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December 18, 2014

Antitrust "Tying" Claims Dismissed Against Homebuilders

The US District Court for the Eastern District of California recently ruled on the type of activity that constitutes a claim of impermissible “tying” under federal antitrust law, holding that the alleged misconduct of a group of housing developers did not give rise to an antitrust violation.

A group of homeowners (plaintiffs) brought an antitrust claim against the housing developers (defendants), alleging that defendants had violated antitrust law by “tying” sales of their homes to financing provided by specific lenders. defendants moved to dismiss the antitrust claim.

An antitrust tying arrangement is “a device used by a seller with market power in one product market to extend its market power to a distinct product market.” Although the US Supreme Court once remarked that “[t]ying agreements serve hardly any purpose beyond the suppression of competition,” see Standard Oil Co. v. United States, 337 US 293, 305 (1949), seemingly embracing a per se rule against all tying, it has since rejected that logic and the majority of tying arrangements are analyzed under the rule of reason. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 US 2, 34 (1984) (Brennan, W., concurring).

Here, plaintiffs alleged that defendants, using their market power as home developers and sellers, had “steered” plaintiffs toward particular financing companies, either by “mandating” that plaintiffs use those companies or “wrongfully conditioning” the sale of homes on the use of those companies. Plaintiffs alleged that this “steering” towards certain financing companies allowed defendants to exercise control of the home financing market in violation of antitrust law.

The court ruled that, in order to constitute a tying violation, a defendant’s conduct must actually cause a plaintiff to obtain the tied product and the complaint must specify how a defendant coerced a plaintiff to obtain the tied product. Because of only conclusory allegations in the complaint and because plaintiffs never actually used the tied financing, the court granted defendants’ motion to dismiss the antitrust claim.

Cherrone, et al. v. Florsheim Development, et al., No. Civ. 2:12–02069, 2012 WL 6049021 (E.D. Cal. Dec. 5, 2012) (internal citations omitted).

©2014 Katten Muchin Rosenman LLP

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