Ohio Supreme Court Declines to Hear Hybrid Commissions Case

The Ohio Supreme Court had declined jurisdiction to hear Smythe Cramer’s appeal from trial and appellate court opinions certifying a class action lawsuit against it for fraud and unjust enrichment. The underlying lawsuit stems from a case filed in 2012, wherein the plaintiffs allege that Smythe Cramer’s practice of collecting a $225 administrative or brokerage fee from certain buyers and sellers is fraudulent and/or unjustly enriches Smythe Cramer. The Plaintiffs allege the $225 charge is a “sham fee” because no services were provided for the fee (i.e. it was unearned) and that the “brokerage services” Smythe Cramer did provide were covered by the percentage commission on the sales price.

In its decision to certify the class action, the trial court held that because each plaintiffs’ damages are so low (i.e. the $225), it is unlikely individuals will undertake the time and expense to file separate lawsuits against Smythe Cramer. The trial court noted, “a feature of a successful volume fraud is a design to steal just enough money to be worth it to a defendant but not so much that individual plaintiffs will want to bear the cost of a lawsuit to recover the money.” In its decision the trial court certified the following classes:

Administrative Fee Class:

All individuals in the state of Ohio, both buyers and sellers, who, on or after September 18, 2005, paid Defendant [Smythe Cramer Co.] an “administrative fee” or “administrative services fee” pursuant to the Exclusive Right to Sell Agreement; Exclusive Buyer Representation Agreement; Offer to Purchase Agreement; or Purchase Agreement.

Brokerage Services Fee Class:

All buyers of real estate in Ohio who, during or after March 2009, paid the Defendant a “brokerage services” fee pursuant to the Purchase Agreement; or Offer to Purchase Agreement.

Smythe Cramer appealed the trial court’s decision to the court of appeals, who affirmed the trial court’s judgment. Thereafter Smythe Cramer requested the Ohio Supreme Court take jurisdiction to consider the case.

The National Association of Realtors and Ohio Association of Realtors (“Amici”) filed an Amicus Brief with the Ohio Supreme Court in Support of Smythe Cramer’s request. They argue that the $225 flat fee, sometimes called an “administrative” or “brokerage services” fee, has operated as a form of hybrid commission and is commonly charged among brokerages in Ohio and across the country. The Amici also argue the trial court’s decision could risk an increase in “meritless class actions challenging a pricing structure that is common to the industry and threatens additional financial pressure on Ohio real estate brokerages.” Last, they argue the trial court’s decision “discourages the use of innovative pricing structures that are consumer friendly and allow brokers to meet the challenges of the 21^st-century real estate market.”

In response, the plaintiffs argue that the singular question is whether Smythe Cramer collected a sham fee from the class members in return for which it provided no services. Plaintiffs assert that a jury should determine whether the fee “pays for something or nothing.”

The Ohio Supreme Court declined to accept the case for review, with three of the seven justices dissenting. The case will now return to the trial court and proceed on the plaintiffs’ underlying claims. The outcome of the case could impact how other Ohio brokerages charge hybrid commissions.