Missouri Real Estate Commission Wins First Battle with Kansas City Premier Apartments

Over two years after it first filed suit, Kansas City Premier Apartments, Inc. finally had its day in court earlier this year with the Missouri Real Estate Commission (here's my last pre-trial post).  During the trial, the MREC failed to prove that any of the property advertisements on the KCPA website were false or misleading, or that KCPA's rental advisors conveyed any false or misleading information about specific rental units.     

However, in a six page judgment remarkably short on reasoning, Missouri Circuit Judge Abe Shafer held that KCPA is not exempt from the restrictions and requirements of Missouri's real estate broker statute.  Specifically, the court ruled that KCPA is not exempt from the statutory definition of a real estate broker, and that the statutory provisions challenged by KCPA were not unconstitutional under the U.S. or Missouri constitutions.

In response to MREC's request for injunctive relief, the court directed that "until KCPA complies with the requirements of Chapter 339 applicable to KCPA operations," it is enjoined from:

Contracting with property owners to receive compensation in return for referring prospective tenants who rent from property owners, which is not an enforceable contract under the terms of Section 339.160, RSMo.

Any act requiring real estate licensure pursuant to the terms of [Chapter] 339 RSMo.

KCPA was also enjoined from "paying a reward or incentive to tenants who notify property owners that they were directed to the property through KCPA's services, which would violate Section 339.00.2(13) if performed by a licensed real estate broker."

KCPA's attorneys have appealed the ruling to the Missouri Supreme Court.  Stay tuned.

Showdown in Missouri

Some time ago I first wrote about an action filed by Kansas City Premier Apartments in a Missouri state court, seeking clarity on licensing issues raised by the Missouri Real Estate Commission.

The case is set for trial later this week. Here's a cute piece produced by KCPA driving home its point that criminal sanctions are entirely inappropriate in this context.  KCPA has been threatened, among other things, with prosecution under Section 339.170, RSMo, which makes it a Class B misdemeanor (punishable by up to six months in prison) to knowingly violate any of the prohibitions relating to the communication of real estate information.

Want to learn more?  Here's an op-ed recently penned by KCPA's President:

Real Estate Commission Criminalizes Helpful Advice

Can you believe that your own mother might be considered a criminal for helping you find a suitable apartment? That’s the position taken by the head of the Missouri Real Estate Commission (MREC), the government agency currently trying to ensure that people must pay a licensed real estate broker if they want help finding information about rental opportunities.

Years ago, I started Kansas City Premier Apartments (KCPA), a business designed to help people access a vast amount of useful information about renting in Kansas City, including a website with a searchable database of available rental units and a customer service team familiar with Greater Kansas City to help answer prospective renters’ questions, set appointments, and provide driving directions. All of our informational services are offered at no charge to the prospective renters.

The website quickly attracted the attention of people worldwide looking for just the sort of assistance we offer, helping them avoid the stress and uncertainty that frequently accompanies the search for a new rental home. Many have offered testimonials praising our services and, to our knowledge, no one we have assisted has ever expressed dissatisfaction with the information our company provided them. But, unfortunately, our business also attracted the attention of the MREC, which has asked a local court to prevent us from providing our informational services.

Fortunately, Americans enjoy constitutional protections for our freedom to exchange information and opinions – and KCPA is fighting to ensure that everyone will continue to enjoy these freedoms. The First Amendment of the United States Constitution denies governments the authority to make laws “abridging the freedom of speech.” Furthermore, the United States Supreme Court has previously recognized that this protects not only the rights of speakers who would share truthful, non-misleading information, but also the rights of those interested in hearing that information. Interpreting the First Amendment, courts have also held that governments are not generally permitted to pick and choose who is permitted to share a particular type of information. Missouri’s constitution offers even broader protections, stating that speech cannot be restricted “no matter by what means communicated; that every person shall be free to say, write, or publish, or otherwise communicate whatever he will on any subject, being responsible for all abuses of that liberty.”

We asked the MREC to explain how the useful information we provide could be considered an “abuse” of our constitutional freedoms. Rather than offering a substantive answer, the MREC responded that our question was “not relevant”. Fortunately, government bureaucrats do not have the final say in whether our constitutional freedoms can be so flippantly disregarded. We are both hopeful and confident that when the judge considers this matter, he will rule that all Missourians must remain free to enrich each others’ lives through the communication of useful information and ideas.

Tiffany Lewis is the President of Kansas City Premier Apartments, Inc.

DOJ Investigation of Hamptons Brokerages

Yesterday the New York Post reported on an inquiry being conducted by the U.S. Department of Justice's Antitrust Division involving Hamptons real estate brokerages.

Here's subsequent coverage on the New York Times' DealBook blog. 

Google Love

It was recently brought to my attention that when searching the phrase "real estate competition" on Google, this blog organically comes up third, behind the Federal Trade Commission and the Department of Justice. I have to admit that's pretty cool (although probably meaningless).

I see for myself that searching "real competition" brings this blog up in the top slot.

Notwithstanding the love Google is showing us, we don't run ads here. But as a reminder, please feel free to drop me a line if you ever come across a real estate issue or story that you think deserves some electric ink here.

-Michael

6% Commission Litigation - Update on Hyland v. Homeservices of America

Believe it or not, this case, first filed back in 2005 (and first blogged about here in 2007), is still alive and well in Louisville.  In early 2008 plaintiffs filed their Fourth Amended Complaint, alleging, in a nutshell, that “because of Defendants’ unlawful agreement alleged herein, competition on the basis of commission rates has not occurred and Plaintiffs and class members have paid inflated rates to Defendants.”

In support of their claims, plaintiffs point to the terms of franchise agreements between various defendants, anti-rebate regulations, and refusals to deal.  “[V]arious Defendants have enforced their price fixing agreement by boycotting price-cutting rivals, such as Help-U-Sell.  . . . It is being boycotted because it charges its customers a reduced fixed fee, rather than the standard percentage commission.”

Toward the end of 2008, the court certified plaintiffs’ proposed class:

All persons who paid a commission to Defendants and/or their affiliates listed in Exhibit A (Docket #242) in connection with the sale of residential real estate (excluding initial sales of newly constructed homes) located in the Commonwealth of Kentucky during the period from October 11, 2001 to October 11, 2005. This class excludes governmental entities, Defendants, their parents, subsidiaries, affiliates, and employees of Defendant or their affiliates.

Efforts to resolve the case have so far been fruitless.  Mediation efforts in early 2009 failed, and last summer Judge Russell denied (with leave to refile) a tentative settlement of claims against Re/Max International. 

The court has scheduled a jury trial in this matter to commence on April 16, 2012 (yep, that’s 2012).  Typically these cases settle before trial, and with a trial date nearly two years off, there would seem to be plenty of time to reach a deal.  However, for a variety of reasons, I would not rule out the possibility that the parties will proceed to trial. 

Federal Trade Commission vacates ALJ's Realcomp decision

Remember the Federal Trade Commission's complaint against Realcomp (a southeast Michigan-based multiple listing service)?   The complaint alleged, among other things, that Realcomp prohibited information on EA listings (and other forms of nontraditional listings) from being sent from the MLS to public real estate websites (the "Website Policy").  Here's a link to the Commission's administrative docket.


In late 2007 the FTC's Administrative Law Judge issued an initial decision, concluding that, “[d]espite Realcomp’s market power and the implementation of the Website Policy, discount EA brokerage services continue to be widely available in the established relevant market.  As such, there is insufficient evidence that consumer welfare has in fact been unduly diminished or otherwise significantly harmed as a result of the challenged policy."  As for Realcomp's Search Function Policy, which by default excluded EA and other nontraditional listings from search results, the ALJ found that there had not been a showing that “the nature of the alleged restraint was anticompetitive or unduly hindered consumer choice.”

Fast forward to late 2009.  Noting that “an especially important application of antitrust law is to see that incumbent service providers do not use improper means to suppress innovation-driven competition that benefits consumers,” the FTC reversed and vacated the ALJ’s initial decision.  “We find that the practices at issue improperly limit consumers’ access to information about the availability of [] lower-priced alternatives, and we conclude that the association’s acts and practices unreasonably restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.”

I'm not going to delve into the legal standards and analysis contained in the FTC's ruling, but thought I'd highlight some of its most interesting findings and conclusions.  As you may know, Realcomp has appealed the decision to a federal appellate court.

Realcomp Disregarded National Association of Realtors' Amended IDX Rule

Toward the end of 2006, NAR amended its rules to require MLSs to “include all current listings,” including discount listings, in its IDX feeds, meaning EA listings could not be excluded from IDX feeds without violating NAR’s rules.  Realcomp objected to the rule, arguing that without the Website Policy, Realcomp would become a public utility.  NAR was unconvinced, opining that including EA listings on the IDX feeds would not detract from the purpose of an MLS.  Still, in April 2007, Realcomp refused to adopt NAR’s new IDX policy (interestingly, the FTC would later discover, after litigation commenced, that “none of the Realcomp Governors knows why the Board adopted the Website Policy and Search Function Policy.”)

Realcomp's Minimum Service Requirement

This restriction hasn't received a lot of attention, but apparently up until April 2007 Realcomp maintained a Minimum Service Requirement “which compelled brokers to provide full brokerage services in order to have their listing included in data feeds to public websites and the default search setting in the Realcomp MLS, and to gain access through Realcomp to publicly accessible real estate websites.”  The FTC found that these requirements "add to and increase the price floor of ERTS listings by setting a minimum level of brokerage services that the listing broker must offer under ERTS listings."  Perhaps the repeal of Realcomp's minimum service requirement contributed to Michigan's passage of a (waivable) minimum service bill in 2008? Regardless, this is just the most recent of multiple statements from the FTC regarding the anticompetitive nature of minimum service restrictions.  

Anticompetitive Effects of Realcomp’s Policies

The FTC summed up its findings regarding the effects of the aforementioned policies:

The combined effect of Realcomp’s three Policies was to limit exposure of EA listings to brokers searching the MLS for homes to present to potential buyers, and to consumers searching public websites for homes to purchase. The Search Function Policy operated to suppress EA listings from the MLS’s default search results and thus limit their exposure to brokers. In conjunction with the Minimum Service Requirement, the Search Function Policy also operated to exclude all brokers who did not have full service listings from disclosure on the MLS default setting.  In conjunction with the Minimum Service Requirement, the Website Policy excluded brokers without an exclusive right to sell from exposure, through Realcomp, to the general public through publicly available websites such as Realtor.com, MoveInMichigan.com, and broker websites. . . .As a group these Policies improperly constrained competition between discount listings and full-service listings. (italics added)

FTC's Order

Finding Realcomp in violation of the FTC Act and the Sherman Act, the Commission entered an Order “which, among other things, prohibits Realcomp from restricting nontraditional listings from the full range of services which it offers," and incorporates the parties’ stipulation regarding the repeal of Realcomp's Search Function Policy. 

Going Forward

As noted above, Realcomp has appealed the FTC’s ruling to the United States Court of Appeals for the Sixth Circuit.  The parties recently finished briefing the appeal (Realcomp's brief and FTC's brief), and we might see a ruling from the 6th Circuit later this year.  Stay tuned.


May 10, 2010 UPDATE: The fact that Realcomp is pursuing an appeal already tells us what it thinks of the FTC's ruling. But in case there was any doubt, note this excerpt from an email Realcomp circulated to its members several day ago:  "Realcomp has received word from the 6th Circuit Court of Appeals that our ‘request for partial stay’, which would have allowed us to maintain our current rules until our appeal is heard by the court, has been denied. Unfortunately, this means Realcomp is being required to change its MLS rules regarding Internet advertising and include Exclusive Agency listings in our Internet advertising program."  (emphasis added)

Federal Antitrust Class Action filed against West Penn MLS & Area Brokerages

Earlier this month an antitrust class action complaint was filed against West Penn Multi-List (“West Penn MLS”) and five area real estate brokerages in a Pittsburgh federal court. Plaintiff Thomas Logue, who previously hired a broker to list his home on the West Penn MLS, alleges the defendants unlawfully restrained competition among real estate brokerages in Western Pennsylvania by “enacting and enforcing unlawful West Penn MLS rules, policies, and procedure that caused Plaintiff and the other class members to pay higher prices for real-estate-brokerage services . . . than they would have paid absent defendants’ illegal conduct.”

Specifically, Logue complains of rules that allegedly

• allow West Penn MLS representatives to refuse membership to brokerages who they might expect to compete more aggressively or in more innovative ways than West Penn MLS members would prefer;

• prevent members from providing a set of services that includes less than the full array of services that brokerages traditionally provide;

• require members to use ERTS contracts (all original listing contracts were allegedly required to be collected and retained by West Penn MLS);

• prevent non-ERTS listings from being published on West Penn MLS’s approved websites (including Realtor.com and West Penn MLS-subscriber websites); and
  

• mandate the duration of listing contracts between a broker and seller (365 days).

According to Logue, “[i]f defendants hadn’t restricted [] innovative brokerages from competing in the West Penn MLS Service Area, these brokerages would have provided West Penn MLS Service Area customers of real-estate-brokerage services with competitive options and, in the process, placed downward pressure on the prices charged by the brokerage defendants, who offer only traditional methods of providing real-estate-brokerage services.”

As you may recall, just over a year ago West Penn MLS reached a consent agreement with the Federal Trade Commission that, generally speaking, bars West Penn MLS from adopting or enforcing any policy, rule, practice or agreement to deny, restrict or interfere with the ability of West Penn MLS subscribers to enter into EA listings or other lawful listing agreements. I haven't examined the accompanying order, but suspect it requires West Penn MLS to eliminate most, if not all, of the rules that are the subject of this newly-filed civil suit. I note Logue’s proposed class consists of “[a]ll individuals or businesses that purchased the brokerage defendants’ real-estate brokerage services in the West Penn MLS Service Area from February 13, 2005 through February 13, 2009." (about the time West Penn MLS settled with the FTC).

Interesting that West Penn MLS apparently was enforcing a minimum service rule, notwithstanding the fact that state law provides Pennsylvania consumers with the right to waive certain brokerage services. See 63 P.S. § 455.606a(a)(3).

Given that West Penn MLS previously settled with the FTC, it will be interesting to see if a quick settlement will be reached in this civil case. I note, however, that the brokerage defendants were not parties to the FTC consent agreement.

This isn't the first civil suit to arise out of the federal government's recent enforcement activities against multiple listing services. I'll be writing about others in future posts.