USA Residential Brokerage Litigation Update | 04-05-2024

Exceedant U.S. Real Estate Brokerage Industry Litigation Update. Today, April 5, 2024, the D.C. Court of Appeals Ruled in Favor of the Department of Justice (DOJ) and Against the National Association of Realtors (NAR).

The Department of Justice Can Reopen its Investigation

The D.C. Court of Appeals decided in favor of the DOJ, providing a green light for the agency to reopen its investigation into the Buyer Broker Commission Rule and the Clear Cooperation Policy.  The dispute stems from an agreement reached between the NAR and DOJ in 2020, late in the Trump Administration.  Pursuant to that agreement, the National Association of Realtors agreed to four policy changes, none of which impacted the Buyer Broker Commission Rule or the Clear Cooperation Policy.  The DOJ withdrew from the agreement early in the Biden Administration, citing various authorities during the ensuing litigation. These included provisions in the Antitrust Procedures and Penalties Act (Tunney Act).

How did we get here?

After withdrawing from its agreement with the National Association of Realtors, the DOJ sought to reopen the investigation, serving the NAR with Civil Investigative Demand (“CID”) No. 30729.  Pursuant to the NAR’s Petition, the District Court set aside the DOJ’s CID, deciding that it was barred by a “validly executed settlement agreement”.  The district court opined that the DOJ “breached the agreement by reopening the investigation into those same rules and serving the new CID.”  The DOJ appealed that decision to the D.C. Court of Appeals.

What does the rest of the legal landscape look like?

We’ll look briefly at a few of the myriad pieces which fit into a large, complex and fluid puzzle.  Before diving in, it is important to emphasize that today’s decision by D.C. Court of Appeals introduces another factor to an already overcrowded legal landscape.

On February 15, 2024 the DOJ filed a Statement of Interest in the Nosalek case, articulating its vision for the manner in which real estate commissions can be negotiated.  A month later, on March 15, 2024 the NAR negotiated a settlement (“Settlement”) with the plaintiffs in the Sitzer|Burnett case, with the settlement class expanding well beyond the litigation class.  In addition to $418 million in monetary consideration, the NAR agreed to a variety of practice changes.  In order to be covered by the settlement, brokerage firms and Multiple Listing Services (“MLSs”) are also required to institute practice changes, alterations to the way they conduct business.

Moreover, brokerage firms with average Total Transaction Volume of more than $2 billion over the previous four years must provide monetary consideration of 25 bps x by its average Total Transaction Volume. Relief from the settlement’s formula potentially available to those who contend that they cannot meet the stipulated benchmark.  After the Settlement, Compass settled for $57.5 million, a fraction of the amount which was to have been imposed pursuant to the calculus of the settlement.

MLSs must also fulfill financial obligations in order to qualify as covered parties under the settlement. These financial obligations consist of the payment of $100 multiplied by the number of subscribers in 2023.

NAR’s settlement is not final, and neither are the ones reached by RE/MAX, Anywhere Real Estate, Keller Williams and Compass.  The legal landscape was already overcrowded before the April 5th decision by the D.C. Court of Appeals.  This includes a variety of post-trial motions in Sitzer|Burnett, the mushrooming cohort of class action lawsuits following in the wake of the October 31st $1.78 billion verdict in that case, the upcoming trial in Moehrl (with the strong possibility of a January 21, 2025 start date), Buyer litigation which will not be resolved by NAR’s settlement, a Petition for a Writ of Certiorari filed with the U.S. Supreme Court by HomeServices of America and two other Berkshire Hathaway subsidiaries, and, importantly, the joinder of Berkshire Hathaway Energy as a defendant in the $200 billion Gibson case.  The legal landscape will continue to evolve, and might eventually encompass rulemaking by the Federal Trade Commission.

The DOJ’s Reaction

Interested parties didn’t have to wait long for the DOJ’s reaction. Following the April 5th filing of the Court’s decision, the DOJ circulated a press release noting that the government’s ability to investigate potentially unlawful conduct had been restored. The press release included statements by U.S. Assistant Attorney General Jonathan Kanter of the Antitrust Division, including the assertion that real estate commissions in the United States are greater than those in other advanced economies. Kanter also affirmed the Antitrust Division’s commitment to reduce the cost of buying and selling a home.

The NAR’s Reaction

The NAR also responded quickly to the Appellate Court decision, indicating it is “evaluating next steps” in the case. NAR spokesman Mantill Williams stated that “NAR believes that the government should be held to the terms of its contracts.” The NAR’s next step may be an appeal to the United States Supreme Court.

Who Will be Affected by this Crowded Legal Landscape?

The outcome of this legal wrangling is important to a diverse array of constituents including: consumers; real estate professionals; real estate brokerage firms; lenders; investors and real estate portals.  Ultimately, the legal landscape may act as a catalyst, triggering significant changes to the way Americans buy and sell homes, a foundational component of the economy and the primary means through which many families generate wealth.

The Opportunity

The disruptive forces being unleashed provide discerning investors and real estate organizations with significant opportunities to embrace change, leverage technology and develop innovative means of serving consumers. While there is currently a great deal of uncertainty, with diligence and perseverance we may ultimately be able to echo U.S. Founding Father Benjamin Franklin’s sentiments, “now at length I have the happiness to know that it is a rising and not a setting sun.”

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