Home Agent NAR, Franchisors Face Long Odds In Effort To Appeal Class Action Status

NAR, Franchisors Face Long Odds In Effort To Appeal Class Action Status

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When a district court granted class certification last month in one of two federal commission lawsuits that could rock the real estate industry, the National Association of Realtors and Realogy vowed to appeal, but whether they can and whether that appeal is successful appears to have rather long odds.

On May 6, the trade group, the franchisor, and their federal defendants — Keller Williams, RE/MAX and HomeServices of America — filed a petition with the U.S. Court of Appeals for the Eighth Circuit seeking permission to appeal. On Monday, the U.S. Chamber of Commerce filed a “friend of the court” brief in support of that petition and the plaintiffs filed a brief opposing the petition. It is now up to the higher court to decide whether it will consider the appeal or if the class certification will stand.

Under federal law, defendants don’t have the automatic right to appeal a class certification decision but can petition for permission to appeal. However, even if a higher court agrees to consider the appeal, such appeals are “discretionary and rarely granted,” according to an article published by antitrust law firm Bona Law.

“Though reliable data is hard to come by, the courts of appeal grant around a quarter of all petitions (and they reverse the district court in a little over half the cases in which they grant the petition),” the article said.

The commission suit, known as Sitzer/Burnett, was originally filed in 2019 and alleges that some NAR rules — including one that requires listing brokers to offer buyer brokers a commission in order to list a property in a Realtor-affiliated multiple listing service — violate the Sherman Antitrust Act by inflating seller costs.

The suit, like a bigger federal case in Illinois brought by homeseller Christopher Moehrl, seeks to have homebuyers pay their broker directly, rather than having listing brokers pay buyer brokers from what the seller pays the listing broker.

On April 22, Judge Stephen R. Bough of the U.S. District Court in Western Missouri granted class certification in the case, meaning that hundreds of thousands of homesellers in four MLS markets in Missouri can ask to be reimbursed for $1.3 billion in commissions they paid to buyer agents in the past eight years — plus potential treble damages, making this case a multibillion-dollar class action.

In their petition seeking permission to appeal, the defendants alleged that Bough had not conducted a “rigorous analysis” of the requirements for class certification and accepted the testimony of the plaintiffs’ expert, Dr. Craig T. Schulman, “at face value.”

“The court recounted Schulman’s general approach and conclusions, … and then stated generally it found Schulman’s testimony ‘persuasive,’ ‘[a]s explained throughout this Order,’” the defendants’ attorneys wrote.

“But the court did not, in fact, explain elsewhere why it found Schulman persuasive on the critical issues, and the court repeatedly made clear it had declined to resolve the merits of Defendants’ challenges to Schulman’s testimony.”

Schulman testified that no seller class member would have paid a buyer broker but for the rules at issue. He used Australia’s real estate market as a benchmark because of its similarities to the U.S., the absence of the challenged rules in that market, and its inclusion in NAR’s 2015 D.A.N.G.E.R. report as a comparable market.

The petition contends that Bough should have ruled on the validity of Schulman’s benchmark analysis when considering certification because the analysis determined that no seller would pay a buy-side commission even absent the challenged rule, which the defendants maintain is not something that can be said for all sellers — and would therefore go against certifying them all as a class.

The amicus brief from the U.S. Chamber of Commerce echoes the defendants’ arguments. The Chamber describes itself as the world’s largest business federation, representing about 300,000 direct members with more than 3 million companies and professional organizations under them.

According to the Chamber, because many of its members are defendants in class actions, the trade group has “a keen interest in ensuring that courts rigorously analyze the requirements for class certification before a class is certified.”

Like the defendants, the Chamber also pointed out that the granting of class certification means that “defendants often face crushing pressure to settle,” which can result in “significant costs” to businesses and consumers. The Chamber’s attorneys stressed that defending against just one large class action can cost tens of millions of dollars or more and that corporate class-action litigation costs added up to “a record-breaking $3.37 billion in 2021.”

“It needs hardly to be reiterated that improperly certified class actions pose an enormous cost to our justice system and to our economy as a whole,” attorneys for the Chamber wrote.

“Improperly certified class actions make it more difficult for defendants to vindicate their due process rights. They impose enormous settlement pressure on defendants, even when the underlying claims are non-meritorious. And when they lead to settlements, the costs of such settlements are passed along to employees in the form of lower wages and to consumers in the form of higher prices.

“Appellate scrutiny of class-certification decisions like the one at issue here is thus critically important to businesses and consumers alike. This Court should grant the petition.”

In a filing on Monday, the plaintiffs opposed the defendants’ petition for permission to appeal, asserting that Bough had indeed conducted a rigorous analysis of the requirements for class certification. They noted that the parties had completed briefings and submitted expert reports three months before Bough’s decision and he had then held an evidentiary hearing in which Schulman and the defendants’ expert, Dr. Lauren Stiroh, both testified, but the defendants declined the opportunity to question Schulman at all.

“The District Court received more than 180 pages of briefing on certification, with dozens of exhibits submitted by both sides,” plaintiffs’ attorneys wrote. “The parties submitted over 200 single-spaced pages of expert reports. And the District Court held an evidentiary hearing at which both Dr. Schulman and Dr. Stiroh appeared live to testify. The District Court allowed full cross-examination at this hearing. But Defendants did not ask Dr. Schulman a single question.

“Plaintiffs, on the other hand, did cross-examine Dr. Stiroh. … The District Court also questioned the witnesses during this hearing.”

The court’s finding that Schulman’s opinions were persuasive and that the plaintiffs have a valid method for proving antitrust impact at trial was based on all of this evidence, according to the plaintiffs’ attorneys.

“The District Court did not simply assume Plaintiffs’ allegations to be true; it drew plausible conclusions from the evidence presented,” they wrote. “The District Court may have disappointed Defendants in its result, but it certainly analyzed the issues and explained its conclusions.”

The plaintiffs said that Schulman had submitted a 131-page report detailing exactly how the challenged rules caused injury to every seller class member and how that harm could be proven at trial using classwide evidence.

“In Australia, sellers pay much lower commission rates than U.S. sellers, typically between 2% to 2.5%,” the plaintiffs’ attorneys wrote.

“Buyer brokers are used infrequently, in as little as 1% to 5% of transactions. And when buyer brokers are used, the buyer pays the broker, not the seller. Dr. Schulman concluded that this is the but-for world that would exist without the challenged rules.

“Comparing this but-for world to actual conditions, every seller in the Class suffered antitrust injury because they were overcharged and forced to pay an improper commission to a buyer broker.”

Regarding whether the defendants would face pressure to settle, the plaintiffs’ attorneys pointed out that the defendants had not shown that they lacked the resources to defend this case to its conclusion.

“In fact, Defendants are the largest nationwide companies in real estate, with multiple billions in assets,” they wrote. “Two are publicly traded, and another is owned by Berkshire Hathaway. Class certification will not force Defendants to settle rather than defend this action.”

Regarding the Chamber of Commerce’s amicus brief, the plaintiffs’ attorneys said that the Chamber “files such briefs on demand for its members” and that the organization’s website lists 24 such examples in the last month alone.

“The Chamber’s brief simply parrots Defendants’ own arguments and requires no separate response,” they wrote.

Email Andrea V. Brambila.

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