Wholesale Lender Defeats Antitrust Suit Over Restrictions on Brokers Working with Other Wholesalers

A large wholesale mortgage lender defeated an antitrust suit regarding its requirements that brokers who work with it cannot do business with certain other wholesalers.

The wholesale lender had previously adopted a requirement that the brokers who offer its loans may not also offer loans from two other large competitor wholesalers.  The brokers were required to sign a contract addendum agreeing to this condition, and the wholesale lender refused to provide loans through brokers who did not sign the agreement.

One broker who refused to sign and who was terminated as an allowed broker filed an antitrust action against the wholesale lender in the U.S. District Court for the Middle District of Florida.  The suit alleged that the defendant was the largest wholesale lender in the country, and that about 93% of the brokers who worked with it accepted the condition not to do business with the other wholesalers.  The wholesale lender moved to dismiss the case.  A magistrate judge issued a recommendation that the case be dismissed, and the district court agreed.

Among other things, the court found that a per se boycott antitrust violation requires not just an agreement between the wholesale lender and the individual brokers not to work with the other wholesalers, but also an agreement between the brokers themselves to boycott the other wholesalers.  The complaint failed to allege such an agreement and alleged at most that the brokers were only acting in parallel with each other by agreeing to the restriction.

The court also noted that the wholesale lender would need to have a dominant position in the relevant market.  The broker that brought the suit argued that the relevant market was the national market for wholesale lending for mortgages sold through mortgage brokers.  The court, however, determined that the correct market was the overall mortgage lending market, since from the perspective of consumers, wholesale loans through a broker were substantially interchangeable with retail loans from a lender.  In turn, once compared to the entire mortgage market—as opposed to just the wholesale market—the wholesale lender’s market position would not be considered dominant.

Finally, the court found that the wholesale lender’s actions did not constitute an unreasonable restraint on competition.  The complaint failed to alleged facts showing that the wholesale lender’s restriction on its brokers increased costs or otherwise harmed consumers, or that the restriction caused harm to the other wholesalers who were excluded.