[VIP] Hot Take on NAR’s Motion to Dismiss

In the all-important Moehrl v. NAR case, NAR has filed a motion to dismiss, and submitted a brief in support of that motion. I’ll embed it below.

This is all but guaranteed in just about any serious civil litigation these days involving serious lawyers who get paid by the hour. I remember my Civil Procedures professor telling us that we ought to get very familiar with Rule 12(b)(6) as it is one of the most often used part of what is called “motion practice” where lawyers move to dismiss, move to exclude witnesses, move to strike, move, move and move. Rule 12(b)(6) is the motion to dismiss a complaint for a variety of flaws, including what NAR uses here: “failure to state a claim.”

So I’ve been waiting to see (a) what NAR’s brief in support of the inevitable 12(b)(6) motion would be, and (b) what would happen as a result. We’ll find out what will happen as a result in short order, since Federal Rules of Civil Procedure provides 21 days for the other side to file some kind of a response before the court rules on the motion to dismiss.

Nonetheless, it is interesting to look at the arguments that NAR raises in its brief because they point to the likely defense in the actual case itself should this lawsuit survive the motion to dismiss. (And I think it very likely that the case will survive this motion to dismiss for a variety of reasons.) So let’s take a look at those arguments.

Before we start, let me point out that while I am a lawyer (retired, NY Bar), I am not your lawyer, nor am I an antitrust specialist, nor am I a litigator. So consult a competent attorney if you need to do anything other than understand what’s going on and be edutained by this lawsuit.

The Brief

Thanks to Jay Thompson who uploaded the PDF to his blog, Now Pondering. I’ve uploaded it to Scribd for embedding here.

I believe you can download the brief from Scribd directly.

Rule 12(b)(6): Failure to State a Claim

Since most of the people reading this are not lawyers, I think it would be worth briefly going over the point of Rule 12(b)(6), to clarify what it is and what it is not. For a more detailed explanation by someone more qualified than me, please go here and read the whole thing (Cornell Law School).

In our legal system, anybody has the right to bring a lawsuit against anybody else for just about any reason. Unlike other legal systems, we don’t have the rule of “loser pays” where the losing party in a civil lawsuit has the pay the legal costs of the winner. So we have a lot of lawsuits. Which sucks for anybody who isn’t a litigator, but really sucks for judges who have to hear these cases and make decisions, and for everybody who is waiting his turn to be heard by a judge to settle a dispute.

So there are a number of rules in our system to make the process as short and efficient as possible. Rule 12(b)(6) is one of the most important of these rules. (The other one is the Summary Judgment Rule, which I am 99.99% sure we’ll see in this case.)

Its goal is to get rid of ridiculous, frivolous, stupid cases right at the start so the court does not waste its time with such dumbassery.

Facts, Facts, and More Facts

Since dismissing a case before the plaintiff has even had the opportunity to present any evidence is a pretty drastic step, Rule 12(b)(6) has some fairly steep requirements to succeed. One of these is that that court will pretend that everything alleged by the plaintiff is true, then see if the lawsuit is still frivolous.

So defendants who move to dismiss have to do one of two things. One, they could say, “Let’s say everything that plaintiff says is true; so what?” Two, they could say, “The plaintiff is just so obviously wrong on what happened that there’s no point in going any further.” That second approach is what NAR uses in its argument:

In order to survive a motion to dismiss, Moehrl has to plead “factual content” that is not demonstrably false and that, if proven, would make out a violation of the antitrust laws. Here, Moehrl’s centerpiece allegations about NAR rules are demonstrably false. Moreover, NAR’s actual rules are, and have been found by the courts, to be procompetitive.

This is kind of like, “He’s suing us because the brakes on his truck failed, but we make steering wheels. Why are we continuing this nonsense?” Except that it’s really not… as we’ll discuss below.

To get a bit more detailed about it, what NAR argues is that Moehrl misreads and misrepresents the actual rules of NAR, that those rules do not do any of the bad things that Moehrl thinks they do, that in fact those rules specifically allow for all the things that Moehrl says they prohibit:

As noted above, Moehrl’s claim rests on a fundamental misstatement of NAR rules. His main claim is that Section G-1 of the NAR Handbook requires “all brokers to make a blanket, non- negotiable offer of buyer broker compensation when listing a property on a(n) MLS . . . .” Complaint ¶¶ 2, 3, 37 (emphasis added). But Section G-1 does nothing of the kind. The Rule requires that listing brokers make “blanket unilateral” (not “blanket non-negotiable”) offers of compensation to other MLS participants. The words, “non-negotiable” simply do not appear in the Rule. To the contrary, NAR rules expressly state that they do “not preclude the listing broker from offering any MLS participant compensation other than the compensation indicated on his listings as published by the MLS.” See Johnson Decl., Ex. A at 34-35 (emphasis added). [All emphasis in original]

I mean, that sounds pretty compelling, doesn’t it? Because no one can argue that the words “non-negotiable” appear anywhere in the NAR Handbook; they do not. No one can argue that the Standards of Practice cited by NAR say exactly what NAR says they say.

So NAR asks the court to dismiss the case:

In sum, Moehrl’s claim depends upon misstatements and mischaracterizations of NAR’s actual policies. The rules, as written, directly contradict Moehrl’s central claim and antitrust theory and, therefore, require that the complaint be dismissed. See Schachar v. Am. Acad. of Ophthalmology, Inc., 870 F.2d 397, 397 (7th Cir. 1989) (“There can be no restraint of trade without a restraint.”). This Court cannot draw a reasonable inference that NAR rules prohibit negotiations that those rules expressly contemplate and permit.

Sounds like a slam dunk, doesn’t it? Well, it’s probably not a slam dunk. In fact, it would be very surprising if NAR prevailed on a 12(b)(6) motion to dismiss.

Why NAR is Unlikely to Prevail

First of all, one reason why I don’t think NAR wins here this early is that the lawyers on the other side are not brand new attorneys with shiny new law licenses fresh out of law school. They’re some of the most experienced, most serious class action antitrust attorneys in the entire country (which likely means in the entire world). If someone like me knew that a 12(b)(6) motion was the very first thing NAR was going to do, so did they.

They never file this case in the first place if they didn’t have a good argument for why the court should not dismiss the case under 12(b)(6). They’ve got better things to do with their time and their money and their high-priced junior attorneys.

So I assume we’ll hear some kind of an argument back from the plaintiff’s lawyers why NAR and its lawyers are wrong and the case should proceed.

Second, I feel like NAR’s argument – as powerful and as compelling as it is – relies almost entirely upon the language of its various rules and SoPs. I can’t help but feel that Moehrl’s lawyers are going to argue that it isn’t the plain words that matter, but how REALTORS and MLSs understand the rule that matters. In other words, I think Moehrl’s lawyers will argue two things: (a) NAR rules might say whatever, but NAR members hear something else, and (b) that NAR says one thing in public, but does something else altogether in private.

Basically, I think Moehrl’s argument boils down to, “Watch their hands, not their lips.”

I don’t know that Moehrl will win that argument; I think it will be very difficult. But it is a “factual allegation” that could be made and supported with evidence at trial. Dismissing the case before Moehrl has the chance to show that NAR says one thing and does another is… unlikely. Summary judgment in favor of NAR? Maybe. That feels more likely, if after some amount of discovery, there just isn’t enough evidence of something there for the court to want to go through a full trial (we’ll talk about summary judgment when we get to that stage). But dismissal seems highly unlikely.

The legal team for NAR did a great job with what they have, but the headings of their arguments are… well… argumentative. Which isn’t necessarily a great sign in a motion to dismiss. What you want are more of the, “Everything he said is correct, but it’s irrelevant.” We don’t have that here.

Third, the remedy for a failure to allege facts, and even the failure to allege damages (which is the second prong of NAR’s attack on Moehrl) is to amend the complaint so that it does those things. Amending a complaint is normally “of right”, meaning that the plaintiff merely needs to ask the judge to amend the Complaint, and the judge will grant the request.

Cases are dismissed more often when the defense tactic is, “You’re right about everything. So what?” rather than, “You got all kinds of facts wrong, son!” The point of a trial is often to figure out who got the facts (and the law) wrong.

So at most, Moehrl amends his Complaint, alleges all kinds of facts, alleges all kinds of harm and damages, and we move on.

Likely Outcome: Amended Complaint

I think what is far most likely to happen here is that Moehrl’s lawyers amend the Complaint to address a couple of the issues brought up. They probably fix the “Buyer Broker Commission Rule” thing, because that phrase appears nowhere in the NAR Handbook on MLS Policy. They’ll probably spell out all the provisions they mean. They probably clearly state that NAR’s pretty words are just that: pretty words that are not enforced, and are understood by NAR membership as meaning “non-negotiable” and so on and so forth.

Hell, they might make allegations that are insane and flat out wrong: “NAR and the four defendant brokerages secretly tell their agents to ignore the Code of Ethics when it comes to cooperating compensation!” They’ll have a tough time proving that at trial, but for pre-trial motions, the judge has to pretend that the allegation is true and see if he still wants to dismiss the case.

They’ll likely also amend the Complaint to allege actual injury, because NAR brought that up, and actually say something like, “Moehrl paid way too much, because his broker didn’t even tell him cooperating compensation was negotiable, and furthermore, told him reducing compensation means his house will never get shown.” That takes some junior associate about 15 minutes to type up.

However, if we’re lucky (as spectators at least), Moehrl’s lawyers will file some kind of a brief opposing the motion to dismiss that could give us a hint as to their overall litigation strategy. Because NAR’s brief in support of the motion made the general outline of their defense clear: (a) Moehrl misinterprets and misrepresents the actual rules, (b) the MLS is pro-competitive, and (c) cooperating compensation is core to the MLS being pro-competitive.

If we’re not lucky, then Moehrl’s lawyers say nothing, just amend the complaint, survive dismissal, and move into discovery. Then we have to wait a couple of years (maybe) before Summary Judgement motions gets filed… but that will be after Moehrl’s lawyers get the opportunity to dig into all of the meeting minutes of a lot of NAR committees, board meetings, Leadership Team, read a lot of emails from and to various important people, and possibly depose a lot of MLS executives and MLS Board members. That would suck for a lot of people because in our legal system, the process is the punishment.

Or maybe the court surprises me and does dismiss the case. Stranger things have happened.

Quick Note: the DOJ Investigation and Moehrl

I posted as a general update the discovery of the fact that the Department of Justice sent a Civil Investigative Demand to CoreLogic. A number of people immediately drew the connection between that and this case. I said it should, since Moehrl case was top of mind for many of us.

I don’t know that there is a direct connection, unless some kind of connection between lawyers for Moehrl and lawyers at the DOJ can be established….

But what seems more feasible, or at least slightly less crazy, is the idea that the DOJ saw the Moehrl case (and sister cases) being filed, read the Complaint, and thought they might achieve a far greater level of regulation by providing some unasked-for assistance than by direct action. What do I mean?

Say that you’re the DOJ, and you’d really like to de-link commissions so buyers have to pay for their own representation. But you’re a department of the federal government, and politics dictates what you get to do. NAR is a major power in Washington DC. If the DOJ tries to regulate commission sharing directly, it’s going to run into a buzzsaw of NAR political action.

If, on the other hand, the DOJ simply investigates a bunch of things and releases a report that just so happens to be very helpful to the Moehrl legal team… its regulatory action can be “lightweight”: disclose some information. The goal is still accomplished, though, through private litigation.

For the Moehrl legal team, having the United States Department of Justice release a report in support of such a disclosure regulation is like being handed a machine gun in its fight against NAR in the courts. All of that “MLS is pro-competitive” argument from NAR gets undermined in a pretty big way in front of judges and juries if the freaking DOJ concludes that the secrecy surrounding commissions is anti-competitive and that commission information needs to be “brought into the light.”

True, we’re still in tinfoil hat territory, but I do think that seems far more plausible: the DOJ is taking this action at this time in order to provide some support to a lawsuit they’d like to see succeed, thereby changing the way business is done in residential real estate without having to promulgate heavy-handed regulations that are sure to be fought in the political arena.

Anyhow, that’s enough for now. I’ll be following this issue closely, of course, since this is one of the big Black Swans of real estate right now… except it’s foreseeable, so it’s more of a grey goose….

Let’s revisit this when we have more to study and go on.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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