Even coronavirus isn’t stopping a major antitrust commission lawsuit from going forward. Attempts by real estate giants to stay proceedings and compel arbitration in the suit have failed and one of the rulings is headed to an appeals court.
Last year, several homesellers filed two bombshell commission lawsuits against the National Association of Realtors and real estate franchisors Realogy, Keller Williams, RE/MAX, HomeServices of America and HomeServices subsidiaries BHH Affiliates and HSF Affiliates.
The smaller of the two suits was filed on behalf of homeseller Joshua Sitzer and other plaintiffs in the Western District of Missouri. It alleges that the sharing of commissions between listing and buyer brokers inflate seller costs and thereby violate the Sherman Antitrust Act, the Missouri Antitrust Law and the Missouri Merchandising Practices Act.
This and a bigger, related suit in Illinois on behalf of seller Christopher Moehrl seek to have homebuyers pay their broker directly, rather than having listing brokers pay buyer brokers from what the seller pays the listing broker. Such a change could upend the U.S. real estate industry by effectively forcing changes in how buyers’ agents are traditionally compensated. Both suits seek class-action status.
Thus far, the Sitzer suit has seen the most activity. Discovery — the mandatory disclosure of facts and documents — is underway and the plaintiffs have filed a slew of subpoenas against Realtor associations, multiple listing services, MLS system vendor CoreLogic, consulting firm T3 Sixty, and, most recently, Fannie Mae and Freddie Mac.
On April 1, RE/MAX — on behalf of itself, NAR, Realogy and Keller Williams — filed a motion to stay all proceedings in the case for 60 days “so that the Defendants’ employees may protect themselves and comply with the stay-at-home orders during the unprecedented national emergency resulting from the COVID-19 virus.”
“Attempting business-as-usual proceedings will divert Defendants’ resources from attempting to manage their businesses through this crisis and impair their ability to cost-efficiently conduct the intensive fact discovery sought in this case at just the time that their business has suffered a massive hit,” RE/MAX’s attorneys wrote.
But the plaintiffs argued that staying discovery would derail the litigation, that the defendants were financially well-positioned to handle the crisis as well as discovery, and that the defendants had publicly stated both that they could handle their businesses virtually and that they did not anticipate a market crash.
On April 7, the court denied the defendants’ motion, noting that so far the parties had been able to resolve their discovery-related disputes remotely and would continue to hold status conferences with the court to resolve any future issues.
“The Court is confident that these practices, as well as the continued professionalism of the parties, remain the most effective tools for managing the litigation-related challenges posed by the coronavirus,” wrote U.S. District Court Judge Stephen R. Bough.
Asked whether NAR would appeal the denial, NAR spokesperson Mantill Williams said in an emailed statement, “NAR’s motion to stay discovery was denied and discovery will proceed. We continue to believe that this lawsuit is wrong on the facts, wrong on the economics and wrong on the law. We intend to demonstrate how the MLS system creates competitive, efficient markets that benefit home buyers and sellers as well as small business brokerages.”
The case’s docket mentions that a “dispute regarding the production of Defendant NARs Civil Investigative Demands is deferred to the parties status conference on May 6, 2020.” Asked whether NAR had received CIDs from the U.S. Department of Justice (DOJ) and what the dispute was, NAR’s Williams said, “The docket refers to a procedural matter involving production of documents related to CIDs issued to other parties, not NAR.”
The plaintiffs’ legal filing above said,”NAR has produced approximately 450 documents — the same documents it has produced to the Department of Justice.” Thus, Inman has asked NAR for additional clarification.
The court also rebuffed an attempt by HomeServices and its subsidiaries to force the case to be decided via arbitration. The HomeServices defendants had argued that two of the named plaintiffs, Rhonda and Scott Burnett, as well as purported class members had signed listing agreements containing “prominent, clear, and conspicuous arbitration provisions.”
Therefore, they said, the court should enforce HomeServices’ arbitration rights, strike the purported class members who signed a listing agreement with a HomeServices subsidiary, and stay all proceedings against the HomeServices defendants.
But the plaintiffs argued that the Burnetts’ listing agreement with the arbitration provision was with a nonparty to the case, ReeceNichols, a brokerage owned by a HomeServices subsidiary and that HomeServices itself had admitted that “[N]either the named Plaintiffs nor any purported class members has any contract or direct relationship with HomeServices relevant to the claims asserted in this case.”
Moreover, plaintiffs’ attorneys wrote, HomeServices waived arbitration by litigating the case for nearly a year before trying to enforce arbitration rights.
Judge Bough agreed with the plaintiffs. “HomeServices is not a party to the contract, not a signatory the contract, and does not sell real estate. Further, HomeServices is not a third-party beneficiary as defined by the Eighth Circuit and Missouri Supreme Court and this contract lacks any reference to binding ‘third party nonsignatories’ or ‘officers, shareholders, [or] directors,'” he wrote in an April 10 order.
“Under established Missouri Supreme Court law, ‘a party cannot be required to arbitrate a dispute that it has not agreed to arbitrate.’… As such, HomeServices Defendants, as a non-signatory to the contract, cannot enforce arbitration.”
On April 14, the HomeServices defendants filed a joint notice of appeal to the Eighth Circuit, letting the court know it will be seeking to overturn Bough’s order. Asked when it would file the appeal and what the basis of the appeal would be, HomeServices declined to comment. RE/MAX also declined to comment for this story.
Realogy and Keller Williams did not respond to requests for comment.
Editor’s note: This story has been updated with a decline to comment from RE/MAX, comments from NAR, and references to NAR’s production of documents to the DOJ and civil investigative demands.