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Northern District Of Illinois Allows Price-Fixing Claim Against National Association Of Realtors To Proceed
10/13/2020On October 2, 2020, Judge Andrea R. Wood of the Northern District of Illinois denied related motions to dismiss filed by the National Association of Realtors (“NAR”) and certain corporate defendants who are among the largest real estate brokers in the United States (the “Corporate Defendants” and, collectively with NAR, “Defendants”), which sought to avoid a price-fixing suit brought by a putative class of home sellers under Section 1 of the Sherman Act. Moehrl v. The National Association of Realtors, No. 19-cv-01610 (N.D. Ill. Oct. 2, 2020). In denying Defendants’ motions, the Court noted (among other things) allegations that the Corporate Defendants required its franchisees, affiliates, and realtors to join the NAR and follow the NAR’s rules, including rules for broker commissions. The Court found that this conduct plausibly demonstrated the existence of a conspiracy among the Corporate Defendants, NAR, and other non-parties to impose sales commission rules that could result in unfair charges to home sellers.
NAR is a national trade association that advocates for the interests of real estate brokers. It oversees a membership of 54 state and territorial associations and 1,200 local associations. These local affiliates maintain databases of locally for-sale residential properties, called Multiple Listing Services (“MLS”), and follow national rules set by NAR. The complaint alleges that NAR conspired with the Corporate Defendants and other non-parties to use the MLS system to improperly bolster the commissions paid to home buyers’ brokers. Specifically, it alleges that brokers who wish to list a home on the MLS system are required to abide by the NAR Handbook on Multiple Listing Policies. The Handbook, in turn, requires MLS listing brokers to promise a set commission to buyers’ brokers when they add a listing to MLS, which can either be determined as an absolute amount or as a percent of the home’s ultimate gross sales price. The Handbook prohibits listing brokers from offering a negotiated commission and from seeking to pay a different commission after the sale is completed. According to the complaint, the average broker commissions in the United States (as a percentage of gross residential sale prices) have been steady between 5.0% and 5.4%, of which between 2.5% and 3.0% goes to the buyers’ brokers. By contrast, internationally, residential commissions range from 1% to 3% of gross sales, and buyers’ brokers earn half the rate they do in the United States.
The Corporate Defendants moved to dismiss on the ground that Plaintiffs failed to plead sufficient facts regarding their involvement in the purported conspiracy. In rejecting this argument, the Court accepted Plaintiffs’ allegations that the purported anticompetitive restraints were the product of written rules issued by NAR, and that each Corporate Defendant required all of its franchisees and realtors to, among other things, join the NAR and follow the NAR’s Handbook and Code of Ethics, including the NAR’s Buyer-Broker Commission Rules. The Court also pointed to the Corporate Defendants’ direct involvement in the governance of the NAR, including in the promulgation and enforcement of the Handbook and Code of Ethics, and concluded that Plaintiffs sufficiently pled the Corporate Defendants’ participation in the conspiracy. In so doing, the Court declined to rule on the Corporate Defendants’ argument that they did nothing more than act in their individual, rational business interest by requiring each of their franchisees and realtors to join the NAR and comply with its rules given the commercial necessity of having access to the MLSs, observing that at the motion to dismiss stage it was not necessary for Plaintiffs’ allegations to “exclude the possibility of independent conduct.”
Alternatively, the Corporate Defendants argued that they could not be held accountable for the acts of their franchisees in joining and participating as leaders in the NAR. The Court rejected this argument as well, observing that a franchisor can be held vicariously liable for the wrongdoing of a franchisee when the franchisor “controls or has the right to control the specific policy or practice resulting in harm to the plaintiff.” The Court held Plaintiffs had sufficiently pled such a corporate policy to survive dismissal.
In addition to the Corporate Defendants’ own motion, Defendants collectively also moved to dismiss on the grounds that the complaint (i) failed to plead an unreasonable restraint of trade and (ii) failed to plead facts showing the NAR’s rules injured Plaintiffs. Applying the Rule of Reason analysis, the Court held that the complaint adequately pled an anticompetitive effect through reference to the durable gap between commission rates in the United States as compared to abroad. The Court accepted these allegations despite Plaintiffs’ failure to allege other details concerning the international real estate markets, finding Plaintiffs’ allegations to be sufficient at the pleading stage.
Finally, the Court rejected Defendants’ argument that the complaint should be dismissed due to Plaintiffs’ failure to show an antitrust injury, which the Court found was shown by Plaintiffs’ allegations concerning super competitive pricing.
Moehrl is a potentially significant case, which may ultimately impact not only the dynamics governing the market for residential real estate in the United States, but also serves as a potential warning for the antitrust liability of participants and leaders in large trade associations that impose common pricing rules and restrictions.
Antitrust Litigation