In re RealPage, Inc., Rental Software Antitrust Litig.
| Docket Number | 3:23-md-03071,MDL 3071 |
| Decision Date | 28 December 2023 |
| Parties | IN RE REALPAGE, INC., RENTAL SOFTWARE ANTITRUST LITIGATION (NO. II) |
| Court | U.S. District Court — Middle District of Tennessee |
THIS DOCUMENT RELATES TO:
ALL CASES
All Defendants named in the Student Plaintiffs' First Amended Consolidated Class Action Complaint (“Student Complaint”) (Doc. No. 527) filed a Motion to Dismiss the Student Complaint (Doc. No. 587) and Memorandum of Law. (Doc. No. 588). The Student Plaintiffs responded (Doc. No 617), and the Student Defendants filed a Reply. (Doc. No 643).
All Defendants named in the Multifamily Plaintiffs' Second Amended Consolidated Class Action Complaint (“Multifamily Complaint”) (Doc. No. 530) filed a Motion to Dismiss the Multifamily Complaint (Doc. No. 592) and Memorandum of Law. (Doc. No. 593). The Multifamily Plaintiffs responded (Doc. No. 623), and the Multifamily Defendants filed a Reply. (Doc. No. 639).
On November 15, 2023, the United States of America filed a Statement of Interest (Doc. No. 627) and a Memorandum of Law (Doc. No. 628) arguing that the Complaints adequately allege violations of Section 1 of the Sherman Act, and Defendants filed a Response (Doc. No. 644).
The motions are ripe for review. The Court addresses both motions together in this Memorandum Opinion.[1] For the reasons that follow the Court will deny the motion to dismiss the Multifamily Complaint and grant the motion to dismiss the Student Complaint.
The following allegations are taken from the Multifamily Plaintiffs' Second Amended Complaint (“Multifamily Complaint”) (Doc. No. 530) and the Student Plaintiffs' First Amended Complaint (“Student Complaint”) (Doc. No. 527) and are accepted as true to resolve the pending motions.
The allegations suggest that student and multifamily rental housing markets throughout the United States have been tainted by an illegal price-fixing conspiracy. The conspiracy is facilitated by revenue management software that takes property owners' and managers' sensitive pricing and supply data, applies its algorithm across this data, and then spits out price recommendations for each rental unit. By co-mingling their sensitive pricing and supply data within this revenue management software, horizontal competitors conspire to fix prices in their respective rental housing markets.
RealPage Inc. (“RealPage”) is a software company that developed an “integrated technology platform that provides software solutions for the multifamily [and student] housing markets.”[2] (Doc. No. 530 ¶ 2; see also Doc. No. 527 ¶ 5). Only one of these types of software solutions is relevant to this case-RealPage's revenue management software. RealPage introduced its first revenue management software, YieldStar, after acquiring it from Camden Property Trust in 2002. (Doc. No. 530 ¶ 209). In 2009, RealPage launched YieldStar Student Housing (“YieldStar Student”), which by 2013 allowed users to “input community data” to assist in “project[ing] future pricing.” (Doc. No. 527 ¶ 40). RealPage expanded the reach of its revenue management services by acquiring Lease Rent Options (“LRO”) and Student Lease Rent Options[3](“LRO Student”) from Rainmaker Group in 2017. (Doc. No. 530 ¶ 26; Doc. No. 527 ¶¶ 14, 46). In 2020, RealPage launched AI Revenue Management (“AIRM”), a “combination of its legacy revenue management platforms [YieldStar and LRO] and a super-charged price optimization and revenue management tool.” (Doc. No. 530 ¶ 221; Doc. No. 527 ¶ 48). Today, RealPage offers a full suite of revenue management services, which also includes RealPage Revenue Management (“RPRM”) and RealPage Student Revenue Management (“Student RPRM”). (Doc. No. 530 ¶ 2; Doc. No. 527 ¶ 4). Throughout this Opinion, the Court refers to these software solutions collectively as the “Revenue Management Solutions” or “RMS.” In part because of its successful and lucrative RMS, RealPage, formerly a public company, was purchased by private equity firm Thoma Bravo in December 2020 for $10.2 billion. (Doc. No. 530 ¶¶ 61, 63-64).
RealPage solicits clients to use its Revenue Management Solutions by promising that they will “outperform the market” with “software that . . . use[s] a database of rental prices in [each client's] area (including competitors' prices) and provide[s] the optimal price to charge prospective tenants, with both short- and long-term goals of increasing revenues by raising rents.” (Doc. No. 530 ¶ 4). To achieve this promised revenue outperformance, RealPage's clients must allow RealPage to use their commercially sensitive pricing and supply data in its RMS algorithms, both to set each client's own rent prices and to help set rent prices of its horizontal competitors. (Doc. No. 530 ¶ 5; Doc. No. 527 ¶ 6). These clients must also be willing to “outsource [their] daily pricing and ongoing revenue oversight” to RealPage by accepting RealPage's price recommendations upwards of 80-90% of the time and allowing RealPage to set prices for their properties “as though [RealPage] own[s] them [itself].” (Doc. No. 530 ¶¶ 7, 15).[4] RealPage's RMS clients either accept oversight of their pricing activities by a RealPage pricing advisor or allow RealPage to train their internal revenue managers who perform similar oversight. (Doc. No. 530 ¶ 17; Doc. No. 527 ¶ 54).
RealPage's RMS invitation to “outperform the market,” primarily by increasing rent prices, has been accepted by many clients. These clients include owners of residential properties, companies that serve as both owners and operators of residential properties, and property management companies, including large property managers and lessors of student housing.[5] (Doc. No. 530 ¶ 3; Doc. No. 527 ¶ 3). These companies are often horizontal competitors. (Doc. No. 530 ¶ 6; Doc. No. 527 ¶ 230). As of December 2020, RealPage “had over 31,700 clients, including each of the 10 largest multifamily property management companies in the United States.” (Doc. No. 527 ¶ 21; see also Doc. No. 530 ¶ 61). By the end of 2022, RealPage's RMS was being used to price over four million multifamily housing units across the United States. (Doc. No. 530 ¶ 224). As for student housing rental units, according to a press release in 2019, YieldStar Student alone served “more than 50 clients” across the country, (Doc. No. 527 ¶ 47), and Lessors now manage hundreds of thousands of student beds across the country. (Id. ¶¶ 17-32).
Plaintiffs allege that RealPage and RMS Client Defendants have formed an illegal pricefixing cartel by jointly using RealPage's RMS software. (See Doc. No. 530 ¶ 6; Doc. No. 527 ¶¶ 118, 156). As the cartel leader or the “hub” of the conspiracy, RealPage serves as an intermediary between horizontal competitors in the multifamily and student housing markets. (Doc. No. 530 ¶¶ 230, 276, 311). It takes its clients commercially sensitive pricing and supply data, runs its RMS algorithm against that collective data pool, and then spits out rental pricing recommendations for each of its clients' properties. (Doc. No. 530 ¶ 4). RMS Client Defendants agree to set prices based on a pool of their horizontal competitors' proprietary data and reasonably believe that their competitors are using the same data and methods to price their properties. (Doc. No. 530 ¶¶ 6-7).
Multifamily Plaintiffs allege that this illegal cartel was formed in the multifamily housing rental market by January 2016. (Doc. No. 530 ¶¶ 1, 694, 702). By that point, RealPage's YieldStar software had been on the market for fourteen years, operating as a rent advisory service. (Doc. No. 530 ¶ 212). In early 2016, RealPage transitioned YieldStar to become a “rent-setting software.” (Id. ¶ 212). When the illegal cartel was formed, YieldStar was being used to price approximately 1.5 million multifamily housing units across the United States. (Id. ¶ 215). With its 2017 acquisition of LRO, RealPage doubled the number of units that its RMS was responsible for pricing to three million. (Id. ¶¶ 214-15). Beginning in early 2018, RealPage integrated its YieldStar and newly-acquired LRO platforms into a single unified platform and by “no later than 2020, . . . all RealPage RMS were combined into a single unified database.” (Doc. No. 530 ¶¶ 221-222; see also Doc. No. 527 ¶ 63 (“RealPage offers a product that creates one unified platform . . .”)).
Student Plaintiffs allege that the conspiracy to fix prices in the student housing rental market began in early 2010, soon after the launch of YieldStar Student. (Doc. No. 527 ¶ 40). According to Student Plaintiffs, YieldStar Student “quickly obtained buy-in from a critical mass of customers in the student housing market.” (Id.). By 2013, RealPage had collected a wealth of so-called “community data” from its users to produce pricing data for its users. YieldStar's then-vice president of market development announced that “Yieldstar Student Housing had improved user revenues by 3 to 7 percent relative to the market,” that RealPage “had a proven track record on a sustained basis for the past four years with the same partners and the same assets,” and that RealPage had continued to sign up “partners” to its software, which would make “its user-supplied market data . . . even more complete.” (Id. ¶ 41). In a 2019 press release, RealPage announced that YieldStar Student served “more than 50 clients.” (Id. ¶ 47). Similar to the allegations in the Multifamily Complaint, Student Plaintiffs allege that RealPage expanded with the later inclusions of Student LRO and AIRM. (Id. ¶¶ 46-50).
RMS Client Defendants began using RealPage at different times and have used various iterations of RealPage's YieldStar LRO, and AIRM RMS...
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