Court Opinion

ID: 3064953
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:27:53.920885+00
Date Added: 2024-06-11T11:51:47.104572
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CURTIS BLOUGH; GWENDOLYN               
BLOUGH,
             Plaintiffs-Appellants,           No. 08-35536
               v.                               D.C. No.
                                           1:06-cv-00059-BLW
HOLLAND REALTY, INC.,
             Defendant-Appellee.
                                       

GARY YASUDA; SHAWNA YASUDA,            
              Plaintiffs-Appellants,
                                              No. 08-35542
                v.
SEL-EQUITY COMPANY, DBA Sel-                   D.C. Nos.
                                           1:06-cv-00060-BLW
Equity Realty, DBA Sel-Equity              1:04-cv-00121-BLW
Real Estate,
               Defendant-Appellee.
                                       

DAVE MERRITHEW; EMILY                  
MERRITHEW; MICHAEL B. HOWELL;                No. 08-35548
PEGGY JO HOWELL,                               D.C. Nos.
              Plaintiffs-Appellants,
                v.                         1:06-CV-00061-
                                                 BLW
PARK POINTE REALTY, INC., DBA               1:06-CV-00216-
John L. Scott Real Estate,                       BLW
               Defendant-Appellee.
                                       

                            9747
9748            BLOUGH v. HOLLAND REALTY, INC.

ROBERT BAFUS; RENAE BAFUS;                 No. 08-35549
GENE DUDLEY; LOLA R. DUDLEY,                  D.C. Nos.
             Plaintiffs-Appellants,        1:06-CV-00189-
               v.                              BLW
                                           1:04-CV-00121-
ASPEN REALTY, INC., DBA                         BLW
Coldwell Banker Aspen Realty,
              Defendant-Appellee.
                                             OPINION

        Appeals from the United States District Court
                  for the District of Idaho
       B. Lynn Winmill, Chief District Judge, Presiding

                    Argued and Submitted
               July 9, 2009—Portland, Oregon

                     Filed July 27, 2009

       Before: Harry Pregerson, Pamela Ann Rymer and
             A. Wallace Tashima, Circuit Judges.

                  Opinion by Judge Rymer
9750         BLOUGH v. HOLLAND REALTY, INC.

                      COUNSEL

Steve W. Berman and Craig R. Spiegel, Hagens Berman
Sobol Shapiro LLP, Seattle, Washington, Philip H. Gordon
and Bruce S. Bistline, Gordon Law Office, Boise, Idaho,
Bruce C. Jones, Jones & Swartz PLLC, Boise, Idaho, and
               BLOUGH v. HOLLAND REALTY, INC.            9751
Daniel Loras Glynn, Trout Jones Gledhill Fuhrman PA,
Boise, Idaho for the plaintiffs-appellants.

Eugene A. Ritti, Brad P. Miller, and Jason D. Scott, Hawley
Troxell Ennis & Hawley LLP, Boise, Idaho, for defendant-
appellee Holland Realty, Inc.

Michael K. Kelley and Scott S. Shay, Haglund, Kelley, Horn-
gren, Jones & Wilder LLP, Portland, Oregon, for defendant-
appellee Sel-Equity Company.

Richard C. Boardman and Christine M. Salmi, Perkins Coie
LLP, Boise, Idaho, for defendant-appellee Park Pointe Realty,
Inc.

James E. Hartley and Elizabeth A. Phelan, Holland & Hart
LLP, Denver, Colorado, and B. Newal Squyres and A. Dean
Bennett, Holland & Hart, Boise, Idaho for defendant-appellee
Aspen Realty, Inc.

                         OPINION

RYMER, Circuit Judge:

   Buyers of newly-constructed houses in the Boise, Idaho
area claim that various realtors representing developers tied
the sale of undeveloped lots to services and commissions for
developed property in violation of the federal and state anti-
trust laws. Applying the doctrine of “zero foreclosure,” the
district court granted summary judgment to the realtors
because there is no market for listing and referral services
among potential buyers of newly-constructed houses, thus no
competition in the tied market to be harmed. We agree, and
affirm.

                              I

  Curtis Blough and his wife were in the market for a newly-
constructed house. They liked an existing home built by
9752           BLOUGH v. HOLLAND REALTY, INC.
Trademark Homes in Baldwin Park, a subdivision developed
by Capital Development, but desired some modifications.
Trademark had optioned other lots in this subdivision and
agreed to build a house to the Bloughs’ specifications. Capital
Development had a deal with Holland Realty, Inc. to be the
exclusive broker for the sale of lots in Baldwin Park. Holland
received a flat fee from the developer for sale of lots, and
Trademark agreed to pay Holland a three percent referral fee
upon the sale of new homes. The Bloughs entered an agree-
ment with Trademark to purchase the newly-constructed
home on a lot within Baldwin Park; Holland’s referral fee
came out of funds Trademark received from the Bloughs.

   Gary and Shawna Yasuda were interested in a home in a
subdivision called Sedona Creek. Sedona Creek was being
developed by Great Sky Development, Sel-Equity Company
was the marketing agent, and Zach Evans Construction was
the builder. The Yasudas entered into an agreement with Zach
Evans to build a home on a lot that Zach Evans obtained from
Great Sky for a price that included a three percent marketing
fee for Sel-Equity. The marketing fee for Sel-Equity was
based upon the price for the lot and newly-constructed home
in the contract between Zach Evans and the Yasudas.

   Dave and Emily Merrithew were impressed with a home
design by Aspen Homes, with whom they contracted to build
a house in the Bear Creek subdivision. The price included the
lot and house, as well as a six percent fee based on the con-
tract price that Aspen had agreed to pay its exclusive listing
agent, Park Pointe Reality. Park Pointe split the fee with the
Merrithews’ agent, Century 21 First Place.

   Robert and Renae Bafus thought they would buy an empty
lot in the Chaumont subdivision and get a construction loan
to pay Walker Building for the home, but Walker’s contract
included the price of the lot and the house. The developer had
retained Aspen Realty as a marketing agent, and Aspen Realty
also served as Walker Building’s agent. The cost Walker
                  BLOUGH v. HOLLAND REALTY, INC.                      9753
charged for the lot and finished home included a six percent
commission that was paid at the closing.

   The Bloughs, Yasudas, Merrithews, and Bafuses (to whom
we refer collectively as “Buyers”) brought this suit as a class
action against the agents representing the subdivision devel-
opers whose commissions were involved in their purchases
(to whom we refer collectively as “Realtors”). Buyers seek
damages and declaratory relief for a per se unlawful tying
arrangement in violation of § 1 of the Sherman Act, 15 U.S.C.
§ 1.1 They claim that Realtors tied “services, i.e., commissions
with regard to sale of developed lots” (the tied product) to the
“sales of undeveloped lots” (the tying product).

   The district court certified a class for adjudication of the
tying claim. It identified the tying product as sales of undevel-
oped lots and the tied product as Realtors’ services, i.e., com-
missions, with regard to sale of developed lots. The class
consists of those who: (1) bought undeveloped lots in subdivi-
sions where Realtors had the exclusive right to market lots on
behalf of the developer; (2) were required to build a house on
the lot in order to buy the lot; and (3) were required to pay
Realtors a commission based on the cost of the lot plus the
actual or estimated cost of the house in order to buy the lot.

  Realtors moved for summary judgment. Buyers filed an
application under Federal Rule of Civil Procedure 56(f) seek-
ing further discovery into other members of the class to deter-
mine whether any of them wanted to buy the services of a
  1
    Buyers only pursue a per se prohibition in federal antitrust law; they
do not alternatively argue that the Realtors’ practice could be found
unlawful under a rule of reason analysis. See, e.g., United States v. Micro-
soft Corp., 253 F.3d 34, 93-97 (D.C. Cir. 2001). Although the complaint
asserts a claim under the Idaho analogue of the Sherman Act, Idaho Code
§ 48-101, no discrete arguments are made with respect to liability under
that statute. The complaint also states a claim under the Idaho Consumer
Protection Act, Idaho Code § 48-601, that has been stayed pending this
appeal.
9754            BLOUGH v. HOLLAND REALTY, INC.
listing agent from someone other than Realtors. The district
court denied Buyers’ request on the ground that they had
shown no plausible reason to believe that other members of
the class (unlike themselves) would want to purchase the tied
product from anyone else. It then ruled on the merits in Real-
tors’ favor, concluding that Buyers failed to show that the
alleged tying practice “affects a not insubstantial volume of
commerce in the tied product market.” Paladin Assocs., Inc.
v. Mont. Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003)
(internal quotation marks omitted).

  Buyers timely appealed.

                                II

   We treat all four cases together, as the district court did,
because they present the same legal issue and are factually
indistinguishable. In sum, Buyers entered into agreements
with homebuilders to purchase developed lots (an undevel-
oped lot with a newly-constructed home) in different subdivi-
sions in the Boise, Idaho area. Realtors represented the
developers of the subdivisions in allocating lots to the home-
builders. The price of the developed lot that Buyers paid to
the homebuilders included a commission (or referral fee) for
Realtors, typically calculated as a percentage of the total price
of the developed lot. It is apparently the custom in Idaho for
the seller, rather than the buyer, to pay the commission owed
to the listing agent and to the selling agent (the agent assisting
the buyer’s search for a property) when a transaction closes.
Buyers claim the Realtors engaged in a per se unlawful tying
arrangement when they tied the sale of undeveloped lots (the
tying product) to their services and commissions on the sale
of developed lots (the tied product).

   [1] Under § 1 of the Sherman Act, “[e]very contract, com-
bination 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.” 15 U.S.C. § 1.
               BLOUGH v. HOLLAND REALTY, INC.               9755
In certain circumstances, § 1 can be violated by tying two
products or services together, whereby “the seller conditions
the sale of one product (the tying product) on the buyer’s pur-
chase of a second product (the tied product).” Cascade Health
Solutions v. PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008).
“Tying arrangements are forbidden on the theory that, if the
seller has market power over the tying product, the seller can
leverage this market power through tying arrangements to
exclude other sellers of the tied product.” Id. A tying arrange-
ment “suffer[s] per se condemnation” if a plaintiff proves:

    (1) that the defendant tied together the sale of two
    distinct products or services; (2) that the defendant
    possesses enough economic power in the tying prod-
    uct market to coerce its customers into purchasing
    the tied product; and (3) that the tying arrangement
    affects a “not insubstantial volume of commerce” in
    the tied product market.

Id. at 913.

   [2] The third prong of the test is at issue in this case. The
injury caused by an unlawful tying arrangement is “reduced
competition in the market for the tied product.” Rick-Mik
Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 971 (9th
Cir. 2008) (citing Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2, 12 (1984)); see also Ill. Tool Works Inc. v. Indep.
Ink, Inc., 547 U.S. 28, 34-35 (2006). Thus, the inquiry is
“whether a total amount of business, substantial enough in
terms of dollar-volume so as not to be merely de minimis, is
foreclosed to competitors by the tie.” Fortner Enters., Inc. v.
U.S. Steel Corp., 394 U.S. 495, 501 (1969); Datagate, Inc. v.
Hewlett-Packard Co., 60 F.3d 1421, 1424-25 (9th Cir. 1995).

   [3] We considered the third prong in Datagate. There the
question was whether the test could be met even though only
a single purchaser of the tied product was affected. We held
that it could be, so long as the dollar-volume of competition
9756               BLOUGH v. HOLLAND REALTY, INC.
foreclosed on account of the tying arrangement was not insub-
stantial. 60 F.3d at 1424-26. Here, there is no evidence that
any purchaser was affected or that any competition was fore-
closed. In these circumstances there is zero foreclosure and
the third prong is not satisfied.

   [4] Zero foreclosure exists where the tied product is com-
pletely unwanted by the buyer. See Reifert v. S. Cent. Wis.
MLS Corp., 450 F.3d 312, 317-18 (7th Cir. 2006); Wells Real
Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803,
814-15 (1st Cir. 1988); IX Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶¶ 1723-24 (2004 & Supp. 2009).
In such a case, there is no unlawful tying arrangement
because there is no adverse effect on competition in the tied
product market. “[W]hen a purchaser is ‘forced’ to buy a
product he would not have otherwise bought even from
another seller in the tied product market, there can be no
adverse impact on competition because no portion of the mar-
ket which would otherwise have been available to other sell-
ers has been foreclosed.” Jefferson Parish, 466 U.S. at 16.2
Areeda & Hovenkamp describe the principle this way:

     In order to obtain desired product A, let us suppose,
     the defendant’s customer is forced to take product B,
     which it does not want, cannot use, and would not
   2
     It is possible to read an earlier statement in Jefferson Parish in isola-
tion to suggest a tying claim exists even if the purchaser did not want to
buy a tied product. In this passage the Court said that “the essential char-
acteristic of an invalid tying arrangement lies in the seller’s exploitation
of its control over the tying product to force the buyer into the purchase
of a tied product that the buyer either did not want at all, or might have
preferred to purchase elsewhere on different terms.” 466 U.S. at 12. How-
ever, it is clear from reading all of Jefferson Parish that per se condemna-
tion does not apply where the plaintiff would not have otherwise
purchased the tied product, even from another seller. Jefferson Parish, 466
U.S. at 16; see also Wells Real Estate, 850 F.2d at 814-15 (reading the
statement in Jefferson Parish, 466 U.S. at 12, as pertaining to injury and
standing to sue, not to the “not insubstantial” volume of commerce that is
foreclosed by the tie).
                  BLOUGH v. HOLLAND REALTY, INC.                      9757
      have purchased from anyone. This is typically the
      equivalent of a higher price for product A. From the
      viewpoint of the defendant seller, its revenue on
      product A consists of the A price plus the excess of
      the B price over B’s cost to the seller. From the
      viewpoint of the customer, the cost of obtaining the
      desired product A is the nominal A price plus the
      excess of the B price over its salvage value. This has
      nothing to do with gaining power in the B market or
      upsetting competition there.

IX Areeda & Hovenkamp, ¶ 1724b, at 270.

   [5] The Seventh Circuit recently applied the “zero foreclo-
sure” theory in a similar situation. In Reifert, the defendant
required purchasers of its real estate listing service also to pay
for membership in a realtors association. Subscription to the
listing service was deemed necessary to operate as a real
estate agent. The plaintiff wanted to gain access to the listing
service without paying for membership in the association, and
claimed to be the victim of an unlawful tying arrangement.
The court concluded that there was no competition in the
allegedly tied market for association memberships, and
“[w]here there is no competition in the tied market, there can
be no antitrust violation. Forcing a buyer to purchase a prod-
uct he otherwise would not have purchased is insufficient to
establish the foreclosure of competition.” 450 F.3d at 318 (cit-
ing Jefferson Parish, 486 U.S. at 16). We agree that this is so.

   [6] Buyers had no desire to purchase the tied product. Nev-
ertheless, they argue that, even accepting the “zero foreclo-
sure” theory, a plaintiff need not prove that he personally
would have bought the tied product so long as someone would
have bought it.3 Whether true or not, the difficulty for Buyers
  3
   For this they rely on a discussion in Barber & Ross Co. v. Lifetime
Doors, Inc., 810 F.2d 1276 (4th Cir. 1987), that has to do with antitrust
standing. Standing is not at issue here, and Barber & Ross does not
address the problem of “zero foreclosure” because the plaintiff in that case
wanted to purchase the tied product from other sellers.
9758              BLOUGH v. HOLLAND REALTY, INC.
in this case, who are typical of buyers in the Boise market for
newly-constructed houses, is that they have not offered any
plausible possibility that others who are similarly situated
would have bought the tied product, either. Nor have they
explained what services they, or other buyers, would have
wanted to obtain in connection with building and selling a
house were the market for those services competitive.4

   While Buyers may well believe the bottom line was too
high (something on which we express no opinion), the reality
is that they purchased a lot and finished home from the home-
builder for a total price set by the homebuilder. The home-
builder’s price no doubt reflected its costs — nuts, bolts,
labor, as well as fees, commissions and the like — together
with profit. Thus, what Buyers call the tied product boils
down to an additional cost to build on a lot in the subdivision
of the Buyers’ choice. It is undisputed that none of the Buyers
wanted (or needed) the tied product on matters relating to
building the house. This is understandable, for purchasers of
developed lots are not typically in the market to purchase
referral and listing services.

   [7] Without a market for the tied product, there can be no
per se unlawful tying arrangement because there is “zero fore-
closure” of competition. Given zero foreclosure, it follows
that Buyers failed to show harm to a “not insubstantial vol-
ume of commerce” in the tied product market. As this is
required to prevail on a per se tying claim, summary judg-
ment was properly granted.
  4
    Buyers frame their theory of the tied product market exclusively from
the perspective of similarly-situated purchasers of developed lots. The
record reveals no attempt to define the market from the view of home-
builders or realtors that potentially would have competed to supply the
tied product.
                    BLOUGH v. HOLLAND REALTY, INC.                        9759
                                       III

   Buyers contend that the district court should not have
granted summary judgment before allowing more discovery.
The summary judgment proceedings were initiated more than
two years after the action was filed and much discovery had
been conducted. However, Buyers were dissatisfied with
Realtors’ responses, which they believed did not completely
disclose members of the class in all subdivisions, and filed a
Rule 56(f) application asking for more time and discovery so
that they could find out whether other class members would
have wanted to buy the tied product.5 After this, but before the
court had ruled on the motion for summary judgment or their
application, Buyers filed a motion to compel discovery to the
same end. The court denied the Rule 56(f) application on the
ground that Buyers had not met their burden of identifying
relevant information that would show more than zero foreclo-
sure, and denied the motion to compel as moot after giving
Buyers an opportunity to brief why it was not.

  [8] Buyers rely on Garrett v. City and County of San Fran-
  5
   Rule 56(f) states:
      If a party opposing the motion shows by affidavit that, for speci-
      fied reasons, it cannot present facts essential to justify its opposi-
      tion, the court may: (1) deny the motion; (2) order a continuance
      to enable affidavits to be obtained, depositions to be taken, or
      other discovery to be undertaken; or (3) issue any other just
      order.
“To prevail under this Rule, parties opposing a motion for summary judg-
ment must make ‘(a) a timely application which (b) specifically identifies
(c) relevant information, (d) where there is some basis for believing that
the information sought actually exists.’ ” Employers Teamsters Local Nos.
175 and 505 Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1129-30
(9th Cir. 2004) (quoting VISA Int’l Serv. Ass’n v. Bankcard Holders of
Am., 784 F.2d 1472, 1475 (9th Cir. 1986)). “The burden is on the party
seeking additional discovery to proffer sufficient facts to show that the
evidence sought exists, and that it would prevent summary judgment.”
Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1161 n.6 (9th Cir. 2001).
9760            BLOUGH v. HOLLAND REALTY, INC.
cisco, 818 F.2d 1515 (9th Cir. 1987), where we faulted the
district court for ruling on a motion for summary judgment
without having first resolved a pending motion to compel, but
this is not a Garrett case. Here the district court addressed the
Rule 56(f) application, and found it wanting. We see no abuse
of discretion for reasons we have explained: no plausible
basis to believe that the information sought exists, that is, that
there could be members of the class who might have wanted
to buy the tied product even though Buyers did not. When the
district court later denied the motion to compel as moot, it did
so after having ruled adversely on the merits of the Rule 56(f)
application that sought the same discovery. Thus, Garrett is
not implicated. Likewise, the district court’s decision is not
inconsistent with Clark v. Capital Credit & Collection Ser-
vices., Inc., 460 F.3d 1162 (9th Cir. 2006), or California
Department of Social Services v. Leavitt, 523 F.3d 1025 (9th
Cir. 2008), as Buyers maintain. In both, as in Garrett, the dis-
trict court dismissed a pending motion for discovery without
considering its merits, whereas here, the district court consid-
ered the merits and concluded there was no point to pursuing
information whose existence was implausible.

                               IV

   Assuming (without deciding) that Buyers meet the first two
prongs of the test for a per se unlawful tying arrangement, the
tying arrangement fails to affect a not insubstantial volume of
commerce in the tied product (services and commissions on
the sale of developed lots) because there is no market for
those services among buyers of newly-constructed houses.
When there is no demand, there is zero foreclosure. Accord-
ingly, the district court correctly held that Buyers, having
shown no foreclosure of competition in the market for the tied
product, failed to show the critical third element of a claim for
a per se unlawful tying arrangement.

  AFFIRMED.