A federal judge has closed the door on an antitrust class action accusing the National Association of Realtors of illegally leveraging access to its Multiple Listings Service to require sellers to pay buyers' brokers, enacting rules intended to discourage sellers from lowering broker commissions.
Judah Leeder, who used a broker to buy a New Jersey home off a MLS in October 2020, initiated the antitrust action against the Realtors group, as well as Realogy Holdings Corp., HomeServices of America, HSF Affiliates, Long & Foster Companies, BHH Affiliates, Re/Max and Keller Williams Realty. He proposed a class of additional plaintiffs to include anyone who bought residential property listed on a National Association of Realtors MLS after Dec. 1, 1996.
U.S. District Judge Andrea Wood
Leeder based his allegations on the NAR’s annual Handbook on Multiple Listing Policies. Local associations, which own the listing services, enforce those rules and policies. The relevant clause, Wood wrote, is a requirement that any broker who puts a property on an MLS “make a blanket unilateral offer of compensation to any broker who finds a buyer for the home. That offer must be expressed either as a percentage of the gross selling price or as a definite dollar amount.”
The association also has rules barring brokers from disclosing to buyers the commission the buyers’ broker will collect. Until January 2021, Leeder alleged, the association’s ethics code allowed and encouraged brokers to tell buyers their services are free. With the rule in effect, according to court documents, total commissions have been stable between 5 and 6 percent.
“By contrast, in comparable international markets where buyer-brokers are paid directly by the home buyer, total commission rates are generally between 1 percent and 3 percent of the sale price,” Wood wrote.
Leeder alleged the policy effectively discourages sellers from offering discounted commissions and said most MLS systems use software allowing buyers’ brokers to filter listings based on commission, letting them exclude properties with low commission. He also said the association’s ethics code prevents a buyer broker from presenting an offer contingent on a seller reducing the buyer broker’s commission.
Wood said Leeder’s amended complaint acknowledges sellers’ brokers pay buyers’ brokers, which technically means sellers are responsible for determining the total compensation. Wood explained this differed from other situations, such as when customers buy goods directly from a party charging the commission. She also rejected Leeder’s contention the role of escrow accounts should change the legal reasoning.
“Home sellers not only set the total commission price, but they also agree in their listing agreements to pay that price,” Wood wrote. “On the other hand, the buyer’s agreement with their buyer-broker typically makes clear that a third-party (i.e., the seller) will be responsible for the broker’s fees.”
Wood said “there are numerous instances” where the end user is an indirect purchaser, such as buying health care by paying an insurer that directly pays the provider. She then pointed to a 1977 U.S. Supreme Court opinion, Illinois Brick v. Illinois. That decision established indirect purchasers can’t recover damages from antitrust violations. Wood dismissed that portion of Leeder’s complaint.
Leeder built his state law unjust enrichment claims on the same allegations, but Wood said New Jersey’s antitrust law is applied consistently with federal precedent of Illinois Brick. Allowing Leeder to repackage the claim would undermine New Jersey Supreme Cort precedent, the judge said.
Turning to Leeder’s pursuit of injunctions preventing the defendants from maintaining and enforcing the challenged commission protocols, Wood noted “home sellers, as the direct purchasers of buyer-broker services, are necessarily more directly injured” by the conduct Leeder alleges. But there already is a lawsuit from sellers in federal court in Chicago, requesting the same injunction. Wood, presiding over that action as well, said denying Leeder antitrust standing to pursue his own relief doesn’t leave anything unremedied.
Wood rejected the defendants’ request to make her total dismissal of Leeder’s claims with prejudice, saying although “it is unlikely Leeder will be able to plead adequately that he is a direct purchaser of buyer-broker services,” she nonetheless granted leave to amend his complaint.
Leeder has been represented by attorneys George A. Zelcs, Randall P. Ewing Jr., Jonathon Byrer, Ryan Z. Cortazar, Michael E. Klenov, Jamie Boyer and Carol O’Keefe, of the firm of Korein Tillery, of Chicago and St. Louis, and Vincent Briganti, Christian Levis and Noelle Feigenbaum, of the firm of Lowey Dannenberg, of White Plains, New York.
The National Association of Realtors has been represented by attorneys Ethan Glass and Michael D. Bonanno, of Quinn Emanual Urguhart & Sullivan, of Washington, D.C.; and Jack R. Bierig and Adam J. Diederich, of the Schiff Hardin, of Chicago.
The realty defendants are represented by attorneys Timothy Ray, David C. Kully and Anna P. Hayes, of Holland & Knight, of Chicago and Washington, D.C.; Robert D. MacGill, Scott E. Murray and Matthew T. Ciulla, of MacGill P.C., of Indianapolis; and Jay N. Varon, Jennifer M. Keas and Anne Marie Coghlan, of Foley & Lardner, of Washington, D.C., and Chicago.