Realcomp 'update'

The one remaining holdout from the FTC’s enforcement activities relating to MLS uploads to realtor.com, REALCOMP II LTD., remains dug in. Late yesterday it purported to offer an ‘update’ on the status of the FTC matter on its website, which appears to simply put readers on notice that it has not backed down. Realcomp boasts that earlier this year it “rejected a proposal by the Federal Trade Commission (FTC) aimed at redefining and restricting Multiple Listing Services,” which “could result in the sale of properties between buyers and sellers with no obligation to utilize or compensate broker members, which is completely outside the purpose of the Multiple Listing Service.” The statement includes quotations from Karen Kage, the MLS’s CEO.

RealComp also repeats that it “is in the position of being supported by the NAR through their E&O insurance, which is expected to cover all associated costs regarding the litigation.”

DOJ Antitrust Division and 2006

A press release issued earlier today by the United States Department of Justice's Antitrust Division emphasized some of the efforts the federal government has taken in the past twelve months to combat anticompetitive conduct in the real estate brokerage services sector. Cited examples included Civil Non-Merger Conduct ("In addition to its cartel and merger priorities, the Division enforces the antitrust laws against civil non-merger conduct that harms competition,which may involve agreements or single-firm action.") and Competition Advocacy (joint effort here with the FTC). For example:

U.S. v. National Association of Realtors
The Division's enforcement against anticompetitive agreements included its lawsuit against the National Association of Realtors (NAR). In September 2005, the Division filed suit after NAR promulgated rules that would limit competition from certain real estate brokers who use the Internet to serve their customers. In November 2006, the U.S. District Court in Chicago denied NAR's motion to dismiss. The case will now proceed to discovery.

and

Competition Advocacy in Real Estate
The Division, together with the FTC, has been educating policymakers and the general public about the benefits of competition in the market for real estate brokerage services. The Division provides information to entities considering rules -- such as rules that prohibit rebates to consumers or that undermine online brokerage models -- that would inhibit some types of competition that can lower the cost of buying or selling a home. During 2006, several states modified proposed or existing laws and regulations to enhance competition to the benefit of consumers. Delaware, Ohio, Tennessee, and Wisconsin all passed bills that included a waiver provision to enable individual consumers to choose not to purchase unwanted types of real estate brokerage services. The West Virginia Real Estate Commission, the Tennessee Real Estate Commission, and the state of South Carolina all lifted bans on consumer rebates in real estate transactions. The result is that consumers in these states now have the potential to save thousands of dollars on the purchase of a home.

Here's to an even busier 2007.

INMAN NEWS/BLOG – ERROR AND OMISSIONS?

[12/27/06 Update - This afternoon Inman News featured an article on its website highlighting the CFA study. It was the most in-depth media report I have seen on the study, which I suppose excuses its belated mention.]

I am a regular reader of Inman News, and am overall impressed with its real estate reporting and blog-disseminated insights. In my humble opinion it is one of – if not THE – most respected and balanced real estate industry news sources in the United States. Which is why the following error and omissions of the past week caught my attention.

First Omission #1. Why no mention of the recent Consumer Federation of America study and accompanying press release evidencing the growth of 'nontraditional real estate brokers' notwithstanding the myriad of obstacles presented by traditional brokers, NAR, MLSs and some state regulators? The study examines discrimination against the nontraditionalists (I prefer the term competitive real estate brokers and others) in the form of exclusion from MLSs, boycotts, defamation and harassment by state officials. It also encourages consumers to be mindful of their market options and attempt to negotiate all terms, including price.

Is there a single player in residential real estate that isn’t touched upon in this report, authored by a (THE?) leader in consumer advocacy? Isn’t this worth a mention by Inman News? I’m hoping I missed it, and someone will bring it to my attention.

Omission #2. On the Inman Blog today, we are presented with The List, Inman News' annual “list of people to watch.” Granted they hedged by saying this wasn’t the complete list, but these names obviously made it to the top. You can see for yourself who they included in slots 1 – 5. Each one of them is a private sector actor (one, in fact, is essentially an entire nation of private persons) but I’m not opining one way or the other on their inclusion. Also, I recognize the whole concept of such a list is subjective in nature. Yet I was surprised we did not see some ode to law enforcement officials from our federal government, specifically the Department of Justice and Federal Trade Commission officials that have made it a priority to identify and eliminate anticompetitive conduct in the residential real estate marketplace. See prior entries on my blog for some of the successes accomplished by both groups this year, and the positions of strength both find themselves in with regard to litigation against NAR and a certain Michigan MLS going into 2007. Given the limited resources of most ‘nontraditional’ real estate brokers, websites and other innovators, it’s the FTC and DOJ enforcers that are on the frontlines in the battle against the impediments experienced by the nontraditionalists and consumers across the country (had Inman News covered it, you would have read about the CFA study on this subject released last week). Everyone should be watching the feds in 2007.

And finally, here’s what I think was an error in a separate but related Inman Blog posting of earlier today. Also dubbed “The List”, this posting consists of Inman News’ annual “wild predictions,” Coming in at #4 is the following prognosis for some nontraditionalists in 2007:

4. A raft of discount brokers will go out of business. Tough markets will squeeze out many who just started during boom years as sellers grow more willing to pay top dollar to get their homes sold.

I’m not sure how many a ‘raft’ is, or how the blog would define ‘discount brokers’. Given that the balance of the post relates to sellers, I am going to assume the blog has two types of brokers in mind – those that provide full or limited services but will work for a smaller commission than the next guy, and flat fee brokers that see to it a seller’s listing makes it to the local MLS and, perhaps, beyond.

My objection here is to the assumption that a tough market dictates that sellers are more willing to pay top dollar to a full-priced broker to unload their abodes. Like I say, I’m no economist, but it seems to me that if sellers have it in their heads that market conditions are going to depress what they can get for their home, such sellers are more likely to talk to a discounter who has the MLS at its disposal and will charge the seller a fraction of what a full-priced broker demands. So I think this could be a very promising year for discount brokers and other price-competitive brokers and websites.

Consumer Federation of America study

Today the Consumer Federation of America ("CFA") issued a press release announcing the results of a study demonstrating that 'nontraditional real estate brokers' have been growing "despite pressure from traditional brokers, their trade association, multiple listing services, and even some regulators." The CFA's Executive Director, Stephen Brobeck, called on state regulators in particular to join the DOJ and FTC "in working to stop blatant discrimination by traditional brokers against these innovative service providers."

The release explained that "[t]raditional brokers seek to limit access to multiple listing services by, and use state regulators as a weapon against, nontraditional brokers. They also try to make the lives of these nontraditional brokers difficult by refusing to cooperate with them and by disparaging their services." Cited examples of such discrimination include denying full participation in MLSs, boycotting nontraditional brokers, disadvantaging nontraditional brokers, disparaging nontraditional brokers and harassment by state regulators.

The release includes a very nice two page chart describing in detail the various types of listing brokers. It concludes by encouraging consumers themselves to shop around and negotiate for services and price, not to be afraid to file a complaint with their state regulator if they encounter discrimination against nontraditional service providers.

NAR's response can be found here.

Canadian Discounter Suspends Operations

See this recent blog posting from Toronto @ Home.

In the Matter of REALCOMP II, LTD.

Several months ago the Federal Trade Commission made an example of the Austin Board of Realtors' rules impeding the flow of listings from the local MLS to realtor.com. Subsequently the FTC followed up with actions in several other markets. My understanding is that all of the subject boards but one - REALCOMP II, LTD. (located in Michigan) - agreed to settle on the FTC's terms. Realcomp, however, apparently wants its day in court. Well it can now mark its calendar.

In a Scheduling Order released on Monday in FTC Docket No. 9320, a hearing before an administrative law judge is set to commence on June 19, 2007 at 10 a.m. at the FTC Building in Washington D.C. That is, unless the parties reach some sort of settlement beforehand.

Update (12/8/06): If NAR is indeed supporting the defense of this suit, the first paragraph of NAR's Nov. 17, 2006 press release relating to feeds to realtor.com confuses me even more.

Fighting Back - Hackman v. Dickerson Realtors, et al (N.D. Ill)

This just in. Last Thursday broker Gregory Hackman of Rockford, Illinois filed a federal antitrust lawsuit (there are several non-antitrust counts included toward the back of the complaint) against over a dozen parties, many of whom offer brokerage services in the Rockford area. Hackman alleges that the defendants have sought to control commissions in the Rockford area by "(1) attempting to intimidate Plaintiffs into 'charging' a certain commission rate for his real estate listings, which was higher than what Plaintiff was then charging; (2) refusing to deal with Plaintiffs in retaliation for Plaintiffs' decision not to charge a certain rate, by refusing to show properties to Plaintiffs' clients, and in refusing to offer Plaintiff the advertised Multiple Listing Service commission rate; (3) initiating trumped-up ethics complaints against Plaintiff, in an effort to tarnish his record and reputation; and (4) adversely affecting Plaintiffs' relationships with its clients by interference and by false statements about Plaintiffs to its agents and clients." Hackman, who asked for a jury trial, is seeking various compensatory, punitive, declaratory, and injunctive relief, but no less than $500,000.

The named defendants are:

1. Dickerson Realtors, Inc.
2. Whitehead Realtors
3. Premier Real Estate Brokerage Services, Inc.
4. Century 21 Country North, Inc.
5. R. Crosby, Incorporated
6. McKiski-Lewis, Inc.
7. Lori Reavis
8. Ray Young
9. Michael Dunn
10. Donna Shipler
11. Melissa Smith
12. Jessica Licary
13. Diane Parvin
14. Rockford Association of Realtors
15. Illinois Association of Realtors

The suit was filed in the Northern District of Illinois, Western Division (Case No. 06C50240). If you'd like a copy of the complaint, please email me (I have yet to figure out how to post documents to this blog).

USA v. NAR - Status hearing before Judge Filip (written on 11/30/2006)

There was a status conference this morning before Judge Filip, the first one held following the Court's denial of NAR's motion to dismiss.

NAR's outside counsel stated that while there had been efforts to settle the case, the government's insistence upon a consent decree represented a 'major stumbling block'. He added that Magistrate Judge Denlow had offered a 'creative solution' which the government declined. Judge Filip seemed pleased that the parties had at least made some attempts at settling, and added that Magistrate Judge Denlow was perhaps the most successful judge in the entire 7th Circuit at facilitating the settlement of cases. The DOJ attorney stated that they'd be thrilled to settle, but later stated the government sought 'resolution.' He stated that even if DOJ is wrong, at least the parties will know what they can/cannot do in this context (I did not perceive this statement as a sign of weakness).

NAR's counsel informed the Court that DOJ had identified 36 local markets wherein the government must show evidence of anticompetitive effects. He warned that discovery would be long and complex. In response, the Court noted that antitrust cases tend to be prolonged, and he didn't construe counsels' cautions as an indicator of any impropriety by the attorneys.

The next hearing before Judge Filip will be Feb 7th. There is a hearing before the Magistrate, however, in early January.

Craigslist Victory (for now) in Illinois

I am in the process of putting together a separate blog that concentrates on one section of the Communications Decency Act. That section relates to certain immunity enjoyed by website providers, users and others. Earlier this year the Chicago Lawyers Committe for Civil Rights Under Law filed a federal lawsuit against Craigslist, alleging that the generally free online public bulletin board service had violated part of the Federal Housing Act by permitting discriminatory housing ads to appear on its site. Last month the federal judge hearing the case entered judgment in favor of Craigslist, opining that 47 USC 230 immunized Craigslist from liability in this case.

I wrote a synopsis of the Court's decision which was posted by J. Craig Williams on his well-known blog May It Please The Court. Here is a link to his post.

USA v. NAR - Denial of NAR's Motion to Dismiss (written on 10/3/2006)

Judge Filip announced late last week that he was denying NAR's motion to dismiss DOJ's amended complaint. A full written opinion should be issued between now and the end of the month.

UPDATE: Judge Filip subsequently issued his formal opinion denying the motion to dismiss. Here are my comments:

1. To summarize, the Court found that it did possess subject matter jurisdiction ("SMJ") of the case, and that the USA had adequately alleged a Sherman Act Section 1 claim. While the Court could later conclude that it does not have SMJ, this seems unlikely. It's now time for the government to try to prove its case. As you probably know, the parties are engaged in discovery at this time.

2. The Court didn't have a hard time concluding that it had SMJ over the amended VOW policy claims. However, in its motion, NAR did its best to convince the Court that the initial VOW Policy, was was apparently superseded just before the government filed suit, was not properly before the Court. The Court refused this invitation, in part because it concluded that the government's allegations were sufficient to establish continuing adverse effects. What I found particularly promising was the Court's statement that "[i]f the United States shows that an antitrust violation has occurred, such that equitable relief is warranted, the remedy can go beyond the prohibition of those practices, which, strictly speaking, were found to constitute the illegal conduct." Basically what the Court is saying is that if it finds that the amended VOW policy violates the Sherman Act, and injunctive relief is warranted, the terms of the injunction need not be limited to simply barring the enforcement of the amended VOW policy. It may extend to practices 'connected' with the illegal actions (perhaps such as the selective opt out contained in the initial VOW policy).

3. The Court noted that "Defendant concedes, for present purposes at least, that the challenged VOW Policies and rules are the product of a 'combination among NAR's members,' which is a prerequisite for the practices to be actionable under Section 1 of the Sherman Act." In other words, NAR is not arguing that the VOW policy is not the product of concerted action; instead it argues that such combination does not restrain trade in the Section 1 sense. Even if NAR had not made this concession, the Court was ready for this issue. It noted that "a group of market participants cannot immunize 'arrangements or combinations designed to stifle competition . . . by adopting a group membership device accomplishing that purpose.'" The Court also noted that NAR can enforce adoption of its rule with sanctions. Thus this does not appear to be a case where NAR is going to avoid liability by arguing that it is the individual brokers that decide whether to opt out or not.

4. The preliminary injunction granted in Aaron Farmer's Texas litigation was cited as an example of the rule of reason analysis often utilized in antitrust litigation. The Emporia opt-outs mentioned in the DOJ's brief were also cited toward the end of the opinion.

5. I am left with the impression that Judge Filip understands the issues here, and the applicable law. For example, the Court, without citing anything in the docket, stated that "[p]laintiff's theory does not depend upon a 'selective' or 'targeted' opt-out right - if a number of more traditional brokers do not provide their customers with information via a password-protected website, they are not deterred from opting out because they do not use a website to display competitors' listings." It will be interesting to see what the government obtains in discovery (to supplement the materials it obtained before the litigation commenced) in support of its case.

Notes on NAR's Amended ILD Policy

It appears to me that the revised ILD Policy would permit a broker that opts out (blanket opt out) of sharing its clients' listings with VOW operators to still submit such listings to realtor.com This does not seem to have anything to do with MLS practices/rules relating to uploading listings to realtor.com or otherwise.

I believe that part of the DOJ's beef with the revised ILD Policy is that it allows a broker to direct that its client’s listings not be displayed on any competitor's internet site. NAR initially directed members boards to implement the new policy by 7/1/06, but later said, essentially, wait until the litigation concludes.

USA v. NAR - Status hearing (written 7/14/2006)

The material points from Tuesday's status hearing before the Magistrate.

• Judge Filip has still not ruled on NAR's motion to dismiss
• USA must provide NAR, on a rolling basis, with a list of all MLS areas that the government intends to offer proof of anticompetitive effects resulting from the previous and/or revised ILD policies, but no later than October 16, 2006
• USA has not agreed to refrain from challenging the technically outdated ILD policy that preceded the current ILD policy. Magistrate Judge Denlow opined that the litigation should focus on the current, suspended policy
• To defend itself, NAR (with respect to demonstrating no anticompetitive effects and/or one or more procompetitive effects of the ILD) intends to compare challenged markets with 'control markets' where the ILD presumably was never implemented.
• The Court refused at this time to limit the number of markets the government can present in its case. The government is of course concerned that if it is limited to only a handful of markets, the defendant could always argue that the presence of any anticompetitive effects are simply aberrations not experienced in most markets.
• NAR has until April 15, 2007 to disclose procompetitive justifications, to be done on a rolling basis
• The government has until June 15, 2007 to complete discovery on the procompetitive justifications offered by NAR.
• Expert discovery will follow, meaning that June 15, 2007 is the fact discovery cutoff. NAR cautioned that its expert testimony in this case will be substantial
• With respect to depositions, the Court did not set any limitations, but urged the parties to be reasonable
• Next status hearing will be October 24, 2006 at 10:15am
• Both attorneys stated that there had been no settlement discussions

USA v. NAR - Status conference (written 6/26/2006)

Last Tuesday (6/20/2006), Magistrate Judge Denlow held a status hearing in USA v. NAR. The government's lawyers appeared by phone. Appearing in person on behalf of NAR were in-house counsel Janik and Holman, and Jack Bierig.

NAR's counsel stated that not much had happened since the last hearing, and that no advances had been made toward settlement. DOJ counsel added that settlement was not likely.

Bierig stated that the parties would have to begin considering the nature of proof of the government's case. While the U.S. claims that the policies at issue are anti-competitive on their face, the government, according to Bierig, has to show that these policies had anti-competitive effects in local market(s). Bierig added that presently NAR doesn't know what local markets are involved. The Court commented that it would seem logical that the parties will want to know the relevant local markets sooner rather than later. The DOJ lawyers pointed out that they already identified 11 cities where opt-outs have taken place, and that they identified third parties in more than 20 cities.

The Court stated that it would not be unfair (given that the entire country was in play) for the government to use 6 - 9 months (the period requested by the government) to conduct discovery and then identify those areas where anti-competitive effects exist. The DOJ lawyers added that they've been trying to accomplish this for the last six moths, and that they already tendered five affidavits of entrepreneurs who were discouraged by NAR's policies. In response, Bierig said that when the local markets are identified, NAR will show that the policy had pro-competitive effects.

The parties agreed to confer to attempt to reach an agreeable scheduling order, and appear again before the Court on July 11th.

USA v. NAR - The Government's Opposition to NAR's Motion to Dismiss (written on 4/24/2006)

Having finally reviewed the government's opposition brief, I thought I'd share my two main observations with the group here.

First, while it may not prove fatal at this stage, it would appear that the amended complaint is thin on the subject of present adverse effects. More on this when I summarize last week's status hearing, but suffice it to say, it was difficult for the DOJ to make specific allegations regarding how competition has been harmed, because the amended ILD rule was promulgated around the time the initial complaint was filed. Thus there isn't much of a factual record here to draw from. Even if the DOJ survives the motion to dismiss, this issue will likely return.

Second, I was taken by the following statement by the DOJ, which appears about half-way into its brief: "Effective competition in the real estate marketplace depends on having access to - and the ability to show customers - virtually all listings of homes for sale." In a way, this is one of - if not the - central principles being advocated by the DOJ. A lot will rest on the government's ability to convince the court of this proposition.

Again, Judge Filip has taken the motion under advisement, and could rule at any time.

USA v. NAR - Settlement? (written 4/20/2006)

Here's the short summary of the status conference I attended this morning: the case is definitely NOT on the verge of settling. Interestingly, what would appear to be a major stumbling block is the NAR's refusal to enter into a 'consent decree' with the DOJ. Instead, it would only settle if the case was terminated by means of an 'Agreed Order of Dismissal'

UPDATE: Here's the detailed version of the 4/20 status hearing:

Craig Conrath of the Department of Justice appeared on behalf of the United States, and Jack Bierig of Sidley Austin LLP appeared on behalf of NAR.

Judge Denlow asked counsel to report on the status of apparently ongoing settlement discussions. NAR counsel addressed six specific issues that had been discussed at the prior status hearing, and are set forth below from least controversial to most controversial (according to Bierig):

6. Branding issues (some progress reported)

5. Data feed issues (some progress reported)

4. Opt-out element of ILD. Apparently at the last settlement conference, the Court asked the parties to consider permitting the new rule to 'play out', thereby developing a factual record for the Court and the parties to consider. DOJ was not keen to this idea, and gently reminded the Court that it is permitted to file suits to prevent prospective illegal conduct. It would not appear that the government is going to voluntarily suspend the litigation to allow the ILD and other challenged practices to take effect.

3. Definition of who can participate in an MLS. Perhaps for settlement purposes only, there appears to be some agreement amongst the parties that Realtors have a "right to exclude true outsiders". NAR demonstrated some flexibility on this point, and the DOJ suggested drawing the line at whether someone was a 'broker' as defined by state statute (NAR declined this suggestion). Counsel briefly discussed whether to permit the exclusion of VOWs that utilize a referral model. The NAR's position was that these folks should be allowed to do business, but they should not be allowed to use the MLS because they are not competitors.

2. Procedural resolution of case. The NAR is looking for an ‘Agreed Order of Dismissal’, while DOJ is insisting upon a ‘Consent Decree’. NAR counsel called this a ‘non starter’ for the NAR. Again seeming to side with the NAR’s position, the Court asked the government’s counsel to be mindful that there are gradations of conduct and gradations of treatment. He noted that an inflexible approach may discourage cooperation in the future in this and other cases in which DOJ is a party. NAR counsel added that even if the NAR’s conduct here is illegal, it’s a ‘very marginal violation of the law’ (I’m not aware of a de minimis exception to the federal antitrust laws). Offering support for its position, and probably seeking to influence the Court, the government’s attorney added that NAR General Counsel Laurie Janik had previously stated that she’d prefer a court order (over volunteering to restrict the association’s practices here), because association members would be ‘pissed’ if NAR made a deal with the government. I believe it was NAR’s counsel, signaling the importance of this issue to the organization, that said that “dismissal transcends this case”.

1. Stipulations. The government submitted three proposed stipulations to the NAR after the NAR delivered ten such stipulations to the DOJ. These are documents whereby the parties could conceivable agree in advance to certain factual and legal matters in advance of a trial or the like. Apparently the parties are not on the verge of entering into any stipulations. However, the Court encouraged the parties to try and narrow the issues, hopefully requiring only the live testimony of just a handful of witnesses. Acknowledging the parties’ differences, the Court remarked that it was his understanding that ‘hurdles are very high to resolve this’ at the DOJ.

The government’s lawyer opined that it was not likely the parties would reach a settlement agreement any time soon regarding the lawfulness of the opt-out provision and/or the referral issue. Counsel repeated the government’s concern that the mere threat of an opt-out could have an anticompetitive effect on the marketplace.

NAR’s attorney wasn't as pessimistic (it’s possible he was simply hoping to come across as reasonable before the Court). He explained that the NAR’s policy decision had been to implement the ILD, and let the facts emerge. He suggested the parties to stop spending more in legal fees if they allowed the rule to take effect, knowing that DOJ could rush to the courthouse at anytime and seek a preliminary injunction if problems emerged.

Magistrate Judge Denlow repeatedly expressed an interest in further developing the facts in this case (read: let the rule take effect, and see what happens, but in any event create a record). On the subject of whether a consent decree was appropriate in this case, the Court encouraged the government to keep an open mind. The Court’s order, issued later in the day, explained that the “[p]arties having advised the Court that there are several key impediments to settlement, the parties are encouraged to continue conversations, and, in the event, they wish to set a further settlement conference, the parties are to contact Judge Denlow’s courtroom deputy.” Another status hearing was set for June 20.

USA v. NAR - Minor developments (written on 2/6/06)

I had some time today to probe the case file, and noted the following developments.

1. DOJ filed, then withdrew, then refiled a motion for a protective order. Apparently the parties could not agree to the terms of such an order on their own, so DOJ asked the Court to impose an order upon the parties. I didn’t read the amended motion in full, but it would appear to relate to materials the DOJ obtained prior to filing suit (presumably from disgruntled brokers, etc.) that it does not want to make public. A protective order was recently entered, and I’ve attached a copy of it here.

2. Prudential Real Estate Affiliates, Inc. filed a motion to intervene in the case. The Court treated it as a motion for permission to file an amicus brief and granted the motion (Prudential was not granted leave to intervene). Robert Butters and Richard Hellerman are representing Prudential. Prudential has not filed an amicus brief with the Court as of today.

USA v. NAR - Initial status hearing before U.S. District Judge Filip (written on 10/26/2005)

While attending the DOJ/FTC workshop yesterday, I had a colleague sit in on the initial status hearing in the US v. NAR case.

The DOJ demonstrated an interest in settling the matter, but added that another Judge (Magistrate Judge Denlow, who is also assigned to the case) should preside over any settlement discussions given that this would be a bench (non-jury) trial). Judge Filip agreed. NAR also demonstrated an interest in settling the matter, but did not want Magistrate Judge Denlow (presumably not because they have anything against him, but because they want everything in front of the trial judge) to handle any settlement conference. DOJ lawyers made a point of telling the judge that it wasn’t until just a few days ago that NAR demonstrated any willingness to settle the case (he was presumably referring to statements made in the status report that I circulated on Monday).

NAR, as was stated in the status report, intends to file a motion to dismiss. The DOJ suggested that any such motion be delayed until settlement discussions occurred.

Judge Filip entered an order providing for a briefing schedule on NAR’s motion to dismiss. The motion is due December 5, after which DOJ will have 60 days to respond, and NAR will have 30 days after that to reply. After the motion has been fully briefed, the parties will appear before Judge Filip (February 1, 2006), at which time he will refer the case to Magistrate Judge Denlow for settlement discussions. Thus settlement discussions likely will not occur until March 2006 (at least discussions that are ‘moderated’ by a federal judge).

NAR ILD Policy - Original Complaint filed in USA v. NAR (written on 9/8/2005)

I have taken an initial look at the United States Department of Justice’s complaint filed in federal court against the National Association of Realtors (Case No. 05 C 5140). Here are some initial observations (please do not construe any of the following as legal advice), for what they are worth:

The lawsuit, filed by the DOJ’s Antitrust Division, names only the NAR as a defendant. Though not presently named as defendants, the DOJ alleges that “[v]arious others” (presumably various NAR member-boards) have conspired with the NAR in the violations alleged in the complaint. I note that the complaint does not challenge any of the recently enacted state minimum service or rebate-barring statutes, or name any state commissions or associations as defendants.

The policy challenged here by the DOJ, the VOW – or Virtual Office Websites – Policy, “permits brokers to selectively or generally withhold their clients’ listings from VOW operators by means of an “opt-out” right . . . allow[ing] traditional brokers to block the customers of targeted competitors from using the Internet to review the same set of MLS listings that the traditional brokerage provide to their customers.” Before adoption of the policy, the NAR apparently did not allow brokers to withhold their clients’ listings from rival brokers. The DOJ further alleges that the working group that crafted the policy was well aware of the anticompetitive effects it would have on consumers. The government also attacks the policy’s anti-referral provisions and advertisement prohibitions, each aimed only at VOW operators.

The complaint alleges that the NAR has required all 1,600 of its member boards to implement the VOW Policy by 1/1/06, and notes that 200 have already complied. For brokers that may be inclined to ignore or only partially abide by the association’s dictate here, the VOW policy “provides for remedies and sanctions for violation of the Policy, including financial penalties and termination of MLS privileges.”

Anticompetitive effects of the policy cited by the DOJ include (i) the suppression of technological innovation; (ii) the reduction of competition on price and quality; (iii) the restriction of efficient competition among brokers; (iv) an increased likelihood of express or tacit collusion; (v) raising barriers to entry; and (vi) denying brokers using new technologies and business models the same benefits of MLS membership available to competitors. Having apparently done its homework as to actual harm, the DOJ’s complaint makes reference to one broker that had to ‘discontinue’ his website “because all of his competitor brokers had opted out.”

The allegation that most struck a cord with me, and perhaps best sums up the DOJ’s concerns, reads as follows:

The VOW Policy thus prevents brokers from guaranteeing customers access through the Internet to all relevant listing information, increases the business risk and other costs associated with operating an efficient, Internet-intensive brokerage, denies brokers a source of high-quality referrals, and withholds from Internet brokers revenue streams permitted to other participants in the MLS. Moreover, the opt-out provisions provide brokerage an effective tool to individually or collectively punish aggressive competition by any Internet-based broker.

The Department of Justice, having alleged that “MLS joint ventures have market power in almost every relevant market,” asks the Court to declare that the alleged conspiracy unreasonably restrains trade and is illegal, and, furthermore, to prohibit the NAR from requiring or permitting its member boards (or the MLSs with which they are affiliated) to adopt rules implementing the opt-out and anti-referral provisions. Furthermore, the DOJ asks the Court to prohibit the NAR from requiring or permitting member boards (or the MLSs with which they are affiliated) to adopt rules that restrict (or condition MLS access or MLS participation rights on) the method by which a broker interacts with its competitors, competitor brokers, or other persons or entities. The complaint does not seek monetary or punitive relief.

The DOJ, apparently aware of a recently proposed substitute for the VOW policy, further alleges that such revised policies “continue to discriminate against brokers who use the Internet to more efficiently and cost effectively serve home sellers and buyers.”

If filing of the suit wasn’t enough to signal the federal government’s (at least the Antitrust Division’s) perception of internet brokers, note the DOJ’s acknowledgment of brokers’ use of the internet “in connection with their delivery of brokerage services” as “an important competitive alternative to traditional ‘brick-and-mortar’ business models.” Commenting on the benefits of password protected, VOW-operating brokers in particular, the government noted the (i) reduction/elimination of time and expense involved in identifying and providing relevant listings and otherwise educating their customers; (ii) reduction of time spent on home tours; and (iii) provision of discounted commissions to sellers or commission rebates to buyers.

The case was assigned to District Court Judge Mark Filip of the Northern District of Illinois. Judge Filip took the bench in March 2004, and his case management procedures provide that the Court will set all newly-filed cases for status approximately 60 days after the filing of the complaint. I would expect the NAR to appear and file a responsive pleading on or before such date.

From 1993 to 1994, Judge Filip served as a law clerk for United States Supreme Court Justice Antonin Scalia. Afterwards, he joined the United States Attorney’s Office in Chicago, where he served as an Assistant United States Attorney in the Criminal Division. Subsequently he joined the litigation department of the Chicago office of Skadden, Arps, Meagher & Flom, specializing in complex commercial litigation. In addition to his duties on the bench, he teaches at the University of Chicago Law School.

I found two cases that have come before Judge Filip during his short tenure on the bench that involve Section 1 Sherman Act claims. In both cases, Judge Filip dismissed the Sherman Act claims, with leave to refile. I note that in one of the cases the plaintiff was not represented by counsel. In each case (both private actions) Judge Filip emphasized the plaintiff’s obligation to demonstrate that the defendant has market power and that the challenged action has an actual adverse effect on competition as a whole in the relevant market.

While this lawsuit (including appeals) could take years to resolve, there are several potential near-term effects: (i) termination (at least for now) of any ongoing discussions between DOJ and the NAR on the challenged policy and/or other issues on the feds’ minds; (ii) cause some local boards (and perhaps state legislatures) to delay consideration and/or implementation of potentially controversial rules such as the VOW policy until the Court has ruled on the DOJ’s claims; (iii) capitulation by the NAR, in part to avoid negative press and/or negative legal precedent; (iv) increased lobbying by the NAR and its allies; (v) increased public awareness of the services offered by discount brokers’, and the challenges they face; (vi) favorable press; (vii) encourage organizational efforts by discount brokers nationwide; (viii) embolden state attorneys general and/or private litigants to file additional legal challenges, particularly those that may be able to demonstrate an entitlement to compensatory or other damages; (ix) public distrust of realtors/brokers/agents, regardless of business model; and (x) increased government scrutiny of the real estate industry.

Shortly after I wrote these comments last year, the government amended its complaint to expressly account for NAR's Amended VOW Policy. Among the main alterations, the amended policy does not contain a selective opt-out provision.

Introduction

My name is Michael Erdman. I have been practicing law for about ten years, and presently am a partner at the Chicago law firm of Teeple & Leonard. Ever since I used a flat-fee real estate broker to sell my condominium in the spring of 2005, I have been interested in the efforts of nontraditional residential real estate brokers and non-broker innovators across the country. I have participated in an online alternative real estate broker forum, attended a DOJ/FTC joint workshop on competition in the real estate brokerage market, and assisted with the formation of the American Real Estate Broker Alliance.

Over the past year I have considered a variety of issues facing nontraditional real estate brokers, including (i) state laws mandating minimum levels of service; (ii) state anti-rebate legislation; (iii) the United States' lawsuit filed last year in federal court in Chicago against the National Association of Realtors, challenging NAR's initial and amended ILD (Internet Listing Display) Policy under federal antitrust law; (iv) FTC proceedings in Texas, Michigan and elsewhere relating to MLSs that withhold the listings of alternative brokers from their realtor.com uploads; (v) boycotts of nontraditional real estate broker listings; and (vi) a recent NAR rule permitting individual brokers to exclude certain listings from their websites. I started this blog to chronicle the efforts of nontraditional brokers and others from a lawyer's perspective.

None of the opinions or other content contained on this blog should be construed as legal advice. Please consult an attorney if you need legal advice on any of the topics discussed on this blog. Finally, none of the opinions or other content contained on this blog are necessarily the thoughts of Teeple & Leonard, any of its clients, AREBA, or any other person or entity.

Let me add that I have twice used the services of a traditional, full service real estate broker - one to buy a place in Chicago, another to buy a place in the suburbs. Both agents were very impressive. I got the home I wanted at a fair price, with few if any obstacles. Each agent paid close attention to what I wanted and the important details related to the purchase. I would recommend each of them to anyone looking to buy or sell real estate and looking for a full service agent. There is, and likely always will be, a place for quality, full service brokers in the residential real estate brokerage marketplace.

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