NeighborCity.com to have its day in court in NAR antitrust suit

Judge: Realtors now competing with agent ratings site

A federal district judge in Maryland has ruled that American Home Realty Network, owner and operator of the real estate listings and agent ratings website NeighborCity.com, should be allowed to argue antitrust claims the company brought last year against the National Association of Realtors.

Rockville, Md.-based multiple listing service Metropolitan Regional Information Systems Inc. (MRIS) and St. Paul, Minn.-based Regional Multiple Listing Service of Minnesota Inc., which does business as NorthstarMLS, filed copyright infringement suits against American Home Realty Network in March and April 2012.

Gavel image via Shutterstock.
Gavel image via Shutterstock.

American Home Realty later filed antitrust suits against both MLSs and included NAR as a defendant in its counterclaim against MRIS, alleging that the copyright infringement lawsuits, one of which has financial backing from NAR, are part of a “concerted anti-competitive group boycott” organized by NAR to drive NeighborCity out of business and eliminate it as a provider of services to real estate brokers.

The lawsuits were filed not long after American Home Realty Network updated profile pages for 850,000 agents on NeighborCity.com that feature agent scores and performance metrics based on their transaction history.

In July, Judge John R. Tunheim, a federal district judge from Minnesota, denied a motion from NorthstarMLS to dismiss the antitrust suit filed against it, saying American Home Realty Network “has sufficiently alleged counterclaims that survive a motion to dismiss.”

The court found NeighborCity “adequately alleged” a conspiracy among NorthstarMLS, other MLSs and the National Association of Realtors, citing, in part, NAR’s decision to help NorthstarMLS cover the costs of its suit against NeighborCity. NAR is not named as a defendant in that antitrust suit, but at the time, the trade group had agreed to contribute $135,000 to cover NorthstarMLS’s legal expenses in the case.

At NAR’s Nov. 11 board of directors meeting, the trade group allocated NorthstarMLS an additional $300,000 in assistance (five other cases received just under $64,000 total in aid). NAR had also planned to help MRIS with $30,000 toward its legal expenses, but MRIS turned down the offer after NeighborCity filed its antitrust claims against MRIS and NAR.

NAR launched a pilot agent ratings program earlier this year, and in doing so became a NeighborCity competitor.

In June, Judge Alexander Williams Jr. threw out NeighborCity’s antitrust claims, saying the court had “serious reservations about AHRN’s ability to set forth a cognizable (antitrust) claim against either” NAR or MRIS. But nonetheless, he gave the company the opportunity to amend three of the seven dismissed claims, which it did.

This time around, Judge Williams allowed two of the three remaining claims against NAR to survive. The court said that NeighborCity had previously “failed to outline the time, place, and contours of any anti-competitive agreement” or that NAR’s actions had harmed competition in general.

But in reading the new allegations in conjunction with the original allegations against NAR, Williams said that American Home Realty “has nudged its claims across the line from conceivable to plausible.”

The court noted that NAR launched a pilot agent ratings program earlier this year, and in doing so became a NeighborCity competitor.

“Following its entry into the agent evaluation and ranking market, NAR ‘encouraged regional boards of Realtors to step up their efforts (1) to keep their member agents from entering into referral agreements with AHRN; (2) to breach or repudiate referral agreements agents have entered [into] with AHRN; and (3) to pressure agents into demanding that their names be stricken from AHRN’s list of potential referral agents,'” Williams said, quoting NeighborCity’s amended counterclaim.

NeighborCity offered specific examples of such instances, including agents informing NeighborCity that their brokerage, MLS, local board of Realtors, or NAR itself had advised them not to accept referrals from or otherwise work with NeighborCity.

“[G]iven NAR’s alleged role in the national real estate market as a trade association which establishes and enforces professional standards for brokers and agents throughout the country, it is plausible that its directives to local boards and members could be considered coercive restraints, not merely abstract or hypothetical advice,” Williams said.

Williams noted that NeighborCity also cited a provision from the NAR MLS Handbook which allegedly requires NAR’s MLS and broker members to immediately notify NAR whenever they are “confronted with a request or demand by an individual for access to the association’s multiple listing service without membership in the association.”

While NAR urged the court to consider the provision as “merely advisory,” Williams said it “could plausibly be read as imposing a mandatory requirement.”

NeighborCity’s claim further noted that Laurie Janik, NAR’s general counsel, announced NAR’s new ratings program — “the same individual who allegedly led the efforts in 2011, 2012, and 2013 to urge NAR members to send cease-and-desist letters to AHRN and to fund lawsuits against AHRN,” Williams said.

These allegations, read in conjunction with NeighborCity’s original allegations, “give rise to the plausible inference that NAR was a party to an anti-competitive agreement,” Williams added.

In addition, NeighborCity’s amended counterclaims sufficiently argued that NAR’s conduct resulted in anti-competitive harm, according to Williams.

“For example, it is economically plausible that the alleged NAR-led boycott of AHRN — including the refusal to accept referrals from AHRN, the breaching of referral agreements already entered [into] with AHRN, and demands that agents’ names be stricken from AHRN’s materials — would have the effect of depriving consumers of the ability to select the most qualified real estate agents for their transactions, thereby making the market less efficient and driving up the costs of brokerage services,” he said.

In its counterclaim, NeighborCity alleged that the chief operating officer of QSC, NAR’s agent ratings partner, had publicly acknowledged that there is a fear of ratings in the industry, and that NAR wants to help Realtors “own the process.”

“Such allegations indicate that the consumers of real estate evaluation, ranking and referral services would be deprived of valuable resources as a result of an NAR-led boycott,” Williams said.

NeighborCity also alleged that, based on advice from NAR, Realtor-affiliated MLSs have successfully pressured Redfin and other “innovative brokers” to discontinue their agent evaluation services under threat of lawsuit.

“The termination of such services would plausibly reduce competition in the market, lower the quality of real estate agent evaluation services, and suppress the incentive to innovate and provide better services,” Williams said.

The court declined to rule on two of the three antitrust claims brought against MRIS, for now, and dismissed the third. The two remaining counts will remain in abeyance pending limited discovery to determine whether MRIS’s database is proprietary, as MRIS claims, or provided by CoreLogic, as NeighborCity claims.

“AHRN alleges that even accepting that the MRIS database is sufficiently original to warrant copyright protection, the copyright would belong to CoreLogic, not MRIS,” Williams said.

“Accepting AHRN’s allegations as true, MRIS’s representation that it was responsible for the selection and coordination of content in its database would be materially inaccurate, as the Copyright Office would not have granted copyright protection to MRIS had it known that another entity was responsible for arranging the database. AHRN would therefore have a plausible claim that MRIS’s copyright litigation and enforcement efforts were a sham.”

“If AHRN fails to present a genuine issue of material fact, MRIS’s copyright litigation and enforcement efforts would be immunized from antitrust suit,” he added.

NeighborCity General Counsel Chris Miller said the company was “extremely pleased” by Judge Williams’ findings, though it will request clarification and reconsideration of some of the issues in the MRIS case.

The Minnesota case is “deep into discovery,” though Miller said he was prohibited from giving out details on depositions. HomeServices of America Inc. and its subsidiary Edina Realty, who were added as defendants in the suit in April, have submitted a motion to dismiss the case, but the court has yet to render a decision.

“Taking the progress of the two cases as a whole, we are feeling, more than ever, vindicated in the position that we have taken with regard to the copyright issues and the antitrust issues, and are confident that we shall prevail on those,” Miller said.

In March, another HomeServices of America subsidiary, Winston-Salem, N.C.-based Preferred Carolinas Realty Inc., became the first brokerage to file a copyright infringement suit against NeighborCity. That case is currently in mediation.

Last week, NeighborCity hit realtor.com operator Move Inc. with a cease-and-desist letter alleging Move’s “AgentMatch” tool, currently in beta, infringes on NeighborCity’s trademark registration of the term “Agent Match” and that the tool itself potentially infringes on a patent application filed by NeighborCity in 2010. NeighborCity has an agent ratings tool that is similar to, but predates Move’s tool that is also called “AgentMatch” and serves up agent recommendations based on transaction data.

Realtor.com’s AgentMatch has attracted mostly negative reactions from real estate agents, many of whom question the validity of statistics-based rankings and feel NAR should not allow realtor.com to move forward with the tool’s rollout. NAR owns the realtor.com website and “Realtor” trademark, and licenses both exclusively to Move under the terms of an operating agreement that dates to 1996.

Editor’s note: This story has been updated to mention NeighborCity’s cease-and-desist letter over Move’s “AgentMatch” tool and agents’ reactions to the tool.