisor could not enforce the Agreement because the agreement was between the Franchisor's franchisees and the Brokerage, not the Franchisor. Second, it argued that even if the Franchisor could argue a breach of the agreement, it must pursue those claims in an arbitration proceeding and not in court. Finally, the Brokerage argued that even if the Franchisor could bring lawsuit alleging breach of the Agreement, there was no breach. The court rejected all of these arguments, finding that nothing in the Agreement barred the Franchisor from challenging the Agreement; the court had jurisdiction to enforce the terms of the Agreement; and the allegations made in the complaint were sufficient to withstand a motion to dismiss. Thus, the breach of contract allegations were allowed to proceed.
Next, the court considered the tortious interference with a business relationship allegations. Ohio law states that a tortious interference with a business relationship occurs when an individual, without legal justification, causes a third party to not enter a business relation with another. The Franchisor argued that the Brokerage's actions interfered with its relationship with potential franchisees and licensees. The court ruled that the Franchisor's allegations in its complaint were sufficient to survive a motion to dismiss, and so these allegations were allowed to proceed as well.
The court considered the defamation allegations made by the Franchisor. The Brokerage argued that the alleged defamatory statements concerned brokers affiliated with the Franchisor, not the Franchisor. The court ruled that the Franchisor could only bring a lawsuit based on defamatory statements concerning the Franchisor, and so the court dismissed the defamation allegations.
Finally, the court considered the antitrust allegations made by the Franchisor. The Franchisor alleged that the Brokerage had conspired to prevent licensees from affiliating with the Franchisor, including current as well as past licensees affiliated with the Brokerage. The court found that the Franchisor's allegations did not contain enough specific information about who was involved in the conspiracy as well the time, place, and effect of the alleged conspiracy, and so should be dismissed. The court also found that because real estate salespeople are required to be supervised by a broker, the intra-corporate doctrine barring antitrust lawsuits for conspiracies within the same corporation barred the Franchisor's lawsuit. Further, the court found that even if a conspiracy had been properly alleged, the Franchisor had still failed to show how the conspiracy would harm competition or cause damage to the public because the Franchisor did not allege that the Brokerage had conspired with another brokerage firm, as testimony in the first lawsuit had demonstrated that such an action would be economically damaging to the Brokerage and not consumers. Thus, the court dismissed the Franchisor's antitrust allegations.
In summary, the court allowed the Franchisor's lawsuit to move forward with the breach of the Agreement allegations and the tortious interference with a business relationship allegations, but dismissed the defamation allegations as well as the antitrust allegations.
RE/MAX Int'l, Inc. v. Smythe, Cramer Co., No. 1:03-CV-040, 2003 WL 21283891 (N.D. Ohio May 20, 2003). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].