Suddenly, it’s become like legal issue week here at Notorious. I wrote about the entirely expected certification of class action status in Sitzer v. NAR yesterday. Today, I get emailed the opinion by the 9th Circuit Court of Appeals in the PLS.com v. NAR lawsuit.
If the class action opinion from Sitzer required reading tea leaves, this hammer from the 9th Circuit requires no such thing. They spell things out very clearly and very directly, and it’s seriously bad news for NAR, for Bright MLS, for MRED, and for CRMLS — the three MLSs named in the lawsuit. By extension, of course, this is seriously bad news for Clear Cooperation Policy as a whole and for every MLS in the country today.
As always, while I am a retired member of the NY Bar, I am not your lawyer. Nor am I rendering legal advice or opinions here; this is for educational and entertainment purposes only as an industry analyst. Please consult your attorney for what this means for you.
Brief Procedural History
While the opinion itself goes into some detail about the procedural history, as most appellate opinions do, it’s worth noting for our purposes how things came to this opinion.
Long story short, NAR passed Clear Cooperation Policy (“CCP” hereafter) in 2019, and it went into effect in 2020. PLS.com brought a lawsuit in May of 2020. NAR and the defendant MLSs moved to dismiss, and in February of 2021, the district court dismissed the complaint with prejudice, meaning they couldn’t re-file the thing. It was over, and it was a total victory for NAR and the three defendant MLSs.
That is, until the PLS appealed the dismissal to the 9th Circuit, which is to be expected… but it’s pretty hard to get an appellate court to reverse a dismissal with prejudice.
Well, at least one rather influential entity filed an amicus brief with the 9th Circuit urging reversal. That entity? The United States Department of Justice. The DOJ filed an amicus brief that pretended to be for neither side, but more or less destroyed most of the arguments of the Defendants, and pointed out all the ways in which the district court was wrong on the law. For example:
First, the district court appears to have adopted a rigid legal rule that a private antitrust plaintiff cannot allege harm to competition without alleging immediate harm to downstream, end-user consumers. But no legal rule requires allegations of downstream harm in all cases, and allegations of downstream harm are not required in the circumstances here where the anticompetitive conduct is directed at market intermediaries (real estate brokers and agents) acting as agents on behalf of sellers.
Guess what the 9th Circuit held?
I can, but won’t, go into all the arguments that the DOJ raised which the 9th Circuit accepted more or less in their entirety. Suffice to say that they did. The DOJ can be extraordinarily influential when speaking to federal judges.
Others also urged the court to overturn the dismissal, including the American Antitrust Institute, a hugely influential think tank in DC.
The Court’s Opinion
With that out of the way, let’s dive into the opinion itself. I was emailed this by a reader, so I’m embedding it here. You can download it if you want to read the whole thing.
Let’s start with the big takeaway: the lower court was reversed and the case was remanded for trial, consistent with the direction from the 9th Circuit.
The total victory that NAR and the defendant MLSs had is now a distant memory. They’re going to have to go to trial (unless they settle, of course… but I can’t see settlement being a possibility for a variety of reasons).
What’s worse, it seems likely now that the Defendants will lose at trial. CCP will be found to be anticompetitive, and NAR and at least these three MLSs will be paying out the ass. Antitrust provides for treble damages, after all.
I say that because in the opinion, the 9th Circuit took the time and trouble to point out all of the problems. What is seriously striking to me is how the court really engaged with the substance of the arguments by both PLS and by the Defendants, and pretty much found in favor of the PLS in just about every situation. Then the Court does this nifty, “We don’t have to decide that here” and punts it to the trial court below.
Let’s get into some of the more important ones.
Agents Are Consumers, for Antitrust Purposes
The first big one is where the 9th Circuit corrects the lower court for thinking that “consumers” mean only the ultimate consumer — the home buyer or home seller:
The district court held that these principles required PLS to allege that the Clear Cooperation Policy directly harmed “ultimate consumers”—which the court identified as “home buyers and sellers”—to allege antitrust injury. (emphasis added). According to the district court, PLS did not allege antitrust injury because “PLS [did] not adequately allege that the Clear Cooperation Policy has increased prices for services purchased or otherwise paid for by home sellers and buyers or that home sellers and buyers have been denied brokerage services that they desire as a result of the Clear Cooperation Policy.” The legal basis for the district court’s conclusion is not clear. The district court appears to have understood the term “consumer” to mean something like one “who buys goods or services for personal, family, or household use, with no intention of resale.” Consumer, Black’s Law Dictionary (11th ed. 2019). But our use of the term in the antitrust context has not been so limited. As our opinion in Glen Holly Entertainment, Inc. v. Tektronix, Inc., 352 F.3d 367 (9th Cir. 2003) demonstrates, a business that uses a product as an input to create another product or service is a consumer of that input for antitrust purposes and can allege antitrust injury. [Emphasis added]
I don’t think I need to point out that this is precisely the position of the US DOJ in its amicus brief. But hey, let me point that out: this is precisely the position of the DOJ.
The 9th Circuit could have stopped there, and reversed the lower court’s dismissal, and remanded for trial. It did not. It went on to do “analysis” of the legal issues:
Our conclusion that PLS can adequately allege antitrust injury without alleging harm to an “ultimate consumer” does not answer the question of whether it has actually done so. To allege antitrust injury, PLS must allege “(1) unlawful conduct, (2) causing an injury to [PLS], (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent.”
And with that, the floodgates open.
The 9th Circuit Thinks There is Per Se Violation Here
The first HOLY &@#$&()*% moment occurs when the Court decides to go on a lengthy explanation of the difference between per se group boycott or Rule of Reason group boycott. This is not the place to get into the difference between the two, since antitrust law is complicated and I’m not an antitrust expert, but even I know that per se group boycott is worse for the Defendants.
The Court sets up the Defendant:
Defendants argue that the Policy is not a per se group boycott because (1) it “does not cut off access to anything, and brokers remain free to use PLS or any other listing service,” (2) “on its face” it does not prevent real estate agents from posting listings on competing networks or from “making a choice about the listing network platforms in which they choose to participate,” and (3) it is procompetitive. These arguments are not persuasive.
Then it spends page after page showing how these arguments are not persuasive. The Court might as well have drafted the filings for the PLS and its lawyers, and basically drafts what the trial court below will write up.
9th Circuit Really Doesn’t Like Clear Cooperation Policy
The Court starts things off with this haymaker:
First, a group of competitors coercing a competitor’s suppliers to sell to that competitor only on “unfavorable terms” constitutes a group boycott even if the competitors do not completely cut off the competitor’s access to inputs it needs.
This then leads to:
Here, the Clear Cooperation Policy impaired PLS’s ability to compete against the MLSs in the market for sellers’ listings on almost any dimension because it requires the vast majority of PLS’s suppliers (sellers’ agents that are members of a NAR-affiliated MLS) to supply to PLS’s dominant competitors (NAR-affiliated MLSs) even if PLS’s product is better on the merits. Regardless of what PLS does—whether it charges less to list properties, provides a nationwide network, or develops a better interface—agents who belong to a NAR-affiliated MLS may not list on PLS without also listing on an MLS. Thus, the Clear Cooperation Policy essentially eliminates competition for most sellers’ agents’ listings between NAR-affiliated MLSs and rival services.
I mean… do we really have to wonder where the 9th Circuit stands on CCP? Whatever will the trial court below find after this ruling? Do you think the trial court might find that CCP “essentially eliminates competition” after this?
We then get this smackdown:
Defendants’ second argument—that the Clear Cooperation Policy is not coercive because sellers’ agents who wish to place some listings exclusively on competing services may do so if they give up their access to the MLSs— is even less persuasive. That is precisely the dilemma the Sherman Act is designed to prevent.
The Court goes on to lecture the trial court below, as well as the parties involved, that technically having a choice is not having a choice, and it’s coercive as hell, and that’s anticompetitive.
Let us end this sad tale with this elbow to the head:
Finally, Defendants argue that the Clear Cooperation Policy is procompetitive because it “reduc[es] search and transaction costs.” Although this contention is dressed up in the language of economics, at its core it is just an argument that the Clear Cooperation Policy benefits buyers’ agents because it allows them to see more listings on the MLSs and to avoid the need to consult competing services. This is not a procompetitive justification because it does not explain how the Clear Cooperation Policy enhances competition. At bottom, Defendants argue that the Clear Cooperation Policy results in a higher quality product: a listing service with all of the publicly available listings in one place. But justifying a restraint on competition based on an assumption it will improve a product’s quality “is nothing less than a frontal assault on the basic policy of the Sherman Act.”
Oh man. That’s gonna leave a mark.
In what I found somewhat amusing, there’s a lengthy technical discussion of antitrust law and the applicability of the Amex ruling about “two-sided marketplaces” and so on. It’s really of interest only to antitrust lawyers, but what I did find super interesting is how the Court goes into this deep analysis about the rule here, and then simply says, “It doesn’t really matter, because PLS did plead enough to satisfy whatever Amex requires.”
Maybe it’s just me, but it really seems like the 9th Circuit bent over backwards to find for PLS here. I know you’re supposed to do that in dismissal situations (take every allegation as if it were true, etc.) but man, this felt like an even more extra effort by the Court.
It is a foregone conclusion then that the Court finds that PLS did in fact allege injury, despite not being driven into bankruptcy. Along the way, the Court lays more lumber on the Defendants:
Contrary to Defendants’ argument, the Supreme Court has long recognized that “competitors may be able to prove antitrust injury before they actually are driven from the market and competition is thereby lessened.”
The Issue of Common Scheme
In another highly technical section on jurisdiction, that had to do with whether Bright MLS and MRED should have been part of this lawsuit or not, the Court reveals what strikes me as disapproval of what happened. The issue here was that MRED and Bright MLS both argued that PLS failed to adequately allege that they were part of the illegal “conspiracy” (technical legal term here) behind CCP.
Here’s what the Court says [paragraph breaks added for legibility]:
PLS has satisfied this requirement.
Specifically, PLS alleges that MRED and other MLSs conceived of the Clear Cooperation Policy through “private interfirm communications,” including at a meeting of “NAR’s MLS Technology and Emerging Issues Advisory Board” that MRED’s CEO attended.
PLS then alleges that MRED, Bright, and CRMLS signed a white paper “call[ing] for collective action to address the threat to the MLS system presented by … the prospect of a competing listing network.” That same day, “MRED published a statement supporting adoption by NAR of the Clear Cooperation Policy at the upcoming NAR convention.”
The next day, MRED and other NAR-affiliated MLSs met in Salt Lake City “to discuss the competitive threat presented by pocket listings and the need for NAR to take action at the upcoming NAR Convention to eliminate that threat through adoption of the Clear Cooperation Policy.” MRED’s CEO and Bright’s Chairman both addressed representatives of NAR- affiliated MLSs at the CMLS conference in Salt Lake City and urged them to adopt the Clear Cooperation Policy, and to encourage NAR’s Board of Directors to do the same.
Bright’s CEO said, among other things, “We have an opportunity in front of us to make, put this policy into effect in November. And Bright adopted it yesterday, MRED’s already adopted it, other people are already doing it, but we really need to get it through.”
The next month, Bright and MRED executives advocated for the policy at a meeting of NAR’s Multiple Listing Issues and Policies Committee, where the policy was approved. Two days later, NAR’s Board of Directors formally adopted it.
These allegations suggest that Bright and MRED agreed to adopt the Clear Cooperation Policy and then worked together to ensure that NAR required it so that every NAR- affiliated MLS would be forced to adopt it too. Therefore, PLS has plausibly alleged that Bright and MRED acted in concert rather than independently.
The clear sense I get is the Court scoffing at both Bright MLS and MRED, whose executives and leaders were writing white papers, urging for adoption of CCP, participating in workgroups, committee meetings and the like, saying they weren’t part of the alleged conspiracy. All of the things that we all do on a regular basis in the industry, like going to conferences, discussing issues, presenting on them, etc. etc. are held to be part of a “common scheme” to do something.
Both Bright MLS and MRED pointed out that they adopted rules that were not CCP, and adopted them before CCP was approved, so how in the world could they be part of some conspiracy to push CCP to PLS’s detriment. Court slaps that down:
But PLS is not required to allege that Bright adopted the Policy because of NAR’s rule. All that PLS must allege is that Bright adhered to a common scheme. Whether it did so by formally adopting the Clear Cooperation Policy after NAR required it or by voluntarily adopting a substantially equivalent policy beforehand makes no difference.
The result is that both Bright MLS and MRED are very much still in this now-revived lawsuit.
Analysis, For What It’s Worth
Given what I just read, here’s my take on it. Again, ask your attorney for how this might affect you.
The 9th Circuit took the Defendants to the woodshed. I don’t think they needed to do that just to correct the trial court’s errors. That they did so suggests to me that the 9th Circuit has already made up its mind on Clear Cooperation Policy: it is, in their view, an anticompetitive violation, a group boycott intended to hurt competitors to the MLS. Knowing that, the trial court will act accordingly in the new remanded trial.
The fact that the 9th Circuit laid out all of the arguments of the Defendants, then dismantled them all one by one, effectively making the arguments for the PLS’s lawyers at the trial below is… well, significant. NAR and the defendant MLSs are going to have to come up with new arguments, or some new facts, if they’re going to prevail at trial. That is, to put it mildly, a tall order.
Which means that in all likelihood, they lose at trial. Appealing that decision to the 9th Circuit would be pointless, since we all know what the 9th Circuit thinks about CCP, about NAR, about the Defendant MLSs. Which means you appeal, go through that rigamarole, and then hope for Supreme Court to intervene. That’s not a happy scenario. Nor is it going to happen anytime before say… 2027? 2030?
Thing is… the PLS lawsuit only named three big MLSs: Bright, CRMLS, and MRED. With this win under their belt, it wouldn’t take very much for PLS to start naming some other MLSs as well, either in a separate new lawsuit (which is guaranteed to survive motions to dismiss now) which can be merged into this one, or in this one right here. And that’s just PLS. Top Agent Network is also involved in a very similar lawsuit against NAR and various MLSs over the exact same issue: Clear Cooperation Policy. I believe their lawsuit was also dismissed, and also on appeal; with this decision, it seems like a foregone conclusion that the 9th Circuit will also reverse and remand.
As I like to point out from time to time, plaintiff’s lawyers talk to one another. They have conferences. Like bank robbers, they go where the money is. The 9th Circuit just made it clear that there’s money to be made in going after NAR and MLSs who have implemented Clear Cooperation Policy. I fully expect a spate of new lawsuits to be filed across the country after this ruling.
Then consider the fact that the DOJ intervened in the PLS lawsuit, and its dislike of Clear Cooperation Policy appears pretty darn clear. If you recall, in the whole kerfuffle between NAR and the DOJ over the settlement, then the withdrawal from the settlement, and then the current lawsuit between them… one of the big topics was DOJ wanting to investigate Clear Cooperation Policy. NAR said nyet, which led to the withdrawal and the lawsuit. No wonder they intervened in this case.
Okay, that’s the DOJ. Now do FTC, which is under Presidential executive order to do something about regulating residential real estate. The 9th Circuit just ruled as it did. How easy would it be for the FTC to simply pass some regulations banning something like Clear Cooperation Policy, instead of waiting for lawsuits to be resolved? It isn’t as if the public is going to pay any attention to anything like this, and regulators work best when the public doesn’t give a crap.
Cue dramatic foreboding music here.
Whither Clear Cooperation Policy?
This is obviously hot off the presses. I’m sure MLSs are meeting with their legal counsel, meeting with their Boards, and NAR is convening emergency meetings and the like. The timing couldn’t be better, since NAR Midyear is around the corner.
If they’re not talking about this at Midyear, then they’re not talking about anything of substance at all. If they’re talking about this at Midyear, but only in terms of complaining about the decision, then that’s not talking about anything worth talking about. They need to talk about what to do now, going forward. That talk needs to be serious.
To defend CCP after this smackdown by the 9th Circuit is… well… brave. The Complaint sought treble damages based both on lost profits and on decline in value of PLS.com as a business. At the time the Complaint was filed, PLS had over 20,000 members, which would have made it one of the largest MLSs in the country. There will be expert witnesses fighting over valuation, especially since it’s counterfactual, but we’re probably looking at tens of millions in damages alone, if not more.
The smarter play here might be to settle with PLS (and with Top Agent Network) and repeal Clear Cooperation Policy. Thing is, no one knows what the impact on the MLS system will be if CCP is repealed in 2022, after all that we’ve been through as an industry. Think about what companies like Compass and eXp could and would do if CCP goes away. Think about what big agent teams could and would do if CCP goes away, especially in a low inventory environment like we have today.
This might not be an event horizon end-of-the-world asteroid like what Moehrl, Sitzer, Leeder and the DOJ/FTC have lined up for future years… but this is an asteroid hitting nonetheless. It’s a big fucking deal.
Seeing as how I’ve been telling every MLS I can get in front of to embrace the prepper mindset, to create contingency plans for all sorts of expected and unexpected events, I sincerely hope they’ve got such plans handy. If not… well… gird up yer loins and make some room in your calendars. Your next strat planning retreat has been moved up on the calendar.