Opinion for the Court filed by Circuit Judge WILKEY.
Concurring opinion filed by Circuit Judge LEVENTHAL.
Concurring statement filed by Circuit Judge MacKINNON.
WILKEY, Circuit Judge:
This private antitrust action challenges, as a violation of Section 1 of the Sherman Act,
Plaintiffs contend that the defendant's loan practice constitutes a per se illegal tie-in sale of legal services to the sale of credit, and an unlawful restraint of trade on the market for legal settlement services. At the close of plaintiffs' case, the District Court directed a verdict in favor of the defendant on the alleged antitrust violations. Plaintiffs now challenge the District Court's ruling on the ground that their evidence sufficiently made a case for the jury.
In determining whether a directed verdict is appropriate the governing principle is that a directed verdict is proper where, without weighing the credibility of the witnesses, there can be but one reasonable conclusion as to the verdict.
I. THE ALLEGED TYING ARRANGEMENT
Before developing the antitrust law on tie-in sales, it is essential to have clearly in mind what services are involved here, and to whom. Of the $100 standard legal fee paid by the defendant lender to its selected counsel and charged as a cost of the loan to the borrower, $35 is for the preparation of a mortgage. Mortgages are the business of the lender; it has a definite interest in the validity of the security instrument and prudently should only accept an instrument prepared or approved by its own counsel. Sixty-five dollars is for examination of the title. In this matter both the lender and the borrower have an interest; a common interest — yet in this metropolitan area, where the percentage of the value loaned on homes is substantial, the lender ordinarily will have the greater financial stake in the title, as he initially puts up more of the purchase money. While title insurance is customarily purchased by the borrower (it may be required by the lender), title insurance policies frequently carry exceptions, whose legal effect must be evaluated by both parties to the loan transaction.
The lender has the same right as the borrower to insist on its own counsel. The defendant lender here, after an unsatisfactory period of experience permitting the borrower to select his own counsel from a large group of highly rated lawyers (but not necessarily real estate specialists), whom the lender would then use as well, settled upon the practice of employing only one law firm to protect its interest in all these similar home loan transactions. State law and federal regulations allow the lender to charge the borrower for the legal work done for benefit of the lender as a necessary cost of the loan. Irrespective of which counsel is chosen by the borrower, the borrower
The only practical question is whether the borrower will pay for his own separate legal counsel, as well as the lender's, where the interests of the two parties are congruent. Since the parties have identical interests in the validity of the title, and since any conflict between lender and borrower in regard to the mortgage instrument is mostly theoretical (the lender will not lend unless the mortgage is completely satisfactory to it, and probably will insist on using its own mortgage form), one lawyer can effectively and fairly serve both lender and borrower on all questions in which the lender is interested. The borrower-buyer, of course, needs counsel for other purposes concerning, e. g., his legal relation to the seller of the property.
This being the parties' situation in the usual home sale and purchase-mortgage transaction, beginning in 1971 the defendant lender adopted the policy of waiving the $100 fee it customarily paid its selected counsel and charged the borrower, if the borrower also employed this same law firm and paid the firm directly for all services rendered to the borrower (which services, as shown above, necessarily embraced the two areas — title validity and the mortgage instrument — of interest to the lender).
After this detailing of the fact situation, we turn to the law of tying arrangements. A tying arrangement has been defined as an "agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product."
The record in this case clearly reveals that separate products were not involved in plaintiffs' "purchase" of the residential property loans. The loan review services performed by the selected law firm were provided to and paid for by the defendant as an additional means of insuring the security of its loans.
This conclusion, which was explicitly adopted by the Fifth Circuit in its per curiam affirmance of the District Court,
Notwithstanding plaintiffs' protestations to the contrary, we find the analysis of the identical practice in Forrest persuasive.
II. THE ALLEGED UNREASONABLE RESTRAINT OF TRADE
Plaintiffs' next contention is that the defendant's loan practice, though not a per se illegal tying arrangement, is nevertheless an unreasonable restraint of trade in violation of Section 1 of the Sherman Act.
Even if we assume that the arrangement between the defendant and its law firm to provide legal services on the defendant's loans may constitute a "combination" within the meaning of Section 1,
The Federal Home Loan Bank Board regulation in effect at the time of the alleged antitrust infraction expressly permitted an association to require
While the wording of the relevant state regulation is not as explicit as the federal provision, the state regulation also authorized the defendant to engage in this practice.
Plaintiffs argue, however, that the practice was nonetheless unreasonable because the defendant's purpose in retaining counsel to insure the security of its loans could have been accomplished by less restrictive means. They advance two alternatives in support of this argument. First, relying on the fact that certain other institutional lenders did not charge their borrowers for legal expenses, plaintiffs suggest that the defendant could have retained its own attorney without requiring borrowers to pay its legal expenses. Alternatively, plaintiffs suggest that the defendant might have followed a practice of accepting loan settlements exclusively from borrowers' counsel.
In our view, the first alternative suggested by plaintiffs does not demonstrate that the defendant's practice is unreasonable. On the contrary, the fact that the other lenders did not require a payment for legal expenses confirms that plaintiffs were free to go elsewhere if better terms of credit were offered. By charging its borrowers for legal expenses, the defendant only availed itself of a practice sanctioned by law.
Similarly, we do not consider the second alternative advanced by plaintiffs an indication that the defendant's practice is unreasonable. Prior to 1971 the defendant actually followed a practice of relying exclusively on borrowers' counsel.
We share plaintiffs' concern that in selecting attorneys upon whom to rely the defendant might properly have chosen a group of attorneys or at least more than a
We also note that the defendant's present practice which permits borrowers to use virtually any member of the Maryland bar is in several respects less restrictive than the alternative suggested by plaintiffs. Many attorneys who are proficient in real estate law would necessarily be excluded under plaintiffs' alternative.
In short, we find that the alternatives proposed by plaintiffs offer no indication that the defendant's practice unduly restrained competition in the market for legal settlement services. While we recognize that under other circumstances this practice might be anticompetitive in purpose or effect,
LEVENTHAL, Circuit Judge, concurring:
I concur in the result and the reasoning of the majority opinion. I add a word to note the problem, and it is a real problem as I see it, that an association may well, through its president or other managing official, be engaged in a combination in fact to "steer" legal business to its counsel (who
If a borrower must pay extra out of his own pocket when he hires another lawyer, but has no additional payment to make if he hires lawyer X, there is likely some steering of trade, and that is a "restraint."
Where plaintiff fails in this case is that he made no tender of facts that such steering as takes place has been venally motivated. And there is a justification for the system developed in defendant's institution — namely, (1) It wants its own counsel Mr. X (for its own protection); (2) It is willing to waive retainer of Mr. X when plaintiff has already hired him, thus avoiding either waste, or a double fee to Mr. X for doing the same work.
The combination of justification in terms of saving to the borrower plus lack of any showing of venality in the circumstances warrants a finding as a matter of law that there has been no showing of an unreasonable restraint of trade.
If the defendant's loan practice were not "instituted solely for a legitimate business purpose," but rather from venal motivations, I think that practice quite possibly could be found "anticompetitive in purpose."
MacKINNON, Circuit Judge:
I concur in the opinions by Judge Wilkey and Judge Leventhal.
Legal expenses incurred to consummate a loan are "reasonable," if not indispensable and required by law. See Regulation 09.05.50C of the Maryland Building, Savings & Loan Associations Guide.
In seeking rehearing, plaintiffs-appellants put it that this concurring opinion carves out new ground, which they should have opportunity to explore, that they had properly been proceeding on the theory that the antitrust laws are concerned with effects of conduct, not intent or laudable purpose, citing Sullivan, Antitrust (West Pub. St. Paul 1976) at 194, and that the existence of intent as an element in a criminal antitrust offense, such as was involved in Standard Oil, is not applicable in civil cases which remain governed by "the general rule that a civil violation can be established by proof of either an unlawful purpose or an anticompetitive effect." United States v. United States Gypsum Co., ___ U.S. ___, ___ n.13, 98 S.Ct. 2864, 2873, 57 L.Ed.2d 854. In Gypsum Chief Justice Burger goes on to say: "Of course, considerations of intent may play an important role in divining the actual nature and effect of the alleged anticompetitive conduct. See Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918). Thus cited is pertinent observation of Justice Brandeis (246 U.S. at 238, 38 S.Ct. at 244):
It is hardly new law to say that context and purpose guide in determining whether the agreement or practice under consideration goes beyond the quality of incidental restraint, a familiar and not forbidden occurrence, and takes on the color of an unreasonable restraint, with a predominantly anticompetitive character.