Antitrust Law Daily Wrap Up, TOP STORY—EDCal: Federal Tying, Land Sales Disclosure Claims Against Real Estate Developer and Affiliates Still Insufficiently Pled, (Mar 1, 2013)

By E. Darius Sturmer, J.D.

A group of consumers who had bought homes in a San Leandro, California, subdivision failed yet again to state Sherman Act and Interstate Land Sales Full Disclosure Act (ILSFDA) claims against the developer, builder, and sellers of homes in the subdivision, stemming from the alleged tying of home sales to financing through designated “captive” lenders, the federal district court in Sacramento has ruled (Cherrone v. Florsheim Development, February 27, 2013, Shubb, W.).

The complaining homeowners claimed that the allegedly unlawful tying arrangement was part of a broad conspiracy with the captive mortgage, appraisal, and financing companies in which the defendants manipulated and misrepresented the market value of the homes in the subdivision to attract buyers and bolster sales.

Because the court had already found the consumers’ allegations lacking on the very same claims twice before—most recently in December 2012—both of those claims within the consumers’ second amended complaint were dismissed without leave to amend. State law claims over which the court again declined to exercise jurisdiction were dismissed without prejudice.

Even assuming, without deciding, that the consumers’ amended allegations could be read to indicate a tying arrangement, they failed to allege the defendants’ market power in the relevant market. While the second amended complaint alleged that Florsheim built “literally thousands” of homes during the relevant period of 2006 to 2011, it lacked any description of the percentage of homes in the relevant market built by Florsheim compared to other builders, the percentage of home sales by non-Florsheim developers in that market, or the relative difficulty of obtaining a comparable home in the market.

The ILSFDA claim, which sounded in fraud, still was not pleaded with sufficient particularity, the court also held. Though the second amended complaint referred to a broad array of advertising material as fraudulent, the complaining homeowners did not identify any specific statement or omission, let alone the person or marketing material making the misrepresentation. Nor did it explain how each of the plaintiffs encountered the alleged misrepresentations. Furthermore, to the extent that the consumers relied upon a generalized fraudulent scheme to raise housing prices by false appraisals, they failed to allege any specifics of the scheme, including the offending appraisers and each participant’s role in the scheme.

The case is No. Civ. 2:12-02069 WBS CKD.

Attorneys: Mark LaMar Hardy (Law Office of Mark Hardy) for Connie Cherrone. James Grosvenor Lucier (Clapp Maroney) for Florsheim Development.

Companies: Florsheim Development; Florsheim Properties; Rose Petals, LLC; Rose Park, LLC.

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