Can a North Carolina resort developer that owns the local country club refuse club membership to buyers whose homes were listed exclusively with a competing real estate broker?
Plain-English summary
Phillip T. Fisher, Executive Director of the North Carolina Real Estate Commission, asked the AG to evaluate a specific practice at Lake Toxaway Estates, a resort development owned by the Lake Toxaway Company. The Company also owned the resort's country club and was itself a licensed real estate broker. In November 1983, the Company sent a letter to property owners telling them that any purchaser buying a home listed exclusively with a competing broker would not be eligible to apply for country club membership. A purchaser was eligible only if the home was listed exclusively with the Company or under an open listing.
The 1984 AG concluded that the practice was both an unfair method of competition under G.S. 75-1.1(a) and an unfair trade practice under the same statute. Two separate strands of analysis led to the same result.
Unfair method of competition. The court-of-equity test from Extract Co. v. Ray and Harrington Manufacturing Co. v. Powell Manufacturing Co. asks whether conduct, judged against actual human experience and its intended and actual effects on others, is unfair. The Company's practice coerced sellers into giving the Company at least a shot at the listing in every case. If the seller gave the Company an exclusive listing, the Company was guaranteed any commission earned. If the seller chose an open listing, the Company still competed for the deal. The only option the Company foreclosed was an exclusive listing with a competing broker, the only arrangement in which the Company could be entirely shut out. Combined with a 1974 prior episode (denial of membership to purchasers buying through competing brokers, discontinued after AG intervention) and a 1976 episode (initiation-fee discounts for exclusive listings with the Company), the 1983-84 letter showed a pattern aimed at restricting competition and capturing market share through club leverage.
Unfair trade practice. Under Johnson v. Insurance Company and Spiegel, Inc. v. Federal Trade Commission, an unfair trade practice is one that offends established public policy or is "immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers." The Lake Toxaway practice was oppressive to sellers because the country club's central role in the resort made the membership consequence material to buyer demand. Sellers were forced to limit their listing options to protect the resale value of the home. Buyers entered the market expecting they could deal with any broker; the practice frustrated that expectation. Both injury to sellers (constrained choice) and injury to buyers (reduced flexibility and expectations defeated) supported the unfair-trade-practice characterization.
The AG opinion's bottom line was that the practice both injured competitors and harmed consumers and should be discontinued.
Currency note
This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. G.S. 75-1.1 has been amended over the decades, the case law on unfair-trade-practice analysis has developed substantially (especially around the in-or-affecting-commerce element and the substantial-injury prong), and antitrust enforcement priorities have evolved. The core principle (using market power in one market to coerce conduct in a related market is suspect) has been preserved, but the specific procedural mechanisms and damages frameworks have changed.
Historical context: what the AG concluded
The 1984 opinion is a clean example of how the North Carolina AG applied G.S. 75-1.1 to a tying-style practice in a resort-development setting.
It looked beyond the four corners of the practice to the pattern. The Company's 1974 and 1976 episodes were not legally part of the 1983 conduct, but the AG used them to infer intent. The pattern of repeated efforts to leverage the country club into the brokerage market made the 1983 letter look strategic, not isolated.
It refused to credit the open-listing safety valve as benign. On its face, the Company's policy left open the option of an open listing in which any broker could sell the home. The AG rejected that as a competitive cure. An open listing still benefited the Company (which competed for the deal) and still foreclosed the broker's best position (an exclusive). The Company could not unilaterally restructure the area's brokerage market because area brokers had not adopted a multiple listing service; the response to that problem belonged to the market participants collectively, not to the Company acting alone.
It separated the two limbs of G.S. 75-1.1. The unfair-method-of-competition analysis focused on broker-to-broker effects. The unfair-trade-practice analysis focused on Company-to-consumer effects. The AG showed both prongs supported a violation. That two-track analysis became a recurring structure in 75-1.1 advisory opinions.
It identified the leverage source. The Company's market power did not come from broker-market dominance; it came from owning the country club. Club membership was material to the resort's housing market because the resort's main attraction was the club's amenities. By using control of the club to dictate brokerage terms, the Company extended power from one market into another. That is the classic tying-style harm even though the AG did not use the formal "tying arrangement" label.
Background and statutory framework
G.S. 75-1.1(a) declares that "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce" are unlawful. G.S. 75-1.1(b) defines "commerce" broadly to reach the real estate brokerage business.
The AG opinion used two complementary frameworks. For unfair method of competition, the touchstone is Extract Co. v. Ray, which held that the inquiry is what a court of equity would consider unfair. Harrington Manufacturing refined that to focus on "the background of actual human experience" and on "intended and actual effects upon others." For unfair trade practice, the touchstone is Johnson v. Insurance Company, which articulated the "offends established public policy" or "immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers" formula. Spiegel v. FTC supplied federal authority for the same analytic frame.
Aycock, North Carolina Law on Antitrust and Consumer Protection, 60 N.C. Law Review 207 (1982), is the academic source the opinion cited for the proposition that unfair-trade-practice analysis reaches both seller-consumer and competitor-competitor relations.
The relevant factual record (the 1974 and 1976 episodes) was developed through prior AG investigations of complaints against the Lake Toxaway Company. The 1974 complaint produced a written agreement to discontinue a more direct restriction. The 1976 complaint produced voluntary cessation before formal AG action. The 1983 letter was treated as a third iteration of the same strategic effort.
Common questions
Did the Company actually violate the law, or did the AG opinion just say it would lose if sued?
The 1984 AG opinion is an advisory opinion, not a court ruling or an enforcement action. It expresses the AG's reasoned view that the practice violated G.S. 75-1.1 and that the Company should discontinue it. Whether the practice generated actual liability depends on whether the Real Estate Commission, the AG's office, or a private plaintiff later pursued the matter through a forum that could enter a binding ruling.
Would the same analysis apply to a homeowners' association policy?
The AG's analysis focused on the Company's ownership of the country club and its use of that asset as leverage. A homeowners' association policy adopted by association members through bylaws or voted procedures presents a different fact pattern (collective member governance, not unilateral commercial conduct by a developer). The analysis would not transplant cleanly.
Could the Company have achieved a similar result through a properly disclosed listing agency requirement at point of sale?
The opinion does not address contractually agreed listing restrictions in the original purchase documents. A buyer who knowingly agreed at purchase to list only with the Company in future resales would face different doctrinal analysis (more contract-of-adhesion and unconscionability than antitrust). The opinion focuses on the use of after-the-fact club leverage to coerce sellers who had no such prior agreement.
What remedy could the Real Estate Commission impose?
The North Carolina Real Estate Commission licenses brokers and can discipline licensed broker conduct. If the Company's brokerage license was on the line, the Commission could investigate and bring disciplinary proceedings. The AG opinion was prepared for the Commission to use in evaluating its options.
Does this opinion still influence resort-development brokerage practices?
The basic principle (do not use control of resort amenities to coerce brokerage choices) is widely understood in the industry. Modern resort developments typically use restrictive covenants, declarations, and disclosures that are negotiated up front rather than retrofitted through club-membership pressure. The 1984 opinion is a useful historical illustration of how G.S. 75-1.1 was applied to the leverage-the-amenity scenario.
Source
- Landing page: https://ncdoj.gov/opinions/real-estate-unfair-methods-of-competition-unfair-trade-practice/
Citations
- N.C.G.S. § 75-1.1
- N.C.G.S. § 75-1.1(a)
- N.C.G.S. § 75-1.1(b)
- Extract Co. v. Ray, 221 N.C. 269, 20 S.E. 2d 59 (1942)
- Harrington Manufacturing Co., Inc. v. Powell Manufacturing Co., Inc., 38 N.C. App. 393, 248 S.E. 2d 739 (1978), cert. denied, 296 N.C. 411, 251 S.E. 2d 469 (1979)
- Johnson v. Insurance Company, 300 N.C. 247, 266 S.E. 2d 610 (1980)
- Spiegel, Inc. v. Federal Trade Comm'n, 540 F.2d 287 (7th Cir. 1976)
- Aycock, North Carolina Law on Antitrust and Consumer Protection, 60 N.C. Law Review 207 (1982)
Original opinion text
Requested By: Mr. Phillip T. Fisher, Executive Director, North Carolina Real Estate Commission
Question: Does a requirement that development homeowners selling their homes list them exclusively with the developer/broker, or by an open listing, under penalty of denial of country club membership to purchasers constitute an unfair method of competition or an unfair trade practice under N.C.G.S. § 75-1.1.
Conclusion: Yes. Such a requirement (appears) to violate N.C.G.S. § 75-1.1.
Lake Toxaway Estates is a resort area developed by the Lake Toxaway Company. The Company also owns a country club located in Lake Toxaway Estates, featuring golf, tennis, a lake, and a variety of other recreational amenities. The Company also is a licensed real estate broker, handling resales of homes in the Estate in addition to selling its own property, much of which remains undeveloped. On November 1, 1983, the Company mailed a letter to estates property owners informing them that anyone purchasing their homes under an exclusive listing with a competing real estate broker would not be eligible to apply for membership in the country club. A purchaser would be eligible to apply for membership only if the home was listed either exclusively with the Company or under an open listing, under which any broker could sell the home. The Company has informed this office that this restriction does not apply to sales by homeowners themselves. The North Carolina Real Estate Commission has requested an opinion from this office concerning the antitrust implications of this restriction. The office is of the opinion that it constitutes an unfair method of competition and an unfair trade practice, as both are defined by N.C.G.S. § 75-1.1.
- Unfair Method of Competition.
The practice constitutes an unfair method of competition because it unfairly restricts competition in the residential real estate market. N.C.G.S. § 75-1.1(a) proscribes "(unfair) methods of competition in or affecting commerce. . . ." It is beyond doubt that the furnishing of real estate brokerage services is within or affects commerce. N.C.G.S. § 75-1.1(b). The only real issue is whether this method of competition is an unfair one. This office has determined that it is an unfair method of competition.
The test is whether the conduct at issue is such that a court of equity would consider to be unfair. Extract Co. v. Ray, 221 N.C. 269, 20 S.E. 2d 59 (1942); Harrington Manufacturing Co., Inc. v. Powell Manufacturing Co., Inc., 38 N.C. App. 393, 248 S.E. 2d 739 (1978), cert. denied 296 N.C. 411, 251 S.E. 2d 469 (1979). The inquiry is not one merely of logic. "Rather, the fair or unfair nature of particular conduct is to be judged by viewing it against the background of actual human experience and by determining its intended and actual effects upon others." Harrington Manufacturing Co., Inc. v. Powell Manufacturing Co., Inc., supra, at 400. Under this test, the conduct at issue constitutes an unfair method of competition.
First, the actual effects of this practice are clear. Estates homeowners wishing to sell their homes will be coerced into listing their homes either exclusively with the Company or under an open listing. This will occur because of the apparent importance of country club membership to ownership of property in the Estates, a fact duly recognized by the Company in its letter of November 2, 1983. It probably would be most difficult to sell a home adjoining a country club if the purchaser would be ineligible to join the country club merely because of the manner in which the property was listed. This particularly is the case where the property to be sold is resort property and where the major attraction thereto is the country club and its various recreational facilities. Homeowners seeking to sell their homes are likely to be sensitive to this, and would in all probability list their property in accordance with the restriction at issue, in order to maintain the marketability of their homes.
This would force property owners to guarantee the Company a chance of selling their homes in all cases, while denying other brokers the opportunity to sell those homes in some cases. If the company obtains an exclusive listing, then it is guaranteed its commission if the home is sold. If the home is listed on an open basis, then the Company still has an opportunity to sell the home, although it then must compete with other interested brokers. But other brokers are denied the opportunity to obtain their own exclusive listing, under penalty of denial of country club membership to the purchaser. This puts competing brokers at a considerable disadvantage, one brought about solely by the Company's control over the country club, which it owns. This disadvantage is not one which effectively may be countered in the competitive market.
Second, determination of the intent behind the practice at issue is not a simple task. Here it is important to look back at prior dealings of the Company in order to analyze the intended effects of challenged practice. This office previously has received complaints about sales practices involving the Lake Toxaway Company as early as 1974. The practice complained of at that time was that the Company denied country club membership to purchasers buying through competing brokers. This practice was discontinued pursuant to an agreement with this office. Then, in 1976, this office received a complaint that the Company was offering substantial discounts on country club initiation fees to purchasers if the property purchased was listed exclusively with and sold by the Company. This practice quickly was discontinued before this office acted upon the complaint.
This history seems to disclose a pattern of practices, all aimed at the same result — generating exclusive listings of property for sale with the Lake Toxaway Company, while denying those listings to competing brokers. Analysis of the practice presently at issue in light of this history strongly suggests that the Company is seeking to restrict competition, while guaranteeing for itself a larger share of the market.
At first blush, the practice may appear to encourage competition. Purchasers are eligible to apply for membership if the property was listed on an open basis, giving all brokers an opportunity to sell the property. This might be seen as reasonable because area brokers have not established a multiple listing service. But this is a problem to be resolved by the market participants acting together, not by the Lake Toxaway Company's unilateral acts. It has no authority to prescribe market conditions for the area in which they conduct business. In light of these considerations, the practice at issue is a method of competition which a court of equity most likely would find to be unfair.
- Unfair Trade Practice.
The practice at issue also constitutes an unfair trade practice. This differs from analysis of challenged methods of competition, which focuses on relations between competitors. Unfair trade practice analysis focuses upon relations between sellers and consumers, as well as between competitors. Aycock, North Carolina Law on Antitrust and Consumer Protection, 60 N.C. Law Review 207 (1982). An unfair trade practice is one which offends established public policy, or is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers. Johnson v. Insurance Company, 300 N.C. 247, 266 S.E. 2d 610 (1980); Spiegel, Inc. v. Federal Trade Comm'n., 540 F.2d 287 (7th Cir. 1976). Under this definition, the practice at issue is an unfair one.
The practice is oppressive and substantially injurious to consumers because it effectively prevents Estates property owners from listing their property exclusively with whichever real estate broker they should choose. This is accomplished by the Company's control over the country club. This is an oppressive use of leverage over sellers, forcing them to conduct their business according to policies set by the company, and forcing sellers to deal with agents with whom they might not wish to conduct their business. It completely destroys the consumer's independence in entering the market and assessing which arrangement best suits his needs.
Also, this type of restriction probably is far beyond the expectations of persons who bought their lots years ago and now wish to sell. One would assume upon purchasing either a lot or a home that later he could deal with any broker whatsoever if one the wished to sell. This practice, therefore, is oppressive to consumers, and constitutes an unfair trade practice.
- Conclusion.
In conclusion, the practice at issue constitutes both an unfair method of competition and an unfair trade practice. It injures both competitors and consumers, and should be discontinued.
RUFUS L. EDMISTEN
Attorney General
Victor H. E. Morgan, Jr.
Associate Attorney General