A federal district court has granted final approval of a settlement between the Department of Justice and a South Carolina multiple listing service that it accused of anticompetitive practices, but the potential for a dispute over the MLS’s initiation fee for new members remains.

The Department of Justice sued Columbia, S.C.-based Consolidated Multiple Listing Service Inc. (CMLS) in May 2008. The antitrust suit alleged the broker-operated MLS’s membership restrictions and rules hindered discount and "fee-for-service" brokers from competing with traditional, full-service companies that allegedly controlled CMLS’s board.

A federal district court has granted final approval of a settlement between the Department of Justice and a South Carolina multiple listing service that it accused of anticompetitive practices, but the potential for a dispute over the MLS’s initiation fee for new members remains.

The Department of Justice sued Columbia, S.C.-based Consolidated Multiple Listing Service Inc. (CMLS) in May 2008. The antitrust suit alleged the broker-operated MLS’s membership restrictions and rules hindered discount and "fee-for-service" brokers from competing with traditional, full-service companies that allegedly controlled CMLS’s board.

At least 20 brokers testified that CMLS’s rules either excluded them from the Columbia market or impeded their competition, the Justice Department said.

Although CMLS disputed the allegations, the MLS changed some disputed policies in response to a Justice Department investigation that preceded the lawsuit. The two sides reached a proposed settlement in May (see story).

Approved Aug. 26 by the U.S. District Court of South Carolina, the settlement protects the right of CMLS member brokers to enter into "exclusive agency" contracts with sellers, and requires the MLS to admit any broker who is licensed in South Carolina.

The settlement, which which will be in force for 10 years, also requires that CMLS charge no more than the "reasonably estimated cost" incurred by CMLS to initiate new members.

The Justice Department said that in the past, applicants for membership in the MLS have been subjected to "potentially intimidating" interviews before a committee dominated by traditional full-service brokers. The practice allegedly deterred applications from several nontraditional brokers, who feared losing a nonrefundable $5,000 initiation fee if the committee rejected their application.

The Justice Department claimed CMLS’s initiation fee was five times higher than those typically charged by other MLSs in South Carolina. CMLS reduced the initiation fee to $2,500 after it was sued by the government, but the amount of the fee remains a potential bone of contention.

In an Aug. 17 motion urging approval of the settlement, attorneys for the government said CMLS officials have informed them that they plan to establish an initiation fee that the Justice Department believes might exceed CMLS’s actual cost, which would violate the terms of the settlement.

An attorney representing CMLS, Edward M. Woodward Jr., told Inman News that a consultant hired by the MLS determined that the actual cost incurred by CMLS in initiating a new member is greater than the current $2,500 fee.

Woodward said that "in light of wider disagreements already spanned" by the settlement agreement, the issue of determining an acceptable initiation fee could still be resolved through negotiations. A Department of Justice attorney involved in the case did not respond to a request for comment.

In its motion, the Department of Justice said CMLS has pointed to an initiation fee maintained by the Multiple Listing Service of Hilton Head Island Inc. as part of its justification for the proposed initiation fee. MLS of Hilton Head is operating under the terms of a settlement with the Department of Justice that resolved a similar antitrust lawsuit filed in 2007 (see story).

The Justice Department is "currently investigating whether the Hilton Head MLS has imposed impermissibly high initiation fees," the government said in its motion to approve the CMLS settlement. "If so (the Justice Department) may also move this court to require the Hilton Head MLS to adhere to its obligations." …CONTINUED

Hilton Head MLS chief executive Yvette Acuff declined comment.

Settlement provisions

When the settlement agreement with CMLS was reached in May, Woodward told Inman News that "both sides got what they needed," with CMLS retaining approval for home lockboxes.

Other provisions of the Justice Department’s settlement with CMLS included doing away with a requirement that brokers maintain an office in the Columbia area, which the government maintained was another impediment to discount brokers.

Brokers from other parts of South Carolina and neighboring states have expressed interest in offering brokerage services to buyers and sellers in Columbia, the Justice Department said, by delivering some brokerage services over the Internet, automating some tasks, and passing cost savings onto consumers in the form of lower commissions.

Discount brokers operating outside Columbia "could not offer their services to Columbia-area consumers because their low-margin business models did not support opening offices within the CMLS territory," the Justice Department said in a "Competitive Impact Statement" filed in support of the settlement.

The settlement bars CMLS from prohibiting brokers from entering into "exclusive agency" contracts sometimes favored by sellers who want to market their own properties and pay little or no commission.

CMLS had previously allowed brokers and their clients to use only one type of contract — "exclusive right to sell" agreements that require the seller to pay a commission to the broker regardless of who finds a buyer. That restriction had already been lifted by CMLS.

The settlement also requires CMLS to repeal an "active involvement" rule that required brokers to participate in the marketing, sale and closing of each listing. The Justice Department alleged the requirement prevented consumers from working with fee-for-service brokers who charge only for specific services performed.

Under the terms of the settlement, CMLS will no longer be allowed to require new members to maintain commercial offices. CMLS had prohibited brokers from operating out of their homes, which the Justice Department said served as an impediment to brokers who sought to lower their overhead costs and pass savings to clients in the form of lower fees.

Although CMLS repealed the prohibition on home offices after it was sued, the settlement bars it from reinstating the rule.

The settlement establishes an antitrust compliance program under which CMLS, for the next 10 years, must furnish minutes of each meeting of its board and committees to the Department of Justice, along with copies of its rules following any rule changes.

CMLS must also provide copies of the settlement and its rules, as modified by the settlement, to each of its members and to everyone who has inquired about membership in the past five years.

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