Moehrl v. The Nat'l Ass'n of Realtors

• Decision Date: 29 March 2023
• Docket Number: 19-cv-01610
• Parties: CHRISTOPHER MOEHRL, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. THE NATIONAL ASSOCIATION OF REALTORS, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

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CHRISTOPHER MOEHRL, et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. THE NATIONAL ASSOCIATION OF REALTORS, et al., Defendants.

No. 19-cv-01610

United States District Court, N.D. Illinois, Eastern Division

March 29, 2023

MEMORANDUM OPINION AND ORDER

Andrea R. Wood, United States District Judge.

Plaintiffs are seven individuals who sold their homes utilizing a local database of properties for sale known as a Multiple Listing Service (“MLS”). As a condition of listing their home on an MLS, each Plaintiff's listing had to include a set offer of compensation to any broker who found a buyer for their home. Each Plaintiff then paid that offer amount in connection with the sale of their home. According to Plaintiffs, the rules implementing and governing the requirement that an MLS listing include a set commission offer to the successful buyer-broker are anticompetitive and caused them to pay artificially inflated, supracompetitive commission rates. They have therefore brought the present antitrust action alleging that Defendant National Association of Realtors (“NAR”), along with Defendants Realogy Holdings Corp., HomeServices of America, Inc., HSF Affiliates, LLC, The Long & Foster Companies, Inc., BHH Affiliates, LLC, RE/MAX LLC, and Keller Williams Realty, Inc. (collectively, “Corporate Defendants”), engaged in a conspiracy in restraint of trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. Now before the Court are Plaintiffs' motion to certify two classes of similarly situated home sellers (Dkt. No. 301), and Defendants' motion to exclude the opinions of two expert witnesses on which Plaintiffs rely in seeking class certification (Dkt. No. 318). For the reasons that follow Defendants' motion is denied and Plaintiffs' motion is granted.

BACKGROUND

The following facts are taken from the record and are uncontested unless otherwise noted.

In the United States, most individuals buying and selling residential property do so with the assistance of a real estate brokerage professional. Defendant NAR is a professional association of real estate brokers and agents whose members are referred to as “Realtors,” a term the NAR has registered as a trademark. The NAR's members belong to one or more of about 1,200 local associations or boards, and 54 state and territory associations. Realtors cannot join the NAR without also joining one of the state or local associations, and Realtors cannot join one of the state or local associations without also joining the NAR.

The vast majority of homes for sale in the United States are listed on an MLS, which is a local or regional database of for-sale properties. There are hundreds of MLSs across the country, each serving a specific local or regional market. Nearly 97% of MLSs are owned or operated by one or more local Realtor associations. Those NAR-affiliated MLSs are governed by rules promulgated by the NAR in its Handbook on Multiple Listing Policies (“MLS Rules”). The MLS Rules are adopted and enforced by the MLSs. Given the prominent role MLSs have in the homeselling process, participation in a local MLS is a practical necessity for real estate brokers. In turn, to join an NAR-affiliated MLS, brokers must agree to follow the MLS Rules. Brokers who violate the MLS Rules may face fines or the suspension or termination of their MLS access.

In addition, the NAR issues a Code of Ethics and its Standards of Practice and Case Interpretations (“Case Interpretations”), both of which all brokers and local associations must comply with as a condition of NAR membership. Violations of the Code of Ethics or the Case Interpretations are punishable by fines and potentially expulsion from the NAR. Because most NAR-affiliated MLSs require NAR membership as a condition for participation, participants in those MLSs necessarily must comply with the NAR's Code of Ethics and the Case Interpretations. And even for the MLSs that allow non-NAR members to participate, those nonRealtors are nonetheless bound by a separate MLS Standards of Conduct that mirrors the provisions of the Code of Ethics and Case Interpretations relevant here.

At issue in this lawsuit are several rules set forth in the MLS Rules, Code of Ethics, and Case Interpretations that together, allegedly work to artificially inflate the commissions paid to buyer-brokers (“Challenged Restraints”). Most prominently, Policy Statement 7.23 of the MLS Rules requires that, when listing a home for sale on an MLS, the listing seller-broker must “make blanket unilateral offers of compensation to” buyer-brokers (“Buyer-Broker Commission Rule”). (Pls.' Corrected Mem. in Supp. of Class Certification, Ex. 26, 2021 MLS Rules at 37-39, Dkt. No. 306-3.) The seller-broker's offer must be expressed as either a fixed percentage of the home's gross sales price or a definite dollar amount. (Id. at 38.) Moreover, the listing cannot “include general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships.” (Id.) Under the Buyer-Broker Commission Rule, a seller-broker is not allowed to submit, and an MLS is not allowed to publish a listing that does not include a blanket unilateral offer of compensation to the broker that finds a buyer for the home. (Id.)

As a result of the Buyer-Broker Commission Rule, the seller rather than the buyer pays the buyer-broker's commission. Accordingly, a seller's listing agreement with their seller-broker will typically provide that the seller will pay a total commission to the seller-broker, often expressed as a percentage of the home's sales price, with a portion of that commission earmarked to compensate the successful buyer's broker. For example, a seller's listing agreement might require the seller to pay the seller-broker a total commission equal to 6% of their home's sales price, with half that amount going to the buyer-broker such that the seller-broker and buyerbroker both ultimately receive 3% commissions.

Further, the Challenged Restraints include at least three NAR rules that Plaintiffs contend effectively prevent any negotiations over the commission paid to the successful buyer-broker. First, the Code of Ethics's Standard of Practice 16-16 prohibits buyer-brokers from “us[ing] the terms of an offer to purchase[] to attempt to modify the listing broker's offer of compensation.” (Pls.' Corrected Mem. in Supp. of Class Certification, Ex. 31, 2022 Code of Ethics at 13, Dkt. No. 306-3.) Thus, the buyer-broker cannot attempt to condition the purchase of a home on the seller-broker's agreement to adjust the amount of compensation offered to the buyer-broker. Second, the Code of Ethics's Standard of Practice 3-2 requires that any modification in the compensation offered to the buyer-broker “must be communicated to the [buyer-broker] prior to the time that [buyer-broker] submits an offer to purchase . . . the property.” (Id. at 7.) And once a buyer-broker “has submitted an offer to purchase . . . property, the listing broker may not attempt to unilaterally modify the offered compensation.” (Id.) Third, Case Interpretation #16-15 advises that any negotiations regarding the buyer-broker's commission “should be completed prior to the showing of the property.”^[1] (Pls.' Corrected Mem. in Supp. of Class Certification, Ex. 115, Case Interpretations at 92, Dkt. No. 306-4.)

The remaining Challenged Restraints consist of the NAR rules that, in conjunction, create one-sided transparency with respect to commission offers. As a result of the Buyer-Broker Commission Rule, buyer-broker commission offers are necessarily visible to all MLS participants. But Sections 18.2.4 and 19.12 of the MLS Rules go further and also permit buyerbrokers to select the listings that they display to consumers (i.e., display on their personal websites) based on buyer-broker commission offers. (2021 MLS Rules at 84, 91.) By contrast, other NAR rules prevent consumers from viewing the universe of buyer-broker commissions offered on the MLS. In particular, Sections 18.3.1 and 19.15 of the MLS Rules prohibit MLS participants from displaying buyer-broker commission offers to consumers. (2021 MLS Rules at 85, 91.) Moreover, until January 1, 2020, the Code of Ethics permitted buyer-brokers to represent to their clients that their services were free, “provided that all terms governing availability of the offered . . . service are clearly disclosed at the same time” and the potential for the broker “to obtain a benefit from a third party is clearly disclosed at the same time.” (Pls.' Corrected Mem. in Supp. of Class Certification, Ex. 119, 2019 Code of Ethics, Standard of Practice 12-1, 12-2, Dkt. No. 306-4.)^[2]

According to Plaintiffs, the combined effect of the Challenged Restraints is to maintain and extend an anticompetitive market for real estate broker services by causing home sellers to pay supracompetitive rates of commission to buyer-brokers. At the center of the antitrust conspiracy alleged by Plaintiffs is the NAR, which promulgates the MLS Rules, the Code of Ethics, and Case Interpretations. The NAR allegedly offers the following deal to co-conspirators: in exchange for adhering to and enforcing the Challenged Restraints, the co-conspirators will be allowed to participate in the MLSs and gain the attendant benefits of supracompetitive commission rates and protection from competition. Plaintiffs claim that Corporate Defendants are among the offerees that have accepted the NAR's offer, thereby entering into an antitrust conspiracy with the NAR.

Each Corporate Defendant is a franchisor or owner of residential real estate brokerage firms. Collectively, Corporate Defendants' various brands own, operate, and franchise brokerage firms throughout the...