NAR’s Motion To Dismiss in the Sitzer/Burnett litigation

I just reviewed a copy of NAR’s Motion To Dismiss in the Sitzer/Burnett litigation (NAR Sugg in Support of Rule 50(b) Mot 01.08.24_).

With all the supporting cases and trial record references, it felt like I was back in law school again (60 years ago!).

Major Takeaways:

  • As stated by Defendant counsel, the Court’s erroneous evidentiary rulings — which were wrong when issued and should now be reconsidered in light of the full trial record — have irrevocably tainted the jury’s verdict
  • Evidence was presented at trial but not admitted, thus misinforming the jury.
  • In summary, the NAR Motion to Dismiss specifically covers NAR’s position that the direct-purchaser requirement bars Plaintiffs’ suit; the Model Rule is not an unreasonable restraint of trade; Plaintiffs presented no evidence that NAR conspired with anyone; and Plaintiffs failed to prove injury or damages resulting from the challenged rule.
  • Contrary to what we’ve heard in social media channels about the incompetence of Defendant attorneys, the trial record shows they performed well in court. They encountered a Judge who invoked the “per se” ruling to instruct the Jury to only consider evidence admitted by the Judge.

And, as I did in my law school days, I searched for some background on the Honorable Judge Bough who played a key role in the case. Although this was a Jury Trial, the Judge is the Referee as we’ll find out when we look at the Jury Instructions and the decisions over what evidence gets admitted.

Inman Deputy Editor Andrea Brambila –   who attended the Missouri trial and posted regularly on the progress, had this to say:

“Bough’s decision to have the jury evaluate the claims in the case under a “per se” rule analysis rather than a “rule of reason” analysis, which was reflected in the trial’s jury instructions.”

We’ll be examining the per se vs. Rule of Reason issue, in addition to the key impact of the Jury Instructions.

Rob Hahn asked around and reported this:

“Word is — from speaking to lawyers I know — that the judge in the Sitzer/Burnett case tends to work fast. The jury might make the actual decision, but the judge can hurry things along. We might get a decision by April, maybe May (Ed.2024). If anything, I rather think the jury is going to have trouble with the damages phase, rather than the actual “who do you find for?” phase….

  • “And, If you have read Judge Bough’s 10/2019 opinion denying NAR’s earlier motion to dismiss (which I have, so you don’t have to), then you are likely to reach the conclusion that the judge is going to lean towards the plaintiffs in the Sitzer/Burnett case. Again, the jury decides but the judge referees. I think it’s safe to say that the plaintiffs may be playing in front of a home crowd.”
  • Rob was correct, as NAR devoted 13 pages of prejudicial conduct by Judge Bough in the current Motion to Dismiss memo. Plaintiffs’ counsel violated the Court’s decision “excluding reference to” witnesses’ “wealth, income, [or] success” without the Court’s specific approval. ECF 1119 at 3; 10/13/2023 Pretrial Conference Tr. 11:2-12. Disregarding the Court’s express instructions, Plaintiffs’ counsel proceeded to disclose NAR’s CEO’s salary without seeking leave from the Court—stopping partway through the figure only because Defense counsel immediately and successfully objected. 10/24/2023 Trial Tr. 1104:8-23 (R. Goldberg).

I encourage you to read NAR’s Supporting memo with references to the full Trial Record which, unfortunately, the Judge instructed the Jury not to consider in their final evaluation. Here are some highlights:

THE DIRECT-PURCHASER REQUIREMENT BARS PLAINTIFFS’ SUIT

  • Because Plaintiffs undisputedly did not purchase directly from Defendants and have not established any valid exception to the direct purchaser requirement, judgment as a matter of law is required.
  • But Plaintiffs made—and trumpeted—the deliberate decision not to bring this case against local brokers. Whatever strategic benefits they might have expected at trial from that decision, the cost now is dismissal of their suit.
  • Indeed, Plaintiffs acknowledged in their prior Eighth Circuit briefing that Corporate Defendants are “two steps removed” from any home-sale transaction.

THE MODEL RULE (Participation Rule) IS NOT AN UNREASONABLE RESTRAINT OF TRADE

  • They proceeded at trial exclusively under a per se theory of antitrust liability, but that theory is legally defective, and the evidence could not support the jury’s verdict under the rule of reason.
  • In short, a court may not condemn a given arrangement as a per se violation unless “courts have had considerable experience with the type of restraint at issue” and the restraint “would always or almost always tend to restrict competition and decrease output.”
  • And although Plaintiffs have characterized the Model Rule as a form of horizontal price-fixing, the Supreme Court has not condemned all arrangements that might be described that way, even where they clearly involved agreements on price.
  • When analyzed under the rule of reason, the Model Rule does not amount to an unreasonable restraint of trade as a matter of law. “Under rule-of-reason analysis, courts seek to ascertain the extent to which challenged conduct harms competition and to then determine whether any such harm is nonetheless justified by countervailing procompetitive benefits
  • As the testimony and listing agreements from the named Plaintiffs show, sellers commit only to pay the seller brokers their commissions, which sellers are free to negotiate, and it is the seller brokers who decide how they will share their commissions with buyer brokers.
  • And at any rate, if a seller objects to any of the mandatory rules in NAR’s Handbook on Multiple Listing Policy—including if the seller does not want the seller broker to pay a buyer broker anything—the seller can easily avoid the requirement entirely by selling the property without a broker, hiring a nonmember of NAR, or marketing the property privately with a NAR member. See 10/24/2023 Trial Tr. 1243:4-10 (R. Gansho).
  • (“Q Is there anything in this rule that tells a seller what they have to do? A No. It’s up to the seller to decide what they want to do.”) (R. Goldberg). For that reason, the Model Rule can hardly even be deemed a “restraint.” It does not restrain anything.
  • At trial, Plaintiffs never coherently explained how a mere disclosure rule could increase commission rates at all, let alone be solely responsible for the existence of the practice of seller brokers paying buyer-side commissions—the preposterous premise of Plaintiffs’ damages theory. Revealingly, the Plaintiffs’ experts focused on other alleged rules and practices as the mechanisms by which commissions were supposedly raised or stabilized, including the alleged practice of steering and the NAR model rule requiring seller brokers to file listings into an MLS within one business day of public marketing
  • Perhaps most notably, Plaintiffs’ expert, Dr. Schulman, agreed that the amounts offered by seller brokers to buyer brokers vary across and within the subject MLSs, despite all having identical NAR rules. See infra at 22-23. This variation shows that market factors and competition, and not NAR’s rules, determine offers of compensation
  • Given that a central purpose of an MLS is to collect all information about a home sale into a single location, requiring disclosure of what the seller broker is willing to offer the buyer broker makes the MLS “more effective in accomplishing its purpose.”

In AmEx, the Supreme Court was crystal clear that the antitrust analysis of a two-sided platform generally “must include both sides of the platform,” because “[p]rice increases on one side of the platform . . . do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services.”

  • Assuming arguendo that Plaintiffs succeeded in showing that the Model Rule causes offers of compensation to be made or affects commission rates (but see supra at 16-17), they nevertheless failed to establish an antitrust violation as a matter of law because they did not offer any evidence that whatever anticompetitive effect (if any) exists with respect to home sellers more than offsets the benefit to home buyers.
  • There was no dispute, moreover, that those are just offers of compensation and are not what brokers were actually paid. As noted above, the trial evidence shows that the ultimate compensation paid differs from the offer in 23% to 33% of transactions. See supra at 15. These adjustments are evidence of negotiation, which is inconsistent with an antitrust conspiracy
  • At most, Plaintiffs showed some degree of parallel pricing. But parallel behavior can be evidence of a conspiracy only if the evidence shows it “would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence unaided by an advance understanding among the parties.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 n.4 (2007) . In other words, “[t]here must be evidence that tends to exclude the possibility of independent action.” Monsanto, 465 U.S. at 768; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) (“[C]onduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.”); Twombly, 550 U.S. at 554 (“An antitrust conspiracy plaintiff with evidence showing nothing beyond parallel conduct is not entitled to a directed verdict.”).
  • Plaintiffs’ assertion of injury is also legally defective because it fails to account for class members who suffered no harm because they negotiated a home sales price net of any commissions paid, rather than a gross price. Even if Plaintiffs could show that they were injured by the Model Rule, they did not present any legally valid theory for determining damages.
  • To begin, Plaintiffs’ claim fails to account for benefits that Plaintiffs received from the Model Rule. See Los Angeles Mem’l Coliseum Comm’n v. Nat’l Football League, 791 F.2d 1356, 1367 (9th Cir. 1986) (“An antitrust plaintiff may recover only to the ‘net’ extent of its injury; if benefits accrued to it because of an antitrust violation, those benefits must be deducted from the gross damages caused by the illegal conduct.”). Many class members who sold homes during the class period also bought homes during that same period, and in the process engaged buyer brokers who were compensated through commissions shared by seller brokers.
  • Schulman also admitted that he failed to even attempt to calculate the total commissions that any Plaintiff paid, which is critical to any credible determination of Plaintiffs’ damage amount. 10/20/2023 Trial Tr. 668:10-23. And Dr. Schulman made no effort to account for additional costs that sellers could incur in a world without the Model Rule, such as higher seller-side commissions or lower home-sale prices. Those errors are fatal to Plaintiffs’ ability to present a legally sufficient basis for damages.
  • In short, “[w]hen a plaintiff improperly attributes all losses to a defendant’s illegal acts, despite the presence of significant other factors, the evidence does not permit a jury to make a reasonable and principled estimate of the amount of damage.” Amerinet, 972 F.2d at 1494 (citation omitted). That is what happened here. Plaintiffs chose an all-or-nothing approach to damages and failed to support their request for all of the damages they sought. The legally required result is accordingly, no damages

litigation

JURY INSTRUCTIONS:

Initial Jury Instruction  #4 re NAR  

INSTRUCTION NO. 4 When I use the word “evidence,” I mean the testimony of witnesses, documents and other things I receive as exhibits, facts that I tell you the parties have agreed are true, and any other facts that I tell you to accept as true.

Some things are not evidence. I will tell you now what is not evidence:

  1. Lawyers’ statements, arguments, questions, and comments are not evidence.
  2. Documents or other things that might be in court or talked about, but that I do not receive as exhibits are not evidence.
  3. Objections are not evidence. Lawyers have a right – and sometimes a duty – to object when they believe something should not be a part of the trial. Do not be influenced one way or the other by objections. If I sustain a lawyer’s objection to a question or an exhibit, that means the law does not allow you to consider that information. When that happens, you have to ignore the question or the exhibit, and you must not try to guess what the information might have been.
  4. Testimony and exhibits that I strike from the record, or tell you to disregard, are not evidence, and you must not consider them.
  5. Anything you see or hear about this case outside the courtroom is not evidence, and you must not consider it unless I specifically tell you otherwise. Also, I might tell you that you can consider a piece of evidence for one purpose only, and not for any other purpose. If that happens, I will tell you what purpose you can consider the evidence for and what you are not allowed to consider it for. You need to pay close attention when I give an instruction about evidence that you can consider for only certain purposes, because you might not have that instruction in writing later in the jury room.

Jury Instruction 29 re NAR

INSTRUCTION NO. 29 Defendant National Association of Realtors is a trade association. The Class Plaintiffs claim that the other Defendants conspired with the National Association of Realtors to use its rules in an anticompetitive manner, specifically by following and enforcing the Cooperative Compensation Rule in the Subject MLSs.

Businesses that are actual or potential competitors, such as the Defendants here, may lawfully form into trade associations to advance common interests, and may communicate and meet with one another in furtherance of lawful trade association activities. For example, trade associations may lawfully keep members informed and hold meetings among their members for topics such as new or changed services, technology, standard practices, or legislation and regulations in the industry.

Trade associations may also lawfully adopt and enforce rules for members of the industry. Trade associations, however, may not be used by members to commit violations of the Sherman Act. For example, a trade association cannot be used as a vehicle by its members to reach an agreement or understanding between two or more persons to raise, stabilize or maintain prices in the market in which those members compete with each other.

An association is capable of committing violations of the antitrust laws. The actions of a group of competitors taken through an association to which they belong present the same issues as the actions of a group of competitors who have not created a formal organization such as a trade association. A trade association or similar industry group cannot lawfully act to facilitate the raising, stabilizing, or maintaining of prices in the market in which its members compete with one another, to reduce members’ collective output of products or services, or to allocate territories among members that are in horizontal competition with one another.

A trade association or similar industry group cannot lawfully adopt rules that prohibit members from bidding competitively with one another because that severely affects price competition. These actions constitute an agreement with its members in violation of the Sherman Act even if the association has not conspired with a nonmember. If a trade association exchanges with its members confidential, competitively sensitive information, such as current or future prices, or current or future output information, that is evidence which you may consider, along with all the other evidence, in deciding whether the association is in violation of the Sherman Act.

 

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