Case Name: Gary R. Ballo, et al, Respondents, v. James S. Black Co., Inc., et al, Appellants
Court: Washington Court of Appeals
Jurisdiction: Washington
Decision Date: 1984-11-29
Citations: 39 Wash. App. 21
Docket Number: No. 5581-7-III
Parties: Gary R. Ballo, et al, Respondents, v. James S. Black Co., Inc., et al, Appellants.
Judges: 
Reporter: Washington Appellate Reports
Volume: 39
Pages: 21–37

Head Matter:
[No. 5581-7-III.
Division Three.
November 29, 1984.]
Gary R. Ballo, et al, Respondents, v. James S. Black Co., Inc., et al, Appellants.
Robert J. Crotty, Terence R. Whitten, David K. DeWolf, and Lukins, Annis, Shine, McKay, Van Marter & Rein, for appellants.
John P. Giesa, Reed & Giesa, and Richard B. Price, for respondents.
Kenneth O. Eikenberry, Attorney General, John R. Ellis, Deputy, and Jon P. Ferguson, Assistant; Michael J. Myers on behalf of Mountain States Legal Foundation; and John C. Guadnola and Thomas L. Fishburne on behalf of National Association of Realtors, Washington Association of Realtors, and Spokane Board of Realtors, amici curiae.

Opinion:
Green, A.C.J.
— James S. Black and James S. Black, Inc., appeal a decision in a civil antitrust action involving an alleged conspiracy in restraint of trade and unfair competition in the development of a residential area in Spokane. Initially, this was a class action, but the class was decerti-fied leaving only the Ballos as plaintiffs.
The issue which we find dispositive of this appeal is whether, after entering findings of fact, the court erred in concluding there were per se violations of RCW 19.86.020-.030. We have considered this issue based solely on the court's findings and reverse.
While the trial court entered 85 findings of fact, the following are pertinent to the Ballos: James S. Black, Inc., is a real estate brokerage and development firm. James S. Black is a licensed real estate broker. Lowell Stack is an independent residential home building contractor, as is Orville Mark. In 1967, Mr. Black, Lowell Stack, Don Stack, Mr. Mark, Guy Wilcox and Lyle Wilcox incorporated Comstock Development Corporation (CDC). Each owned 20 percent of the shares of CDC except Guy and Lyle Wilcox, who owned 10 percent each. Mr. Black was the president of CDC; Mr. Mark and Lowell Stack were also officers. CDC, with capital received from the shareholders and other borrowed capital, purchased undeveloped land in the Com-stock area. When CDC was formed, Lowell Stack and Mr. Mark expected the corporation would supply them with land upon which to construct homes; the Wilcox brothers anticipated CDC would supply them with excavation work; and Mr. Black expected his real estate company would market the Comstock subdivision.
CDC's sole function has been the development and sale of residential building lots. CDC carefully controlled the numbers, sizes, styles and prices of homes built in the area. In 1976 and thereafter, the shareholders of CDC who were also builders selected the lots in rotation among themselves. No other builders were involved after 1976 except Dave Mark and Paul Rodeen, close relatives of two officer shareholders. Shortly after the lots were selected, earnest money agreements were executed between CDC and the builder. "It was agreed that the builders would pay [CDC] a nominal down payment of $25.00 to hold the lot until it was 'sold' by the builder." When a customer desired to purchase a lot and have a custom home built, the builder to whom the lot had been allocated would execute an earnest money agreement with his customer for the sale of the lot before construction of the home commenced. At the time of closing, CDC deeded the lot directly to the builder's customer.
In 1977, Gary and Kristin Bailo, working with Glenmar Freeman of Sullivan Realty, decided to purchase a lot in the Comstock area. The lot was offered to the Ballos for $11,000 by Lowell Stack. The Ballos agreed to that price without negotiation. The closing agent paid CDC $9,350 and Lowell Stack the difference of $1,650, pursuant to CDC's apparent authorized builder's discount. The lot was deeded directly to the Ballos from CDC. The Ballos agreed to the following conditions: (1) use the services of the builder to whom the lot was allocated; and (2) pay 6 percent commission on the combined price of the lot and the estimated price of the house to be constructed.
In October 1978 the Ballos filed a class action complaint against James S. Black, Inc., Sullivan Realty, Inc., CDC and Messrs. Black, Stack and Mark. Count 1 alleged a price fixing and tying arrangement in violation of the Consumer Protection Act (CPA) and count 2 alleged breach of fiduciary duty and constructive fraud. The Ballos sought certification of the class of all purchasers of speculative and custom homes in the Comstock subdivision. The court determined CR 23(a) was satisfied but certified a smaller class consisting of the Ballos and other purchasers of custom homes built by Stack or Mark in the Comstock area. A notice was sent to purchasers in the potential class informing them of their rights, including the right to opt out. Shortly after the notices were received, the court learned that Messrs. Black, Stack and Mark had been responsible for personal contact with most of the potential class members. The court ruled this contact violated the spirit of the certification order and appointed two special masters to determine whether the contact influenced the class members' decision to opt out, as a vast majority of them had done. Following the special masters' report, the court found the potential class members were supplied with sufficient information to make a voluntary and intelligent decision, the class was decertified and this action proceeded with the Ballos as sole plaintiffs. Consequently, we are concerned only with the Ballos and the circumstances surrounding the purchase of their lot in the Comstock area.
Following a bench trial, the court determined the defendants combined and conspired with other builders to fix prices of Comstock lots and homes in restraint of trade, RCW 19.86.030, and constituted an unfair method of competition, RCW 19.86.020. Such price fixing, the court concluded, was a per se violation of these statutes. The court found that as a result of the agreement between Black, Stack and Mark to establish the minimum price at which the lots would be offered for sale by CDC to the public, the Ballos were damaged in the amount of $1,650 — the difference between what Ballos paid for the lot and CDC's price to Lowell Stack. It was also determined the agreement to charge a 6 percent commission on custom homes damaged the Ballos in the amount of $5,500. On the Ballos' motion, a hearing was held and the court awarded them treble damages of $21,450 plus costs and attorney fees in the amount of $213,731.48. A $110,000 settlement was approved between the Ballos and all defendants except Mr. Black and James S. Black, Inc. The settlement amount was deducted and judgment for $125,181.48 was entered against Mr. Black and his company. A permanent injunction was also entered enjoining Black and James S. Black, Inc., from certain activities when acting in concert with two or more builders.
Mr. Black and James S. Black, Inc., appeal claiming the court blindly applied the per se rule, failed to analyze the relationship of the alleged conspirators, and erroneously condemned legitimate restraints established by a joint venture development corporation. The Ballos cross-appeal challenging the court's decertification of the class.
The Consumer Protection Act was enacted in 1961 to promote free competition in the marketplace for the ultimate benefit of the consumer. State v. Black, 100 Wn.2d 793, 799, 676 P.2d 963 (1984). RCW 19.86.030 provides: "Every contract, combination, in the form of trust or otherwise, or conspiracy in restraint of trade or commerce is hereby declared unlawful." This provision is patterned after and contains nearly identical language to the federal Sherman Antitrust Act, 15 U.S.C. § l. When the Legislature enacted the CPA, it anticipated our courts would be guided by the interpretation given by the federal courts to the corresponding federal statutes. RCW 19.86.920.
In evaluating conduct allegedly in violation of the Sherman Antitrust Act, federal courts have applied two tests. The "rule of reason" test requires the fact finder to decide whether under all the circumstances of the case, the restricted practice imposes a reasonable restraint on competition. Arizona v. Maricopa Cy. Med. Soc'y, 457 U.S. 332, 344, 73 L. Ed. 2d 48, 102 S. Ct. 2466 (1982). The second approach, the "per se" test, is premised upon the principle that certain agreements or practices are so plainly anticompetitive and so often lacking any redeeming virtue that they are conclusively presumed illegal without further examination under the rule of reason test generally applied in the Sherman Act cases. Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. 1, 9, 60 L. Ed. 2d 1, 99 S. Ct. 1551 (1979); National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 55 L. Ed. 2d 637, 98 S. Ct. 1355 (1978); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977). Traditionally, practices which are deemed to be unlawful per se are price fixing, division of markets, group boycotts and tying arrangements. Arizona v. Maricopa Cy. Med. Soc'y, supra; Northern Pac. Ry. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). When conduct is found to fall within one of these categories, any explanation of why the act was done or what its effect might be in a particular case is of no consequence or materiality. Plymouth Dealers' Ass'n v. United States, 279 F.2d 128, 131 (9th Cir. 1960).
However, not all arrangements among actual or potential competitors that impact prices are per se viola tions of the antitrust laws. As the Court said in Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. at 9:
[Price fixing] is not a question simply of determining whether two or more potential competitors have literally "fixed" a "price." . . . Literalness is overly simplistic and often overbroad. When two partners set the price of their goods or services they are literally "price fixing," but they are not per se in violation of the Sherman Act. Thus, it is necessary to characterize the challenged conduct as falling within or without that category of behavior to which we apply the label "per se price fixing."
(Citation omitted.) And, at page 23: "Joint ventures and other cooperative arrangements are . . . not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all." Thus, agreements between members of a joint venture are subject to scrutiny under the rule of reason, Copperweld Corp. v. Independence Tube Corp.,_U.S._, 81 L. Ed. 2d 628, 104 S. Ct. 2731, 2740-41 (1984), and are upheld if there are legitimate business reasons for the activity. North Am. Soccer League v. National Football League, 670 F.2d 1249, 1259 (2d Cir. 1982) (citing Standard Oil Co. v. United States, 221 U.S. 1, 55 L. Ed. 619, 31 S. Ct. 502 (1911)); McElhinney v. Medical Protective Co., 549 F. Supp. 121, 132 n.7 (E.D. Ky. 1982); 70 Cal. L. Rev. 595, 657 (1982). Furthermore, RCW 19.86.920, which provides:
It is, however, the intent of the legislature that this act shall not be construed to prohibit acts or practices which are reasonable in relation to the development and preservation of business or which are not injurious to the public interest. . .
supports the conclusion this case should be evaluated pursuant to the rule of reason. We proceed to do so based on the findings of fact entered by the trial court.
The essential elements of a joint venture are: (1) a contract, express or implied; (2) a common purpose; (3) a community of interest; and (4) an equal right to control. Paulson v. Pierce Cy., 99 Wn.2d 645, 654, 664 P.2d 1202 (1983); Goeres v. Ortquist, 34 Wn. App. 19, 21, 658 P.2d 1277 (1983). "An ownership or proprietary interest in the subject matter of the enterprise by all parties is not essential to creation of a joint venture." Paulson v. Pierce Cy., supra at 655.
Here, Black, Mark, the Wilcoxes and the Stacks agreed to enter into a venture to purchase, develop and sell residential lots in the Comstock Addition to Spokane. All the elements of a joint venture are present. To implement the venture, they formed CDC, a closely held corporation. If the corporation were dissolved, the joint venturers would have owned the land. These joint venturers anticipated CDC would supply them with either building, excavation or real estate marketing work. To market the lots in the subdivision these joint venturers, who in reality owned undivided interests in the lots, of necessity had to agree upon the sale price of each lot, which they did. As noted in Broadcast Music, Inc., this is not the type of price determination that is forbidden by antitrust laws.
Further, there were legitimate business reasons for what occurred and what the Ballos complain was injurious to them. The trial court found (1) through the hard work and imaginative foresight of the shareholders, CDC achieved a high degree of success in its effort to sell the subdivided property; (2) there were sound reasons for limiting the annual number of lots sold; (3) the services of James S. Black, Inc., were necessary for the ultimate success of Comstock and therefore it was entitled to be paid for its services; (4) the 6 percent real estate commission was paid to CDC which in turn paid James S. Black the 6 percent commission; and (5) the lot the Ballos purchased was deeded directly to them from CDC. These findings establish that CDC's activities were legitimate and necessary to accomplish the purposes of the joint venture.
The rule of reason analysis also requires consideration of the impact of the activity upon competition in the relevant geographic market. Gough v. Rossmoor Corp., 585 F.2d 381 (9th Cir. 1978), cert. denied, 440 U.S. 936, 59 L. Ed. 2d 494, 99 S. Ct. 1280 (1979); Harold Friedman Inc. v. Thorofare Markets Inc., 587 F.2d 127, 142-43 (3d Cir. 1978). See generally United States v. First Nat'l Bank & Trust Co., 376 U.S. 665, 667-68, 12 L. Ed. 2d 1, 84 S. Ct. 1033 (1964); Times-Picayune Pub'g Co. v. United States, 345 U.S. 594, 97 L. Ed. 1277, 73 S. Ct. 872 (1953). It is essential that the geographic market be defined and the burden of establishing it rests on the plaintiff. Gough v. Rossmoor Corp., supra at 385, 389; see also Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. at 53 n.21. The relevant geographic market for purposes of antitrust law is determined, in part, by the area to which the purchaser can reasonably turn to obtain the product. Gough v. Rossmoor, at 389.
Here, while the court found the "[ljots and new homes offered for sale in the Comstock area are a separate, unique, identifiable, exclusive portion of the Spokane real estate market", it also found "[t]here were some homes in other real estate developments in the Spokane County area which were comparable in quality, size and price range to some homes in the Comstock area"; and that "[p]rior to deciding to purchase in Comstock, [the Ballos] considered new and used homes throughout Spokane County ." and "with the assistance of Glenmar Freeman of Sullivan Realty, they examined various properties." No error was assigned to these findings; therefore, they are verities. Since the Ballos examined properties in the Spokane area, it was the relevant market. The Comstock area comprised only about 240 lots and any price fixing impact on the relevant market was minimal, if not nonexistent.
Thus, we hold that because (1) the land in the Comstock area was actually owned by Black, Stack, Mark, and the other two minor shareholders in the name of CDC as a joint venture, and (2) the Comstock area occupied a minuscule portion of the geographic market, Spokane County, the setting of the price for the sale of lots and the 6 percent real estate commission paid to CDC were reasonable and did not violate RCW 19.86.030.
Finally, RCW 19.86.090 provides that a private citizen who brings an action under the CPA must show injury to his business or property. The court found two other agreements to be per se violations of RCW 19.86.020 and .030. The first concerned the sale of lots, prior to 1973-74, by CDC to the general public. Since the Ballos purchased their home after this alleged practice was discontinued, they do not have standing to challenge it. The second agreement related to increasing the minimum size of the homes above that specified in the covenants. The court found this agreement in effect increased the minimum base price at which homes could be offered in Comstock. This alleged conduct did not affect the Ballos. They contracted to have their house constructed at a size exceeding both the minimum size requirements of the covenant and the size requirement in the builders' agreement. Since the Ballos failed to show any injury to either their business or property by reason of these two agreements, it was error to hold they were per se violations of the act.
Further, we find no abuse of discretion in the court's decertifying the class action or requiring defendants to pay for the services of a special master.
In summary, the Ballos were not damaged. After searching for and considering other comparable properties in Spokane, they selected a lot and house plan in the Com-stock area. Having made that choice, it is apparent the Comstock area was competitive with other comparable areas in Spokane County. The Ballos obtained what they bargained for at a price they agreed to pay. There was no unreasonable restraint involved.
.In light of our.holding, we need not consider the parties' other contentions.
Reversed.
Edgerton, J. Pro Tern., concurs.
15 U.S.C. § 1 provides in part:
"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."