US v. Realty Multi-List: Fifth Circuit Determines Reviews Membership Criteria Violates Antitrust Laws
In U.S. v. Realty Multi-List, the Fifth Circuit addressed membership criteria in relation to multiple listing services. The court held that the membership criteria of an MLS with market power will be deemed facially unreasonable unless justified by the legitimate competitive needs of the association, and narrowly tailored to that end.
Realty Multi-List (RML) was organized in 1967 by eight real estate brokers in Muscogee County, GA. By 1976, RML had expanded, and its members constituted a vast majority of the active brokers in the county, including 45 firms, 4,300 listings, and over $50 million in sales. RML's rules and bylaws limited the ability of non-members to share in its benefits. In 1976, the U.S. filed suit against RML, alleging that RML and its members conspired to restrain interstate commerce in violation of the Sherman Act. Membership criteria were of central importance to the allegations. By the time the case made it to the Fifth Circuit, the criteria had been amended to require: (1) a valid Georgia real estate license; (2) an active real estate office in the county that is open during customary business hours; (3) agreement to abide by the MLS's rules and bylaws; (4) a favorable credit report; (5) agreement to purchase a share of MLS stock at $1,000; and (6) a favorable vote of a majority of the MLS's active members.
The Fifth Circuit held that RML's membership criteria constituted a classic group boycott. However, after reviewing decisions on the topic, the Fifth Circuit concluded that the Supreme Court refused to apply per se treatment to practices which literally fall within the group boycott terminology when, viewed in its full context, the practice appeared to be reasonably related to pro-competitive, efficiency creating endeavors, and not a naked restraint of trade. The Fifth Circuit concluded that the pro-competitive aspects of a MLS qualified it for Rule of Reason analysis rather than per se treatment.
The Fifth Circuit recognized the need for minimal MLS admissions standards, and noted the anti-competitive potential of the power to exclude brokers, especially when the MLS commands significant market power in the relevant market. The court then created a new Rule of Reason test for the analysis of membership criteria of an MLS that has market power. The court stated that membership criteria will be deemed "facially unreasonable," unless justified by the legitimate competitive needs of the association, and narrowly tailored to that end. In applying this rule to the facts, the court specifically addressed the "favorable credit report" and "favorable business reputation" requirements. The court held that these criteria were too subjective and overly broad. Thus, the criteria were facially unreasonable and deemed to violate the Sherman Act.
U.S. v. Realty Multi-List, 629 F.2d 1351 (5th Cir. 1980).