Antitrust Law Daily Wrap Up, ANTITRUST—SDNY: Losing Bidder at Foreclosure Sale of Home Failed to State Antitrust Claims Against Fannie Mae, Realtors, (Mar 18, 2013)

By E. Darius Sturmer, J.D.

A consumer whose attempt to purchase a home in foreclosure failed could not maintain federal antitrust law claims against Fannie Mae or various real estate professionals who had also been involved in the property’s sale, the federal district court in New York City has ruled. The consumer’s complaint alleged “neither a plausible antitrust violation nor a requisite antitrust injury, the court decided (Ruotolo v. Fannie Mae, March 13, 2013, Karas, K.).

The thwarted home buyer alleged that after Fannie Mae refused his $130,000 offer for the property, his subsequent bid for $131,000 was either not communicated or miscommunicated by the other defendants, such that Fannie Mae never responded to it and ultimately accepted a $130,000 bid from another buyer. This, he averred, caused him to miss out on rental income exceeding $500,000. He claimed that this conduct amounted not only to an unlawful conspiracy to restrain trade, in violation of federal and state antitrust laws, but also fraud upon the U.S. Government and violations of various amendments and provisions of the False Claims Act, the Troubled Asset Relief Program implementation Act, and state law unfair trade practice and fiduciary duty laws.

At the outset, the court noted that the “[p]laintiff’s theory of the case as a whole is contradictory,” explaining that the conflicting nature of the different claims “made the entire case somewhat implausible from the beginning.” While the antitrust claims rested on conduct including price fixing and bid rigging—the “ultimate evil” of which he complained being higher prices for consumers and monopoly profits for sellers—the other statutory violations he raised stemmed from Fannie Mae’s alleged acceptance of a lower bid on the property at issue. Thus, the factual allegations did not fit together in a way that would help the plaintiff make the threshold showing of plausibility required to survive dismissal.

The plaintiff’s descriptions of the scope and goals of the conspiracy were not stated with any precision, the court remarked, and conspiracy could not be inferred from the conduct depicted in the complaint. The consumer alleged “some manner of conspiracy” that he based upon the “extraordinary speed with which the subject property closed,” and several other business practices, including the failure by the defending realtors to submit his offer to Fannie Mae and Fannie Mae’s decision to continue doing business with the same brokerage despite an alleged reprimand. The consumer failed to plead facts showing that the defendants “had a conscious commitment to a common scheme designed to achieve an unlawful objective.” It was “implausible to think that Fannie Mae would conspire with its own sales agents to keep sale prices low on houses it own[ed] and [was] selling in foreclosure, thereby reducing its own profits” the court observed.

Recognizing that the allegation that Fannie Mae was not maximizing profits was not absolutely fatal to an antitrust claim, the court ruled out alternative theories, such as predatory pricing, since the consumer had made no attempt to state a claim for such sorts of antitrust violations. He offered no articulation of how Fannie Mae stood to recoup any profits lost through the alleged scheme. His “use of terms like ‘bid rigging’ and ‘bid suppression’ to describe the alleged conspiracy … [did] not apply to the factual allegations described.

Even assuming that the consumer stated enough facts for the court to assume an antecedent agreement between the defendants, the complaint still failed to meet other substantive legal requirements, the court said. The relevant market requirement was “simply absent from the second amended complaint” and the scope of the conspiracy was “so ill-defined … it [was] impossible to the court to guess” that market.

In addition, the complaining consumer did not meet the requirement that he allege an antitrust injury. His alleged damages were related solely to the potential rental income that he supposed lost as a result of not being able to purchase the property. He made no assertion anywhere how the alleged conspiracy harmed competition as a whole. Therefore, he lacked standing to bring the antitrust claims, the court concluded.

The court also dismissed the consumer’s claims that Fannie Mae was “ ‘shortchanging the U.S. Treasury’ in violation of the Fraud Enforcement and Recovery Act of 2009,” had engaged in conduct prohibited by the statute that created the Troubled Asset Relief Program, and had failed to comply with the Sarbanes-Oxley Act of 2002. The court declined to exercise jurisdiction over the state law claims.

An argument that the defendants’ motions to dismiss were untimely was rejected. The defendants’ filings were in compliance with the Federal Rules of Civil Procedure, Local Rules, and specific court orders, which had explicitly extended the time for the defendants to submit the motions at issue.

The case is No. 09-CV-7851.

Attorneys: Michael John Walsh (O'Melveny & Myers LLP) for Fannie Mae. Joseph A Catania , Jr. (Tarshis, Catania, Liberth, Mahon & Milligram), for Patty Conti, Margaret Stewart, Marylin VanAken, and Patty Conti Realty.

Companies: Fannie Mae

Cases: Antitrust NewYorkNews