DOJ argues Optional MLS rules can represent “concerted action”

On June 20, 2024, the DOJ filed a Statement of Interest (SOI) in the REX v Zillow lawsuit.  At issue is whether the district court applied an incomplete legal framework in evaluating when an association’s optional rules can represent concerted action (a conspiracy) under Section 1 of the Sherman Act.

The Statement of Interest makes it clear that the DOJ’s antitrust strategy remains focused on reducing real estate broker commissions as a solution to the housing crisis.

litigation

You can find the entire SOI here: REX-v-NAR-DOJ-Brief-6.20.24

Highlights

  • This case involves an optional model rule in NAR’s Handbook called the “no-commingling rule” or “segregation rule” that MLS listings “must be displayed separately from listings obtained from other sources.” Although designated as “optional,” the no- commingling rule belongs to a set of display-related rules that, per NAR’s Handbook, “cannot be modified” “if adopted.” A large majority—approximately 71%— of NAR-affiliated MLS have adopted the no-commingling rule.
  • As part of an effort to access more comprehensive, up-to-date listings, Zillow began to shift toward using Internet Data Exchange (“IDX”) feeds directly from MLSs. To gain access to MLSs’ IDX feeds, Zillow had to become a licensed brokerage and have its brokers apply to become members in local MLSs, many of which were affiliated with NAR. Zillow also became a member of NAR.
  • Zillow complied with the rule by segregating search results into two separate tabs: (1) a default tab labeled “Agent listings” for MLS listings, and (2) a non-default tab labeled “Other listings” obtained from non-MLS sources, which would be shown only if a user clicked on that tab.
  • After Zillow implemented the new two-tab display, REX’s listings were relegated to the “Other listings” tab. Page views of REX’s listings on Zillow’s platforms dropped by as much as 80%, and REX’s clients had trouble finding their listings on Zillow.  Facing difficulties reaching potential home buyers through Zillow, REX shuttered its residential real estate brokerage business about 18 months after Zillow’s display change.
  • Under Supreme Court precedent, there are at least three ways that optional rules can involve concerted action: (1) a purportedly optional rule could be mandatory in practice; (2) an association’s adoption of an optional rule can itself be concerted action; and (3) an optional rule can invite others to participate in a common plan.
  • The DOJ argued that, if uncorrected, the district court’s incomplete approach creates a risk that associations like NAR could evade antitrust scrutiny for many anticompetitive schemes by using optional rules. Vacatur and remand are appropriate for the district court to fully consider whether there is adequate evidence of concerted action under the correct legal framework.
  • DOJ cited a 1950 case against NAR holding that a “non-mandatory” schedule of rates prescribed by the real estate association constituted price-fixing. Regardless of whether the schedule was mandatory or optional on the association members, the schedule itself was “proof of consensual action fixing the uniform or minimum price” by the real estate association.
  • The DOJ once again expressed its focus on practices that create downward pressure on real estate commissions when it referenced NAR’s internet VOW policy involved with the 10-year Consent decree in 2008. Operated by brokers, VOWs enabled potential home buyers to search MLS databases themselves (registering with their email address), placing downward pressure on commission rates.

In a related inflated broker commissions case, the West Penn MLS requested a stay in proceedings in a copycat class-action lawsuit originally filed by Spring Way Center – the stay theory being that the underlying proposed NAR Settlement is awaiting court final approval by November 26, 2024. Judge Stickman denied West Penn’s motion to stay without comment, thus ordering the case to proceed as scheduled.

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4 Responses

  1. Lots of pleadings happening these days!
    FLASH — In the federal Massachusetts case — Nosalek vs MLS PIN — involving court approval of a Settlement Agreement, Judge Patti B. Saris has stayed the legal proceedings. Her hand written and signed notation appearing on the order in No. 1:20-cv-12244-PBS dated 6/24/24 states: “This case is stayed pending ruling by Judge Bough on the NAR Proposed Settlement. Plaintiffs shall file its supplemental Preliminary Approval of Settlement within 30 days of that ruling. The United States will have 90 days to review the settlement agreement as provided in the Class Action Fair Act.”

    1. So it will be a while

      It’s interesting to note that if/when these settlements are denied, the court orders are on the judges desk and can issue an injunction on the entire CCP

  2. The Statement of Interest by the DOJ is just another indication that the DOJ views MLS as a “public utility.”

    The “no-commingling rule,” when viewed in the historical context of the Internet and the WWW, made/makes total sense.

    No broker, in 1995, when we launched REALTOR .com, would allow their listings to draw eyeballs to For Sale by Owner properties.

    It all had to do with something we referred to when we were educating and convincing brokers of the value of the WWW, back in 1995, as “Critical Mass.”

    What broker would want their listings to draw attention to FSBO properties?

    Nice piece John.

  3. A listing is a marketing asset.

    It takes time, money, and commitment, with no initial compensation, to acquire a real estate listing in the first place. Then, it takes time and money to have a brokerage structure to market listings once obtained, often with no compensation if the property does not sell, and also with some degree of liability. The real estate compensation structure is “contingency based.”

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