U.S. District Court Judge Mark Filip, in a 29-page opinion released Monday, offered a detailed explanation on why he earlier rejected a motion by the National Association of Realtors trade group to dismiss an antitrust complaint brought by the U.S. Department of Justice.
Filip last month denied the Realtor group’s motion to dismiss the lawsuit, which was filed in September 2005 and amended in October 2005. The lawsuit alleges that the trade group’s policies governing the online display and sharing of property information are overly restrictive and can harm consumers and stifle innovation.
The National Association of Realtors in December filed the motion in U.S. District Court in Chicago in an attempt to toss out parts of the lawsuit that target the association’s former online listings policy, known as the Virtual Office Website (VOW) policy and so-called “opt-out” provisions of its policies that allow brokers to withhold online listings from other brokers.
Laurie Janik, general counsel for the National Association of Realtors, said there “were no surprises” in the judge’s opinion. The rules of the court dictate that the judge must assume that the allegations brought by the Justice Department are true in weighing the association’s motion, Janik said — the lawsuit has not yet reached the trial phase and both sides are still gathering evidence.
“He was very careful in his wording. I didn’t view anything he had sent out as significant (to the overall case),” she added. “We knew it was a long shot but we thought it was worth making. The sooner we can end this litigation, the better.”
J. Bruce McDonald, deputy assistant attorney general for the Justice Department’s Antitrust Division, said in a statement, “We are pleased that the court has allowed the lawsuit to proceed and we look forward to representing our case at trial. The (division) is committed to preserving competition in this vital sector of our nation’s economy.”
While the Realtor group announced the withdrawal of its VOW rules and the adoption of modified Internet listings rules after receiving notice that the Justice Department intended to file the lawsuit, Filip said in his opinion that Justice Department is entitled to proceed with its case against both the old policy and the modified policy, the Internet Listings Display (ILD) policy.
The Justice Department has alleged that the VOW and ILD policies are part of a “single, ongoing contract, combination or conspiracy,” according to the opinion, and that the “two policies are part of a continuing conspiracy among NAR and its member brokers to restrain competition from VOW brokers.” NAR has argued that there is no ongoing conspiracy because the modified policy replaced the old policy, though the Justice Department alleged that the two policies have “a common purpose driven by a common motive — to restrain the competitive threat posed by Internet-based brokerages.”
The court found that the Justice Department’s allegations provided sufficient basis for both policies to be included in the lawsuit, as it has argued that “the allegedly anti-competitive effects which flowed from adoption of the initial VOW policy have had enduring effects, at least in certain markets, such that … the modified VOW policy … has not eliminated all the effects of the initial VOW policy.”
Russ Cofano, a Seattle-based lawyer who has represented real estate industry clients and ran a real estate technology company, said he thought it was interesting to read the judge’s statement that the court could choose a remedy for proven anti-competitive practices that “can go beyond the prohibition of those practices which … were found to constitute the illegal conduct.” The court also stated that the alleged “effects of the initial VOW, and the ways by which it allegedly would impair competitive forces and incentives in relevant markets, cannot be cabined from this case at the outset, as (NAR) apparently desires.”
Cofano said, “The court is basically saying that relief to the United States — in a claim like this — is not limited only to stopping a policy. It can go well beyond that.” If the Justice Department is able to prove its allegations, Cofano said that potentially opens up the door to a range of actions that the judge could take, he said. “That creates an unknown risk for NAR as to what the relief might be” if the Justice Department can prove its case, Cofano said.
He also stated that it was “strategically the right thing to do” for the Realtor association to ask the judge to dismiss aspects of the Justice Department’s complaint. “I think the court has given them insight,” he said. “I would presume (NAR officials) are reading this very carefully. Some of the language in the opinion certainly is instructive.”
The judge’s opinion states that the Realtor group’s original VOW policy is relevant because “issues about the intent of the NAR in passing it will potentially help to illuminate (NAR’s) intent generally as either benign or improper.” The opinion also noted the potential for NAR to reinstate the original VOW as a justification for not tossing out provisions of the Justice Department complaint.
The Justice Department has alleged that members of an NAR working group for VOW policy wrote that aspects of the policy “would be ‘abused beyond belief,’ with traditional brokers selectively withholding listings from particular VOW-based competitors,” and that the chairman of the working group “took comfort in the fact that the rule did not require brokers to disclose to clients that their listings would be withheld from some prospective purchasers as a result of the brokers’ opt-out decision, thus providing brokers ‘flexibility without conversation,’ ” court documents state.
In his opinion, Filip stated that the Justice Department has “alleged substantial concrete evidence that, if credited and true, could be understood to reflect that the new VOW policies were developed and utilized with anti-competitive animus, as well as with a recognition that the VOW policies would harm American consumers.” Janik said that the association denies that there was any animus — or willful antitrust violations — in adopting the policies.
About 200 Realtor boards implemented the Realtor association’s original VOW policy, the Justice Department has alleged. The association has advised that local boards do not adopt controversial provisions of the VOW policy and that the boards do not adopt the ILD policy.
While the modified VOW policy provides a so-called “blanket opt-out” provision that allows a broker to withhold online listings from other MLS participants provided that the broker does not display the other participants’ listings, the judge’s opinion states that NAR “does not meaningfully challenge” the Justice Department’s facts “that the opt-out is of more detriment to a VOW broker than to a broker that does not use a Web site to deliver listings to a client, or that the opt-out undermines brokers who have a referral-based business model.”
Robert D. Butters, a lawyer for Arnstein & Lehr LLP in Chicago who has represented real estate brokerages, technology companies and MLSs, said that the potential for the Justice Department to present evidence for anti-competitive intent in NAR’s adoption of the original online listings policy “is particularly threatening in my view for NAR’s subsequent defense of the case.”
The Justice Department spent two years investigating the original VOW policy, and Butters said the evidence that the Justice Department has introduced already “could just be the tip of the iceberg.”
Butters also said that the judge’s opinion “didn’t draw much distinction between the blanket and selective opt-out” provisions in the ILD and VOW policies. The original VOW policy approved in 2003 provided a selective opt-out provision that allowed participating brokers to pick and choose which brokers they would share their listings with, while the modified VOW policy — also known as the ILD policy — provided a blanket opt-out provision requiring that brokers who withhold listings from other participants cannot show those participants’ listings on their own Web sites.
“The court pretty much treated the opt-out issue as a singular issue,” in the opinion, Butters said.
The judge’s opinion states, “Underlying (NAR’s) argument is an assumption that the ‘blanket’ opt-out imposes higher costs on the broker deciding to opt-out, and thus it is less likely to be used than the selective opt-out,” and adds that the Justice Department’s allegations do not “depend upon a ‘selective’ or ‘targeted’ opt-out right.”
“This judge clearly gets it,” Butters said. “He understands how VOWs operate and the potential they have for making the marketing process far more efficient and consumer-friendly. He clearly comprehends that.”