Thursday, November 30, 2006

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.

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