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ANAHEIM, Ca. — The National Association of Realtors will argue for a “complete reversal” of the jury verdict in the Sitzer | Burnett bombshell commission lawsuit, the trade group’s legal team told a packed crowd of at least 2,000 people at its annual conference Monday.
Meanwhile, an attorney for the plaintiffs in the case said he’s ready for the fight.
NAR’s legal team spoke at a session called “Lawsuit Update: Impact and Next Steps” at NAR NXT in Anaheim, California, this week. The session, which ran less than an hour, was so popular that the event organizers had to open up two overflow rooms to accommodate attendees.
The legal team that got NAR this far
NAR President Tracy Kasper spoke first, pointing to a “really tough verdict” in the Sitzer | Burnett case, which was first filed in April 2019.
On Oct. 31, after less than two and a half hours of deliberations, a Kansas City jury found NAR, Keller Williams, Anywhere (formerly, Realogy), RE/MAX, HomeServices of America and two of its subsidiaries BHH Affiliates and HSF Affiliates conspired to inflate broker commission rates paid by homesellers, awarding the plaintiffs nearly $1.8 billion in damages, which will be tripled by law to nearly $5.4 billion.
Then Kasper introduced Katie Johnson, NAR’s chief legal officer; Lesley Muchow, NAR’s general counsel; and Charlie Lee, NAR’s senior counsel.
“This is the epitome of grace under fire,” Kasper said of Johnson, Muchow, and Lee, all of whom attended the Sitzer | Burnett trial in Kansas City last month.
“This is the epitome of experts that we have in our house; those watching out for us all of these years. They have worked tirelessly for us.”
The Sitzer | Burnett plaintiffs challenged NAR’s cooperative compensation rule, also known as the Participation Rule, which requires listing brokers to make an offer of compensation to buyer brokers in order to submit a listing to a Realtor-affiliated multiple listing service, under the Sherman Antitrust Act.
‘Critical’ to understanding the jury’s verdict
Johnson, who shared she is the daughter of two Realtors, and Lee walked attendees through NAR’s defenses at trial, which ultimately failed to convince the jury. Muchow laid out why, in NAR’s view, that happened and in doing so appeared to preview the 1.5-million member trade group’s likely arguments in its forthcoming appeal of the verdict.
According to Muchow, the questions the jury had to answer and their verdict is a reflection of a decision by the judge, Stephen R. Bough, that the claims in the case would be evaluated under a “per se” rule analysis rather than a “rule of reason” analysis.
That decision is “a critical issue in understanding the jury’s verdict,” Muchow said.
While “rule of reason” allows a jury to consider a practice’s actual effect on the market or the intentions of the people who engaged in the practice, a “per se” violation is illegal regardless of those considerations.
Price-fixing, which was the allegation in Sitzer | Burnett, is almost always a per se violation, according to Cornell’s Legal Information Institute. Accordingly, the jury instructions in the Sitzer | Burnett case told the jurors, “If you find that any Defendant engaged in a price-fixing conspiracy, it is not a defense that such Defendant acted with good motives, thought its conduct was legal, or that the conduct may have had some good results.”
“[Bough’s decision] is in opposition to the fact that most modern antitrust cases are evaluated using that rule of reason analysis,” Muchow told conference attendees.
“If the jury had been able to use that rule of reason analysis, the jury would have been able to take into consideration all the pro-competitive benefits for the rule and the practice and all the evidence and testimony that the jury heard, quite frankly, over the course of 11 days, about why that cooperative compensation rule exists” and benefits consumers, sellers, and buyers.
‘Very strong basis for a complete reversal’
“NAR will appeal this decision,” Muchow said of the verdict, stressing that “the wheels of justice do not move quickly” so the process “will take time.”
“We do believe that we have a very strong basis for a complete reversal of the jury’s verdict, as well as the damages awarded,” Muchow said.
“We anticipate over the next coming months that we will file post-trial motions. NAR will ask the court basically to undo the jury verdict, arguing that no reasonable jury could have come to the conclusion that it reached based on the evidence and testimony that occurred.
“We will also argue and ask for a new trial. If we are unsuccessful on those motions, then we will be able to advance our appeal to the Eighth Circuit.”
NAR hasn’t ‘learned anything’
Michael Ketchmark of Ketchmark & McCreight, lead counsel for the Sitzer | Burnett plaintiffs, scoffed at NAR’s pronouncements Monday.
“The National Association of Realtors doesn’t seem like it’s learned anything from the jury verdict,” Ketchmark told Inman in a phone interview.
“We keep hearing the same arguments being retreaded and rehashed. All they’re going to do is waste time and money pursing an outdated and broken and illegal system. They’re trying to act like they didn’t really lose. They had a resounding defeat.”
Every day that NAR keeps fighting change is another day of damages and pain the association will have to account for, according to Ketchmark.
“I’m getting hundreds of phone calls every day from agents about the horrors of the current system,” Ketchmark said, pointing to “money draining out of the pockets of local agents” going to NAR.
“It’s time that we turned control of the future of real estate to the local agents.”
‘Willfulness and arrogance’
Ketchmark said he hoped that NAR would finally get “some adult supervision” when its new interim CEO, Nykia Wright, starts on Nov. 20.
In his experience, companies that suffer such a “resounding rejection” from a jury usually stop their objectionable behavior, according to Ketchmark.
“It shows a tremendous amount of willfulness and arrogance” that NAR is refusing to do so, he said.
If NAR wants to file an appeal in Sitzer | Burnett and head to another trial in the new case Ketchmark filed the day of the verdict, Gibson, then Ketchmark said he’s ready for the fight.
“We’re ready for Round 2, if they are,” he said.
The parties are proposing that post-trial motions in Sitzer | Burnett be due on January 8 and that the deadline for replies be March 18, Ketchmark told Inman. Therefore, there likely will not be a final judgment from Bough until after those motions in the spring, he added.
Will there be a settlement?
Regarding the possibility of a settlement in the case, Johnson told conference attendees, “For NAR, settlement has always been an option.”
If NAR were to settle it would look for two outcomes, according to Johnson: 1. That homebuyers will continue to be able to access and afford buyer representation, and 2. That all liability from the suit’s claims is eliminated for NAR’s members, associations and MLSs.
“Settlements are always an option if we can achieve those objectives,” Johnson said.
Advice for Realtors
In the meantime, Johnson reiterated advice that she has given many times over the years, that Realtors should use buyer representation agreements and promote their value proposition.
She pointed attendees to competition.realtor and realestatecommissionfacts.com for more information and talking points about the lawsuits challenging the U.S. commission structure. Lee told attendees to explain to their clients how they get paid and why.
Muchow also advised attendees to stress that commissions are negotiable. In that vein, she urged NAR members to leave compensation fields blank on forms rather than pre-filling them out — a phenomenon multiple plaintiffs emphasized in their testimony during the Sitzer | Burnett trial.
“Those are conversations you need to have with the consumer,” Muchow said.
“There’s no set amount. Sellers can decide and it’s on the Realtor to educate the seller as to why they might want to elect to make an offer of compensation and how that will work to their benefit in the transaction.”
“A Realtor should never suggest to a seller that if they do not make a certain amount of an offer of compensation that other Realtors will steer buyers away from their property,” she added.
Johnson ended by stressing that NAR’s current legal situation represents an opportunity.
“An opportunity to differentiate yourself from others, from your competitors and colleagues in your area,” Johnson told attendees.
“An opportunity to improve your practices. An opportunity to think creatively and do things differently, using this delta, this point in time, as a launch pad for innovation.
“The sky’s the limit. I know that sounds kind of weird when we’re also talking about a $1.8 billion judgment, but we are focused on the legal consequences of that and keeping you out of the legal fray as much as we can. Hopefully that frees up your ability to focus on this as [an] opportunity to succeed.”