DELTA KAPPA EPSILON SUES COLGATE

Robert Manley, Manley Burke

Delta Kappa Epsilon has filed a major antitrust suit against Colgate because of Colgate’s plan to force the sale of privately-owned fraternity houses to the University.  The University’s position is that the purpose of the sale is to implement a University “New Vision” for fraternities on campus.  Colgate contends that it is not a forced sale, but merely an offer to purchase.  If the Fraternity fails to sell the fraternity house, the recognition of the Fraternity will be withdrawn and students will not be allowed to belong to the Fraternity.

DKE has responded with an aggressive suit with several causes of action, the most important of which may be an accusation that Colgate is trying to monopolize the market for residential and food services to students at Colgate residing in Hamilton, New York.

The Sherman Act, adopted by Congress in 1890, prohibits agreements in restraint of trade, efforts to monopolize a market, and monopolization of the market.  In order to determine whether the Sherman Act has been violated, it is necessary to identify the relevant market.  DKE asserts in its court papers that, “The relevant geographic market for Colgate’s residential services and rental properties is the Village of Hamilton, New York, and the immediate vicinity.  Hamilton, New York has a population of 2,500 people, 300 fewer than Colgate University’s student population.”

DKE also claims that the “relevant product markets are: (1) The provision of residential services to Colgate students matriculating on-campus; and (2) The ownership and operation of rental properties.”

The lawsuit was filed in February in the United States District Court for the Northern District of New York.

The lawsuit asks for a declaration that the new Colgate policy for fraternities violates a number of laws, including the antitrust laws, and for injunctive relief.  It does not ask for damages, even though the Sherman Antitrust Act provides for an award of triple damages.

In addition to antitrust claims, the lawsuit raises the issue of violation of the Freedom of Speech and Association Act of 1997, the First Amendment of the U.S. Constitution which protects rights of expressive association and advancement of beliefs and ideas.  It also raises state claims for an injunction against deceptive business practices and an implied contract between the student and the University based upon public policy.  There are also claims of tortious interference with contracts.

The fact that Colgate has systematically acquired ownership of most of the main commercial properties in downtown Hamilton, New York is enough to show intention to monopolize.  According to the complaint, the auxiliary revenues from real estate and business operations amount to $16,983,224 per year.  It compares to the revenue from student tuition and fees of $77,381,140.

In addition to using the New Vision policy to get control of residential housing and food services for students, the University is intentionally becoming a monopsony for the purchase of the real estate that it is forcing to be sold.  Monopsony is a single buyer in comparison to monopoly which is a single seller.  From the standpoint of housing, residential services and food services, Colgate is acquiring a monopoly position.  From the standpoint of buying the houses from the fraternities, it is acquiring a monopsony position as the single buyer.

DKE filed a motion for a temporary restraining order and preliminary injunction to stop Colgate from its practice to force the sale of the DKE house and library to the University.  It is based, in part, upon the fact that Colgate has asserted its intention to kick DKE off the campus, after 150 years, if the Colgate demands are not met by March 15, 2005.  The court declined the rapid injunctive relief.  That is not surprising in a case with this many complications.

On the other hand, if the case is tried to completion and DKE is found to prove its case, at some future date the court may enter an injunction directing that DKE be allowed to reestablish itself with Colgate students.  It also may enter an order for triple damages to compensate DKE for the financial losses.  A lawsuit of this sort might not be resolved for several years so that the damages may rise every day.

In response to the motion for preliminary relief, the President of Colgate, Rebecca Chopp, filed a Declaration declaring her pious intentions and hopes for the New Vision program.  Among her statements were: “The Board of Trustees recognized that the goals of the residential education program can only be achieved if the active fraternities and sororities that chose to participate in the program are housed in Colgate-owned facilities.  Under the program, fraternities and sororities that choose to retain ownership of their properties will not be allowed to house students commencing in the Autumn of 2005.  The University will withdraw recognition of the undergraduate chapters in July of 2005.”

In the legal memorandum filed by Colgate’s attorneys, Colgate asserts that “DKE’s amended complaint contains no non-frivolous claims.”

There is no question that the Colgate University administration has asserted noble goals in its claim to reorganize residential life.  As noble as these goals may be, the simple fact is that a university may not use unlawful means to obtain noble goals.

For an organization engaged in commerce to take a series of steps systematically designed to guarantee a monopoly position is a violation of the antitrust laws.¹

An antitrust case normally takes a substantial period of time to prepare and to try.  After a complete factual investigation, it may very well be that the court will find that what Colgate is doing is a violation of the antitrust laws.  If that happens, the court can be expected to fashion an appropriate remedy to undo what Colgate is doing, at least with regard to DKE.

DKE was reassured by a decision involving Hamilton College.²  Hamilton College did a similar maneuver against its fraternities.  The College took over the houses and now operates them as college residential facilities.  The Hamilton College case was a case where the plaintiff fraternities ran out of money.  Hamilton College basically outspent the fraternities and won the case through more effective and persuasive expert testimony by an economist who convinced the court that the relevant market was the market for students who want to attend a small, expensive liberal arts college in the northeast.  The court rejected the concept that the relevant market was for housing services and food services for students in the vicinity of the college.

In an excellent analysis of the Hamilton College case, Professor Mark D. Bauer asserts that the case is badly reasoned and probably wrongly decided.³

It is obvious from reviewing the complaint filed by DKE that the lawyers who drafted the complaint were familiar with Professor Bauer’s criticism and crafted their court papers to avoid the pitfalls that fraternities met in the Hamilton College case.  Whether or not the plaintiffs are successful may not be known for three to five years, depending upon the speed with which the matter proceeds through the courts.

Assuming that the plaintiffs have the proper economic experts to establish that the relevant market is the market for student housing services and food services in the vicinity of Colgate University, the odds are substantial that the plaintiffs will be able to prove that Colgate’s noble declaration of educational intent is being accomplished through illegal actions in violation of the antitrust laws.

In reality, after Hamilton College got control of the fraternity houses, the price of room and board went up on the campus and the quality of room and board went down.  This is typical behavior of a monopolist.

Depending upon how the facts are developed with regard to the other causes of action, it is also possible that DKE will prevail on one or more of the additional causes of action that they have raised.

It is not likely that Colgate will find it as easy to prevail as did Hamilton College, because DKE is a leader in the defense of the civil rights of students.  DKE has been preparing for the right fight at the right time on the right campus.  This may very well be such a fight.  DKE has the muscle to win.

An interesting question is that if DKE prevails, will the other fraternities that felt coerced to sell their houses or be abolished by University action be able to come back and get relief to reverse the transactions which may, by that time, have been proven to be involuntary and unlawful?  It will take years, of course, for this case to progress through the courts.  At the end of that time, it will be possible to make a fair evaluation as to the consequences of the litigation and of the Colgate policy.

¹ United States v. Aluminum Company of America, 377 U.S. 271, 84 S.Ct. 1283, 12 L.Ed. 2d 314 (1964).

² 128 F. 3d at 59

³ Mark D. Bauer, “Small Liberal Arts Colleges, Fraternities and Antitrust: Rethinking Hamilton College,” 53 Cath. Univ. L. Rev. 347 (2004).