Update on Idaho Class Actions

As you may know, before this blog kicked off, four separate class action lawsuits were filed in federal court in Idaho (originally the four were joined together in a single action filed in 2004) against four separate real estate brokerages – Aspen Realty, Inc., Holland Realty, Inc., Sel-Equity, Co., and Park Pointe Realty, Inc., alleging tying arrangements prohibited by the Sherman Act. The brokerages were accused of charging commissions based upon the price of undeveloped land plus the anticipated cost of a home to be built thereon, instead of a commission simply based upon the cost of the undeveloped land. While the plaintiffs apparently do not allege any collusion amongst the various defendants in these four suits, they allege that the sale of undeveloped land was contingent upon this arrangement. The current complaint pending against Aspen can be viewed here.

Last summer Judge Winmill granted class certification in each case, meaning that certain home buyers may be entitled to damages incurred as a result of the allegedly illegal commissions charged. Of course the plaintiffs will first have to prove their claims before the Court.

The Court originally certified the classes last June, but modified them same several weeks ago after receiving various motions from the defendants. The class presently consists of “[a]ll persons who: (1) bought an undeveloped lot in a subdivision in either Ada, Boise, Canyon, Gem or Owyhee county, Idaho between August 18, 2001 and February 28, 2006 in which Defendant has or had the exclusive right to market or sell the subdivision lots on behalf of the developer; (2) were required to build a house on the lot in order to buy the lot; and (3) were required to pay Defendant a commission based on the cost of the lot plus the actual or estimated cost of the house in order to buy the lot.”

Rockford litigation update

Last year I wrote a post about an antitrust lawsuit involving a number of real estate players in Rockford, Illinois. Since plaintiff filed his complaint, the various defendants have responded with motions to dismiss, motions for a more definite statement, Answers and Motions to Compel Arbitration/Stay Litigation. Presently Judge Bucklo estimates that her rulings will be in the mail around July 6, 2007.

In the "Report of Parties’ Planning Meeting" filed with the Court on March 27, 2007, the parties collectively estimated that they will need to take approximately seventy (70) depositions, and that the case would be ready for trial in March 2010, taking approximately thirty (30) days to complete.

I have to think that this case will settle, but you never know. While various matters will likely demand her attention beforehand, the Court has set the next status date for March 28, 2008.

Civil action against Kentucky Real Estate Commissioners

Here is a brief overview of the litigation previously reported upon in the Louisville press, and presently pending in the Western District of Kentucky (3:06CV451).

Last year six plaintiffs filed a forty-page complaint against the Executive Director of the Kentucky Real Estate Commission (“KREC”), and five KREC commissioners, all in their official capacities, challenging KREC’s “unconstitutional prohibition against cooperation between real estate brokers licensed in Kentucky and brokers licensed by other states in the interstate marketing and sale of Kentucky commercial property.” Among other things, the plaintiffs have asked the court to enjoin the defendants from (i) enforcing “the KREC’s unconstitutional turf state policy” and “their ban on cooperation between Kentucky brokers and out-of-state brokers in the interstate marketing and sale of Kentucky commercial property” and (ii) “regulating the amount or allocation of brokerage fees associated with such cooperative brokerage services.”

In response the Attorney General of Kentucky, on behalf of the defendants, asked the court to abstain from deciding the case, and asserted that the statute in question is not facially discriminatory and does not have a discriminatory purpose or effect, that there is no less restrictive alternative to satisfy Kentucky’s “legitimate local purposes,” and that the burdens placed on interstate commerce by the statute are not clearly excessive relative to the “local benefits.”

Judge Simpson is presently considering cross motions for summary judgment, which he could rule upon at any time.

FTC reports to Congress

Deborah Platt Majoras, Chairman of the FTC, also appeared before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights on March 7, 2007 to provide an overview of the agency’s antitrust activities. Here is an excerpt of the FTC’s prepared statement (footnotes omitted):

III. Real Estate
Purchasing or selling a home is one of the most significant financial transactions most consumers will ever make. Given this fact, the FTC has actively investigated restrictive practices in the residential real estate industry, including efforts by private associations of brokers to impede competition from brokers who use non-traditional listing arrangements. In the past year alone, the agency has brought eight enforcement actions against associations of realtors or brokers who adopted rules that allegedly withheld the valuable benefits of the multiple listing services they control from consumers who chose to enter into non-traditional listing contracts with real estate brokers. These association policies allegedly limited the ability of home sellers to choose a listing type that best served their specific needs.

In July 2006, the Commission charged the Austin Board of Realtors with violating the antitrust laws by preventing consumers with real estate listing agreements for potentially lower cost unbundled brokerage services from marketing their listings on important public web sites. In September 2006, the FTC issued a final consent order settling charges against the Austin Board of Realtors. Under the terms of the settlement, the Austin Board of Realtors is prohibited both from adopting or enforcing any rule that treats one type of real estate listing agreement more advantageously than any other listing type and from interfering with the ability of its members to enter into any kind of lawful listing agreement with home sellers. In December 2006, the Commission protected consumers by requiring a series of consent orders in five matters relating to the operation of multiple listing services in parts of Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin. These matters were: (1) Williamsburg Area Association of Realtors, Inc.; (2) Monmouth County Association of Realtors; (3) Northern New England Real Estate Network, Inc.; (4) Realtors Association of Northeast Wisconsin, Inc.; and (5) Information and Real Estate Services, LLC. The complaints charged the associations with violating the FTC Act by adopting anticompetitive rules or policies that, when implemented, prevented properties with non-traditional listing contracts from being displayed on a wide range of public web sites. Each respondent, prior to the Commission’s acceptance of the consent orders for public comment, rescinded or modified its rules to discontinue the challenged practices. The orders require that these services be open to all types of listing agreements.

In October 2006, the agency filed administrative complaints against both RealComp II Ltd., and MiRealSource, Inc. The complaints charged that these two real estate groups illegally restrained competition by limiting consumers’ ability to obtain low-cost real estate brokerage services. The first complaint alleged that MiRealSource adopted a set of rules to exclude low cost listings from its multiple listing service, as well as other rules that restricted competition in real estate brokerage services. The second complaint alleged that Realcomp II engaged in anticompetitive conduct by prohibiting information on Exclusive Agency Listings and other forms of nontraditional listings from being transmitted from the multiple listing service it maintains to public real estate web sites. The complaints alleged that the conduct was collusive and exclusionary, because in agreeing to keep non-traditional listings off the multiple listing service and/or public web sites, the brokers enacting the rules were, in effect, agreeing among themselves to limit the manner in which they compete with one another, and withholding valuable benefits of the multiple listing service from real estate brokers who did not go along. In February 2007, the Commission approved a consent order for public comment in the matter of MiRealSource, in which MiRealSource agreed to provide its services to all member brokers.

The FTC is currently in the process of litigating the Realcomp II complaint.

. . .

Mr. Chairman and Members of the Subcommittee, we appreciate this opportunity to provide an overview of the Commission’s efforts to maintain a competitive marketplace for American consumers, and we appreciate the strong support that we have received from Congress. I would be happy to answer any questions that you may have.


The FTC’s prepared statement in its entirety can be viewed on the agency's website.

Ass't. A.G. Barnett testifies before Senate Subcommittee

The following is an excerpt from prepared remarks submitted yesterday by Assistant Attorney General Thomas Barnett (U.S.D.O.J. – Antitrust Division) to the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights:

Real Estate Services--The Division's enforcement against anticompetitive agreements included its extensive efforts to stop anticompetitive practices in the real estate services industry, including its lawsuit against the National Association of Realtors (NAR). For many people, the purchase or sale of a home not only represents the fulfillment of the American dream but is their single most significant personal financial transaction. The Division has focused its enforcement activities to ensure that the industry and consumers can take advantage of newer business models. In addition, the Division, often in collaboration with the FTC, has vigorously pursued competition advocacy efforts by commenting on the detrimental competitive effects of various legislative and regulatory proposals that limit competitive alternatives at the state level. I will discuss these efforts in greater detail later on.

In September 2005, the Division (I am recused from this matter) filed suit after NAR promulgated rules that would limit competition from real estate brokers who use the Internet to serve their customers. The lawsuit alleges that NAR's policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting

NAR has hundreds of affiliated Multiple Listing Services (MLS) across the country--one in virtually every community. Each MLS maintains a database to which member brokers contribute the property listings of the customers they represent. A broker participating in an MLS thus has access to all or nearly all of the property listings in the local market and can distribute those listings to customers. Some brokers have recently begun delivering listings to customers via the Internet, through what are known as Virtual Office Websites, or VOWs. In an effort to protect high commissions (which have increased by over 50% in recent years), real estate brokers have instituted efforts to foreclose competition from VOWs and other innovative brokerage models.

NAR's recent VOW policies include an "opt-out" provision that allows brokers to prevent Internet-based competitors from providing the same listing information over the Internet that other brokers can provide from their offices. The Division's lawsuit also challenges a NAR membership rule that denies access to MLS listings to brokers that operate referral services. This rule effectively prevents two brokers from working together in what can be a more innovative and efficient way, with one attracting new business and educating potential buyers about the market, and the other guiding the buyer through home tours and the contract and closing processes.

In November 2006, a U.S. District Court denied NAR's motion to dismiss. The lawsuit is proceeding.

Competition Advocacy

. . .

The Division, together with the FTC, also educates policymakers and the general public about the benefits of competition in a variety of markets. One market we have devoted substantial efforts to is the real estate market. The Division provides assistance and 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, the Kentucky Real Estate Commission, the South Dakota Real Estate Commission, and the State of South Carolina all lifted bans on consumer rebates and other inducements to consumers 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.

The Division is also engaged in a broader effort to ensure that all American consumers will continue to benefit from competition in the real estate services industry. A well-attended workshop in October 2005, jointly sponsored by the Antitrust Division and the FTC, was a key part of that effort. Participants from brokerage firms, NAR, local realtor associations, fee-for-service and internet referral brokers, and buyers' brokers spotlighted the competitive issues facing this industry. The Division will continue to maintain its enforcement and advocacy efforts in this area to ensure that consumers enjoy the benefits of better service, increased choice, and lower prices resulting from competition.

Conclusion

I would emphasize in closing that none of what I have discussed could have been accomplished without the dedicated career staff of the Antitrust Division, and in fact it is because of their experience, talent, and dedication to the mission of protecting consumers that we have been able to achieve the successes we have--both in terms of quantity and quality.

Given the important role we assign to competition in our nation's economy, the Antitrust Division must be a vigorous, formidable, and effective enforcer of our laws. While I am pleased with all that we have accomplished thus far, I recognize that the hallmark of any successful organization is the continuing desire to improve. In that regard I look forward to working with this Subcommittee and its staff.

Mr. Chairman, that completes my prepared remarks. I would be pleased to respond to the Subcommittee's questions at this time.

A complete copy of Mr. Barnett’s prepared testimony is available on the DOJ’s website.