About a week ago, the judge in the Burnett v. NAR case (formerly Sitzer v. NAR) handed down his ruling in the motion for summary judgment. It did not go well for the defendants. The Inman story by Andrea Brambila does a good job of covering the highlights, so read that in full.
The result is, of course, something I fully expected after reading Judge Bough’s opinion denying the motion to dismiss. Much of it reflected Judge Wood’s memorandum denying the motion to dismiss in the Moehrl case. I wrote about that in 2020. I don’t have stats handy, but you’re rarely going to have a judge so brutally smack down a motion to dismiss, then grant summary judgment.
Let me briefly explain why. A motion to dismiss says to the judge, “these people don’t have a claim” — meaning, even if everything they say is true, there is no law helping them or a legal remedy, so let’s not waste anybody’s time. A summary judgment motion says, “our victory is inevitable” — meaning, based on the evidence we have to date, everything is so in our favor that it’d be a waste of everybody’s time. The whole point is to avoid the expense and delay of an actual trial.
It does happen that a judge might deny a motion to dismiss to let the plaintiffs get more evidence through discovery, then grant summary judgment because the evidence gathered shows the defendants are going to win at trial… but usually the motion to dismiss is a close call. It’s the judge saying, “I’m gonna give you a chance to find out some things, but boy, you have a weak case.” The judge in Burnett was more like, “You pleaded strong facts, strong legal theories, and boy, you got yourself a winner of a case.”
In any event, let’s dig into the actual opinion. As is normal around here, I read these things so you don’t have to, but as is also normal around here, I am not your lawyer. Please consult your actual attorney for real advice. This post is not legal advice, but just for education and entertainment and a random guy on the internet’s opinion.
The Summary Judgment Opinion
Let’s start with the actual opinion itself, in case you are afflicted with the same sickness I am — that of enjoying reading legal opinions.
At a high level, as Inman reports, the judge denied every single motion for summary judgment. In fact, the judge ruled in favor of the plaintiffs pretty much across the board. I think that was probably expected by everybody involved — even the lawyers for the defendants had to kind of expect that.
What was, I think, less expected is what the judge wrote in support of his denial. There are a few things to get into there.
The Evidence, As the Court Sees It
First, I thought the evidence that the court cited in its decision was… well, both interesting and staggeringly bad for the defendants.
For example, in discussing “MLS and Cooperative Compensation” the court quotes extensively from industry executives (who have presumably been deposed by one side or the other):
The Franchisor Defendants’ executives testified that cooperative compensation, codified by Section 2-G-1, is beneficial and a core component of organized real estate. Gino Blefari, CEO of HSoA and Chairman of both HSF and BHH, testified that “coupled with the duty to cooperate, the unconditioned offer of compensation is a chief rationale for the existence of the MLS” and “a core component of organized real estate.” Blefari also stated in a scripted training video: “The only way you can eliminate all competition is to include them.”
Gary Keller (“Keller”), founder and current Executive Chairman of Keller Williams, coined the term “co-opetition” to describe “cooperative competition” among “trade associations, local boards, and multiple listing services.” Keller testified that “the reason real estate is so cooperative is because NAR and the MLS evolved into a system that inspires cooperation amongst competitors.”
Re/Max Founder and Chairman of the Board, Dave Liniger, testified that he believes sharing average commission rates publicly is beneficial.[Emphasis added. Citations removed for legibility]
Perhaps most damaging to the defendants was this passage discussing NAR’s former CEO, Dale Stinton (the opinion mis-spells his name as Stinson):
NAR’s CEO, Dale Stinson, believes that there are “threats to the system” that include “commission-thirsty outsiders, broker/association and broker/MLS chafing, [and] data syndication offenders.” To fight these threats, Stinson believes that “Brokers, Agents, Franchises, Independents, the National, State, and Local Associations, the Institutes, Societies, and Councils, and the MLSs” must “ORGANIZE AS ONE AND COMMIT TO EACH OTHER WITH URGENT RESOLVE.” (emphasis in original). In discussing the benefits of “organized real estate,” Stinson states, “Where else would the offer of cooperation and compensation have come from?”
Given these facts admitted into evidence, I don’t know how the lawyers for the defense argued that “the plaintiffs cannot present evidence to show the existence of a contract, combination, or conspiracy” with a straight face. But they did, because that’s what good lawyers do for clients.
Second, the court went into some detail about the training provided by the corporate defendants… which did not look good for the defense:
The Franchisor Defendants provided training to brokers which directed them to offer a 6% commission rate, to be split equally among the Seller-Broker and the Buyer-Broker. The Franchisor Defendants used this 6% commission rate split in educational transaction models.
For example, Re/Max training documents instructed brokers to develop their “Economic Model” and “define the ‘average’ commission that will come from each of their closings,” including an example of a 6% commission rate per transaction, split 50/50 between the Seller-Broker and Buyer-Broker.
Similarly, Keller Williams trained its brokers to develop an “economic model” which provided a “standard 6% commission” rate per transaction, split 50/50 between the Seller-Broker and Buyer-Broker.
Additionally, the HomeServices Defendants circulated training materials from Intero, a California subsidiary, that instructed brokers to “always have 6% written in on ALL listing agreements” and, if they “have to give something,” to “remember they always have to pay [the Buyer-Broker] a minimum of 2.5%.”
Further, the Franchisor Defendants trained brokers to never lower their rates. For example, Re/Max trained brokers to “have the commission typed into the listing agreement” before speaking to Sellers, and to tell Sellers “‘This is what my company charges.’”
Re/Max franchises must “maintain . . . quality,” including avoiding “discounting rates,” or the franchise may be sold.
Keller Williams provided brokers with scripted responses to requests to lower commissions, stating that brokers “require a full 6 percent” to “do the advertising that they do” and that a “discount rate will not provide you with enough exposure to get you top dollar.”
Realogy acknowledged that its franchisees compete with one another, and instructs franchisees to “avoid any action or discussion intended to eliminate or restrict competition” including discussions of “commission structures.” However, Realogy provided training to its franchisees and subsidiaries regarding commissions and trains its agent to tell clients they cannot cut commissions. [Citations removed, and edited for legibility and clarity.]
Given this evidence, the court did not side with the corporate defendants who argued that they were franchisors and not responsible for what their independently operated franchisees did or did not do with respect to commissions. I’m not sure what other conclusion the court could have reached, and I am for sure certain what conclusion a jury of regular people will reach.
Clear Cooperation Policy is Evidence of Conspiracy
One mystery I had to think through is why the court spends two lengthy paragraphs discussing NAR’s Clear Cooperation Policy. It has no direct bearing on the question of mandatory cooperative compensation. But in reading the opinion, I think it was evidence of concerted action:
The Court finds that Plaintiffs have created a genuine dispute of material fact as to whether Section 2-G-1 and the Franchisor Defendants’ adoption thereof is direct evidence of a conspiracy. Here, the record creates a genuine question of material fact as to whether Defendants adhered to a common scheme. See PLS.Com, LLC v. Nat’l Assoc. of Realtors, 32 F.4th 824, 843 (9th Cir. 2022). A reasonable jury could find that “the concerted conduct is both plainly documented and readily available.” Robertson v. Sea Pines Real Estate Companies, Inc., 679 F.3d 278, 289 (4th Cir. 2012).
That citation to PLS.com v. NAR lawsuit, which was all about the Clear Cooperation Policy, then leads to this conclusion by the court:
Section 2-G-1 requires SellerBrokers to offer Buyer-Brokers blanket unilateral offers of compensation. Although Defendants argue that cooperative compensation is required only when it is in the client’s best interest, Plaintiffs have produced evidence indicating that Defendants’ position is that it is always in the client’s best interest to market a property on an MLS, subjecting it to Section 2-G-1. Additionally, at oral arguments, the parties agreed that all transactions facilitated by the MLS are cooperative transactions.
Add in the training by corporate defendants referenced above, and the court more or less says straight out, “There was a conspiracy here.” Whether the jury will find the same remains to be seen, but if this were a bench trial, I don’t think there’s any mystery as to how the court would rule.
Per Se Liability!
There was a moment when I had to go back and re-read the section twice, then again, to make sure that I was reading things correctly.
It turns out that the court here will be applying per se liability to this case. Why is this important? From The Business Professor website:
A naked restraint of trade is one that is explicitly anticompetitive, such as an agreement controlling the price of a good or the output from production. A naked restraint with no pro-competitive justification is generally held to be per se illegal. That is, these practices are, by their nature, anticompetitive and thus per se illegal. A court will not evaluate any alleged pro-competitive justifications for such activity. [Emphasis added]
Basically, if you get the per se liability treatment for whatever you’re accused of doing, you’re screwed. In this case, a big pillar of NAR’s defense has been, is, and will be that the MLS and cooperative compensation is pro-consumer, pro-competitive, and pro-business. Don’t take it from me, take it from the source, Mantill Williams of NAR:
“Pro-competitive, pro-consumer local MLS broker marketplaces make it possible for businesses of all types and sizes to compete and ensure equity, transparency and market-driven pricing for buyers and sellers.
“The practice of the seller’s broker paying the buyer broker has worked so well for so long is because it provides the greatest economic benefits for both buyers and sellers, creates greater access and equity for first-time, low/middle-income and all buyers and enables small business brokers to compete with larger brokers.”
Under per se analysis, the court does not care one bit about such “pro-competitive justifications” because the rule in question will be considered anticompetitive and therefore illegal on its face.
And this court lays it out, signaling clearly how the jury instructions will go at trial:
Defendants argue the Court should not apply the per se rule because Section 2-G-1 does not explicitly set commission rates. Here, however, the fact that Section 2-G-1 does not explicitly set out acceptable commission rates is not dispositive. “Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.” Socony, 310 U.S. at 223.
Plaintiffs have produced evidence that Defendants have stabilized the price of residential real estate brokers’ services, as reflected through commission rates. For example, Plaintiffs have produced evidence that Defendants train associated brokers to set commission rates at 6%, to split commission equally among Buyer-Brokers and SellerBrokers, and to never lower commissions. See, e.g., (discussing a Re/Max training document which says: “Once you start cutting commissions, you can never stop. . . . Charge everyone the same and let them know it.”).
In addition to training, Plaintiffs have presented expert testimony showing that Section 2-G-1 had the effect of stabilizing commission rates. (Doc. #922-2, pp. 86–95) (noting that upwards of 90% of transactions on the Subject MLS offer buyer agent commissions of exactly 3% during the class period, with the exception of the MARIS MLS consistently offering 2.7%).
Plaintiffs have also produced evidence that Section 2-G-1 creates a system that rewards all Buyer-Brokers similarly, despite their skill as a broker or the amount of effort expended in procuring the Buyer. Arizona v. Maricopa Cty. Med. Soc., 457 U.S. 332, 348 (1982) (“In this case the rule is violated by a price restraint that tends to provide the same economic reward to all practitioners regardless of their skill, their experience, their training, or their willingness to employ innovative and difficult procedures in individual cases.”). Although it is true that a nominal commission of $1 would satisfy Section 2-G-1 and Defendants agree such nominal commission is mandated, Plaintiffs have produced evidence that no transaction within the Subject MLS took place using a nominal commission.
Therefore, Defendants’ argument is rejected. [Emphasis added, citations removed, edits made for legibility.]
Oh Lawd! It is safe to say that once a conduct, an activity, or a rule is classified as a per se violation, you’re probably going to lose the case.
On Damages
Finally, although there’s a lot more in this opinion that are interesting to lawyer types, let’s touch on damages.
The court rejects the argument that the plaintiffs have to specify damages in a Sherman case, but then picks it up when it discusses the Missouri state law claim (“MMPA”):
Defendants argue that Plaintiffs have failed to show an ascertainable loss. Plaintiffs argue that, because they assert they received nothing of value from the Buyer-Broker, they are not required to show an ascertainable loss. The Court agrees with Plaintiffs.
As discussed above, Plaintiffs have presented evidence that, but-for Section 2-G-1, they would not have paid any commission to the Buyer-Broker. Plaintiffs’ theory of recovery does not rely on allegations that Defendants misrepresented anything or that they received less than what they are promised. Consequently, Defendants’ argument is rejected.
Additionally, Defendants argue that Plaintiffs suffered no ascertainable loss because the cost of the Buyer-Brokers commission is passed onto the Buyer as part of the increased home price. As discussed above, the Court rejects this argument. Because Plaintiffs have shown a genuine dispute of material fact, summary judgment is not warranted on this issue. [Emphasis added; edited for legibility.]
Basically, the plaintiffs are saying, “If it weren’t for cooperative compensation, we would have paid nothing to buyer agents.” NAR’s response that the 6% commission was just built into the price of the home and the plaintiffs didn’t actually pay anything was rejected. The court completely rejects that argument, and discusses it here using the analysis from the plaintiffs’ expert witness:
The Court does not find Defendants’ argument that Plaintiffs passed on any costs associated with artificially inflated home prices to Buyers persuasive. The Court agrees with Plaintiffs in that:
Even if real estate prices were lower in the but-for world, that would apply both when a house is bought and when it’s sold. A seller might get a 2% to 3% lower sales price, but that same seller also would have paid 2% to 3% less when they bought the house.
For example, imagine someone buys a house for $100,000, holds it for five years (in which time it appreciates 10%), and then sells it for $110,000. After paying a 6% commission (3% to the buyer broker), the seller is left with sales proceeds of $103,400, and a profit of $3,400.
Now imagine that same transaction in the but-for world with 3% lower prices. The house is now bought for $97,000, appreciates 10% in five years, and sells for $106,700. The seller now pays a 3% commission (0% to the buyer broker), leaving sales proceeds of $103,499 and a profit of $6,499. [Some edits made for legibility.]
What I didn’t see in the opinion, which implies that the argument was not made, was any mention of the argument from NAR (and numerous agents on social media) that the seller signed a listing agreement in which they agreed to pay 6% to the listing agent, and what the listing agent does with that afterwards is not their business. I imagine that the lawyers knew that argument was not going to fly at all, so left it out.
In any event, the plaintiff’s stance in the MMPA suggests that the damages sought will be “every dollar that Plaintiffs paid to buyer’s brokers and agents.” It may be that the damages will be calculated as the “loss in profits” from the analysis above, instead of buy-side commissions paid, but for now, I’ll stand by my thinking that we’re looking at about $6 billion in damages from this case.
Conclusion: Get Ready for Armageddon
After reading through this opinion denying summary judgment, I am even more bearish on the prospects of NAR and the corporate defendants prevailing at the actual trial.
The biggest OMFG is that the judge is applying per se analysis to the case, which more or less guarantees liability. I mean, that’s what “per se illegal” means, right? But the other parts were damaging as well. Essentially, the court hoisted NAR and the corporate defendants on their own petard. It relied heavily on statements from key executives at these organizations, and the quote from Dale Stinton was, I think, almost dispositive.
The mention of Clear Cooperation Policy turned out to be interesting, because it was the final piece of the puzzle for the court as to how the scheme worked:
- NAR institutes rules that all MLSs and all REALTORS must follow, which mandates cooperative compensation.
- These rules ensure that all buyer agents are paid the same, no matter their “skill as a broker or amount of effort expended.”
- Brokers and franchisees mandate that all of their agents must become REALTORS and must join MLSs who enforce those rules.
- Those brokers and franchisees train their agents to never cut commissions.
- Nominal commissions, allowed by NAR rules, is a joke since “no transaction within the Subject MLSs took place using a nominal commission.”
- And Clear Cooperation Policy requires agents to put their listings into the MLS, thereby subjecting them to the whole cooperative compensation scheme.
If the case were up to Judge Bough, there is no question that he would rule for the plaintiffs tomorrow. It is up to a jury, however, so there is a chance for NAR and the corporate defendants.
However… I think that’s cold comfort because as I’ve noted in my Worst Case Scenario post, we’re talking about convincing a jury of six regular people, who probably have bought and sold a home in Missouri at some point since 2015, that they didn’t get screwed by NAR and these big corporations. It is beyond obvious that the Plaintiffs will parade training document after training document where these big national companies trained “associated brokers to set commission rates at 6%, split commission equally… and to never lower commissions.” It is beyond obvious that they will call all of the executives to testify (or contradict their previous statements, which could mean jail time for perjury) as to how much they loved and promoted cooperative compensation.
And the jury will be instructed to ignore all “pro-competitive justifications” because the conduct/rules/actions are per se violations of antitrust laws.
I don’t know how the plaintiffs lose this case at trial. Maybe on appeal, the defendants can get the Court of Appeals to reverse the per se analysis and get a new trial under the far more permissive Rule of Reason standard that does take pro-competitive effects into account. That doesn’t guarantee victory, of course, but it gives NAR a chance at winning.
The current case does not. Per se analysis equals defeat.
Which means… brokers, agents, MLSs and Associations in Missouri have to get ready for armageddon come November-ish of next year (since the trial date has been pushed off to October). Given the likelihood of copycat lawsuits, everyone else outside of Missouri should prepare for armageddon as well. And since an MLS CEO emailed me today after reading my copycat litigation post that laid out just how unprepared local MLS and Association leadership are to confirm that I was exactly correct, that none of his elected leadership have any idea what’s coming and what to do once it arrives… look, all I can do is to warn you and urge you to prepare.
-rsh
Chronixx – Here Comes Trouble (Official Music Video)
Purchase on Itunes now : https://itunes.apple.com/us/album/dread-terrible/id841489884 Subscribe to Chronixx’s Youtube Channel – http://bit.ly/chronixx-sub http://chronixxmusic.com The Official music video for the powerful single “Here Comes Trouble”. Produced by Winta James of Overstand Entertainment and Directed by Ezra Tafari. “I see myself, likewise this whole movement, as a servant of Rastafari, who is the Almighty and leader of the movement.
