Leeder v. Nat'l Ass'n of Realtors

601 F.Supp.3d 301

Judah LEEDER, individually and on behalf of all others similarly situated, Plaintiff,

v.The NATIONAL ASSOCIATION OF REALTORS, et al., Defendants.

No. 21-cv-00430

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

Signed May 2, 2022

Carol Lee O'Keefe, Jamie Lynn Boyer, Michael E. Klenov, Korein Tillery, LLC, St. Louis, MO, Jonathon D. Byrer, Holland and Knight, LLP, Chicago, IL, Randall P. Ewing, Jr., Ryan Z. Cortazar, George A. Zelcs, Korein Tillery, LLC, Chicago, IL, Christian Levis, Pro Hac Vice, Claire Noelle Feigenbaum, Pro Hac Vice, Vincent Briganti, Pro Hac Vice, Lowey Dannenberg, P.C., White Plains, NY, for Plaintiff.

Jack R. Bierig, ArentFox Schiff LLP, Chicago, IL, Adam J. Diederich, Schiff Hardin LLP, Chicago, IL, Ethan Charles Glass, Cooley LLP, Washington, DC, Michael Bonanno, Pro Hac Vice, Quinn Emanuel Urquhart & Sullivan, LLP, Washington, DC, for Defendant The National Association of Realtors.

Kenneth Michael Kliebard, Morgan Lewis & Bockius LLP, Chicago, IL, Stacey Anne Mahoney, Pro Hac Vice, Morgan, Lewis & Bockius LLP, New York, NY, for Defendant Realogy Holdings Corp.

Anne Marie Coghlan, Foley & Lardner LLP, Chicago, IL, Jay N. Varon, Jennifer M. Keas, Foley and Lardner LLP, Washington, DC, Matthew Thomas Ciulla, Pro Hac Vice, Robert Dean MacGill, Pro Hac Vice, Scott E. Murray, Pro Hac Vice, MacGill PC, Indianapolis, IN, for Defendants HomeServices of America, Inc., BHH Affiliates, LLC, HSF Affiliates, LLC, The Long & Foster Companies, Inc.

Eddie Hasdoo, Jeremy John Gray, Jones Day, Chicago, IL, Eric Patrick Enson, Pro Hac Vice, Jeffrey A. LeVee, Jones Day, Los Angeles, CA, for Defendant Re/Max LLC.

Jennifer Lada, Pro Hac Vice, Holland & Knight LLP, New York, NY, Timothy Ray, Holland & Knight LLP, Chicago, IL, Anna Pendleton Hayes, Pro Hac Vice, David C. Kully, Holland & Knight, LLP, Washington, DC, for Defendant Keller Williams Realty, Inc.

MEMORANDUM OPINION AND ORDER

Andrea R. Wood, United States District Judge

Plaintiff Judah Leeder bought a home listed on a local database of properties for sale known as a Multiple Listing Service ("MLS") with the assistance of a real-estate broker. Like all sellers of homes listed on an MLS, the person selling Leeder's home was required to include in the listing a single, set offer of compensation to the broker assisting the person who ultimately bought the property. According to Leeder, restricting MLS access to only home sellers who make a set commission offer to the successful buyer-broker is anticompetitive and results in artificially inflated, supracompetitive commission rates being incorporated into purchase prices for homes. For that reason, he has brought the present antitrust action alleging that Defendants National Association of Realtors ("NAR"), Realogy Holdings Corp., HomeServices of America, Inc., HSF Affiliates, LLC, Long & Foster Companies, Inc., BHH Affiliates, LLC, RE/MAX LLC, and Keller Williams Realty, Inc. engaged in a conspiracy in restraint of trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. (Class Action Complaint ("CAC"), Dkt. No. 1.) Defendants have moved to dismiss the CAC pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 61.) For the reasons that follow, the Court grants Defendants’ motion.

BACKGROUND

For the purposes of the motion to dismiss, the Court accepts all well-pleaded facts in the CAC as true and views those facts in the light most favorable to Leeder as the non-moving party. Killingsworth v. HSBC Bank Nev., N.A. , 507 F.3d 614, 618 (7th Cir. 2007). The CAC alleges as follows.

Defendant NAR is a 1.4 million member trade association that advocates for the interests of real estate brokers. (CAC ¶¶ 20, 29.) In addition, NAR oversees 54 state and territorial realtor associations and over 1,200 local realtor associations, each of which are NAR members. (Id. ) Those local realtor associations own and operate in their markets a centralized database of properties listed for sale in the region known as an MLS. (Id. ¶¶ 3, 34, 37, 95.) Listing a property for sale on an MLS is essential to market that property effectively to prospective buyers. (Id. ¶ 3.)

NAR issues the rules and policies governing MLSs that are set forth annually in the Handbook on Multiple Listing Policies ("Handbook"). (Id. ¶ 38.) Those rules and policies are then enforced by the local realtor associations that own the MLSs, which NAR requires to agree to adhere to and enforce the Handbook. (Id. ¶¶ 38, 50–52, 95.) And given the commercial necessity of having access to an MLS, real estate brokers and individual realtors¹ must comply with the Handbook's provisions and all other NAR rules, including the NAR's Code of Ethics and Standards of Practice. (Id. ¶¶ 50–52, 92–95.)

As relevant here, the Handbook requires any broker listing a property for sale on an MLS to make a blanket unilateral offer of compensation to any broker who finds a buyer for the home ("Commission Rule"). (Id. ¶¶ 7, 55–56.) That offer must be expressed either as a percentage of the gross selling price or as a definite dollar amount. (Id. ¶ 56.) The Commission Rule further prohibits "general invitations by listing brokers to other participants to discuss terms and conditions of possible cooperative relationships." (Id. ) Accordingly, when a homeowner contracts with a seller-broker, the parties’ listing agreement will set the total commission to be paid to the seller-broker, usually with a portion of the commission designated to be paid to the buyer-broker. (Id. ¶ 40.) On the other hand, a buyer's contract with their buyer-broker will disclose that the buyer-broker's compensation will come from the total commission paid by the seller. (Id. ¶ 41.) Consequently, in the typical home sale, the buyer-broker's compensation will come from the total commissions paid by the home seller to the seller-broker. (Id. )

Operating in tandem with the Commission Rule are NAR's rules prohibiting brokers from disclosing to homebuyers the commission offered to the buyer-broker. (Id. ¶¶ 53, 75–76.) Although the buyer-brokers will be aware of the commission they will receive from a buyer's purchase of a particular property, the buyer will never know the amount their broker was compensated for representing the buyer in the transaction. (Id. ¶¶ 43, 75–76.) Instead, until January 2021, NAR's Code of Ethics permitted and encouraged buyer-brokers to tell clients that their services are free. (Id. ¶¶ 53, 79.)

The following example illustrates how these rules typically work in practice. First, a homeowner retains a seller-broker and agrees to pay 6% in total commission to the seller-broker. (Id. ¶ 42.) The seller-broker lists the property on an MLS with the promise of a 3% commission to the buyer-broker. (Id. ) Then, if the property is sold for $500,000, the buyer will pay the $500,000 into an escrow account. (Id. ) In turn, before distributing the sale proceeds to the seller, the escrow agent will deduct from the purchase price the $30,000 total commission and transmit $15,000 (i.e. , 3% of $500,000) to the buyer-broker and the remaining $15,000 to the seller-broker. (Id. ) Because the buyer-broker commission is paid out of the funds the buyer used to purchase the home and NAR's rules prevent the buyer from learning details of their broker's commission, the buyer will usually believe that they did not pay anything for the buyer-broker's services. (Id. ¶¶ 43, 79.) In reality, however, the buyer-broker's commission is "baked into the price of the house," such that the cost of the total commission is shared by both the buyer and the seller. (Id. ¶¶ 43, 59.)

Given that the Commission Rule requires a blanket offer of commissions, buyer-brokers’ commissions are not linked to their quality of service or breadth of experience. (Id. ¶¶ 58, 61.) As a result, there is substantial uniformity in the compensation paid to buyer-brokers. (Id. ¶¶ 60, 67.) Since the Commission Rule has been in effect, total commissions have remained stable at between 5% and 6% of the sale price. (Id. ¶¶ 11, 107–08, 112–15.) By contrast, in comparable international markets where buyer-brokers are paid directly by the home buyer, total commission rates are generally between 1% and 3% of the sale price. (Id. ¶ 114.) The data on the commission rates charged in other countries suggests that total commissions in the U.S. should be closer to 3% of the sale price. (Id. ) Ultimately, these supracompetitive commission rates are incorporated into a home's sale price, thereby artificially inflating the purchase prices paid by homebuyers. (Id. ¶¶ 43, 59, 62, 106.)

According to Leeder, the Commission Rule facilitates the stability of these allegedly supracompetitive commission rates by enabling buyer-brokers "to easily compare the financial compensation offered" by every seller with a listing in the MLS. (Id. ¶ 66.) In turn, that pressures sellers to offer the high standard rate and disincentivizes them from offering a discounted commission. (Id. ¶ 67.) A seller or seller-broker whose property listing offers a buyer-broker commission below the standard rate faces a substantial risk that buyer-brokers will steer potential buyers away from that property and toward properties offering higher commissions. (Id. ¶¶ 63–64, 67.) "[E]ssentially, the MLS listing acts as a tool which competing brokers can use to help enforce a near uniform commission rate and drive out discounters." (Id. ¶ 67.)

In addition, Leeder points to several other factors that work in conjunction with the Commission Rule to ensure the stability of commission rates. Since buyers are not privy to commission offers, they are prevented from detecting or resisting steering. (Id. ¶ 77.) Moreover, most MLSs employ a software program that has a feature allowing buyer-brokers to filter listings based on the value of the buyer-broker commission offer and to send buyer clients electronic property listings that exclude properties where the offered commission falls below a...