Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: Home buyers granted leave to amend misrepresentation claims against home builder, (Sep 12, 2013)

By Jody Coultas, J.D.

Home purchasers were granted leave to amend California Unfair Competition Law (UCL) and False Advertising Law (FAL) claims filed against homebuilder Lennar Corporation for allegedly misrepresenting its homes and financing services, the federal district court in Sacramento has held (Irving v. Lennar Corp., September 10, 2013, Mueller, K.). The court, however, dismissed the purchasers’ antitrust claims without leave to amend.

Lennar, the largest residential homebuilder in the United States, recently expanded into the business of marketing those homes and providing financing, appraising, and title services. The home buyers allegedly purchased Lennar homes based on representations made by Lennar. Specifically, Lennar allegedly informed prospective buyers that if they used Lennar controlled Universal American Mortgage Company (UAM), the buyers would receive significant financial incentives. The buyers purchased houses at artificially inflated prices and paid artificially high prices for Lennar’s other products, such as financing, title services, and appraisal services based on allegedly false assurances that the home values would continue to rise. Despite assurances that Lennar would sell only to buyers who intended to live in the homes, Lennar marketed the houses to investors and to buyers who posed an abnormally high risk of foreclosure. Lennar also allegedly misrepresented that it would provide and maintain safe and secure neighborhoods and fully developed communities.

California claims. The purchasers failed to adequately allege what caused them to suspect they were injured and the cause of the injury, according to the court. The UCL statute of limitations is four years. A party is deemed to have discovered the fraud when it has reason to suspect the factual basis for a claim. Therefore, the court granted the purchasers leave to amend to specifically plead facts showing the time and manner of the discovery and the inability to have made earlier discovery despite reasonable diligence. The court also found that the purchasers may be able to replead the UCL and FAL claims.

Antitrust clams. The purchasers failed to state federal antitrust law claims against Lennar based on an alleged tying arrangement of the home and financing services, according to the court. A tying arrangement is an agreement by a party to sell a product on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier. Tying arrangement are per se Sherman Act violation where (1) the defendant tied together two distinct products or services; (2) the defendant possesses enough economic power in the tying product market to coerce its customers into purchasing the tied product; and (3) the tying arrangement affected a substantial volume of commerce in the tied product market. Although Lennar is the largest homebuilder in the nation and in Northern California, the purchasers failed to sufficiently describe Lennar’s market power. Even the largest single homebuilder may exercise control over a small portion of the market depending on the number and nature of its competitors. The purchasers admitted that they could have bought from anyone but happened to buy from Lennar. Because it was not difficult to obtain a comparable home in the relevant market, amendment would be futile.

The case is No. 2:12-CV-0290 KJM EFB.

Attorneys: Glen A. Van Dyke (Van Dyke Law Group) for Donald W. Irving.

Companies: Lennar Corp.

Cases: StateUnfairTradePractices Advertising Antitrust CaliforniaNews