California Supreme Court Holds Board of REALTORS Membership Guidelines Violate Antitrust Laws

In Marin County Board of Realtors v. Palsson, the Supreme Court of California held that a Marin County Board of REALTORS (Board) bylaw which limited membership to persons "primarily engaged in the real estate business" violated the Cartwright Act (the state equivalent of the Sherman Antitrust Act). The court also ruled that a Board rule which denied non-member salespeople affiliated with a REALTOR member access to its multiple listing service information violated the Cartwright Act.

The court analyzed the bylaws under the Rule of Reason Test which weighs economic effects to competitors and consumers against justifications for the practice.

The Marin County Board of REALTORS was an association of 255 REALTORS, or approximately 75% of the brokers in the county. In 1972 alone, the Board accounted for 2,964 sales with a value exceeding $130 million. One privilege of membership was access to the Board's multiple listing service. The exclusive nature of the information in this service was assured by a Board bylaw which prohibited members from sharing the information with non-members.

Palsson, a licensed real estate salesman, applied for Board membership after he secured employment with a broker who was a Board member.

Palsson, an airline flight engineer, was denied membership because he could not satisfy a Board bylaw which required that associate members be "primarily engaged in the real estate business." This provision was enforced through sanctions against a member broker who shared offices with or employed a person denied membership in the Board. Thus, a salesman denied membership was also denied employment with 75% of the residential brokers in the county. Palsson contested the denial, asserting that the Board's access rule and "primarily engaged" bylaw violated Cartwright Act provisions regarding restraints of trade.

The Supreme Court of California held that only unreasonable restraints of trade are prohibited, but that there are certain practices which are conclusively presumed to be unreasonable (called per se violations).

Other practices affecting competition are evaluated under the Rule of Reason Test which weighs the economic effects of the practice on competition against the possible justifications for the practice. In its analysis of economic effects, the court held that both the rule and the bylaw posed serious dangers to competitors and consumers. The court based this holding on the 1972 Board sales results and the high percentage of broker members.

The Supreme Court of California then shifted to a discussion on the justification of Board practices. With regard to the primarily engaged bylaw, the primary justification was to further the professional and ethical competence of the real estate industry. After weighing the justification against the effects, the court concluded that the bylaw, by excluding from membership all part-time salesmen, including the most ethical and qualified among them, was an anti-competitive regulation which could not be justified by the Rule of Reason. As for the access rule, the primary justification was to make membership attractive. Upon weighing, the court found that access to the MLS was so essential to non-members that such access must be granted to all who chose to use it.

Marin County Board of REALTORS v. Palsson, 16 Cal. 3d 920, 549 P.2d 833, 130 Cal. Rptr. 1 (1976).

Saul

Saul e-PRO/CFP/GRI
President/CEO, InternetCrusade