Davis v. Hanna Holdings, Inc.

• Court: U.S. District Court — Eastern District of Pennsylvania
• Writing for the Court: WENDY BEETLESTONE, District Judge
• Citation: Davis v. Hanna Holdings, Inc., 787 F.Supp.3d 42 (E.D. Pa. 2025)
• Docket Number: CIVIL ACTION NO. 24CV2374
• Decision Date: 23 June 2025
• Parties: Scott DAVIS, et al., Plaintiffs, v. HANNA HOLDINGS, INC., Defendant.
• topic: Antitrust and Competition,Commercial Litigation,Contracts,Real Estate,Consumer Law

787 F.Supp.3d 42

Scott DAVIS, et al., Plaintiffs, v. HANNA HOLDINGS, INC., Defendant.

CIVIL ACTION NO. 24CV2374

United States District Court, E.D. Pennsylvania

Filed June 23, 2025

Peter Demato, Christian Levis, Margaret C. Maclean, Noelle Forde, Vincent Briganti, Lowey Dannenberg PC, White Plains, NY, Carol O'Keefe, Michael E. Klenov, Steven M. Berezney, Korein Tillery, LLC, St. Louis, MO, George A. Zelcs, Pro Hac Vice, Randall P. Ewing Jr., Pro Hac Vice, Ryan Z. Cortazar, Korein Tillery LLC, Chicago, IL, Anthony M. Christina, Lowey Dannenberg PC, West Conshohocken, PA, for Plaintiffs.

Eric G. Soller, John R. Brumberg, William Pietragallo, II, Pietragallo Gordon Alfano Bosick & Raspanti, LLP, Pittsburgh, PA, David Z. Gringer, Emily Barnet, David Gringer, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Claire Bergeron, Pro Hac Vice, Jackson Frazier, Jane Kessner, Seth P. Waxman, Pro Hac Vice, Wilmer Cutler Pickering Hale & Dorr LLP, Washington, DC, for Defendant.

OPINION

WENDY BEETLESTONE, District Judge

Plaintiffs, a group of individuals who purchased residential real estate throughout the United States, sued Defendant Hanna Holdings, Inc., a real estate brokerage firm and member of the National Association of Realtors, bringing claims under federal and state antitrust laws, state consumer protection statutes, and the doctrine of unjust enrichment on behalf of themselves and two putative classes of home buyers. Plaintiffs allege that Hanna participated in a conspiracy to maintain and enforce anticompetitive rules governing brokerage commissions in real estate transactions, leading to artificially inflated home prices and reduced competition in the market for real estate brokerage services.

Hanna filed a Motion to Dismiss Plaintiffs' Amended Complaint, arguing lack of standing, failure to state a claim, and failure to mediate. Given the complexity of the matter, the Court permitted Hanna to file four separate memoranda in support of its Motion to Dismiss, respectively concerning standing and mootness, the applicability of the rule of reason, failure to state a claim, and failure to mediate. Plaintiffs were given an opportunity to respond in kind. Hanna's arguments concerning standing and mootness were considered in a previous Opinion, wherein the Court dismissed Count I of Plaintiffs' Amended Complaint without prejudice. See Davis v. Hanna Holdings, Inc., 771 F. Supp.3d 552, 567-69 (E.D. Pa. 2025).

The Court now considers Hanna's arguments seeking dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, Hanna's Motion will be granted in part and denied in part.

I. FACTUAL BACKGROUND

Except where otherwise noted, the following facts are taken from Plaintiffs' Amended Complaint, well-pleaded allegations from which are taken as true at this stage. See Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009).

A. The Parties and Their Roles in the Market

Defendant Hanna Holdings, Inc. ("Hanna") is the largest privately-held real estate brokerage company in the United States, operating across thirteen states on the East Coast and in the Midwest. Hanna and its employee-brokers are members of the National Association of Realtors ("the NAR"), a 1.4-million-member trade association that represents residential and commercial real estate brokers, salespeople, property managers, appraisers, and others engaged in the real estate industry across the nation. The NAR establishes and enforces rules, policies, and practices that govern the activities of realtors belonging to the association's 54 state or territorial associations and its approximately 1,200 local boards.

Each local board operates a database of local property listings called a Multiple Listing Service ("MLS") and does so in accordance with rules promulgated on the national level by the NAR. In any particular geographical region of the country, the local MLS serves as the de facto marketplace for home listings—brokers working for home sellers ("seller-brokers") list houses on the MLS, and brokers working for home buyers ("buyer-brokers") use the MLS to find potential homes for their clients. MLSs also serve as the main source for the listings displayed by popular online real estate companies like Zillow, which, in exchange for access to NAR-controlled MLS data, agree not to compete with NAR members by acting as real estate brokers themselves.

Most homes bought each year—nearly 90%, according to NAR figures from 2020—were bought with the assistance of NAR-member brokers, who typically use their local NAR-controlled MLS to find properties for sale. Without access to the NAR-controlled MLSs, buyer-brokers would be deprived of the most comprehensive and up-to-date information about local home listings and would be unable to effectively compete with brokers who have such access. The NAR controls a substantial number of MLSs in the United States.

Plaintiffs are individuals who bought homes with the help of a NAR-member broker which utilized a NAR-controlled MLS. They allege that Hanna and non-party coconspirators—other real estate brokerages that are members of the NAR—worked together to promulgate several NAR rules designed to inflate buyer-agent commissions above competitive market rates and stymie competition among real estate brokers. As a result of these rules, Plaintiffs allege that they paid higher prices for their homes and received poorer quality brokerage services than they would have in a competitive market.

B. The Mechanics of Broker Compensation

As described above, most home purchases that occur in the United States are facilitated by brokers representing buyers or sellers. Both buyer-brokers and seller-brokers are compensated with fees calculated as a percentage of the home's final sale price; these fees are paid to the brokers by the home seller out of the proceeds received from the buyer. The sizes of the brokers' commissions are usually determined at the outset of the business relationship between the seller and their broker, which parties enter into a listing agreement specifying the total commission fee that will be paid to the seller-broker after the home sells. Using the MLS, the seller-broker then lists the house and makes an offer of compensation to any buyer-broker who can successfully broker the sale.

Suppose, for example, that Sam wants to sell their house. Sam contacts a seller-broker, who agrees to market the house in exchange for a 6% total commission fee. Sam's broker then creates a listing for Sam's house on the MLS and, as part of that listing, unilaterally offers a fee of 3% to any buyer-broker who can find a buyer. Several buyer-brokers show Sam's house to their clients, and a few buyers make offers on the home. Sam decides to accept Blake's offer of $500,000. Blake pays $500,000 into an escrow account; from this account, $15,000 is transmitted to Blake's broker (3% of the sale price, pursuant to the unilateral offer made by Sam's broker); another $15,000 goes to Sam's broker (the 6% total commission minus the 3% offered to the buyer-broker); and the rest is sent to Sam.

C. The Anticompetitive Conduct and its Effects

Plaintiffs allege that Hanna conspired with other NAR-member brokerages to artificially inflate commission rates for buyer-brokers, and suppress competition among them, by promulgating certain rules, policies, and practices that govern the behavior of NAR members and NAR MLS users.

The first and most central of these rules, which Plaintiffs call the "Buyer-Agent Commission Rule," is set forth in the NAR's Handbook on MLS Policy as follows:

In filing a property with [a MLS controlled by the NAR], the participant of the service is making blanket unilateral offers of compensation to the other MLS participants, and shall therefore specify on each listing filed with the service, the compensation being offered to the other MLS participants . . . . [MLSs] shall not publish listings that do not include an offer of compensation expressed as a percentage of the gross selling price or as a definite dollar amount, nor shall they include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships.

In lay terms, the Buyer-Agent Commission Rule requires seller-brokers, when listing a house on an MLS, to offer the same fee to any buyer-broker who successfully finds a buyer for the home, and forbids them from inviting buyer-brokers to negotiate the commission amount.

Elsewhere, as a complement to the Buyer-Agent Commission Rule, the Handbook prescribes what Plaintiffs call the "Commission Filter Rule," which allows buyer-brokers using an MLS to sort and select "listings they choose to display based only on objective criteria including . . . compensation offered by listing brokers." Certain NAR-controlled MLSs even allow buyer-brokers to set up automated email blasts to their buyer clients which filter out any homes that fall below a certain compensation amount or percentage.

Plaintiffs allege that these rules collectively facilitate a process dubbed "steering," whereby buyer-brokers deliberately avoid showing their clients any homes for which the buyer-broker fee is below the artificially high market compensation rate. Buyer-brokers do this to discourage sellers from offering low fees: if no buyer-broker will show a house listed too far below the supracompetitive market rate, then such a home will never find a buyer, forcing the seller-brokers to respond by offering the artificially inflated fee about which Plaintiffs complain.

Plaintiffs also allege that these rules reduce the quality of services offered by buyer-brokers. When brokers decide which houses to show their clients based on potential payouts, those brokers discount the buyer's desiderata—location, style, land features, et cetera. And since the same compensation fee is offered to all buyer-brokers regardless of skill, experience, or amount of...