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APPRAISERS COALITION v. APPRAISAL INST.

February 4, 1994

The APPRAISERS COALITION, ALAN B. BLAU, individually and d/b/a ALAN BLAU & ASSOCIATES, W.S. BUCKLEY, BUCKLEY APPRAISAL SERVICES, INC., VINCENT A. SOLANO, individually and d/b/a V.A. SOLANO & ASSOCIATES, Plaintiffs,
v.
APPRAISAL INSTITUTE, an Illinois corporation, THE AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, an Illinois corporation, and PATRICIA MARSHALL, BERNARD FOUNTAIN, DOUGLAS BROWN, C. DAVID MATTHEWS, CLIFFORD E. FISHER, JR., JOHN R. UNDERWOOD, JR., BRUCE R. WILLMETTE, BONNIE D. ROERIG, DAVID F. PEATFIELD, DONALD L. BURKE, NANCY M. MUELLER, GERALD A. TEEL, NORMAN E. HALL, JOE R. PRICE, LOUIE REESE III, and RITCH LE GRAND, Defendants.



The opinion of the court was delivered by: JOHN A. NORDBERG

 This is an action arising out of alleged illegal competition in the non-residential real estate appraisal market. Plaintiffs filed suit on February 11, 1993, and filed a First Amended Complaint on March 3, 1993, before any response to the original complaint had been filed. The Defendants moved to dismiss that First Amended Complaint. On August 18, 1993, the Court issued a Memorandum Opinion and Order granting that motion. Appraisers Coalition v. Appraisal Inst., 1993 U.S. LEXIS 11770, No. 93- C-913, 1993 WL 326671 (N.D. Ill. Aug. 18, 1993). With the permission of the Court, Plaintiffs filed their Second Amended Complaint, seeking relief in eleven counts. Before the Court is Defendants' Motion to Dismiss the Second Amended Complaint. For the following reasons, the Motion is denied in part and granted in part, without prejudice to the Plaintiffs filing a final amended complaint, if appropriate, consistent with this Memorandum Opinion and Order.

 I. ALLEGATIONS OF FACT

 Assuming as true the allegations in the Second Amended Complaint, and reasonable inferences therefrom, the Court summarizes the facts of the case as follows. The Plaintiffs are three individual non-residential real estate appraisers, Alan B. Blau, W.S. Buckley, and Vincent A. Solano, their respective businesses, Alan Blau & Associates, Buckley Appraisal Services, Inc., and V.A. Solano & Associates, and the Appraisers Coalition (the "Coalition"), a voluntary unincorporated association. *fn1" The individual Plaintiffs, through their businesses, and each member of the Coalition, is engaged in the profession of providing appraisals of non-residential real estate in the United States. Each of these appraisers is a member of an organization called the Society of Real Estate Appraisers, Inc. (the "Society").

 The Society was founded in 1935 to establish, confer, and promote professional training, qualifications, and designations for real estate appraisers. Before January 1, 1991, the Society conferred one or more of three designations upon its individual members: (1) the SRPA, or Senior Real Property Appraiser, the Society's highest form of professional certification for appraisers of non-residential real estate; (2) the SRA, or Senior Residential Appraiser, which designated appraisers of residential real estate; and (3) the SREA, or Senior Real Estate Analyst, which pertains to financial analysis of income-producing real estate, but not necessarily appraisals. (Second Am. Compl. PP 16(a)-(c).) Each of the individual Plaintiffs and each member of the Coalition earned the Society's SRPA designation. (Id. P 3.)

 Until 1991, the Society, and its members, competed with Defendant American Institute of Real Estate Appraisers ("AIREA"), and its members. Like the Society, AIREA was organized in the 1930s to establish, confer, and promote professional training, qualifications, and designations for real estate appraisers. AIREA conferred two designations on its members: (1) the MAI, or "Member Appraisal Institute", which was conferred on AIREA members having top qualifications for appraising non-residential real estate; and (2) the RM, which was comparable to the Society's SRA. Thus, before 1991, the Society's SRPAs directly competed with AIREA's MAIs, and the SRAs directly competed with the RMs. Each of the individual Defendants is a holder of the MAI designation.

 During the events leading to this lawsuit, a small percentage of Society members, having either an SRPA or SREA designation, also held an MAI designation, as was permitted by Society rules. Plaintiffs allege that "at some point prior to 1989" the "dual designation" MAI members of the Society managed to take control of that organization, despite the fact that such members made up less than four percent of the Society's voting members.

 In 1989, AIREA representatives and Society representatives began discussing a "unification" of the two organizations. Under the initial "unification" proposal, AIREA's RM members would be given the option of automatically receiving the Society's better-known and more widely-held SRA designation; the Society's small number of SREAs, some of whom were not appraisers, would be given the option of automatically becoming MAIs. The SRPA designation was to be phased out; but, SRPAs, unlike SREAs, were not automatically permitted to become MAIs. Upon learning of the terms of the initial proposal, many SRPAs protested the elimination of their designation. These protests resulted in the inclusion, in the organizations' "Final Plan of Unification" (the "Plan"), of a provision stating that "all existing designations" would be "retained indefinitely" and would be "promoted until such time as the Board of Directors deems it appropriate to cease." By October 15, 1989, the Plan was set for submission to the respective voting members of the Society and AIREA. The Plan was to be either approved or disapproved at special membership meetings held on January 19, 1990.

 Plaintiffs allege that the Plan was not approved at the special membership meetings. However, in June 1990, the Defendants caused AIREA, but not the Society, to vote on the Plan again. On January 1, 1991, the Defendants caused the Plan to take effect, without the approval of the Society's membership. (Second Am. Compl. P 26.)

 Upon implementation of the Plan, the Defendants took several actions that devalued the SRPA. With this implementation came the creation of the Defendant "Appraisal Institute", a parent corporation that now controls AIREA and the Society. Plaintiffs assert that the Appraisal Institute's name promotes public awareness of MAIs at the cost of public awareness of the SRPA designation, creating the appearance that MAIs are superior to SRPAs. Plaintiffs claim that they were further discriminated against by the Defendants' creation of the General Appraisal Board (the "GAB"). The GAB became the Appraisal Institute's arm for conferring the MAI designation, for controlling the ability of SRPAs to attain that designation, and for promoting the SRPA designation. Plaintiffs claim that SRPAs were locked out of any voice in these matters when the Defendants filled 11 of the 12 GAB positions with MAI holders, and prohibited the single SRPA member from voting on any matter affecting the qualifications for MAI status or the ability of SRPAs to become MAIs, and by restricting the Appraisal Institute's directors' ability to alter GAB policies.

 Plaintiffs assert that Defendants "established a set of arbitrary, onerous, and subjective criteria" for those SRPAs seeking to become MAIs, even though some of the previous requirements for becoming an MAI were less stringent than those necessary to become a SRPA. (Compl. P 29.) *fn2"

 Plaintiffs claim that as a result of this discrimination: "the individual and business entity plaintiffs have been severely, if not irreparably, damaged in their business and property." (Compl. P 33.) Plaintiffs complain that their SRPA designations have "become valueless at best" and, at worst, carry "a negative connotation in comparison with MAIs." (Id.)

 Plaintiffs seek both legal and equitable remedies in their eleven count Second Amended Complaint. In Counts I-VI, Plaintiffs allege violations of federal law. Counts I, II, and III respectively assert claims for monopolization, attempted monopolization, and conspiracy to monopolize in violation of section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2 (1988). In Count IV, Plaintiffs allege that the Defendants agreed to a per se illegal restraint of trade in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 (1988). Count V charges a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (1988). In Count VI, Plaintiffs claim that the Defendants violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1988).

 Counts VII-XI are pendent state law claims. In Count VII, Plaintiff Solano claims that the Defendants violated the Illinois Antitrust Act, 740 ILCS 10/1 to 10/11 (Smith-Hurd 1993). In Count VIII, Plaintiff Solano seeks relief for violations of the Illinois Consumer fraud and Deceptive Business Practices Act, 815 ILCS 505/1 to 505/12 (Smith-Hurd 1993). In Count IX, Plaintiffs Blau, Solano, Buckley, and Buckley Appraisal Services, Inc. claim that they were defamed and commercial disparaged. In Count X, Plaintiffs Blau, Solano, and Buckley plead tortious interference with their property rights. In Count XI, Plaintiffs Blau, Solano, and Buckley claim a common law breach of fiduciary duty.

 II. ANALYSIS

 A. Associational Standing

 Defendants challenge the Coalition's standing to sue. The Second Amended Complaint names the Coalition as a Plaintiff in the five federal antitrust counts (I-V) and the Lanham Act false advertising count (VI). Since the Plaintiffs have not specifically alleged the capacity in which they contend the Coalition may sue, and since Plaintiffs have failed to allege any injury to the association itself, *fn3" the Court concludes that the Coalition must be seeking associational standings as a representative of its members. (See Defs.' Mem. in Supp. of Mot. to Dismiss Second Am. Compl. at 4.) The Plaintiffs do not dispute this conclusion. (See generally Pls.' Mem. in Resp. to Mot. to Dismiss Second Am. Compl.)

 While associations are generally denied standing to sue for damages under the antitrust laws, the federal courts have permitted associations to maintain actions seeking injunctive relief on behalf of, and as the representative of, its members. See Warth v. Seldin, 422 U.S. 490, 45 L. Ed. 2d 343, 95 S. Ct. 2197 (1975) (holding that an association may have standing to sue as a representative of its members); Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1380 & n.3 (7th Cir. 1987) (listing cases). Whether, and in what circumstances, it is permissible for an association to sue under the federal antitrust laws or under the Lanham Act is governed by the three part test established by the Supreme Court in Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 53 L. Ed. 2d 383, 97 S. Ct. 2434 (1977). See Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584 (7th Cir. 1993) (applying Hunt to an association's antitrust claims); Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1380-81 (7th Cir. 1987) (same); Camel Hair & Cashmere Inst. of Am. v. Associated Dry Goods, 799 F.2d 6, 10 (1st Cir. 1986) (applying Hunt to an association's Lanham Act claims). Under Hunt, an association has standing to bring suit on behalf of its members when: (1) the members would otherwise have standing to sue for themselves; (2) the interests the association seeks to protect are "germane to the organization's purpose"; and (3) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. Hunt, 432 U.S. at 343.

 The Supreme Court reaffirmed the doctrine of associational standing in UAW v. Brock,, 106 S. Ct. 2523, 91 L. Ed. 2d 228, 477 U.S. 274 (1986). In so doing, the Supreme Court also explained the basis for the doctrine. In Brock, the UAW and several of its members brought suit against the Secretary of Labor to challenge his interpretation of the eligibility provisions of the Trade Act of 1974, which provided benefits to workers laid off because of competition from imports. Among the Secretary's challenges to the suit was his contention that the UAW lacked standing to sue in federal court on behalf of its affected members. The district court found for the plaintiffs on the merits and the Court of Appeals for the District of Columbia reversed, without reaching the merits, holding that the UAW lacked standing to represent its members.

 The Supreme Court reversed the Court of Appeals, applying the Hunt test. It then addressed the Secretary's contention that "absent a showing of particularized need", members of associations should be required to litigate common questions of fact or law against a common defendant only through the class action provisions of Fed. R. Civ. P. 23. In rejecting the Secretary's argument, the Supreme Court explained that the doctrine of associational standing had special features that made it "advantageous both to the individuals represented and to the judicial system as a whole." Brock, 477 U.S. at 289. In contrast with the class action vehicle, in which plaintiffs might have little in common other than their claims, an association suing on behalf of its members could draw upon a "pre-existing reservoir of expertise and capital." Id. This pooling of resources provides economies to both plaintiffs and courts. The Court concluded by noting:

 
The doctrine of associational standing recognizes that the primary reason people join an organization is often to create an effective vehicle for vindicating interests that they share with others. "The only practical judicial policy when people pool their capital, their interests, or their activities under a name and form that will identify collective interests, often is to permit the association or corporation in a single case to vindicate the interests of all." . . . The very forces that cause individuals to band together in an association will thus provide some guarantee that the association will work to promote their interests.

 Brock, 477 U.S. at 290 (quoting Joint Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 187, 95 L. Ed. 817, 71 S. Ct. 624 (1951) (Jackson, J., concurring)).

 Here, Defendants argue that the Coalition should not be permitted to avail itself of the Hunt and Brock cases for three reasons. First, Defendants contend that the individual Plaintiffs have a conflict with the Coalition. Defendants also argue that the Plaintiffs have failed to satisfy both the second and third parts of the Hunt test. The Court rejects each of these arguments.

 As Defendants point out in their Memorandum in Support of Motion to Dismiss Second Amended Complaint, the conflict of interest argument they make "does not fit neatly within the three part test." (Mem. in Supp. at 6.) Federal courts have addressed similar arguments under both the second and three elements of the Hunt test; and at least one Court of Appeals has noted that such an argument might be construed as a proposed fourth element to that test. See, e.g., Associated Gen. Contractors of California, Inc. v. Coalition for Economic Equity, 950 F.2d 1401 (9th Cir. 1991) (analyzing a conflict of interest argument under the third element of the Hunt test), cert. denied, 118 L. Ed. 2d 390, 112 S. Ct. 1670 (1992); Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1380-81 (7th Cir. 1987) (analyzing a conflict of interest argument under the second element of the Hunt test); National Maritime Union of Am. v. Commander, Military Sealift Command, 263 U.S. App. D.C. 248, 824 F.2d 1228, 1232 (D.C. Cir. 1987) (stating that a conflict of interest argument might be seen either as an attempt to add a fourth factor to the Hunt test or as a part of the third factor). Given that Defendants here have challenged the Coalition's ability to satisfy both the second and third elements of Hunt, the Court addresses the conflict issue first and then, when discussing the other arguments, will address any implications that issue might have on those arguments.

 Defendants' contend that the interests of the individual Plaintiffs conflict with those of the appraisers represented by the Coalition. The individuals seek millions of dollars in damages. The Coalition seeks only injunctive relief. Because the individuals are officers and members of the Coalition, but seek damages in addition to equitable relief, they have created, so the argument goes, a litigation strategy conflict between themselves and the Coalition and, by implication, within the Coalition. In the opinion of the Court, this argument is insufficient to defeat associational standing.

 The Seventh Circuit Court of Appeals clarified its position with respect to standing for associations having purported internal conflicts of interest in Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584 (7th Cir. 1993). In instructing a district court considering the issue of associational standing on remand, the Seventh Circuit stated that the court's analysis must begin with a review of the benefits of associational standing expressed in Brock. Id. at 607. These benefits must be weighed against any deficiencies an association might have, including actual and potential conflicts. In addressing apparent conflicts, district courts should determine if "other approaches less drastic than denying group standing" will protect the interests of those "whose position is not represented" by the association, "while affording the group and the judicial system as a whole the efficiencies that Brock has identified in associational standing." Id. at 607.

 Given this charge from the Court of Appeals, it is the opinion of the Court that the efficiencies created by the Coalition in this case outweigh any conflicts created by its participation in this lawsuit. The Defendants protest that the Coalition does not really afford any of the efficiencies contemplated by Brock because it was organized solely as a means of financing this lawsuit. The Court disagrees, even accepting the Defendants' categorization of the Coalition.

 The injunctive relief sought by the Coalition, if justified, would likely benefit any appraiser having an SRPA designation. While Plaintiffs have not stated how many members of the association there are, according to the Second Amended Complaint, there were 2,243 holders of the SRPA designation prior to implementation of the Plan. (Compl. P 33.) After the implementation of the Plan, that number fell to approximately 900. (Id.) If the Coalition and the individual Plaintiffs succeed in their attempt to enjoin alleged anticompetitive conduct, at least these 900 individuals would benefit. The fact that the Coalition may have been formed as a vehicle to assemble financial resources does not run contrary to the Brock decision. In fact, as quoted above, the opinion specifically refers to the benefits afforded the public and the individuals making up the association by permitting the pooling of such resources. In addition, even if formed for purposes related to this litigation, the Coalition is still a pool of similarly situated individuals with similar interests. If Plaintiffs have valid claims, the Court perceives no wrong in permitting them to rely on whatever resources, capital or intellectual, the Coalition may provide.

 Contrasted with the benefits of the associational vehicle is Defendants' assertion that the Coalition's participation in this lawsuit is contrary to the interests of other appraisers potentially having claims in this lawsuit. The crux of this argument is that the individual defendants will have incentives to settle for cash in lieu of the injunctive relief sought by the Coalition. In the opinion of the Court, the purported "conflict" between the individual Plaintiffs and other members of the Coalition is only speculative at this point. Furthermore, the Court is not convinced that any such speculative conflict would be diminished by the absence of the Coalition. First, there is no indication of any immediate conflict or dissent within the Coalition. Second, the individual Plaintiffs, as officers and organizers of the Coalition, owe fiduciary duties to the other members of the organization. There is no indication that the Coalition's participation in this lawsuit will compromise those duties. Third, even if the Coalition were not a party to this lawsuit, the individual Plaintiffs, who also seek injunctive relief, might favor a cash settlement over injunctive relief. And, depending on the circumstances, such an agreement might be binding on other individuals, whether or not such individuals were parties to this lawsuit. Furthermore, should this case proceed to trial and the Plaintiffs lose, the doctrine of defensive collateral estoppel might bind future litigants regardless of whether the Coalition participates or not. Fourth, should any future litigant demonstrate that he or she was not adequately represented in this lawsuit, that individual would not be precluded from bringing suit. Given these factors, the Court is unwilling to deny the Coalition standing to file suit.

 The Court's conclusion is supported by Retired Chicago Police Ass'n. In that case, the Seventh Circuit summarized the "major contributions" on this issue by other circuits. The Court of Appeals discussed two cases, Maryland Highways Contractors Ass'n v. Maryland, 933 F.2d 1246 (4th Cir.), cert. denied, 116 L. Ed. 2d 325, 112 S. Ct. 373 (1991), and Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d 1374 (7th Cir. 1987), in which associational standing had been denied. The basis for that conclusion, in both cases, was the existence of a "profound" conflict of interest. In the Maryland Highways Contractors Ass'n case the association's lawsuit worked to the "direct detriment" of the minority members of that association. The association in that case brought suit without observing its own by-laws. In Southwest Suburban Bd. of Realtors, members of the association were actual defendants in the case, a clearly unworkable conflict. As indicated in Retired Chicago Police Ass'n, the "profound" conflicts in those cases were inconsistent with Brock. No such profound conflict or inconsistency with Brock exists here.

 Defendants protest that Plaintiffs failed to satisfy the second element of the Hunt test by failing to plead the Coalition's purpose. The second element of Hunt requires that the association in question seek to protect interests that are "germane to the organization's purpose." Hunt, 432 U.S. at 343. This "germaneness" requirement formed one basis for the Seventh Circuit's decision in Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d 1374 (7th Cir. 1987). *fn4" However, as indicated in Retired Chicago Police Ass'n, this "germaneness" requirement has teeth only when a conflict of interests exists. 7 F.3d at 607. Otherwise, the germaneness test requires only that "an organization's litigation goals be pertinent to its special expertise and the grounds that bring its membership together." Id. (quoting Humane Soc'y of the United States v. Hodel, 268 U.S. App. D.C. 165, 840 F.2d 45, 56 (D.C. Cir. 1988)). Given that no "profound" conflict here exists, and given that the Coalition's membership came together to help prosecute this case, the germaneness test is satisfied. The Court will not deny the Coalition standing for a failure to plead its purpose.

 Finally, Defendants contend that the Coalition should be denied standing for failure to satisfy the third element of Hunt, which states that "neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit." Defendants assert that, given the Second Amended Complaint's allegations, it will be necessary for several members of the Coalition to testify and further participate in the lawsuit. This position is not disputed. However, the third element in Hunt does not require a dismissal on that basis. The decision in Retired Chicago Police Ass'n makes clear that the Hunt test does not mean that dismissal is required when the participation of any association member is necessary. Rather, dismissal is only required when the lawsuit would require the participation of each member of the association. 7 F.3d at 601-02. The third element of Hunt is satisfied, despite the participation of one or many members of an association, when the cause of action and relief sought does not require "individualized proof" for the litigation of the case.

 The difficult issue here presented is whether Plaintiffs claims require the "individualized proof" that would defeat Associational standing. As noted in dicta in both Retired Chicago Police Ass'n, 7 F.3d at 602 n.25, and Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d at 1380-81, the proof of antitrust injury necessary to federal antitrust claims may require such "individualized proof." That kind of proof is necessary in circumstances where complex factual issues exist that require evidence of actions taken against individual defendants. See Retired Chicago Police Ass'n, 7 F.3d at 602 n.25; Southwest Suburban Bd. of Realtors v. Beverly Area Planning Ass'n, 830 F.2d at 1380-81. However, as analysis of the "antitrust injury" requirement indicates, not all antitrust cases necessarily require inquiry into "complex factual issues" to resolve the question of antitrust injury. In particular, where an antitrust claim attacks a policy or ...


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