Petition — McLain v. Real Estate Bd. of New Orleans, Inc.

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Supreme Court, U. 8.

FILED

MAR 31 1979

MICHAEL ROBAK, JR.CLERK

IN THE aoe

Supreme Court of the United States

OCTOBER TERM, 1978

No. 78-1501

JAMES JEFFERSON McLAIN, ET AL.,

Petitioners,

versus

REAL ESTATE BOARD OF

NEW ORLEANS, INC., ET AL,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

John P. Nelson, Jr.

Richard G. Vinet

NELSON, NELSON &

LOMBARD, LTD.

A Professional Law Corp.

144 Elk Place

Suite 1202

New Orleans, LA 70112

Telephone: (504) 568-9281

Attorneys for Petitioners

SCOFIELDS' QUALITY PRINTERS, P. O. BOX 53096, N. O., LA. 70153 - 504/822-1611

INDEX

TABLE OF AUTHORITIES ...............05.

CPN oho oS ed;

A as, ES eS ls

QUESTIONS PRESENTED ...............055

CONSTITUTIONAL AND STATUTORY

cy Rs A 8 A) 2 0 Bee

FPR gS ep | Or Sa ee

REASONS FOR GRANTING THE WRIT .....

I. The decision below conflicts with this

Court’s decision in Goldfarb v. Virginia

State Bar, 421 U.S. 773 (1975) .........

Il. This Court should grant writs to

resolve the numerous conflicting

decisions in trial and appellate courts

throughout the country and provide a

definite decision in this area ..........

Ill. The question of whether consumers

in the residential real estate market

should have the advantages of price

competition as a factor in their selec-

tion of a real estate agent is an impor-

tant matter of antitrust policy worthy

of a decision by this Court ...........

Be ary eer ie aaa ane

TABLE OF AUTHORITIES

Page

Bryan v. Stillwater Bd. of Realtors, 578 F.2d 1319

otc Be yo Rens ane ENO Oem ae By a a7.

Cotillion Club, Inc. v. Detroit Real Estate Bd., 303

F.Supp. 502 (E.D. Mich. 1964) .......... see 17

Gateway Assoc., Inc. v. Essex-Costello, Inc., 380

Fe. LOS CONGR, I, BOTA) Likiea's dco a cae a ge'nc 16

Goldfarb v. Virginia State Bar, 421 U.S. 773

COPE ce Ua deena R skye cahcwa bees ob Pie 7,8,9,10,

11,14,15,18

Hill v. Art Rice Realty, 66 F.R.D. 449, 511 (N.D.

Ala. 1974), aff’d, 511 F.2d 1400 (Sth Cir.

PU a hetathe ue heer c cl cos Ge aien seaiek 17

Income Realty and Mortgage, Inc. v. Denver Bd. of

Realtors, 578 F.2d 1326 (10th Cir. 1978) ....... 16

Knowles v. Tuscaloosa Bd. of Realty, Inc.,

(unreported) No. 75-P-591(N.D. Ala. 1975) .... 16

Mandeville Island Farms, Inc. v. American Crystal

eer Ce: S34 0.5. 21D ISEB) oo olive ec. Sco a)

Manion v. Jefferson Bd. of Realty, (unreported) No.

73-2604 (E.D. La. 1974) aff'd, No. 74-1901

(Sth Cir. 1975)

Marston v. Ann Arbor Property Mgt. Ass‘n., 302

F.Supp. 1276 (E.D. Mich. 1969), aff'd, 422

F.2d 836 (6th Cir. 1970) ...... RW e lpg Ww a is 17

Mazur v. Behrens, (1974-1) Trade Reg. a

4 75,070 (N.D. Ill. 1972)

TABLE OF AUTHORITIES (Continued)

Oglesby and Barclift, Inc. v. Metro MLS, Inc., CCH

Trade Cases 4 61,064 (E.D. Va. 1976) ........ 15

Santa Cruz Co. v. Labor Board, 303 U.S. 453 (1938) ..10

Sapp. v. Jacobs, 547 F.2d 1170 (7th Cir.), revg,

408 F.Supp. 119 (S.D. Ill.), cert. den. 431 U.S.

¥ Sh gf eee ee EPCER ahs kine Whe eee 15,17

Standard Oi! Co. v. United States, 221 U.S. 1 (1911) ...9

Swift and Co. v. United States, 196 U.S. 375 (1905) ...12

United States v. Atlanta Real kstate Board, 1972

Trade Reg. Rep. 4 73,825 (N.D. Ga. 1971) .....

United States v. Jack Foley Realty, Inc., 1977 Trade

Reg. Rep. # 61,678 (D. Md. 1977) ....... «+++

United States v. Long Island Bad. of Realtors, Inc., CCH

Trade Cases 4 74,068 (E.D. NY 1972) ........

United States v. E. C. Knight Co., 156 U.S. 1 (1895) ...

United States v. National Association of Real Estate

Boavds, 339 U.S. 48S (1950): occ ue's cece decees

Wiles v. Tampa Board of Realty, Inc., (unreported)

No. 74-136 Cir. T-K (N.D. Fla. 1976) ........

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1978

No.

JAMES JEFFERSON McLAIN, ET AL.,

Petitioners,

versus

REAL ESTATE BOARD OF

NEW ORLEANS, INC., ET AL,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

The petitioner James Jefferson McLain, et al pray

that a writ of certiorari issue to review the judgment

and opinion of the United States Court of Appeals for

the Fifth Circuit in the above entitled case.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

583 F. 2d 1315 and is reprinted in the Appendix hereto

pp. 24a-42a infra. The opinion of the District Court for

the Eastern District of Louisiana is reported at 432

F. Supp. 982 and is reprinted in the Appendix pp. 17a-

23a infra. (hereinafter referred to as “App”)

| JURISDICTION

The judgment of the Court of Appeals was rendered

on November 15, 1978. Thereafter, a timely petition

for panel rehearing was denied on December 15, 1978.

(App. pp. 42a-43a). Jurisdiction of this Court is invoked

pursuant to 28 U.S.C. § 1254 (1). The basis of jurisdic-

tion in the District Court was 15 U.S.C. §§ 1, 15 and 26.

QUESTIONS PRESENTED

1. Whether a fixed commission equal to six percent

of the purchase price of the home charged by all real es-

tate brokers within the Greater New Orleans area on

sales of residential real property is a price fix subject to

control under federal anti-trust laws.

2. Whether the six percent fixed commission for

real estate brokerage services charged by New Orleans

area realtors on transactions involving residential real

property has a “substantial effect” upon the interstate

commerce aspects of such land transactions, to-wit: the

interstate movement of home mortgage funds, and the

procurement of property title insurance from out of

state sources.

3. Whether buyers and sellers of homes in the

Greater New Orleans area, and by implication,

throughout the United States, should have the advan-

tage of fee-price competition as a factor in determining

their choice of a real estate agent.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

A. Article I § 8 of the Constitution of the United

States provides in pertinent part that:

The Congress shall have Power

to regulate commerce with Foreign Nations,

and among the several States, and with the In-

dian Tribes;

B. 15 U.S.C. § 1 provides in pertinent part that:

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.

C. 15 U.S.C. § 15 provides that:

Any person who shall be injured in his busi-

ness or property by reason of anything for-

bidden in the anti-trust laws may sue therefor

in any district court of the United States in the

district in which the defendant resides or is

found or has an agent, without respect to the

amount in controversy, and shall recover

threefold the damages by him sustained, and

the cost of this suit including a reasonable at-

torney’s fee.

D. 15 U.S.C. § 26 provides in pertinent part that:

Any persoi.. . . shall be entitled to sue for and

have injunctive relief, in any court of the Unit-

ed States having jurisdiction over the parties,

against threatened loss or damage by a viola-

tion of the anti-trust laws.

E. 28U.S.C. § 1254 (1) provides that:

Cases in the courts of appeals may be review-

ed by the Supreme Court, by the following

methods:

(1) By writ of certiorari granted upon

the petition of any party to any civil or

criminal case, before or after rendition of

judgment or decree....

STATEMENT OF THE CASE

This private anti-trust action for treble damages and

injunctive relief was brought on behalf of the named

plaintiffs and the class they represent consisting of

buyers arid sellers of residential real property in New

Orleans and its adjacent suburbs.

The suit was filed in October 1975 in the United

States District Court for the Eastern District of Loui-

siana. Made defendants were two New Orleans area

real estate associations, several named real estate firms

and individual realtors and aclass of defendant realtors

doing business in New Orleans and nearby Jefferson

Parish.

Numerous anti-competitive activities on the part of

the realtors and their associations are alleged. (the en-

tire complaint is reprinted for the Court's reference at

App. pp. la-16a). The principal contention of the

plaintiffs, however, is that the standard commission,

six percent of the purchase price of the home, charged

by realtors as their fee for services is a price fix violative

of federal anti-trust laws.

In the trial court, defendants, at the outset, challeng-

ed the existence of subject matter jurisdiction alleging

that their services are wholly local in nature and are

neither “in interstate commerce” nor according to

defendants, do their activities “affect interstate com-

merce” in any substantial way.

The realtors characterize their function simply as the

bringing together of buyer and seller and little more.

Their fee, they say, is earned when the purchase agree-

ment is signed; although as the District Court found,

payment of the fee (the six percent) generally takes

place at the time of the act of sale and is normally

dependent upon the buyer’s success in obtaining finan-

cing of the purchase, and, of course, is payable from the

gross proceeds of the sale.

After an initial round of briefing of the jurisdictional

issue, the trial court ordered discovery to be carried out

to see:

whether a substantial volume of interstate

commerce is involved in the over-all real es-

tate transaction, and

whether the challenged activity is an essential,

integral part of the transaction and _ in-

separable from its interstate aspects. !

It was fairly well established that there is a substan-

tial volume of interstate commerce involved in the

over-all real estate transaction, via the procurement

of home mortgage funds from out of state sources; the

activities of federal agencies such as the Veterans Ad-

ministration, the Federal Housing Administration and

the Department of Housing and Urban Development

through their various loan guarantee and subsidy

programs, and finally, through the procurement 9f

1 This language taken from the district court opinion, 432

F. Supp. 982 (App. pp. 20a-21a) is virtually the same as the

language of the lower court’s minute entry of September 3, 1976

in which the discovery was ordered.

property title insurance from sources outside the State

of Louisiana.

In this respect, the situation in the New Orleans area

does not appear to vary greatly from that in Fairfax

County Virginia, scene of Goldfarb v. Virginia State Bar,

421 U.S. 773 (1975). New Orleans is probably typical in

this respect of most urban and suburban real estate

markets in the country.

Plaintiffs, however, failed to establish that the

challenged activity (brokerage service) is an “essential

integral part of the transaction inseparable from its in-

terstate aspects”, and on that basis the case was dis-

missed.2 On appeal to the United States Court of

Appeals to the Fifth Circuit, the dismissal was af-

firmed.

REASONS FOR GRANTING THE WRIT

I. The ecision below conflicts with this

Court’s decision in Goldfarb v. Virginia State

Bar, 421 U.S. 773 (1975)

Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) wasa

major decision of this Court. It invalidated a one per-

cent minimum fee charged by lawyers in Fairfax Coun-

ty Virginia for title searches in residential real estate

transactions. In Goldfarb, the minimum fee and its en-

2 Class certification had been deferred pending the disposition

of the jurisdictional issue, hence the classes were never certified.

-8

forcement mechanism were declared to be a price fix,

violative of federal anti-trust law.

Of great significance is the fact that Goldfarb in addi-

tion to providing major impetus for the abolition of

mandatory minimum fee schedules for lawyers

throughout the country, is also the first decision of this

Court ‘to recognize and declare that transactions in

land, the most local commodity, have interstate com-

merce aspects, and to hold that when the relevant

streams of interstate commerce are sufficiently (sub-

stantially) affected, purely local anti-competitive ac-

tivities become subject to the anti-trust jurisdiction of

the federal courts. In short, what Goldfarb said about

land transactions, may ultimately turn out to be of far

greater importance than what it said about legal serv-

ices or even about anti-trust law.

Petitioners suggest, and will attempt to show, that in

Goldfarb, this Court marked one boundary of an entire-

ly new area of anti-trust jurisdiction to wit: the resi-

dertial real estate market.

It is no news, chat the scope of federal court jurisdic-

tion under the Sherman and Clayton Acts is ultimate-

ly what this Court says that it is. The development of

anti-trust jurisprudence in this court-is marked by a

process of re-definition to meet changing economic

realities.

In the first anti-trust case, United States v. E. C. Knight,

156 U.S. 1 (1895), this court held that the production of

sugar, as opposed to its interstate distribution, was not

subject to the anti-trust laws. Sixteen years later Knight

was dealt a disabling blow by this Court in Standard Oil

Co. v. United States, 221 U.S. 1 (1911). By 1948 this Court

had decided Mandeville Island Farms, Inc. v. American Crystal

Sugar Co., 334 U.S. 219 (1948) and the principle known

as the “affectation doctrine” was recognized. The sharp

dividing line between intrastate and interstate com-

merce for purposes of the acts was declared to be “func-

tionally artificial” and of “slight importance if an

adverse affect on interstate commerce follows.” 334

U.S. 219, 220, 222 (1948).

in 1950 this Court unanimously decided the case of

United States v. National Association of Real Estate Boards, 339

U.S. 485 (1950). In that opinion, Mr. Justice Douglas,

immediately after stating the case, which, like the pres-

ent case, alleged price fixing by realtors in setting

standard commissions for their services, remarks that

no interstate commerce is involved. Since the relevant

market was the District of Columbia, no interstate

commerce connection was necessary to support Sher-

man jurisdiction, and the remark is pure dicta. Never-

theless, twenty-five years later, in Goldfarb, the Chief

Justice, speaking for a unanimous court, including ~

Justice Douglas, recognized no less than two streams of

interstate commerce that are involved in land transac-

tions:

1. the interstate: flow of home mortgage

funds, and

2. the out of state procurement of land title

insurance

(Goldfarb v. Virginia State Bar, 421 .S. 773, 783)

Having defined the streams of commerce, in Goldfarb

a conventional application of the affectation doctrine

may be used to determine whether local conduct is sub-

ject to federal anti-trust control.

Goldfarb found a substantial effect upon commerce

arising from the legal services in question based upon

the relationship between a title search and a valid lien

on the title to secure the financing of the purchase

price. (Id.)

Unfortunately, the defendants, and both lower

courts seized upon the specific analysis applied to the

legal services in their relation to interstate commerce

and applied the same exact analysis to the relation

between brokerage services and interstate commerce

in land transactions.

Petitioners respectfully suggest that this mechanical

application is far too restrictive and overlooks the prin-

ciple that lies at the very heart of the affectation of

commerce doctrine, to-wit: that there must be “close

scrutiny” of the particular facts of each situation. |C/:

Santa Cruz Co. v. Labor Board, 303 U.S. 453, 466-68

(1938).|

Simply because the services of a real estate broker

are not absolutely necessary to assure “a lien on a valid

title of the borrower,” as the legal services were in Gold-

farb (Cf. 421 U.S. 773, 784) does not mean that a com-

bination to fix commissions for realtors has no sub-

stantial effect upon the interstate commerce aspects of

land transactions in which realtors are involved. (Real-

tors play a part in an overwhelming majority of private

home sales).

Ordinarily the role played by the realtor in the buy-

sell transaction includes the following activities:

1) obtaining a listing froma potential seller;

2) locating a potential buyer from multiple

listing services, advertising, national re-

location services, etc.;

3) confecting a purchase agreement, usually

contingent upon the buyer obtaining

financing (a stream of interstate com-

merce) and title insurance (another

stream of commerce);

4) often acting as escrow agent for the

earnest money deposit;

5) often providing assistance and logistical

support in moving the transaction toward

the act of sale (eg: obtaining appraisals,

acting as liaison between the parties, the

homestead, the lawyers, etc.);

6) attending the act of sale;

7) accounting for deposits held in escrow,

and

8) collecting at the act of sale a vested com-

mission equal to six percent of the pur-

chase price.

Petitioners admit that a real estate transaction can

take place without a realtor being involved. Neverthe-

less given the complexity of a credit transaction in im-

movable property, the relative lack of sophistication of

most consumers in the residential housing market, and

the large sums of money involved, the services of a pro-

fessional real estate broker are a practical if not a tech-

nical necessity.

In Swift and Co. v. United States, 196 U.S. 375, 398, this

Court said, “commerce among the states is not a tech-

nical legal concept, but a practical one drawn from the

course of business.”

But that’s not all.

The most substantial effect which the presence of a

realtor exerts upon the transaction is his fee. The fixed

commission, is an artificially inflated component — or

at the very least a non-competitive element — of the

purchase price of the house. As a matter of logic and

common sense, either the seller adjusts the price to ab-

sorb the commission, or he must take less. Presuming

he decides to adjust the price, the buyer then must pay

more for the house. What could exert a more direct

affect upon such things as the amount of financing and

the extent of the title insurance than a fixed non-

competitive element of the price? In a strict, practical

sense, the cost of the home is either going to be six per-

cent higher, as a result of the realtor’s participation, or

else the seller will have to settle for less money.

The buyer who pays more is affected even worse.

Since the realtor’s commission comes “off the top” at

the act of sale, the buyer must finance (through large-

ly interstate sources) more of the purchase price; also,

the VA, FHA or HUD must underwrite a larger loan

than would be the case if there were no realtors and no

commissions. What’s more, this simple and logical

observation has an almost startling mathematical and

financial consequence.

It is a matter of absolute fact, albeit complicated

arithmetic that given a standard 30 year home loan at a

not uncommon 94% per annum interest, for every dollar

borrowed three dollars are repaid. Thus in amortizing

the six percent commission, the buyer will eventually

repay, over the life of the loan, an amount equal to

roughly 18% of the original purchase price of his home.

One could argue that as opposed to financing the ex-

tra six percent, the buyer could simply make a larger

dowf payment, but as a practical matter, the buyer is

probably going to pay as much money on the down pay-

ment as he can afford, and since that down payment

will ordinarily be the source of the realtor’s commis-

sion it seems obvious that were the price of the house 6

percent less (assuming no realtor), the buyer would ob-

tain an additional six percent equity in his new home by

virtue of his original down payment. It is therefore

reasonable to conclude that the artificial and nor-

competitive inflation of the purchase price of the home

brought about by the realtor’s commission is reflected

in the amount financed through the lending institu-

tion. A similar argument can be made that since title in-

surance premiums are based upon purchase price, an

artificial increase in such price, artificially inflates title

insurance premiums. The same can be said about pre-

miums, for fire and extended coverage, general liabili-

ty (homeowner's coverage), and credit life insurance,

all of which are generally procured through interstate

sources. bs

Plaintiff submits that the following is clear:

1. The relationship between legal services

and the interstate aspects of the land

transaction is different from the rela-

tionship of brokerage services to such

interstate aspects, therefore,

2. The mechanical attempt to apply Goldfarb

by direct analogy is not necessary, and

3. A non-competitive element which artifi-

cially increases the price of homes can ex-

ert a substantial effect upon interstate

commerce aspects of real estate transac-

tions, and

4. Goldfarb, like most modern antitrust juris-

prudence, requires nothing more than

that a substantial effect be shown in order

for jurisdiction to exist

Petitioners submit that the courts below erred in

assuming that the exact analysis by which this Court

found jurisdiction in Goldfarb is the only manner in

which jurisdiction can be found.

II. This Court should grant writs to resolve

the numerous conflicting decisions in the

trial and appellate courts throughout the

country and provide a definitive decision

in this area.

The following cases all involved the question of anti-

trust jurisdiction over activities of realtors:

I. Jurisdiction found

A. Sapp v. Jacobs, 547 F.2d 1170 (7th Cir.)

rev’'g 408 F. Supp. 119 (S.D., IIl.,

1977)

B. Oglesby and Barclift, Inc., v. Metro

MLS, Inc., CCH Trade Cases,

paragraph 61,064 (E.D., Va.,

1976)

United States v. Atlanta Real Estate

Board, 1972 Trade Reg. Rep., para-

graph 73,825 (N.D., Ga. 1971)

United States v. Jack Foley Realty, Inc.,

1977 Trade Reg. Rep., paragraph

61,678 (D. Md. 1977)

Gateway Assoc., Inc. v. Essex-Costello,

Inc., 380 F. Supp. 1089 (N.D., Ill.

1974)

Mazur v. Behrens (1974-1) Trade

Reg. Rep., paragraph 75,070

(N.D., Ill. 1972)

Knowles v. Tuscaloosa Bd. of Realty,

Inc., (unreported) No. 75-P-591

(N.D. Ala., 1975)

Wiles v. Tampa Board of Realty, Inc.,

(unreported) No. 74-136 Cir. T-K

(N.D., Fla)

United States v. Long Island Bad. of Real-

tors, Inc., CCH Trade Cases, para-

graph 74,068 (E.D. NY, 1972)

C. Bryan v. Stillwater Bd. of Realtors, 578

F.2d 1319 (10th Cir. 1977)

D. Marston v. Ann Arbor Property Mgt.

Ass'n., 302 F. Supp. 1276 (E.D.,

Mich. 1969), aff’d 422 F.2d 836

(6th Cir., 1970)

E. Cotillion Club, Inc., v. Detroit Real Es-

tate Bd., 303 F. Supp. 502 (E.D.

Mich., 1964)

F. Hill v. Art Rice Realty, 66 F.R.D.

449, 511 (N.D. Ala. 1974), aff'd

511 F.2d 1400 (Sth Cir., 1975)

G. The instant case.

Although most of the cases are from district courts, af-

firmances and reversals with or without opinion have

created a conflict between the fifth, sixth and tenth cir-

cuits on the one hand (finding no jurisdiction) and the

seventh circuit whose reversal and remand of Sapp v.

Jacobs, 547 F.2d 1170 (7th Cir.) unfortunately without

opinion was followed by a denial of ceruorari in this

Court [See: 431 U.S. 968 (1977).]

II. Jurisdiction declined ~

A. Manion v. Jefferson Bd. of Realty, (un- It is very apparent that this is a lively issue which re-

reported) No. 73-2604 (E.D. La. quires the sort of clarification only a decision by this

1974) Aff’d No. 74-1901 (Sth Cir., Court can bring.

1975)

B. Income Realty and Mortgage, Inc:, v.

Denver Bd. of Realtors, 578 F.2d 1326

(10th Cir. 1978)

Ill. The question of whether consumers in

the residential real estate market should

have the advantages of price competi-

tion as a factor in their selection of a real

estate agent is an important matter of

anti-trust policy worthy of a decision by

this Court.

Petitioners have previously mentioned that Goldfarb

has significance in what this Court said about manda-

tory minimum fees for lawyers. But to extend the

awesome power of the antitrust laws, into a brand new

area (land transactions) and to reach only the activities

of title lawyers. whose minimum ‘fee schedules were

rarely enforced, by their professional associations

would seem equivalent to driving a thumb tack witha

sledge hammer.

Surely the Court perceives a far more severe

restraint of trade involving the activities of realtors in

the residential real property market. The existence of

conflicting constructions of the intent of this Court in

Goldfarb is itself an indication of the need for a determi-

naiion of the issue of price competition among real-

tais.

Sales of homes nationally involve billions of dollars

annually. Each year, millions of buyers and sellers enter

the market. Societal mobility finds millions of families

relocating every few years as jobs change and people —

transfer and are re-assigned. Despite the local nature

of land, the market is national in scope.

A directive to all lower federal courts, either to reg-

ulate competition among realtors, or to ignore the lack

of it is a matter worthy of the attention of this Court.

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgment and opinion of the Fifth Circuit.

Respectfully submitted:

NELSON, NELSON &

LOMBARD, LTD.

A Professjonal Law

Corporation

JOHN P. NELSON, JR.

RICHARD G. VINET

144 ELK PLACE, SUITE 1202

NEW ORLEANS, LA. 70112

TELEPHONE: 504-568-9281

RICHARD G. VINET

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this _.— day of

March 1979 three copies of the Petition for Writ of

Certiorari were hand delivered by undersigned coun-

sel to Harry McCall, Jr., Esq., Chaffe, McCall, Phillips,

Toler and Sarpy, 1500 1st National Bank of Commerce

Building, New Orleans, Louisiana 70112, lead counsel

for respondents. I further certify that all parties re-

quired to be served have been served.

NELSON, NELSON &

LOMBARD, LTD.

A Professional Law Corporation

RICHARD G. VINET

144 ELK PLACE, SUITE 1202

NEW ORLEANS, LA. 70112

TELEPHONE: 504-568-9281

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF LOUISIANA

JAMES JEFFERSON McLAIN, DOUGLAS ARTHUR

NETTLETON, JR., RAYMOND JOSEPH MUNNA,

IRVING HIRSCH KOCH, and all other parties similar-

ly situated,

Plaintiffs,

versus CA No. 75-3402

REAL ESTATE BOARD OF NEW ORLEANS, INC.,

JEFFERSON BOARD OF REALTORS, INC., GER-

TRUDE GARDNER, INC., LATTER AND BLUM,

INC., WAGUESPACK AND PRATT, INC., STAN

WEBER AND ASSOCIATES, INC., SANDRA, INC.,

ISABELLE McLEOD d/b/a. ISABELLE C. McLEOD,

REALTORS, and all other parties similarly situated,

Defendants.

COMPLAINT FOR INJUNCTIVE RELIEF

AND TREBLE DAMAGES UNDER THE

ANTI TRUST LAWS — CLASS ACTION

JURISDICTION

This complaint is filed 2nd this action is instituted

under Section 1 of the Act of Congress of July 2, 1890,

15 U.S.C. Section 1, as amended and supplemented,

commonly known as the Sherman Act, and Section 4

and 16 of the Act of Congress of October 15, 1911, 15

U.S.C. Section-15 and 26, as amended and supple-

mented, commonly known as the Clayton Act. Ex-

clusive jurisdiction is conferred pursuant to 15 U.S.C.

Section 26.

Il -

The purposes of this action are (a) to recover treble

money damages against defendants for injuring the

business and property of plaintiffs and the class of per-

sons they represent. Plaintiffs seek to represent buy-

ers and sellers of single family and multiple family resi-

dences; which injury proximately resulted from defen-

dants’ violation of the anti trust laws of the United

States; and (b) to restrain and enjoin defendants from

continuing the illegal monopoly and the combinations,

conspiracies and contracts in restraint of trade in com-

merce to the injury of the plaintiffs and the class of per-

sons which they represent.

The defendants maintain offices, transact business

and are each found within the Eastern District of

Louisiana.

PLAINTIFFS

1. Plaintiff, James Jefferson McLain, a resident of

Orleans Parish, Louisiana, purchased a single family

residence in Orleans Parish on or about August 17,

1972. Defendants provided real estate brokerage serv-

ice in that transaction.

2. Plaintiff, Douglas Arthur Nettleton, Jr., a resi-

dent of Orleans Parish, Louisiana, purchased a single

family residence in Orleans Parish on or about March,

1974. Defendants provided real estate brokerage serv -

ice in that transaction.

3. Plaintiff, Irving Hirsch Koch, a resident of

Orleans Parish, Louisiana, sold a single family resi-

dence in Orleans Parish on or about April, 1973. Defen-

dants provided real estate brokerage service in that

transaction. Plaintiff, Irving Hirsch Koch purchased a

single family residence in Orleans Parish on or about

September 1, 1974. Defendants provided real estate

brokerage service in that transaction.

4. Plaintiff, Raymond Joseph Munna, a resident of

Jefferson Parish, Louisiana, purchased a multifamily

residence in Jefferson Parish, Louisiana on or about

- August 18, 1975. Defendants provided real estate

brokerage service in that transaction.

CLASS ACTION ALLEGATIONS

Individual plaintiffs bring this action for damages on

their own behalf and, pursuant to Rule 23(b)(3) of the

Federal Rules of Civil Procedure, on behalf of all

similarly situated buyers and sellers of single and mul-

tiple family residences in Orleans and Jefferson

Parishes, a class consisting of at least one thousand

(1000) members. (a) The class is so numerous that

joinder of all members is impracticable; (b) there are

questions of law or fact common to the class; these

questions predominate over any questions affecting

only individual members; (c) the claims of plaintiffs are

typical of the class; (d).plaintiffs will fairly and ade-

quately protect the interest of the class; (e) the parties

opposing the class have acted or refused to act on

grounds generally applicable to the class, thereby mak-

ing appropriate declaratory and injunctive relief with

respect to the class as a whole; (f) a class action is

superior to other available methods for the fair and ef-

ficient adjudication of this controversy.

DEFENDANTS

On information and belief, the Real Estate Board of

New Orleans, Inc., (hereafter referred to as Orleans

Board) is a corporation organized and existing under

the laws of the State of Louisiana. It maintains offices

and transacts business in the Eastern District of

Louisiana. The Orleans Board is an association of

licensed real estate brokers and provides certain sery-

ices, trade marks, real estate computer facilities, and

multiple listing facilities for its members. On informa-

tion and belief, the Orleans Board is a member of Real-

tron, Inc. Licensed real estate brokers must belong to

one of the voluntary member associations of the

National Association of Real Estate Boards, Inc., and of

Realtron, Inc., in order to gain access to these services.

On information and belief, the Orleans Board has cer-

tain rules and regulations and recommended practices.

VII

On information and belief, the Jefferson Board of

Realtors (hereafter referred to as Jefferson Board) is a

corporation organized and existing under the laws of

the State of Louisiana. The Jefferson Board maintains

offices and transacts business in the Eastern District of

Louisiana. The Jefferson Board is a voluntary mem-

bership organization consisting of licensed real estate

brokers from the State of Louisiana. On information

and belief, the Jefferson Board provided certain serv-

ices for its members which are unavailable to non

members.

VIII

On information and belief:

(a) Defendant Gertrude Gardner, Inc., is acorpora-

tion organized in the State of Louisiana and domiciled

in the Eastern District. Defendant Gertrude Gardner,

Inc., acting through its duly authorized agents, pro-

vided real estate services to plaintiffs, including a

brokerage fee.

(b) Latter and Blum, Inc., is a corporation organized

in the State of Louisiana and domiciled in the Eastern

District. Defendant Latter and Blum, Inc., acting

through its duly authorized agents, provided real es-

tate brokerage services to plaintiffs, including a broker-

age fee.

formation and belief, is a corporation organized under

the laws of the State of Louisiana and domiciled in the

Eastern District. Defendant Waguespack and Pratt,

Inc., acting through its duly authorized agents, provid-

ed real estate brokerage services to plaintiffs, in-

cluding a brokerage fee.

(d) Defendant Stan Weber and Associates, Inc., on

information and belief, is a corporation organized un-

der the laws of the State of Louisiana and domiciled in

the Eastern District. Defendant Stan Weber and Asso-

ciates, Inc., acting through its duly authorized agents,

provided real estate brokerage service to plaintiffs, in-

cluding a brokerage fee.

(e) Defendant Sandra, Inc., on information and

belief, is a corporation organized under the laws of the

State of Louisiana and domiciled in the Eastern Dis-

trict. Defendant Sandra, Inc., acting through its duly

authorized agents, provided real estate brokerage serv-

ices to plaintiffs, including a brokerage fee.

(f) Isabelle McLeod, Realtor d/b/a Isabelle C.

McLeod Realtors, on information and belief, a sole pro-

prietorship transacting business in the Eastern District

of Louisiana. Defendant Isabelle C. McLeod Realtors,

acting through its duly authorized agents, provided

real estate brokerage services to plaintiffs, including a

brokerage fee.

(g) All Brokers who are Realtors and who trans-

acted business in the Eastern District of Louisiana, in-

cluding but not limited to members and associate

members of the Orleans and Jefferson Board, and who

were realtors at any time between the dates of October

31, 1971 and October 31, 1975; who on information

and belief, have provided real estate brokerage serv-

ices, including a brokerage fee.

CLASS ACTION ALLEGATIONS

Pursuant to Rule 23(b)(3) of the Federal Rules of

Civil Procedure, defendants represent the class of all

realtors in Orleans and Jefferson Parish who at any

time during the period from October 31, 1971 to Oc-

tober 31, 1975, were members of the Orleans Board

and Jefferson Board; a class consisting of at least three

hundred (300) members. (a) The class is so numerous

that joinder of all members is impracticable; (b) there

are questions of law and fact common to the class, and

these questions predominate over any questions af-

fecting individual members; (c) the defenses of the rep-

resentative parties are typical of the defenses of the

class; (d) the representative parties will fairly and ade-

quately protect the interests of the class; and (e) a class

action is superior to other available methods for the fair

and efficient adjudication of the controversy.

CO-CONSPIRATORS

Real estate brokers duly licensed to transact busi-

ness in Orleans and Jefferson Parishes (who are not

members of the Orleans and Jefferson Boards) on in-

formation and belief engage in the practices described

herein but are named as co-conspirators.

THE NATURE OF TRADE AND COMMERCE

The activities of the defendants are within the flow

of interstate commerce and have an effect upon that

commerce. |

XII

Defendants account for a substantial proportion of

real estate brokering services performed in connection

with the purchase and sale of real estate in Greater

New Orleans. Defendants assist in the purchase and

sale of thousands of parcels of real estate in Greater

New Orleans each year. Persons purchasing real estate

in the Greater New Orleans area utilize the services of

defendants in the purchase and sale of real estate.

XIII

Many persons using the services of the defendants in

connection with the purchase and sale of real estate are

persons moving into and out of the Greater New

Orleans area.

XIV

Defendants assist their clients in securing financing

and insurance involved with the purchase of real estate

in the Greater New Orleans area. Such financing and

insurance are obtained from sources outside the State’

of Louisiana and move in interstate commerce into the

State of Louisiana through the activities of the defen-

dants.

OFFENSE

Defendants have violated Section 1 of the Sherman

Act and continue to engage in an unlawful combina-

tion and conspiracy to restrain interstate trade and

commerce in the offering for sale and sale of real estate

brokering services. Such unlawful combination and

conspiracy are continuing and will continue unless this

Court grants relief.

XVI

The aforesaid combination and conspiracy consist of

a continuing agreement and concert of action between

the defendants to fix, control, raise, and stabilize prices

10a

for the purchase and sale of real estate in a knowing,

arbitrary, unreasonable and unlawful. way.

XVII

In order to effect aforesaid combination and con-

spiracy the defendants have committed certain overt

acts in furtherance of this combination and ccn-

spiracy:

(a) Engage in and encourage exchange of price in-

formation and fixed commission structures under the

guise of associational meetings, educational formats,

conventions, and trade publications.

(b) Share in, exchange, and artificially maintain fix-

ed commissions and artificially-raised prices through

trade usage, custom and patterns evidenced by multiple

listing services and widespread fee splitting.

from buyers and sellers of real estate, including, by way

of example:

(i) prices of competitive and comparable

housing;

(ii) features and amenities of comparable

housing;

(d) Promote and engage in fixed commissions for

the purchase and sale of real estate.

lla

(e) Publish and disseminate printed matter which

discourages price competition and restrains trade.

(f) Telephone and otherwise contact one another

between meetings and discuss price fixing.

XVII

EFFECTS ON PLAINTIFFS

The aforesaid combination and conspiracy have the

following effects, among others, on the individual

plaintiffs and the class which they represent:

(a) Fees and commissions charged for real estate

brokerage services have been raised, fixed, and main-

tained at an artificial and non competitive level;

(b) Prices of homes and multifamily residences

have been artificially raised to buyers;

ed.

Plaintiffs and the class they represent have suffered

and continue to suffer injury to their business and

property. .

XVIV

DAMAGES

As a consequence of the unlawful acts of the defen-

dants, alleged above, the individual plaintiffs and the

12a

class they represent have been injured in their busi-

ness and property in the approximate amount of at

least Sixty Million and No/100 ($60,000,000.00)

Dollars as of the date of filing of this complaint and are

entitled under 15 U.S.C.A. Section 15 to treble

damages of One Hundred Eighty Million and No/100

($180,000,000.00) Dollars.

All plaintiffs and the class they represent continue to

incur injury to their business and property for as long

as defendants persist in their unlawful conduct and are

entitled under 15 U.S.C. Section 26 to injunctive relief

against continued loss to property and business

through defendants’ persistence of the conspiracy un-

der 15 U.S.C. Section 1.

WHEREFORE, plaintiffs pray:

1. That the Court adjudge and decree that the

defendants have engaged in an unlawful combination

and conspiracy in restraint of the aforesaid trade and

commerce in the sale of real estate brokering services in

the State of Louisiana in violation of Section 1 of the

Sherman Act.

2. That the defendants be enjoined and restrained

from, in any manner, directiy or indirectly, con-

tinuing, maintaining, or renewing the combination and

conspiracy alleged above, or from engaging in any

13a

other combination, conspiracy, contract, agreement,

understanding, or concert of action having a similar

purpose or effect, and from adopting or following any

practice, plan, program, or device having a similar pur-

pose or effect.

3. That the defendants be enjoined from agreeing

to adhere to any schedule or percentage rates artifically

restraining trade in the performance of real estate

brokering services in the State of Louisiana.

4. That judgment be entered in favor of the in-

dividual plaintiffs and the class they represent and

against defendants in a sum equal to treble the amount

of damages suffered by said plaintiffs and the class they

represent by reason of violations of the law herein

complained of, together with the cost of this suit and

reasonable attorneys fees; and

5. That plaintiffs have such further relief as the

Court may deem to be just and proper.

Respectfully submitted,

NELSON, NELSON, and

LOMBARD, LTD.

A Professional Law

Corporation

344 Camp Street, Suite 1100

New Orleans, La. 70130

Phone: 523-5893

14a

Is| JOHN P. NELSON, JR.

John P. Nelson, Jr.

Trial Attorney

ls) PATRICIA SAIK

Patricia Saik

Trial Attorney

ls) RAYMOND JOSEPH MUNNA

Raymond Joseph Munna

VERIFICATION

We, the undersigned, do hereby certify that we are

the named plaintiffs in the cause entitled James Jeffer-

son McLain, et al. vs. Reai Estate Board of New

Orleans, Inc., et al., who being duly deposed and sworn,

do say that to our best knowledge and belief, the

allegations therein stated are true and correct.

is) JAMES JEFFERSON McLAIN

James Jefferson McLain

Is) DOUGLAS ARTHUR NETTLETON, JR. |

Douglas Arthur Nettleton, Jr.

ls) RAYMOND JOSEPH MUNNA

Raymond Joseph Munna

ls| IRVING HIRSCH KOCH

Irving Hirsch Koch

WITNESSES:

ls} LOLITA BAHAM

Is) SHIRLEY LOVE

15a

Sworn to and subscribed before me,

this 30 day of October 1975.

si JOHIN P. NEHN, JR.

Notary Public

PLEASE SES VE:

Waguespack, Pratt, Inc.,

through its rewistered agent:

F. Waguespack, Jr.

812 Perdido Street

New Orleans, La. 70112

Gertrude Gardner, Inc.,;.

through its registered agent:

Gertrude Gardner

7934 Maple Street

New Orleans, La. 70118

Stan Weber and Associates, Inc.,

through its registered agent:

Stanley J. Weber, Jr.

3841 Veterans Blvd.

Metairie, La. 70002

Isabelle C. McLeod, Realto*s,

through: “i

Isabelle C. McLeod

7801 Maple Street ~

New Orleans, La. 70118

16a

Latter and Blum, Inc.,

through its registered agent:

Moise W. Dennery ‘en

505 Hibernia Bank Building

New Orleans, La. 70112

Sandra, Inc., Realty,

through its registered agent:

Sandra F. Heiman

7713 Maple Street

New Orleans, La. 70118

Jefferson Board of Realtucs, Inc.,

through its registered agent:

Charles J. Derbes, Jr.

2015 Airline Highway

Kenner, La. 70062

Real Estate Board of New Orleans, Inc.,

through its registered agent:

Edouard Carrere

423 Carondelet Street

New Orleans, La. 70130

17a°

James Jefferson McLAIN et al.

versus

REAL ESTATE BOARD OF

NEW ORLEANS, INC., et al.

Civ. A. No. 75-3402.

\ United States District Court,

E. D. Louisiana.

May 31, 1977.

MEMORANDUM OPINION AND ORDER

BOYLE, District Judge.

This intended class ac’ <1 was brought on behalf of

buyers and sellers of residential property in the New

Orleans area who have used the services of real estate

brokers. Plaintiffs allege that the defendant

associations and realtors have conspired to fix and con-

trol the price of these services in violation of the Sher-

man Anti-Trust Act (15 U.S.C. §§ 1 et seq.). They seek

declaratory and injunctive relief as well as the recovery

of treble damages.

A motion to dismiss the action was filed by defen-

dants on the ground the challenged brokerage activities

are wholly intrastate in nature and, since they neither

occur in nor substantially affect interstate commerce,

18a

are beyond the ambit of federal anti-trust prohibition. !

We took the matter under submission and now, having

considered the memoranda of counsel and the rele-

vant documents of record, we conclude defendants’

motion must be granted and the action dismissed.

Plaintiffs raised several arguments in initially op-

posing the motion, but we found these groundless save

for the contention that brokers in this area participate

in securing the financing and insurance necessary to

consummate the sale/purchase of real estate.2 We

reasoned that, to the extent the financing and in-

surance aspects of real estate transactions may be

shown to be interstate in nature, defendants’ practical

nexus therewith might satisfy the jurisdictional re-

quirement of the Sherman Act pursuant to the

Supreme Court holding in Goldfarb v. Virginia State Bar.

See 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975).

Accordingly, the parties were advised in conference

1 Itis axiomatic that, in order for a federal action to be cognizable

under the Sherman Act, the challenged activity must either be in

interstate commerce or else have a substantial effect thereupon.

See Battle v. Liberty National Life Insurance Co., 493 F.2d 39, 47 (5 Cir.

1974) and cases cited therein.

2 Plaintiffs had argued that many persons employing brokerage

services are in the process of either moving into or out of the state,

and that the alleged price-fixing activity by defendants is a per se

Sherman Act violation which presumes that the jurisdictional re-

quirement of the statute is satisfied. Yet, the mere interstate

movement of a prospective buyer or seller — occurring either

prior to or after the furnishing of brokerage services — hardly in-

fuses such services with the requisite impact upon interstate com-

merce. Equally clear, in our view, is the fact that the per se rule of

antitrust law relates solely to the merits of the claim and does not

dispense with the threshold obligation of the claimant to establish

subject matter jurisdiction.

19a

that the issue at hand could be narrowed to the

applicability of Goldfarb, and counsel were directed to

engage in further discovery and submit additional

memoranda addressed to this point. See Minute Entry

of 9/3/76 [Record Doc. # 26].3

The Goldfarb case, like this one, involved allegations

of price-fixing violative of the Sherman Act — there,

through a minimum fee schedule prescribed by the

defendant bar association and applied to legal services

for title examinations relative to residential real estate

transactions. The Goldfarb defendant likewise argued

that since these legal services were performed intra-

state and were essentially local in nature, they did not

substantially affect interstate commerce within the

3 Considering the results of this discovery and the supplemental

briefs of counsel in addition to the pre-existing record, we

reiterate the view that it is only via the Goldfarb analysis that this

action may be said to arise under the Sherman Act. Thus rejected

is argument by plaintiffs in their final memorandum that

brokerage activities take place in interstate commerce by dint of a

“national relucation service” in which two defendant realtors ap-

parently participate. The service essentially involves an exchange

of lists of brokers between realtors in different states. A par-

ticipating realtor in one state will furnish to a client wishing to buy

property in another the name of a broker therein who appears or

the list, and receives a “referral fee” upon consummation of the

sale by the out-of-state broker.

What plaintiffs fail to show in this approach is that the

brokerage activity complained of herein occurs in or substantially

affects interstate commerce. We do not construe their complaint

to allege price-fixing with regard to broker referral fees, but only

with regard to the fees which arise out of realtors’ services in con-

nection with the purchase or sale of real estate in the New Orleans

area. We disregard the separate and independent participation of a

broker in referring clients to out-of-state sources, therefore, and

focus upon the possible interstate commerce effects of the in-state

transaction by which a broker regularly earns his commission.

20a

meaning of the Sherman Anti-Trust Act. The Supreme

Court disagreed, however, noting that the transac-

tions which created the need for the legal services in

question were themselves interstate in character. Not

only did the purchases involve financing through a

significant amount of out-of-state funds, but a signifi-

cant number of the loans were guaranteed by out-of-

state government agencies. The Court went on to find

that

[t]he necessary connection between the in-

terstate transactions and. . . the minimum fee

schedule is present because, in a practical

sense, title examinations are necessary in real

estate transactions to assure a lien on a valid

title of the borrower .... Thus a title ex-

amination is an integral part of an interstate

transaction .... Given the substantial

volume of commerce involved, and the in-

separability of this particular legal service from the in-

terstate aspects of real estate transactions we conclude

that interstate commerce has been sufficient-

ly affected.

[Emphasis added].

95 S.Ct. at 2011-12.

It is clear that any inquiry based upon this decision

must be twofold: 1) whether a “substantial” volume of

interstate commerce is involved in the overall real es-

tate transaction, and 2) whether the challenged activity

21a

is an essential, integral part of the transaction and in-

separable from its interstate aspects. Yet in this case —

even were it assumed arguendo, as plaintiffs purport to

establish, that many title insurance companies issuing

policies on local residential property are situated out-

side of Louisiana and, moreover, that the businesses

providing the necessary financing in local real estate

purchases extend across state lines — the second

criterion of Goldfarb remains unsatisfied. Those real es-

tate financing officials who were deposed consistently

testified that, while brokers customarily contact mort-

gage companies to solicit financing information on

behalf of clients and on occasion even transport clients

to the company offices, the actual financing process in-

volves only the lender and borrower and the brokerage

service is in no way an integral aspect thereof. See, e.g.,

Dep. of Edmond G. Miranne, at 23-26 [Record Doc. #

53]; Dep. of Julian O. Hecker, Jr., at 32, 36-37 [Record

Doc. # 55]. Stan Weber, Chairman of the Board of one

of the defendant companies, essentially corroborated

this testimony, stating that brokers might be asked by

purchasers about the best financing available, but “can-

not assist scmeone to secure financing.” See Dep. of

Stan Weber, at 40 [Record Doc. # 61]. With regard to ti-

tle insurance, it also appears through deposition

testimony that the actual procurement process takes

place between the insurer and lending in-

stitution/purchaser, the only contact between an in-

surer and broker being that the former does provide in-

formation concerning its services to various realtors.

22a

See Dep. of James W. Mills, Jr., generally and at. 15-16,

18 [Record Doc. # 58].4

Plaintiffs correctly observe that a broker’s commis-

sion usually is earned only after the buyer has been

successful in securing financing$ and that, as a practical

matter, title insurance is a precondition to execution of

the loan. Nonetheless, the inescapable conclusion to be

4 In no way contradictory is the deposition testimony of two

federal officials involved in the financing/insurance aspect of local

real estate transactions. Angel Miranda, an area economist for the

New Orleans office of the Department of Housing and Urban

Development (HUD), testified as to various programs operative in

this area whereby his agency, as well as the Fair Housing Adminis-

tration (FHA), make mortgage insurance available to home-

buyers; but he made no reference to broker activity in this connec-

tion. See Dep. of Angel Miranda [Record Doc. # 52]. Another HUD

official, Meaher Turner, gave further testimony concerning these

loan insurance programs, but spoke of brokers only to the extent

their services have been used by HUD in the sale of repossessed

property. See Dep. of Meaher P. Turner [Record Doc. # 59].

Moreover, counsel for both sides cite in their memoranda the

deposition of Paul Greiner, a loan guaranty officer for the

Veterans Administration (VA). The transcript of this particular

testimony nowhere appears in the record. But it nevertheless is

worth noting that the memorandum of plaintiffs counsel con-

firms what defendants represent to have been Greiner's

testimony, i.e., that real estate brokers play no role in the actual

process during which the VA decides whether to guarantee a loan.

See Plaintiffs’ Supp. Memo in Opposition to Motion, at p. 11 [Rec-

ord Doc. # 56]; Defendants’ Third Supp. Memo in Support of Mo-

tion, at p. 7 [Record Doc. # 57].

An apparent discrepancy exists between this statement and

ad of a hent-hichans Max Derbes, Jr. and Dalton L. Truax, Jr. to

the effect that brokers “earn their commissions upon procuring a

urchaser or seller... .” See Affidavits of Max Derbes, Jr. and

alton L. Truax, Jr., att’d to Defendants’ Motion [Record Doc. #

14). Regardless of the exact point in time at which the commission

accrues, however, the critical inquiry remains whether the serv-

ice for which a broker earns his commission entails the financing

and/or insurance of the transaction.

23a

drawn from the evidence is that the participation of the

broker in these (presumably interstate) phases of the

real estate transaction is an incidental rather than in-

dispensable occurrence in the transactional chain of

events. We regard as still unrefuted the sworn

statements of two brokers — filed in conjunction with

defendants’ motion — to the effect that the brokerage

function is limited to bringing buyer and seller together

and is essentially completed at that time. See Affidavits

of Max Derbes, Jr. and Dalton L. Truax, Jr., att’d to

Defendants’ Motion [Record Doc. # 14].¢ Jurisdiction

on the basis of Goldfarb is not established herein, and, in

light of our ruling as to the other theories of interstate

commerce involvement urged by plaintiffs, a cause of

action under the Sherman Anti-Trust Act has not been

stated.

For the foregoing reasons, defendants’ motion to dis-

miss should be, and it is hereby, GRANTED, dismissing

plaintiffs’ action with. costs.”

6 In deposition testimony, Derbes clarified this reference to the

brokerage function being “essentially” completed at the time a

ae or seller is procured. In “many cases; he declared, the

roker has done all he must do at this stage, although in some in-

stances his continued assistance might be needed to “make sure

everybody is performing the conditions of the contract.” See Dep.

of Max Derbes, Jr., at 58. As far as involvement in financing is con-

cerned, however, Derbes emphatically denied that under the

standard form agreement to purchase or sell a broker acquires the

authority to obtain financing on behalf of his client. See id., at 60-

62.

7 Tothe extent matters beyond the pleadings have been called to

the court’s attention, the motion, albeit styled a motion to dismiss

for failure to state a clairn, may be treated as one for summary

judgment. See Rule 12(b), F.R. Civ.Pro. In fact, the motion also

might properly be viewed as one for dismissal for lack of subject

matter jurisdiction. In any event, no genuine issue of material fact

appears to preclude judgment in defendants’ favor pursuant to

Rule 56.

24a

James Jefferson McLAIN et al.,

Plaintiffs-Appellants,

versus

REAL ESTATE POARD OF

NEW ORLEANS, INC., et al.,

Defendants-Appellees.

No. 77-2423

United States Court of Appeals,

Fifth Circuit.

Nov. 15, 1978.

Rehearing Denied Dec. 15, 1978.

Appeal from the United States District Court for the

Eastern District of Louisiana.

Before GEWIN, GODBOLD and MORGAN, Circuit

Judges.

LEWIS R. MORGAN, Circuit Judge:

This is an alleged class action brought on behalf of

buyers aid sellers of residential property in the New

Orleans area. Claiming that the defendant realty asso-

ciations and realtors have conspired to fix the prices of

their services, the plaintiffs seek declaratory and in-

junctive relief as well as the recovery of treble damages.

25a

In proceedings below, the defendants filed a motion to

dismiss! asserting that the challenged brokerage ac-

tivities were wholly intrastate in nature and thus fell

beyond the reach of federal antitrust prohibitions.

Initially, the district court withheld ruling on this mo-

tion and prescribed further discovery limited to the

question of whether the facts of this case could be

brought within Goldfarb v. Virginia State Bar, 421 U.S.

733, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1974). After fur-

ther discovery, the court concluded that the brokerage

activity at issue neither occurs in nor substantially

affects interstate commerce; accordingly, the defen-

dants’ motion to dismiss was granted. On appeal, a

multi-faceted challenge is raised against the lower

court dismissal. Examining the various contentions in

1. This case was brought under the Sherman Anti-Trust Act (15

U.S.C. §§ 1 et seq.). The precise motion before the court was

ee a Rule 12(b)(6) motion to dismiss for failure to state a claim

which was treated as a summary judgment to the extent matters

outside the pleadings were considered. See Rule 12(b),

F.R.Civ.Pro. The court also stated that its ruling might be viewed

as a dismissal for lack of subject matter. As we discuss infra, the

better practice is to cast as jurisdictional any dismissals based upon

a failure to establish the requisite commerce clause relationship to

the challenged activity. Thus, we view the proceedings below as

what the Third Circuit might call a 12(b)(1) “factual attack.”

Mortensen v. First Federal Sav. & Loan Ass'n, 549 F.2d 884, 890-891 (3d

Cir. 1977). Such an evaluation challenges more than the sufficien-

cy of the allegations; it questions the existence of the underlying

jurisdictional facts. “In short, no presumptive truthfulness at-

taches to plaintiff's allegations, and the existence of disputed

material facts will not preclude the trial court frorti evaluating for -

itself the merits of jurisdictional claims. Moreover, the plaintiff

will have the burden of proof that jurisdiction does in fact exist.”

Id. at 891. See also McNutt v. General Motors Accept. Corp., 298 U.S. 178,

189, 56 S.Ct. 780, 80 L.Ed. 1135 (1935).

26a

light of the particular averments of the pleadings, we

agree with the lower court.

Our starting point is the recognition that jurisdic-

tion under the Sherman Act extends to the furthest

reaches of congressional power to regulate commerce.

United States v. South-Eastern Underwriters Ass'n, 322 U.S.

533, 558-559, 64S.Ct. 1162, 88 L.Ed. 1440 (1944). The

constitutional boundaries of congressional power vary

according to the nature of the activity and regulatory

scheme at issue. “There is no single concept of in-

terstate commerce which can be applied to every

federal statute regulating commerce.” McLeod v.

Threlkeld, 319 U.S. 491, 495, 63 S.Ct. 1248, 1250, 87

L.Ed. 1538 (1943). Under the Sherman Act, this vast,

intractable expanse of federal jurisdiction is defined

through a dual analysis. Jurisdiction is conferred if the

acts complained of occur in the flow of commerce, or if

these acts, though local in nature, substantially affect

interstate commerce. Battle v. Liberty Nat'l Life Ins. Co., 493

F.2d 39, 395 (Sth Cir. 1974), cert. denied, 419 U.S. 1110,

95 S.Ct. 784, 42 L.Ed.2d 807 (1975); Las Vegas Merchant

Plumbers Ass'n v. United States, 210 F.2d 732, 739 n. 3 (9th

Cir.), cert. denied, 348 U.S. 817, 75 S.Ct. 29, 99 L.Ed. 645

(1954). With the “in commerce” test, the impact on in-

terstate commerce is judged according to a qualitative

standard — even insubstantial activity placed directly

in the flow of commerce satisfies the jurisdictional re-

auisite. Radiant Burners, Inc. v. Peoples Gas, Light & Coke Co.,

364 U.S. 656, 81 S.Ct. 3u5, 5 L.Ed.2d 358 (1961). The

“effect on commerce” test, however, requires a quan-

27a

titative analysis of the substantiality of the impact on

interstate commerce. Mandeville Island Farms v. United

States, 334 U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328 (1948).

Thus, activity imposing merely an “incidental” or “in-

substantial” effect on commerce may fall beyond

federal power. Apex Hosiery Co. v. Leader, 310 U.S. 469,

510, 60 S.Ct. 982, 84 L.Ed. 1311 (1940).

In the present case, the appellants argue that in

today’s world, real estate brokerage activities meet

both tests of jurisdiction. We emphasize, though, that

with both the “in commerce” and “effect on commerce”

tests, we do not consider all of the ramifications that

real estate sales have on nation-wide commerce. In-

stead, we must focus on the impact of the particular ac-

tivities challenged in the appellants’ complaint. The test

is not that “the acts complained of affect a business

engaged in interstate commerce, but that the conduct

complained of affects the interstate commerce of such

business.” Page v. Work, 290 F.2d 323, 330 (9th Cir.), cert.

denied, 368 U.S. 875, 82 S.Ct. 121, 7 L.Ed.2d 76 (1961).

Examining the specific acts complained of in this case,

we hold that they fail to establish jurisdiction under the

“in commerce” test. The complaint alleges price-fixing

of fees for the defendants’ services in connection with

sales of residential real estate in the New Orleans area.

Such activity is entirely local in character. Real proper-

ty is itself the quintessential local product. Further, the

only sales activity mentioned in the pleadings occurs

wholly intrastate. In such circumstances lower courts

have consistently held that real estate brokerage does

28a

not fall within the flow of interstate commerce. Marston

v. Ann Arbor Property Mgt. Ass'n, 302 F.Supp. 1276, 1279-

80 (E.D.Mich. 1969), aff'd, 422 F.2d 836 (6th Cir. 1970);

Cotillion Club, Inc. v. Detroit Real Estate Bd., 303 F.Supp. 850

(E.D. Mich. 1964). Moreover, a Supreme Court deci-

sion considering real estate activities in Washington,

D.C. noted, “(t)he fact that no interstate commerce is

involved is not a barrier to this suit.” United States v.

National Ass‘n of Real Estate Bds., 339 U.S. 485, 488, 70

S.Ct. 711, 714, 94 L.Ed. 1007 (1950). Within our circuit

is the view that this dictum supports concluding that

real estate brokers do not operate within the flow of

commerce. Hill v. Art Rice Realty Co., 66 F.R.D. 449, 454

(N.D. Ala. 1974), aff'd, 511 F.2d 1400 (Sth Cir. 1975). In

denying jurisdiction under the “in commerce” test, we

emphasize the limited scope of our holding. Here we

are not considering pleadings that allege price fixing in

appreciable sales of realty to out-of-state buyers. That

might be a different matter.? Instead, this complaint

asserts only that some individuals victimized by the

defendants are persons moving in and out of the New

Orleans area, “[t]he cases uniformly hold that the mere

movement of individuals from one state to another in

order to utilize particular services does not transfer

those services into interstate services within the mean-

ing of the Sherman Act.” (cites omitted). Diversified

2 Some courts have held sufficient allegations that the defen-

dants advertised in interstate newspapers and that they sold realty

to a substantial number of purchasers situated out-of-state. See,

e.g., United States v. Jack Foley Realty, Inc., 1977, Trade Reg.Rep. 9 61,

678, at 72, 790 (D.Md.1977). We suggest no view as to whether

the addition of allegations like these would bring the defendants

within the bounds of the Sherman Act.

29a

Brokerage Services, Inc. v. Greater Des Moines Bd. of Realtors,

521 F.2d 1343, 1346 (8th Cir. 1975).

The more compelling jurisdictional argument ad-

vanced by the appellants is their contention that the

controverted brokerage activities substantially affect

interstate commerce. This question has spawned a sig-

nificant conflict of authority. Cases finding an inter-

state commerce nexus include Lnited States v. Atlanta Real

Estate Bd. 1972 Trade Reg.Rep. 4 73, 825 (N.D.Ga.

1971); Knowles v. Tuscaloosa Bd. of Realtors, No. 75-P-591

(N.D.Ala.) (unreported); Wiles v. Tampa Ba. of Realty, Inc.,

No. 74-136 Cir. T-K (M.D.Fla.) (unreported); United

States v. Jack Foley Realty, Inc., (1977) Trade Reg.Rep.

(D.Md. 1977); Gateway Assoc. Inc. v. Essex-Costello, Inc., 380

F.Supp. 1089, 1094 (N.D.IIl. 1974); Mazur v. Behrens,

(1974-1) Trade Reg.Rep. § 75, 070 (N.D.IIl. 1972).3

Among the decisions rejecting the sufficiency of the

interstate commerce element are Manion v. Jefferson Bd. of

Realtors, No. 73-2604 (E.D. La. 1974), aff'd, No. 74-1901

(Sth Cir. 1975); Income Realty & Mortgage, Inc. v. Denver Bd.

of Realtors, No. 77-2051, 578 F.2d 1326 (10th Cir. 1978)

(opinion emphasized no per se restraint involved); Bryan

v. Stillwater Bd. of Realtors, No. 77-1111, 578 F.2d 1319

(10th Cir. 1977); Martson v. Ann Arbor Property Mgt. Ass'n,

302 F.Supp. 1276 (E.D. Mich. 1969) aff'd, 422 F.2d 836

3 See also Sapp v. Jacobs, 408 F.Supp. 119 (S.D.IIl.), rev’d

1170 (7th Cir. 1977); Oglesby & Barclift, Inc. v. Metro MLS, ne CCH

Trade Cases 4% 61, 064 (E.D.Va.1976); United States v. Metro MLS

Inc., CCH Trade Cases, 9 75, 311 (E.D.Va.1973). The appellants

also cite various consent decrees involving real estate brokerage

activities and the Sherman Act. E.g., United States v. Long Island Bd. of

Realtors, Inc., CCH Trade Cases, 4 74, 068 (E.D.N.Y.1972).

30a

(6th Cir. 1970); Cotillion Club, Inc. v. Detroit Real Estate Bd.,

303 F.Supp. 850 (E.D.Mich. 1964). Cf. Hill v. Art Rice

Realty, 66 F.R.D. 449, 511 (N.D.Ala. 1974), aff'd 511 F.2d

1400 (Sth Cir. 1975) (defendants’ position had strong |

support). These diverse conclusions result in part from

the varying factual gradations alleged. Instead of claim-

ing to neatly reconcile these decisions though, we

return to our polestar for analysis — the specific

allegations of the complaint in this case. One paragraph

says that many of the defendants’ customers are “per-

sons moving into and out of the Greater New Orleans

area.” For the same reason that such movement does

not thrust intrastate activity “in commerce,” courts

have held that the passage of people across state lines to

procure services does not mean that those services

have a substantial effect on interstate commerce. E.g.,

Cotillion Club, Inc. v. Detroit Real Estate Bd., supra.4

The second and primary averment is that the defen-

dants participate in securing home financing and title

insurance “obtained from sources outside the State of

Louisiana.” Armed principally with this allegation, the

appellants advance three arguments to overcome the

district court’s dismissal of their action. First, they con-

tend that allegations of per se violations, such as price

fixing, give rise to a presumption of a substantial effect

on commerce. Next, appellants argue that even

4 The interstate travel of customers is generally viewed as

generating only “remote” or “incidental” consequences to in-

terstate commerce; this movement of people evidently does not

itself constitute a substantial source of interstate commerce.

Lieberthal v. North Country Lanes, Inc., 332 F.2d 269, 271-272 (2d Cir.

1964).

3la

without the benefit of this presumption, the facts and

allegations of the present case are controlled by the

Supreme Court’s decision in Goldfarb v. Virginia State Bar,

421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975).

Finally, they urge that even if presently established

facts are insufficient, they are entitled toa trial on the

merits to more fully explore their jurisdictional

allegations. With all three contentions, we must dis-

agree.

Initially, we reject the argument that an allegation of

a per se violation creates presumptive federal jurisdic-

tion. As the lower couri correctly observed, the per se

rule bears solely on the merits of a claim by conclusive-

ly establishing the unreasonableness of a particular

restraint. This principle does not eliminate the need for

a jurisdictional determination of whether a restraint

sufficiently impacts on commerce that is interstate.

Supreme Court decisions have never said that a per se

allegation reduces jurisdictional requisites. On the con-

trary, the Court has analyzed jurisdiction without dif-

ferentiating between per se and rule of reason

allegations. Compare Goldfarb v. Virginia State Bar, 4221U.S.

773, 783-785, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975) with

United States v. Women’s Sportswear Mfg. Ass'n, 336 U.S. 460,

464, 69 S.Ct. 714, 93 L.Ed. 805 (1949).5

5 The genesis of the appellants’ argument res i

jurisdiction probably lies in the theori’s el by "le

Areeda. See P. Areeda, Antitrust Analysis 122 (2d éd. 1974). Citing

Professor Areeda, the Seventh Circuit enunciated a far reduced

jurisdictionat threshold for per se cases in an alternative holding in

United States v. Finis P. Ernest, Inc., 509 F.2d 1256, 1260 (7th Cir.), cert.

denied sub nom. Modern Asphalt Paving & Const. Co. v. United States,

32a

In asserting that per se cases carry built-in jurisdic-

tion, the appellants point to the seemingly abbreviated

commerce clause analysis in Burke v. Ford, 389 U.S. 320,

88 S.Ct. 443, 19 L.Ed.2d 554 (1967). The facts of that

423 U.S. 874, 96 S.Ct. 142, 46 L.Ed.2d 105 (1975); cert. denied, 423

U.S. 893, 96 S.Ct. 191, 46 L.Ed.2d 124 (1975) (separate appeals).

Nonetheless, the opinion in Finis P. Ernest did require some in-

terstate commerce, although the remodelled threshold was not

clearly explicated. See also Income Realty & Mortgage, Inc. v. Denver Bd. of

Realtors, No. 77-2051, 578 F.2d 1326 (10 Cir. 1978) (Logan, J., con-

curring in part, dissenting in part). But see Las Vegas Merchant

Plumbers Ass'n v. United States, 210 F.2d 732 (9th Cir. 1954). “[W]hen

the ‘affect’ on commerce theory is presented, it is clearly a ques-

tion of fact whether wholly intrastate activities affect interstate

commerce in a manner proscribed by the Sherman Act. After this

question is decided, then the per se doctrine may well apply.” Id. at

748.

Compounding our conviction that the Supreme Court does not

differentiate per se cases are two other concerns. As a matter of

analysis, we-perceive no jurisdictional basis for distinguishing per se

and rule of reason allegations. In neither case can one presume

that anticompetitive activity is underway. For example, the claim

of a conspiracy, the central underpinning of a price-fix, may

evaporate before hard evidence adduced at trial. Conversely, in

both cases, if sufficiently stated allegations are proven, the disrup-

tion of free market forces will be established. Whether that dis-

ruption is effected by price fixing or unreasonable vertical

territorial restraints, the ultimate consequences on the market are

similar: supply will be constricted and prices artifically inflated.

Thus the final impacts of restraints of trade would be inseparable

in their ultimate effect on commerce.

Our second difficulty with a presumptive jurisdiction for per se

cases is a practical one. To say the least, it can be difficult to ascer-

tain whether particular allegations are classified under per se or

rule of reason restraints. See White Motor Co. v. United States, 372 U.S.

253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963) (vertical restrictions not per

se); but see United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct.

1856, 18 L.Ed.2d 1249 (1967) (vertical restraints are per se); but see

again Continental T. V., Inc. c. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct.

2549, 53 L.Ed.2d 568 (1977) (vertical restraints are not per se). The

often elusive boundary separating the substantive analyses of per

se and rule of reason restraints does not command a drastic

jurisdictional differentiation.

33a

case, however, do not suggest a per se short-cut through

jurisdiction. Instead, the opinion follows a jurisdic-

tional methodology reflected in such Supreme Court

decisions as Goldfarb v. Virginia State Bar, supra; United

States v. Women's Sportswear Mfg. Ass'n, 336 U.S. 460, 69

S.Ct. 714, 93 L.Ed. 805 (1949); Mandeville Island Farms v.

American Crystal Sugar Co., 344 U.S. 219, 68 S.Ct. 996, 92

L.Ed. 1328 (1948); United States v. Yellow Cab Co., 332 U.S.

218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947).¢ These opin-

ions have not relied upon data showing a demon-

strable and deleterious impact upon interstate com-

merce. Rather, the analysis entails an identification of a

substantial quantity of interstate commerce and thena

determination of whether the allegedly restrained ac-

tivity plays a “necessary” or “integral” role in that sub-

stantial commerce. For example, in Burke v. Ford, the

controverted interstate commerce was liquor. Because

every bottle of liquor sold in Oklahoma was manufac-

tured out-of-state, both the substantiality and the in-

terstate character of this commerce was manifest. The

next step in the analysis is to connect this substantial

interstate commerce to the alleged restraints. The

plaintiffs in Burke v. Ford asserted that the liquor whole-

salers in Oklahoma had conspired to effect horizontal

6 In United States v. Women’s Sportswear Ass'n, supra, the def |

stitching contractors were integral wh aeons in the ie sen

interstate commerce in which 80% of the cloth was shipped in

from out-of-state followed by 80% of the finished sportswear be-

ing marketed out of state. Similarly, in Mandeville Island Farms, Inc. v.

American Crystal Sugar Co., supra, the defendant sugar refiners were

a necessary component of the interstate commerce drawing sugar

beet plants from California fields and leading to their ultimate sale

as finished products in nation-wide markets. Elsewhere in this

opinion, we briefly discuss the facts of Go!dfarb and Yellow Cab Co.

34a

territorial divisions. Because the entire liquor traffic

was distributed through the wholesaler defendants,

the alleged restraint operated in an activity that was

clearly a “necessary” and “integral” part of interstate

commerce. Thus, Burke v. Ford comports with a firmly

entrenched mechanism for jurisdictional analysis and

in no way imparts a reduced threshold for per se cases.

Rejecting the contention that per se allegations

provide automatic jurisdiction, we turn to appellants

claim that this case is controlled by Goldfarb v. Virginia

State Bar, supra. Underlying the Supreme Court's deter-

mination of jurisdiction in Goldfarb was the two-fold

analysis that identifies substantial interstate com-

merce, then ascertains whether the allegedly re-

strained activity is “integral” or “necessary” to that

commerce. In Goldfarb, the commerce was the inter-

state business of title insurance and home financing.

The record shows that millions of out-of-state dollars

flowed into Virginia as a consequence of these trans-

actions; accordingly, the substantiality of this com-

merce was beyond question. The activity charged in

Goldfarb was price-fixing by attorneys of their fees for

title examinations. To connect the alleged restraint to

the interstate commerce, the Supreme Court affirmed

detailed district court findings which established

(ijn financing realty purchases lenders re-

quire, ‘as a condition of making the loan, that

the title to the property involved be ex-

amined... . Thusa title examination is an in-

tegral part of an interstate transaction... .”

35a

421 U.S. at 784,95 S.Ct. at 2011, quoting 355 F.Supp. at

494. By statute, title examinations could be performed

only by attorneys. Therefore, the alleged price-fixing

of fees for this service operated on an activity that was

“integral” to interstate transactions of home financing

and title insurance:

Given the substantial volume of commerce

involved, and the inseparability of this particular

legal service from the interstate aspects of real es-

tate transactions, we conclude that interstate

commerce has been sufficiently affected.

421 U.S. at 785, 95 S.Ct. at 2012 (emphasis added, cites

omitted).

The lower court in the present case distinguished

Goldfarb by finding that real estate brokerage consti-

tuted an incidental rather than integral part of the in-

terstate commerce of title insurance and realty financ-

ing. Through ample discovery, the lower court heard

essentially uncontradicted evidence that the broker-

age function terminates when a home buyer and seller

are brought together. This activity does not extend to

the procurement of financing or title insurance. With

respect to these latter transactions, the district court

found that brokers occupy no more than an incidental,

informational role. Therefore, unlike the attorneys in

Goldfarb whose participation in title insurance was

statutorily mandated, real estate brokers are neither

necessary nor integral participants in the “interstate

aspects” of realty financing and insurance.

36a

This dichotomy between incidental and integral

functions is based upon United States v. Yellow Cab Co., 332

U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947).7 In Yellow

Cab, the Supreme Court considered the relation of in-

terstate commerce to two different cab operations.

One service operated exclusively between rail termi-

nals in Chicago carrying people from one station to the

next to continue their interstate journeys. This taxi ac-

tivity, and the trade restraint acting upon it, were held

to be within the reach of the Sherman Act. A second

cab service at issue was the general transportation of

people within the Chicago area. Although this latter

service frequently encompassed the movement of peo-

ple to and from train stations, often to commence jour-

neys out-of-state, the Supreme Court held that the

gneral operation of cabs did not sufficiently implicate

interstate commerce. “[W]hen local taxicabs merely

convey interstate train passengers between their

homes and the railroad station in the normal course of

their independent local service, that service is not an in-

tegral part of interstate transportation.” 332 U.S. at

233, 67 S.Ct. at 1568. “In short, their relationship to

interstate transit is only casual and incidental.” Id. at

231, 67 S.Ct. at 1567. The distinction Yellow Cab draws

between integral and incidental activities corresponds

to the distinction between Goldfarb and the present

case. Like the first cab operators in Yellow Cab, the attor-

neys in Goldfarb were invariable and indispensable com-

7 The enduring vitality.of Yellow Cab has been reaffirmed in sub-

sequent cs Court decisions, including Goldfarb, 421 U.S. at

784, n. 13, 95 S. Ct. 2004.

37a

ponents of interstate commerce. And, as with the sec-

ond cab activity in Yellow Cab, real estate brokerage does

not inherently comprehend the interstate aspects of

their business. “To the taxicab driver” or the real estate

broker, “it is just another local fare.” Id. at 232, 67 S.Ct.

at 1567.

We endorse the lower court’s conclusion that Gold-

farb does not govern this case. The factual determina-

tions underlying the holding that real estate broker-

age does not substantially affect interstate commerce

must be upheld unless clearly erroneous. United States v.

Oregon Medical Society, 343 U.S. 326, 338-339, 72 S.Ct.

690, 96 L.Ed. 978 (1952). Thus, our posture contrasts

with Goldfarb in which the Supreme Court reviewed

factual determinations in support of an “integral” role

for attorneys.® In the present case, we find substantial

evidence that real estate brokers occupy no more than

an “incidental” role in interstate commerce. Therefore,

jurisdiction is not established through analysis of Gold-

farb.

Rejecting the appellants’ theories of per se jurisdic-

tion and Goldfarb, we come to their claim that they are

entitled to a trial on the merits to more fully develop

their jurisdictional assertions. For many courts, the

8 The vital distinction is further illustrated in another antitrust

context where, on analagous facts, two Supreme Court decisions

diverged according to the trial court resolution of factual

questions. Compare Interstate Circuit, Inc. v. United States, 306 U.S. 208,

59 S.Ct. 467, 83 L.Ed. 610 (1939) with Theatre Enterprises, Inc. v.

Paramount Film Distributing Corp., 346 U.S. 537,74 S.Ct. 257, 98L.Ed.

273 (1954).

38a

dazzling complexity of antitrust litigation rarely com-

mends dismissal in advance of trial. See, e.g., Cherney Dis-

posal Co. v. Chicago & Suburban Refuse Disposal Ass'n, 484

F.2d 751, 759 (7th Cir. 1973), cert. denied, 414 U.S. 1131,

94 S.Ct. 870, 38 L.Ed.2d 755 (1974). See also Mortensen v.

First Federal Sav. & Loan Ass'n, 549 F.2d 884, 892-897 (3d

Cir. 1977). Competing against this concern, however,

is the reality that antitrust suits frequently entail enor-

mous expense. Win, lose, or draw regarding the final

outcome, the very fact of trial may result in crushing

costs and hardships to the defendant. To balance both

sides of the antitrust equation, this court authorizes

pre-trial dismissal except “where the factual and juris-

dictional issues are completely intermeshed as

McBeath v. Inter-American Citizens for Decency Committee, 374

F.2d 359, 363 (Sth Cir.), cert. denied, 389 U.S. 896, 88

S.Ct. 216, 19 L.Ed’2a 214 (1967). If jurisdiction and the

merits are inextricably bound, “the jurisdictional issues

should be referred to the merits, for it is impossible to

decide one without the other.” Id. See also Battle v. Liberty

National Life Ins. Co., 493 F.2d 39, 47 (Sth Cir. 1974), cert.

denied, 419 U.S. 1110, 95 S.Ct. 784, 42 L.Ed.2d 807

(1975).9

i i jurisdicti ld never

Technically speaking, the merits and jurisdiction cou

be severed anal interstate commerce is an element of “ey i

teaching of Rosemound Sand & Gravel, infra, however, is t = 3 r

issues necessarily determinative of jurisdiction can be iso me _

explored chrouah discovery, dismissal in advance of is may

appropriate. The effective use of discovery is a crucial yen

this case. The Supreme Court has instructed that Semin 5 Ha

to giving the plaintiff ample opportunity for me nage f s ise

granted very sparingly.” Hospital Bldg. Co. v. Trustees Rex 4 . he

U.S. 738, 746-747, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1 .

39a

Applying this standard to the present case, we hold

that pre-trial dismissal was proper. Here, the issues of

jurisdiction could be readily separated from the merits.

The substantiality of particular interstate commerce

and the nature of the defendants’ role in such com-

merce comprise one issue. A separate analytic concept

is raised by the question of whether these defendants

conspired to fix the price for their services. Confront-

ing the discrete issue of the commerce nexus, the dis-

trict court allowed the appellants months of discovery

to develop their Goldfarb analogy, which was practically

the sole jurisdictional argument proferred. The other

interstate commerce theory to be derived from the

pleadings, the movement of out-of-state home buyers

into the New Orleans area, was correctly discarded as a

matter of law. We therefore hold that it was not “im-

possible to decide the one without the other.” In fact,

the jurisdictional issue could be and was extricated

from the merits, thoroughly aired in advance of trial,

and correctly resolved by the district court. Compare

McBeath v. Inter-American Citizens for Decency Committee,

supra, with Rosemound Sand & Gravel v. Lambert Sand &

Gravel, 469 F.2d 416 (5th Cir. 1972). Accordingly, we

hold that pre-trial dismissal was warranted in this case.

With our endorsement of the district court’s de-

termination that this particular real estate activity

neither occurs in nor substantially affects interstate

commerce, we must ascertain the character of the ad-

judication to be rendered. The district court styled its

judgment as a 12(b)(6) dismissal for failure to state a

40a

claim which was treated as a summary judgment inso-

far as matters outside of the pleadings were considered.

Additionally, though, the court said that “the motion

might properly be viewed as one for dismissal for lack

of subject matter jurisdiction. We hold that this latter

characterization reflects the proper disposition of this

case. Because the sufficiency of the commerce nexus is

both a substantive element and a jurisdictional re-

quisite for an antitrust action, there are diverse if not

disparate viewpoints on the proper procedural vehicle

for resolving dismissal motions. See generally Mortensen v.

First Federal Sav. & Loan Ass'n, 549 F.2d 884, 890-897 (3d

Cir. 1977). And yet, whether the vehicle is a 12(b)(6)

motion on the merits or a 12(b)(1) jurisdictional attack,

the analysis of interstate commerce is the same. Hospital

Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738,742 n. 1,96

S.Ct. 1848, 48 L.Ed.2d 338 (1976). In Rex Hospital, the

court utilized Rule 12(b)(6) to hold that particular alle-

gations adequately asserted the necessary commerce

nexus. In such a case, the merits are properly reached

because, with the substantive law determination that

interstate commerce is sufficiently implicated, the ade-

quacy of the jurisdictional predicate is also established.

A markedly different situation arises, however, in the

present case as we hold that the necessary relationship

to commerce is missing. Although this conclusion

might be viewed as a summary dismissal on the merits

of appellants’ claim, it also means that we lack subject

matter jurisdiction of this action. This latter determi-

nation that jurisdiction is wanting must displace any

conclusion as to the sufficiency of the appellants’ claim

4la

because, where there is no jurisdiction, we do not reach

the merits. E. g., Mitchell v. Maurer, 293 U.S. 237, 244,55

S.Ct. 162, 79 L.Ed. 338 (1934). “It must be funda-

mental that if a court is without jurisdiction of the sub-

ject matter it is without power to adjudicate and the

case could be properly disposed of only by dismissal of

the complaint for lack of jurisdiction.” Stewart v. United

States, 199 F.2d 517, 519 (7th Cir. 1952). Accordingly,

we hold that the proper disposition of this action re-

quires a dismissal for lack of jurisdiction. Cf. Rosemound

Sand & Gravel v. Lambert Sand & Gravel, supra.

In conclusion, we speak to the appellants’ argument

that the full realization of congressional policies man-

dates expansive judicial construction of the commerce

clause. As the appellants observe, the acceptance of

commerce clause limitations is an acknowledgment

that the federal government is powerless to remedy al-

leged wrongs. Juxtaposed against this acknowl-

edgment, however, is the growing spirit of federalism

manifested at all levels of judicial and legislative

decisionmaking.!° This momentum is fueled by the

realization that state processes are available to combat

the full gamut of wrong doing, often including alleged

restraints of trade.

10 “[A] state is not merely a factor in the ‘shifting economic

arrangements’ of the private sector of the economy. . . (cite omit-

ted) but is itself a coordinate element in the system established by

the Framers for governing our Federal Union.” National League of

Cities v. Usery, 426 U.S. 833, 849, 96 S.Ct. 2465, 2473, 49 L.Ed.2d

245 (1976). A similar conviction is expressed in the Revenue Shar-

ing Act, 31 U.S.C. § 1221 et seq. See, e.g., S.Rep. No. 92-1050, 92

Cong., 2d Sess., pt. 8(1972), 1972 U.S.Code Cong. & Admin.News

at 3874, 3939.

42a

Even in the absence of state remedy, federal power

cannot be extended simply because some wrong might

otherwise be uncorrected. It is axiomatic that legisla-

tive laws and policies cannot bend principles of consti-

tutional dimensions. Thus, no matter how beneficial,

the Sherman Act cannot be thrust past its commerce.

clause anchorage into the residual expanse of state and

individual perogative. Such a limitation of federal

authority, whether requiring the dismissal of an anti-

trust suit or the freeing of a criminal defendant, is a

necessary concomitant of private freedoms. With

this.acceptance of the limits of judicial power, we hold

that there is no jurisdiction to consider this action and

therefore order the case

DISMISSED.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

\No. 77-2423

_—

JAMES JEFFERSON McLAIN, ET AL.,

Plaintiffs-Appellants,

versus

REAL ESTATE BOARD OF NEW ORLEANS, INC.,

ETAL,

Defendants-Appellees.

43a

Appeal from the United States District Court for the

Eastern District of Louisiana

ON PETITION FOR REHEARING

(December 15, 1978)

Before GEWIN, GODBOLD and MORGAN, Circuit

Judges.

PER CURIAM:

3 IT IS ORDERED that the petition for rehearing filed

in the above entitled and numbered cause be and the

same is hereby denied.

ENTERED FOR THE COURT:

Is} LOUIS R. MORGAN

United States Circuit Judge

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