Opinion ID: 763285
Heading Depth: 3
Heading Rank: 1

Heading: Evidence of Conspiracy Between the Defendants

Text: 65 As in other areas of law, a conspiracy may be demonstrated by direct or circumstantial evidence. However, circumstantial evidence alone cannot support a finding of conspiracy when the evidence is equally consistent with independent conduct. In such a case, the evidence of conspiracy would not preponderate. See Riverview Investments, Inc. v. Ottawa Community Improvement Corp., 899 F.2d 474, 483 (6th Cir.1990). In other words, circumstantial evidence must tend to exclude the possibility of independent conduct in order that an antitrust claim survive summary judgment. Important factors to evaluate in this analysis include: (1) whether the defendants' actions, if taken independently, would be contrary to their economic self-interest; (2) whether the defendants have been uniform in their actions; (3) whether the defendants have exchanged or have had the opportunity to exchange information relative to the alleged conspiracy; and (4) whether the defendants have a common motive to conspire. See Wallace v. Bank of Bartlett, 55 F.3d 1166, 1168 (6th Cir.1995). Ordinarily, an affirmative answer to the first of these factors will consistently tend to exclude the likelihood of independent conduct. 66 We are satisfied that the district court erred in finding that the plaintiffs had not adduced evidence of the defendants' alleged conspiracy, sufficient to resist summary judgment. Certainly, much of the plaintiffs' evidence is as consistent with independent conduct as with a conspiracy. The facts that the defendants had opportunities to conspire, that they imposed adverse splits at almost the same times and in almost the same manner, and that their principals had preexisting business relationships are all probably equally consistent with unilateral action. Arguably, without more, these facts would be insufficient to support an inference of a conspiracy. However, there is more. These facts are strongly bolstered by the additional circumstantial evidence that the adverse-splits policy would not have been in either defendant's independent economic interest, and by the statement of witness Lee that Realty One's CEO admitted entering into an agreement with Smythe Cramer. This additional evidence, taken together with the other circumstantial evidence of conspiratorial conduct, would entitle a reasonable jury to conclude that Realty One and Smythe Cramer conspired to adopt adverse commission splits against Re/Max. 67 First and foremost, Dr. Martin's deposition and report establish a genuine issue of material fact whether unilateral imposition of adverse splits would have been economically rational for the defendants. The district court found that Dr. Martin had admitted in his deposition that the adverse-splits policy may have been in Smythe Cramer's best interest. However, we think this finding mischaracterizes Dr. Martin's testimony, and disregards the clear import of his report. What Dr. Martin acknowledged in his deposition is that Re/Max would have been more successful in recruiting Smythe Cramer's agents if the latter had not imposed adverse splits. However, that statement does not address the costs to Smythe Cramer of the adverse-splits policy. Dr. Martin testified that if Smythe Cramer had no assurance that Realty One would also adhere to adverse splits against Re/Max, the danger of unilateral imposition would have outweighed the potential loss of agents. 68 For example, a unilateral-splits policy against Re/Max adopted only by Smythe Cramer would keep Smythe Cramer's agents from leaving for Re/Max, but it would result in customers and sales agents leaving for Realty One. Dr. Martin clearly stated in different ways on a number of occasions that without coordinated conduct, parallel imposition of adverse splits is implausible. He explained that, in a market with two dominant competitors, the risk of loss of sales agents to a third entrant offering more favorable employment terms is outweighed by the risk of loss of market share if a dominant competitor imposes adverse splits on the new market entrant. For example, one of two dominant competitors (Smythe Cramer) acting rationally will not independently impose adverse splits on a new competitor (Re/Max), because doing so will cause the new competitor to concentrate on supplying buyers to purchase properties listed by the other dominant competitor (Realty One). Thus, the dominant competitor who does not impose the adverse splits will sell more homes faster, while the other dominant competitor will lose agents and referral business in a downward cycle. 69 Furthermore, the best of both worlds for either dominant competitor is for the other to impose the adverse splits against the new entrant. In that situation, the non-imposing competitor obtains a very high increase in profits while the imposing competitor sinks to very low. When both dominant competitors impose adverse splits, both increase their profits, but neither obtains a very high increase. Thus, even when one dominant competitor has already adopted adverse splits on its own (a highly unlikely event in the first place), the other dominant competitor has a strong incentive not to do likewise. Importantly, the defendants have not challenged Dr. Martin's qualifications or his data to support this analysis, but rather only his conclusions. Because his conclusions follow logically from his analysis, they cannot be rejected solely as a matter of law. 70 Dr. Martin's reasoned rejection of the defendants' proffered explanation for their common adverse-splits policy lends additional credence to the inference that Realty One's and Smythe Cramer's conduct was not independent. The defendants claim they were forced to impose adverse splits in order to recoup the costs they incurred in training new agents; Re/Max, on the other hand, incurs no such costs, but instead recruits experienced agents from other firms. To level the playing field, the defendants were forced to penalize Re/Max for appropriating the value of their investments in their experienced agents. 71 Dr. Martin noted, however, that real-estate agents are usually at-will employees, and that the knowledge and skill they attain is easily transferrable to other firms. Thus, a real-estate agent could leave his brokerage at any time and take all the value of his training with him. Therefore, he said, investments and training undertaken by the real estate firm will be designed to allow for the ever present risk of agent turnover that may occur before a return can be realized. If the risk of agent turnover is incorporated into the agent's commission rate (i.e., an inexperienced agent, in effect, pays for his training by receiving lower commissions), then a brokerage cannot lose its incubation expenses when an experienced agent leaves. Thus, according to Dr. Martin, the defendants' proffered explanation for their actions is pretextual. 72 Although there appears to be no unequivocal evidence that the defendants in fact pay their inexperienced and therefore less skilled agents less than their experienced agents (thereby placing the costs of training on the novice agent), neither has either defendant argued that it does not adhere to this practice. Moreover, common sense suggests that inexperienced agents earn less than experienced agents, because they are less skilled at closing sales. If, indeed, the defendants' agents pay for their own training while they are learning the trade by earning less, then the defendants suffer no loss of investment when their agents are successfully recruited by Re/Max. Instead, all Realty One and Smythe Cramer lose is that portion of their profit margin attributable to the departing-agent's sales. The fact that the defendants apparently do not enter into long-term contracts with their agents, or obtain covenants not to compete, indicates that they consider the risk of agent-investment loss to be minimal. The likelihood that adverse splits were against the defendants' interests absent a conspiracy to adopt them and that they offered an implausible explanation for the splits' adoption--both of which are sufficiently supported by the report and deposition of Dr. Martin--raise a genuine issue of material fact whether the defendants conspired. 73 Second, Lee's testimony is additional evidence of the defendants' conspiracy, and is admissible against Realty One. Lee stated in an affidavit and at his deposition that in a conversation with Aveni, the CEO of Realty One, Lee asked Aveni whether the common adverse-splits policy had antitrust implications. According to Lee, Aveni responded that there was no need to worry because someone would have to prove he spoke to L.B. McKelvey, the principal shareholder of Smythe Cramer. At that point Aveni leaned forward, smiled and said 'of course we didn't.'  Lee's affidavit further states, Although cast as a denial of any wrong doing [sic], the real thrust of Avenis [sic] response was as a non-verbal affirmation that an agreement had in fact been made. Quite aside from Lee's opinion as to the legal significance of Aveni's statement, we are satisfied that the district court mistakenly concluded that Lee's testimony concerning Aveni's words and gestures were inadmissible hearsay. 74 Considered separately, Aveni's oral utterances and his act of leaning forward and smiling have no incriminatory meaning. But, considered together, as the constituent parts of a single, unitary assertive statement, each part integral to the others, as Aveni obviously intended, the statement unmistakably conveys the idea that Aveni actually had talked to McKelvey, but that no one would be able to prove it. As we have said, the district court ruled that Aveni's communication was inadmissible hearsay as to both defendants, and was not made admissible as not hearsay under Fed.R.Evid. 801(d)(2)(E), because there was not sufficient evidence of a conspiracy, and even if there was, the statement did not further the conspiracy. We hold that the district court erred in excluding Lee's testimony as to Realty One. Even if Aveni's declaration was not admissible as a statement of a coconspirator under Fed.R.Evid. 801(d)(2)(E), we are satisfied that it is not hearsay under Fed.R.Evid. 801(d)(2)(D) and is admissible against Realty One as a statement by the party's [ (Realty One) ] agent [ (Aveni) ] ... concerning a matter within the scope of the agency or employment, made during the existence of the relationship. Id. 75 Of course, Aveni's communication to Lee would not be admissible against Smythe Cramer as an admission under Rule 801(d)(2)(D), because Aveni was not an agent of Smythe Cramer. The question remains, however, whether the statement was admissible against Smythe Cramer as the statement of a coconspirator under Rule 801(d)(2)(E). A statement is not hearsay if it is offered against a party--Smythe Cramer--and was made by a coconspirator of a party--Realty One--during the course and in furtherance of the conspiracy. Fed.R.Evid. 801(d)(2)(E). A 'statement is in furtherance of a conspiracy if it is intended to promote the objectives of the conspiracy.'  United States v. Monus, 128 F.3d 376, 392 (6th Cir.1997). However, [t]he statement need not actually advance the conspiracy to be admissible. United States v. Clark, 18 F.3d 1337, 1342 (6th Cir.1994). 76 Although the district court thought otherwise, we are satisfied, as we have said, that there was sufficient evidence of a conspiracy in the record, with or without Lee's testimony, to defeat summary judgment. Consequently, it follows that there is sufficient evidence of a conspiracy to meet that foundation requirement for the admissibility of Aveni's statement under Rule 801(d)(2)(E). In addition to the independent evidence of conspiracy we have already discussed, Aveni's statement itself could properly have been considered by the district court in making its Rule 104(a) determination concerning the admissibility of the statement as substantive evidence under Rule 801(d)(2)(E). Bourjaily v. United States, 483 U.S. 171, 180-81, 107 S.Ct. 2775, 97 L.Ed.2d 144 (1987). In all events, we have no doubt that to the extent proof of the existence of a conspiracy is a foundation fact that conditions the admissibility of Aveni's statement under Rule 801(d)(2)(E), the plaintiffs met their burden. That having been said, however, we cannot say that the district court clearly erred in excluding Aveni's statement on the ground that it was not in furtherance of the conspiracy. 77 The gist of Aveni's communication--that Realty One had in fact conspired with Smythe Cramer--could plausibly be interpreted as (1) asking for Lee's silence, (2) assuring him that he was not in danger, or (3) merely boasting. The first two interpretations might well have supported a conclusion that Aveni's statement furthered the conspiracy, but the third interpretation--merely boasting--surely would not. Since the first two interpretations are not clearly preferable to the third, and since we review the district court's Rule 104(a) ruling on this preliminary question of fact for clear error only, we are satisfied that the court's finding that Aveni's statement did not further the conspiracy was not clear error, and therefore the ruling vis-a-vis Smythe Cramer, must be upheld.