Friday, December 1, 2006

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 However, in its motion, NAR did its best to convince the Court that the initial VOW Policy, was was apparently superseded just before the government filed suit, was not properly before the Court.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.

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