Appeals Court Weighs DOJ Push To Reopen NAR Commission Rule Probe

Key Takeaways:

– The DOJ began an investigation into the National Association of Realtors’ Cooperative Compensation Rule and Clear Cooperation Policy in 2019.
– In November 2020, the DOJ and NAR agreed to a proposed settlement, but the DOJ withdrew from the settlement in July 2021 and resumed its investigation.
– In September 2021, NAR filed a lawsuit and in January 2023, a district court ruled in favor of NAR, quashing the probe.
– The DOJ appealed the ruling and a three-judge panel seemed inclined to allow the probe to resume in December 2023.
– NAR argues that the DOJ agreed to close the investigation in the proposed settlement.
– The DOJ’s probe is happening in tandem with multiple antitrust lawsuits challenging NAR’s rules.

inman:

A three-judge panel for the Washington, D.C., circuit seemed inclined to let the agency resume its probe into the National Association of Realtors’ cooperative compensation and pocket listing rules.

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An appellate court in Washington, D.C., heard oral arguments from the National Association of Realtors and the U.S. Department of Justice Friday in a case that will decide whether or not the federal agency will be able to reopen an investigation into a commission rule that is already under fire from ever-multiplying lawsuits across the country.

On Dec. 1, a three-judge panel for the U.S. Court of Appeals for the District of Columbia Circuit seemed inclined to allow the DOJ’s Antitrust Division to resume its probe, according to several news reports.

The DOJ began an investigation into NAR’s Cooperative Compensation Rule, also known as its Participation Rule, in April 2019, nearly five years ago. The rule requires listing brokers to offer compensation to buyer brokers in order to submit a listing to a Realtor-affiliated multiple listing service and has for decades underpinned the way real estate agents get paid nationwide.

In June 2020, after NAR adopted the Clear Cooperation Policy, which the trade group said was intended to curb pocket listings, the DOJ also began investigating that rule. The policy requires listing brokers to submit a listing to their MLS within one business day of marketing a property to the public.

In November 2020, the DOJ and NAR agreed to a proposed settlement of the investigations, and the DOJ sent NAR a letter saying it had closed its investigation of the two rules. However, after the presidential administration changed hands, the DOJ withdrew from the settlement in July 2021 and resumed its investigation into the rules. In September 2021, NAR filed suit and, in January 2023, a district court ultimately ruled in favor of NAR, quashing the probe. Subsequently, in March, the DOJ appealed that ruling.

The DOJ is asking the court to allow the CCP and Cooperative Compensation Rule to be evaluated on their merits and NAR is seeking to stop that probe, arguing that the DOJ agreed to close an investigation into the rules.

The appellate court judges seemed skeptical of NAR’s arguments, made by attorney Christopher Michel, on Friday.

“I’m looking at the language of this letter [the DOJ sent NAR], and I don’t see how you can read it to make any commitments about the future,” Judge Florence Y. Pan said, according to Politico.

“The plain and ordinary meaning of ‘closed’ does not imply ‘and will never reopen,’” she added.

In addition, Judge Justin R. Walker opined that NAR took a gamble when it agreed to a proposed settlement with the DOJ, according to Bloomberg.

“You gained the benefit of being pretty confident that if the personnel and the antitrust division didn’t change after the election, you’d be good to go,” Walker said. “You made that bet and you lost.”

Attorney Frederick Liu argued for the DOJ. The DOJ’s Antitrust Division declined to comment for this story.

In a statement to Inman, Mantill Williams, NAR’s vice president of communications, said, “The DOJ’s unprecedented attempt to reopen a closed investigation it settled years ago boils down to an apparent institutional change of heart under new DOJ appointees. The Justice Department is not free to ignore the principles of contract law and fair dealing that bind every other party before the courts. The district court’s decision that the government must be held to the terms of its 2020 settlement agreement is correct and should be affirmed.”

The DOJ’s probe has happened in tandem with multiple antitrust lawsuits challenging both rules. Those lawsuits are pending. The one that has gotten the farthest, known as as Sitzer | Burnett, was filed in the same month that the DOJ’s probe began, April 2019, and on Oct. 31 returned a verdict against NAR and major real estate franchisors Keller Williams, Anywhere (formerly Realogy), RE/MAX, HomeServices of America and two of its subsidiaries, BHH Affiliates and HSF Affiliates, that may end up costing them nearly $5.4 billion.

Email Andrea V. Brambila.

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Property Chomp's Take:

In a recent development, a three-judge panel for the Washington, D.C., circuit appeared to lean towards allowing the U.S. Department of Justice (DOJ) to resume its investigation into the National Association of Realtors' (NAR) cooperative compensation and pocket listing rules. The case, which was heard by an appellate court in Washington, D.C., will determine whether the federal agency can reopen its probe into a commission rule that is already facing numerous lawsuits across the country.

The DOJ initiated an investigation into NAR's Cooperative Compensation Rule, also known as its Participation Rule, back in April 2019. This rule requires listing brokers to offer compensation to buyer brokers in order to submit a listing to a Realtor-affiliated multiple listing service. The investigation also extended to NAR's Clear Cooperation Policy, which was adopted in June 2020 to address pocket listings. This policy mandates listing brokers to submit a listing to their MLS within one business day of marketing a property to the public.

In November 2020, the DOJ and NAR reached a proposed settlement, and the DOJ sent NAR a letter stating that it had closed its investigation into the two rules. However, when the presidential administration changed hands, the DOJ withdrew from the settlement in July 2021 and resumed its investigation into the rules. NAR responded by filing a lawsuit in September 2021, which ultimately resulted in a district court ruling in favor of NAR in January 2023, effectively quashing the probe. The DOJ appealed this ruling in March.

During the recent oral arguments, the judges seemed skeptical of NAR's arguments and appeared inclined to allow the DOJ to reopen its investigation. One judge pointed out that the language in the DOJ's letter did not imply a commitment to never reopen the investigation. Another judge suggested that NAR took a gamble by agreeing to the proposed settlement and ultimately lost when the personnel and the antitrust division changed after the election.

The DOJ is seeking to evaluate the Cooperative Compensation Rule and the Clear Cooperation Policy on their merits, while NAR is trying to prevent the probe by arguing that the DOJ agreed to close the investigation. The outcome of this case will have significant implications for the real estate industry and could potentially reshape the way real estate agents are compensated nationwide.

It is worth noting that the DOJ's investigation has run parallel to multiple antitrust lawsuits challenging both rules. The most notable of these lawsuits, known as Sitzer | Burnett, was filed in April 2019 and recently returned a verdict against NAR and major real estate franchisors, potentially costing them nearly $5.4 billion.

As the case unfolds, it is clear that the real estate industry is facing a reckoning, and the old way of doing business may be coming to an end. Real estate professionals and industry stakeholders will be closely watching the outcome of this case and its potential impact on the future of the industry.

In conclusion, the recent hearing in the case between NAR and the DOJ suggests that the agency may be granted permission to resume its investigation into NAR's cooperative compensation and pocket listing rules. The outcome of this case will have significant implications for the real estate industry and may signal a shift in the way real estate agents are compensated. It remains to be seen how this legal battle will unfold and what impact it will have on the future of the industry.

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