Get ready to add GROUP BOYCOTT and EXCLUSIONARY STEERING to your Antitrust vocabulary

Are YOU ready to add to your antitrust lingo?  We’re talking about GROUP BOYCOTT and EXCLUSIONARY STEERING in “disruption” of normal practices.

With the recent filing of a Utah lawsuit by NAR member Homie Technology, we may see the arrival of further antitrust litigation. Not good news, we know. This is not your typical class action lawsuit, although the Complaint does spend many pages covering the same MLS rules that make up NAR’s Exclusionary Rules and Policies.

As detailed in the Complaint, NAR’s Buyer-Broker Compensation Rule, Commission-Filter Rules and Practices, Commission-Concealment Rules, Free-Service Rule, and the Clear Cooperation Policy (together, “NAR’s Exclusionary Rules and Policies”) imposed substantial barriers to the entry and expansion of brokers offering low prices to compete across the United States and in Utah.

Homie is an action for money damages and injunctive relief under the antitrust laws of the United States and the State of Utah. It is not covered by the terms of the proposed NAR Settlement. The door may be opened for a new set of attorneys to focus on Group Boycotts and Exclusionary Steering. In addition to local counsel, the lawsuit has engaged heavyweight national counsel — DHILLON LAW GROUP INC.

What is a Group Boycott?

• A group boycott—or concerted refusal to deal—is an agreement between two or more entities, often competitors, not to do business or to do business only on certain terms with disfavored individuals or firms. Examples include refusals by members of a group to enter into a business relationship with a disfavored firm, a termination by members of a group of an existing business relationship with a disfavored firm, a refusal by a trade association to admit new members, or a refusal by a standard setting organization to certify a certain product or service.
• a group boycott can be used to express disapproval of a party’s practices or to gain market power by destroying or coercing rivals. However, group boycotts can violate the Sherman Antitrust Act and are analyzed under either the per se rule or the rule of reason, depending on the nature of the boycott.
• The Federal Trade Commission defines an illegal boycott as: Any company may, on its own, refuse to do business with another firm, but an agreement among competitors not to do business with targeted individuals or businesses may be an illegal boycott, especially if the group of competitors working together has market power.

As alleged by Homie, because all of NAR’s Exclusionary Rules and Policies were promulgated and enforced through the MLS, Homie attempted to avoid the MLS entirely by marketing properties off the MLS, including through its website and mobile app, as so-called private listings. The Clear Cooperation Policy eliminated this possibility, injuring Homie by eliminating alternative marketing avenues that would have allowed it to avoid the pervasive effects of Defendants’ anticompetitive conduct, including the tacit and express boycotts of Homie facilitated by NAR’s Exclusionary Rules and Policies.

What is Exclusionary Steering?

• Homie alleges that it lost business as a result of the exclusionary steering facilitated by NAR’s Exclusionary Rules and Policies. This lost business depressed Homie’s profitability, reduced its access to capital necessary to invest and grow, and made it a less effective competitor in Utah and nationwide.
• The Commission-Concealment Rules facilitated exclusionary steering, reinforcing the effects of the Buyer-Broker Compensation Rule. Buyer-brokers could and did steer potential home buyers away from properties with low commission offers by filtering out, failing to show, or denigrating homes listed for sale that offered lower commissions than other properties in the area. When buyers cannot see commission offers, they cannot detect or resist this type of steering, making exclusionary steering more likely.
• The Buyer-Broker Compensation Rule was exclusionary. Because the blanket offer was required to be made available to every buyer broker using the MLS (i.e., virtually all buyer-brokers regardless of experience or skill) and could be compared to the blanket offers that every other seller-broker must post to operate on the MLS, even the threat of steering, the Buyer-Broker Compensation Rule created tremendous pressure on sellers to offer the high, standard commission that had long been maintained in this industry. Seller-brokers knew that if the published blanket offer was less than the standard commission, many buyer-brokers would “steer” home buyers to the residential properties that provide the higher standard commission

Examples of a number of emails, posts on social media platforms, and testimony cited in the complaint that address the Group Boycott and Exclusionary Steering violations:

• “I wouldn’t have an issue with Homie and would happily show your listings if you’d offer a fair and reasonable BAC but since you are not you won’t get a showing out of me unless a client specifically asks for one on your listings.”
• Realtors in Utah also encouraged one another on Facebook groups not to show homes to Homie-represented buyers during the period that the Buyer-Broker Compensation Rule was in effect. One agent wrote: “I’ll admit right now I am NOT going to take time to show a Homie buyer one of my listings.” Several named firms in Utah publicly advertised that they would not work with Homie-represented buyers.
• In remarks on MLS : “If you up the commission, I will bring my buyers. If not, I will not. It’s a disservice to your client. Please educate them. Please let them know that. I truly have a buyer that would possible [sic] buy this house. I won’t show it until the commission is raised.”
• On Facebook groups, brokers exchanged information about their intent to steer buyer clients away from properties listed by Homie for sale in Utah. For example, one post stated: “I know several agents that omit [H]omie listings from their hotsheets. They would be wise to counsel their sellers on the affect [sic] of such low BAC.” Editor Note: That’s using the threat of steering if sellers offer a low buyer-broker compensation.
• During the period that the Buyer-Broker Compensation Rule was in effect, highway billboards erected by local NAR associations in Utah encouraged consumers to select higher priced brokers to list their homes instead of Homie. Editor note: Homie also used large highway billboard ads: Homie took direct aim at the industry in some of its advertising, seen on billboards along Interstate 15. “Agent charging you $30,000 to sell?” one billboard read. “Eat my shorts.”
• Email to Homie listing agent: “I had your home on a list of 4 to show to my buyers tonight. Removed it from the list after I saw the 1.5% BBC [i.e., the buyer-broker commission]. I could always show it and then negotiate up the BBC in the contract but figured, why go through the hassle when we have three other great listings paying 2.5-4%. Anyway. Please tell your sellers for me.”
• Another Homie client canceled a listing with Homie, reporting: “[W]e found that a good number of Realtors do not care to work with Homie. We had multiple calls from realtors stating that they didn’t want to show our home with Homie. I wonder how many sales we missed. We found that most realtors do not like Homie and discourage it to their clients.”

Who are the parties to the Homie lawsuit?

• HOMIE TECHNOLOGY, INC. Plaintiff, v. NATIONAL ASSOCIATION OF REALTORS; ANYWHERE REAL ESTATE INC.; KELLER WILLIAMS REALTY, INC.; HOMESERVICES OF AMERICA, INC.; HSF AFFILIATES, LLC,; RE/MAX LLC, and WASATCH FRONT REGIONAL MULTIPLE LISTING SERVICE, INC.,   Defendants
• Access the complete 54-page Complaint 

Highlights from the Complaint from the Plaintiff’s Perspective

• Disruption: Residential real estate brokerage is a stagnant industry dominated by firms competing with legacy technology and business models. Competition from innovative market entrants armed with new technologies and business models has been predicted for years. But the long-awaited emergence of disruptive new entrants has been stalled by the anticompetitive conduct of traditional brokerages acting through NAR.
• As alleged by Homie, because all of NAR’s Exclusionary Rules and Policies were promulgated and enforced through the MLS, Homie attempted to avoid the MLS entirely by marketing properties off the MLS, including through its website and mobile app, as so-called private listings. The Clear Cooperation Policy eliminated this possibility, injuring Homie by eliminating alternative marketing avenues that would have allowed it to avoid the pervasive effects of Defendants’ anticompetitive conduct, the tacit and express boycotts of Homie facilitated by NAR’s Exclusionary Rules and Policies.
• Defendants’ conspiracy involved the creation of a market structure that facilitated boycotts of new entrants, such as Homie, by incumbent real estate brokerages. The terms of this conspiracy were contained in NAR rules that govern access to the MLS. NAR allowed brokers representing home sellers and home buyers to use NAR’s MLSs only if those brokers agreed to adhere to and help implement terms that significantly restrain competition.
•  Defendants are jointly and severally liable for the acts of their co-conspirators whether named or not named as defendants in this Complaint.
• WHO are co-conspirators?– Defendants’ control of the NAR-affiliated MLSs through their co-conspirators (i.e., through their local franchisees, other local brokers, and the local realtor associations) means that non-conspiring brokers would need to establish an alternative listing service to compete with the conspiring brokers or, alternatively, attempt to compete without access to a listing service.
• The offer of compensation to buyer-brokers is sometimes called a “BAC,” or buyer-agent commission, in the industry. Because the offer of compensation was displayed in the MLS, buyer-brokers would steer their clients away from sellers offering low buyer-broker commissions and towards sellers offering high buyer-broker commissions. By giving buyer-brokers the ability through the MLS to detect and punish price discounting by seller-brokers, NAR’s Buyer-Broker Compensation Rule created a fundamentally anticompetitive market structure that systematically excludes brokers like Homie seeking to compete by offering lower commissions.
• NAR’s Exclusionary Rules and Policies were widely adopted and enforced by NAR-affiliated MLSs nationwide, including by WFRMLS. There were agreements among competing real estate brokers to reduce and limit competition among brokers.
• Homie was launched in 2015, the year the DANGER Report was issued. Homie’s entry and unimpeded expansion promised to bring the new competition identified by the DANGER Report as looming on the horizon. After launching in Utah, Homie had a phased expansion plan that included launching across the United States in each state and territory. Sophisticated investors funded expansion plans forecasted to expand Homie’s operations nationwide within five years. Having validated its model in Utah, Homie had become a competitive threat to Defendants in markets across the country, markets that, like Utah, had been the subject of Defendants’ anticompetitive conduct for decades.
• Residential real estate was ripe for disruption with technology, and consumers were primed for an alternative to the traditional, high-priced brokerage services offered by Defendants. Homie’s business model was to disrupt the traditional real estate brokerage model by returning artificially inflated commissions to consumers, competing away the supracompetitive prices engendered by Defendants’ decades-long conspiracy.
• Homie was subject to both express and tacit boycotts in Utah by incumbent brokerages, some affiliated with the Corporate Defendants, boycotts organized through the MLS, online social media platforms, and public statements. These boycotts, which were facilitated by NAR’s Exclusionary Rules and Policies, had their natural and intended effect on Homie’s business, gradually but inexorably reducing its market share, revenue, and profits until the firm was unable to compete effectively despite a business model that, before Defendants’ predation, had proven its viability.
• Homie also competed with new technology, including a consumer-facing app that automated portions of the sales process for both sellers and buyers. By automating portions of the sales process, Homie lowered its costs, which, in turn, allowed it to lower the price of its brokerage services to consumers.
• But the Free-Service Rule and the Commission-Concealment Rules frustrated this strategy by allowing buyer-brokers to falsely represent their services as “free” when in fact they were anything but free and allowing competing brokers to conceal from consumers the nature and extent of the BAC.
• In a Federal Trade Commission/Department of Justice workshop, one discounter explained: “We’ve had bricks thrown through car windows. We’ve had our cars egged. We’ve had hate mail sent to our sellers,” after it offered a lower commission on the MLS. The discounter estimated: “40% of agents will go out of their way, above and beyond, and push hard not to show or sell your home if you don’t offer a 2.8% or 3% commission.” As another commentator explained: “Essentially, the MLS listing acts as a tool which competing brokers can use to help enforce a near uniform commission rate and drive out discounters.”
• Some buyer-brokers or agents would use MLS software to filter out any listing where a buyer-broker would receive less than 2.5% commission on the home sale. In blatant breach of their fiduciary obligations to their clients, the buyer-broker would then provide to its home buyer customer only those listings where the buyer-broker would be paid a 2.5% commission or more if the home sale is completed—usually without disclosing to the buyer customer that the buyer-broker was limiting the potential homes to consider.
• Buyer-broker fees, though nominally paid by the home’s seller, are ultimately paid out of the buyer’s funds from the purchase price of the house. If buyers are told that buyer-broker services are “free,” they are less likely to think to negotiate a lower buyer-broker commission or to view buyer-broker rebate offers as attractive. In these ways, NAR’s Free-Service Rule reduced demand for—and competition from—buyer-brokers attempting to compete through low prices.
• By participating in an association that prevents member institutions from allowing their associates to compete with each other for commissions— and agreeing to follow and enforce its anticompetitive rules—the Corporate Defendants have joined the conspiracy and have played a central role in its implementation and enforcement.
• Any brokers in the areas in which the NAR-affiliated MLSs operate who wished to compete outside of Defendants’ conspiracy would face insurmountable barriers. Defendants’ control of the NAR-affiliated MLSs through their co-conspirators (i.e., through their local franchisees, other local brokers, and the local realtor associations) means that non-conspiring brokers would need to establish an alternative listing service to compete with the conspiring brokers or, alternatively, attempt to compete without access to a listing service. A seller-broker who represented a seller without using a listing service would lose access to the large majority of potential buyers, and a buyer-broker who represented a buyer without using a listing service would lose access to the large majority of sellers. Brokers cannot compete effectively without access to a listing service
• The conspiracy alleged is per se illegal, or in the alternative is unlawful subject to a “quick look” or under the Rule of Reason. Editor note: The Sitzer case (and Moherl) were both decided under the federal judge’s use of the per se standard (automatically a conspiracy and illegal) – with jury left to only determine damages. NAR has to fight really hard to file its Motion to Dismiss the Homie lawsuit, or at least argue in favor of getting a Rule of Reason standard where they at least have a chance for the jury to consider the pro-competitive practices (which NAR never had the chance to do at the Sitzer trial with Judge Bough).
• On the state antitrust charges: (Tortious Interference with Economic Relations) Defendants and their co-conspirators knowingly and intentionally interfered with Homie’s existing and potential economic relations, including by steering consumers away from Homie’s clients, causing Homie’s clients to cancel their contracts with Homie, and causing Homie’s business partners not to renew their existing contracts with Homie.

Are there lessons to be learned here?

• In our 1990”s pioneer days of teaching about email, we taught never post something you don’t want to see published in the front page of the New York Times.
• This holds especially true on social media posts, as revealed by the extensive use of damaging evidence in lawsuits like Homie.
• Discuss with your broker about the office policy on posting, and confirm any updates in your company policy manual after legal review

Related Reading:

• Saul’s post on Per Se and Rule of Reason difference