D.C. District Court Sets Aside DOJ Civil Investigative Demand Barred By Prior Settlement Agreement
02/14/2023On January 25, 2023, Judge Timothy J. Kelly of the United States District Court for the District of Columbia granted petitioner National Association of Realtors’ (“NAR”) Petition to Set Aside a Civil Investigative Demand (“CID”) issued by the United States Department of Justice’s Antitrust Division (the “Division”) related to certain of NAR’s practices and policies. National Association of Realtors v. United States, No. 21-2406 (TJK) (D.D.C. Jan. 25, 2023). The Court ruled that the Division was precluded from issuing the CID because it was substantially similar to two other CIDs that the Division had previously agreed to close in a settlement agreement.
In 2019, the Division opened an investigation into several of NAR’s practices and policies. Under the investigation the Division issued two CIDs related to NAR’s “Participation Rule” and “Clear Cooperation Policy.” Shortly after issuance, the parties began settlement negotiations. While the parties engaged in these negotiations, NAR made clear that it would not agree to any consent decree without written assurances from the Division that it had closed its investigation into the Participation Rule and Clear Cooperation Policy and that NAR had no obligation to respond to the CIDs.
The Division agreed, and in November 2020 filed a proposed Stipulation Order and Final Judgment (the “Final Judgment”) closing the investigation. The Final Judgment required NAR to change certain rules and policies surrounding multiple-listing services that allegedly restrained competition but did not require NAR to take any action with regard to the Participation Rule or Clear Cooperation Policy. The Final Judgment did not contain a merger or integration clause preventing other agreements from restraining the Division. On the same day that the Final Judgment was issued, the Division sent a closing letter to NAR (the “Closing Letter”), confirming that it had closed its investigation into the Participation Rule and Clear Cooperation Policy and that NAR accordingly had “no obligation to respond” to the CIDs. The Closing Letter contained a “no inferences” provision stating that no inferences should be drawn from the Division’s decision to close the investigation.
In April 2021, the Division reopened its investigation into NAR by withdrawing its prior consent to the Final Judgment. The Division also issued a new CID to NAR which was substantially similar to the prior two CIDs related to the Participation Rule and Clear Cooperation Policy. In response, NAR filed a petition to set aside the new CID as a breach of the 2020 settlement agreement, and in the alternative, as overly broad and burdensome.
The Court ruled that it was “not hard to conclude” that the new CID violated the parties’ original settlement agreement. First, the Court explained that CIDs, like civil discovery, may be subject to restrictions contained under settlement agreements and, accordingly, that a CID barred by the terms of a settlement is invalid. The Court ruled that the terms of the Closing Letter, which relinquished NAR’s obligations to respond to the original CIDs, were integrated into the parties’ ultimate settlement agreement, as the Final Judgment did not include a merger or integration clause. The Court reasoned that NAR’s insistence that the terms of the Closing Letter clearly state that the investigation was closed, and NAR need not respond to the CID supported the conclusion that those terms, which provided some measure of finality for NAR, were essential to the ultimate agreement. According to the Court, since the Closing Letter effectively ended the original CIDs, the government was barred from re-opening them in the future, which it attempted to do by issuing the new CID.
The Court found unpersuasive each of the Division’s arguments in support of the new CID. First, the Division argued that the new CID constituted a “new investigation” into the Participation Rule and Clear Cooperation Policy. The Court disagreed, as neither policy had been changed since the original settlement agreement, and the new CID was substantially similar to the original CIDs. Next, the Division argued that it was permitted to issue the new CID because it never stipulated that either rule would not be subject to additional investigations in the next decade. The Court again disagreed, noting that through the Closing Letter, the Division agreed not to continue to investigate the rules in their current state. Finally, the Division argued that the “no inferences” clause in the Closing Letter demonstrated that the Letter was not intended to preclude any future investigations. The “no inferences” provision stated that “[n]o inference should be drawn, from the Division’s decision to close its investigation into these rules, policies, or practices [that are] not addressed by the consent decree.” The Division argued that the clause reinforces its view that the closing letter did not preclude any future investigation, even one into the same, unchanged Participation Rule and Clear Cooperation Policy. The Court again disagreed, stating that “fundamentally, under the law of the contract the Division was not free to unilaterally change the terms of the settlement agreement by adding an ambiguous sentence to a letter designed simply to confirm that it had upheld its side of the deal.”
Having found each of these arguments unpersuasive, the Court ruled in favor of NAR and set aside the Division’s CID. The Court suggested that in the future the Division could open an investigation into “some future version or application” of the Participation Rule or Clear Cooperation Policy.
While this case highlights the limits to the government’s ability to open an investigation that it has already settled to close, it also serves as a reminder that the terms of prior agreements (including those incorporated by integration) may impact and limit litigants’ abilities to take future actions.CATEGORY: DOJ