Real estate suits closer to closing

Two class actions can proceed as appeals court rules that when brokers limited access to multiple listings services, it smelled of conspiracy

Two class actions against South Carolina real estate brokerages charged with conspiring to restrain competition can move forward, the 4^th U.S. Circuit Court of Appeals has ruled.

In a unanimous opinion handed down on May 14, the court affirmed U.S. District Judge Sol Blatt Jr. and held that consumers had sufficiently stated claims that the various brokerage defendants, acting through employees who were board members for area multiple listing services, had adopted rules designed to exclude innovative, lower-priced competitors from membership in the MLS — and, effectively, from the local real estate market.

“We are hopeful the procedural maneuvering is over and we can get to the business of litigating the merits of our case,” said Jesse Kirchner of Charleston’s Thurmond Kirchner Timbes and Yelverton, one of the firms representing the plaintiffs.

“We are now able to push forward to ensure that folks who want to sell a home in the Hilton Head area can do so in a competitive, unrestricted free market that offers the best service for the best price,” added his partner Matthew Yelverton.

Attorneys for the defendants did not respond to requests for comment.

The cases, Robertson v. Sea Pines Real Estate Companies, and Boland v. Consolidated Multiple Listings Service, which were consolidated for appeal, now return to the district court for discovery and further proceedings.

Anticompetitive effect

The Boland plaintiffs filed their complaint in May 2009 on behalf of individuals and businesses that paid for real estate brokerage services from 2005 through 2009 in the Columbia MLS service area.

The Robertson plaintiffs filed their similar complaint in January 2010, focusing on actions in the Hilton Head Island MLS service area from 2003 through 2007.

They allege that the brokerages, acting through employees who serve on the MLS boards, adopted rules that restricted access to the MLS and excluded discount or internet-based brokerages from the market. Those rules included requiring members to have a physical office in the service area; prohibiting members from offering alternative fee arrangements; and imposing excessive entry fees.

“If you were interested in selling a home in Charleston County, for example, you could go online and there would be multiple examples of discounted commission or even flat-rate brokerages that could put your property in the MLS system so that all brokers and their clients had access to properties that were for sale,” Yelverton said. “That was not available to home sellers or purchasers in Beaufort County during the time period that relates to this complaint.”

As a result, the plaintiffs contend, real estate buyers in the Hilton Head and Columbia areas had fewer brokerage options and paid higher prices for services than did customers in other parts of the country.

“The plaintiffs were forced to pay anywhere from 6 to 8 and a half percent, whereas in other markets where these innovative brokers were allowed to compete, the average was 3 to 4 percent,” Kirchner said.  “So we’re talking about hundreds of millions of dollars in real estate sales that occurred during the time period we’ve alleged, and there’s some percentage that was paid to the brokers that plaintiffs are seeking to recoup.”

The defendants denied that they conspired — or were able to conspire — to restrict competition, contending that the MLS rules were the product of actions by the MLS entity alone and not any collective action by the brokerages.

The court rejected that argument, finding that the very existence of the rules suggested an agreement among the brokers. “The complaints rest . . . on allegations that MLS board members conspired in the form of the MLS rules, the very passage of which establishes that the defendants convened and came to an agreement,” Judge J. Harvie Wilkinson III wrote for the court.

The court further found that the defendants’ conduct likely had anticompetitive effects, particularly given the market power the MLS entities had in their respective service areas.

“An MLS centralizes information within the real estate market it serves, enabling MLS members to communicate with each other to coordinates the sale and purchase of real estate,” Wilkinson wrote. “Particularly in an area served by only one MLS, access to MLS resources may be critical for a brokerage to successfully participate in the relevant real estate market.”

Feds pushed enforcement

The class actions follow Department of Justice enforcement actions brought against Hilton Head Island MLS and Consolidated MLS in 2007 and 2008 as part of a broader effort to address anticompetitive conduct in a changing real estate marketplace.

The department, along with the Federal Trade Commission, hosted a public forum in 2005 on competition in the real estate brokerage industry and released a final report in 2007, finding that the Internet had in many instances circumvented consumer need for traditional brokerage services. In some places, brokers responded by attempting to exclude new and non-traditional brokers from area multiple listing services.

During those years the Justice Department also brought enforcement actions against the National Association of Realtors and the Kentucky Real Estate Commission.

Both Hilton Head Island MLS and Consolidated MLS ultimately signed consent orders with the Justice Department that required them to change rules and practices found to restrict access to membership or otherwise exclude non-traditional brokers.  In January 2010, just four months after Consolidated MLS had entered into its consent order, the Justice Department haled the organization back into court because it had failed to reduce its $2,500 initiation fee to an amount equal to its costs, as required by the order.

The FTC also brought several actions against MLS groups in Michigan, Colorado, New Hampshire, New Jersey, Pennsylvania and elsewhere across the country.  The Pennsylvania action against West Penn Multi-List Inc. concluded with a consent order in February 2009.  The company has since settled a class action filed against its broker members in federal court in Pittsburgh, Logue v. West Penn Multi-List, for $2.4 million.  According to the Daily Real Estate News, class counsel was awarded $1 million in fees and expenses, leaving $1.36 million to be divided among as many as 8,550 consumers who filed claims in the case — an average of $160 each.

Opinion Brief

Case name: Robertson v. Sea Pines Real Estate Companies (consolidated with Boland v. Consolidated Multiple Listings Service)

Court: 4th U.S. Circuit Court of Appeals

Judge: J. Harvie Wilkinson, III

Attorneys for appellant:  Jesse Kirchner, Matthew Yelverton (Charleston); John G. Felder and S. Randall Hood (Rock Hill); Daniel R. Karon, Brian Penny (Cleveland); Garrett Blanchfield, Mark Reinhardt (St. Paul Minn.); Grant Goodman (Cleveland)

Attorneys for appellees: Edward M. Woodward, Jr., Frederick A. Gertz (Columbia); Celeste T. Jones, Jane W. Trinkley (Columbia)

Issue:  Did purchasers of real estate brokerage services state antitrust claims against brokerage companies that, acting through employees who were board members of local MLS entities, adopted rules restricting entry to those entities?

 Holding:  Yes, under the facts alleged in the respective complaints.