NAR’s Victory in NAR v. United States of America: I Don’t Understand It

[This is a VIP post, but given its importance and the fact that I’d love to hear from antitrust experts outside of the industry, I am opening it up to the public for a while. But hey, if you dig this kind of thing, consider subscribing to VIP.]

A while back, when this case was first filed, I said with confidence that NAR would lose. I frankly thought, based on the Complaint and the Answer, that NAR might have the case thrown out.

Boy, was I wrong. Yesterday came news that the court ruled in the case of NAR v. United States of America and in favor of NAR. I assume much rejoicing was had in NAR’s DC and Chicago offices. Katie Johnson deserves kudos for sure.

Frankly, as an anarcho-capitalist, I’m happy to see the government lose a case — any case, really. So hooray for the little guy (well, comparatively speaking at least).

Having said all that, I’ve read the opinion now twice. And I just don’t understand it. I am a lawyer, but a retired one and certainly not an expert in antitrust law or in administrative law. This case impacts both of those. So I did a little bit of research, and I’ll just lay out my biggest question here. We might say it’s maybe less of a question and more of a… “I don’t understand.”

Some warnings and caveats. I am a retired lawyer, but I am not an antitrust expert, and I am definitely not your lawyer. Please consult your own attorneys for actual legal advice and analysis. None of this is legal advice; it’s education and entertainment. This is going to get pretty dense into legal issues and legal analysis — chances are, if you’re not a law nerd like me or in leadership positions and have to understand some of these issues, you’re going to be bored to tears.

I know, I know. Aren’t you just dying to read a post that could bore you to tears? Maybe you have insomnia, and here’s the cure. Still, with that said, let’s dive in.

The Opinion

Let’s start where we always start: with the actual opinion. I’ve uploaded it to Scribd for your reading pleasure.

The gist of the opinion is that the government cannot just break a contract because it feels like it. Here’s the holding, in my opinion:

These rules track the general principle that the government must be held to the terms of its contracts. Regardless of the identity of the official that signs a contract, “a settlement contract may not be unilaterally rescinded,” and government agencies that enter into settlement agreements are bound by their terms. Burton v. Adm’r, Gen. Servs. Admin., No. 89-cv-2338 (NHJ), 1992 WL 300970, at *3, *6 (D.D.C. July 10, 1992); see also Village of Kaktovik v. Watt, 689 F.2d 222, 234 (D.C. Cir. 1982) (Greene, J., concurring in part and dissenting in part) (“There is no question that a settlement agreement is a contract which, like any other contract, may not be unilaterally rescinded. That principle applies to the government as to any other party, and it applies irrespective of whether or not the agreement has yet been approved by the court.” (cleaned up)). Thus, a CID barred by the terms of a settlement agreement is invalid. (Page 5-6) [Emphasis added]

The court held that there was a “validly executed settlement agreement” between NAR and the DOJ, and therefore, the CID (Civil Investigative Demand) is barred.

The court then goes into a bit of discussion about partial integration or a complete integration, because if there is a “complete integration” it means that that contract supersedes all previous discussions, previous agreements, previous everything. After finding that the Proposed Final Judgment (“PFJ”) is not a completely integrated agreement, the court rules:

Because the agreement included the Antitrust Division’s commitment to close its investigation into NAR’s current Participation Rule and Clear Cooperation Policy, the government breached the agreement by reopening the investigation into those same rules and serving the new CID.

Finally, the court sort of swats away the government’s arguments. That’s not all that interesting, so we’ll skip those.

So what is interesting?

The Tunney Act

What I find interesting, probably because I am a law nerd in some ways, is that the court never once mentions the Tunney Act. Maybe the DOJ never raised it as an issue during oral argument… which would be odd since the DOJ’s initial Response cites it:

The Antitrust Procedures and Penalties Act (Tunney Act), 15 U.S.C. § 16, required a public notice and comment period before any settlement with NAR could be concluded. During the Tunney Act process, the Antitrust Division concluded that the reservation of rights provision in the Proposed Final Judgment should be revised to avoid potential confusion about whether the judgment would foreclose further action by the Division on matters not covered by the judgment. NAR did not agree to the Division’s requested modification. The Division consequently withdrew from the Proposed Final Judgment, as permitted under paragraph 2 of the Stipulation, and filed a notice of voluntary dismissal of the complaint.

So what the hell is the Tunney Act and why should anybody care?

The Tunney Act is federal law that requires judicial review of consent decrees and settlement agreements in antitrust cases. Here’s an explanation from Hogan Lovells. The relevant part:

Passed in 1974, the Antitrust Procedures and Penalties Act, commonly referred to as the Tunney Act, requires federal courts to review each consent decree in civil antitrust cases filed by the DOJ to ensure that the remedy proposed in the consent is in the public interest. Courts have long been perceived as simply “rubber stamping” DOJ settlements; but following the Microsoft decisions, Congress decided to address these concerns and amended the Tunney Act in 2004. While the modifications were relatively minor, the legislative history indicates Congress (or at least the members that introduced the legislation) intended to strengthen the judicial role in the process and provide more effective oversight of antitrust consent decrees. [Emphasis added]

Hogan Lovells goes into some specific cases where the court took a far more active role in determining whether the proposed settlement between some private company and the DOJ was in the public interest — specifically the Verizon/MCI merger case.

The general takeaway from all of the Tunney Act commentaries and cases is that a settlement entered into by the DOJ (or frankly, any government agency as we’ll see shortly) isn’t worth the paper it’s written on until a judge signs off on that settlement.

In the Verizon case, the DOJ wanted the court to approve the consent decrees; the court said no. That’s clearly a case where Verizon and the DOJ came to agreement. They probably had written documents and written settlement agreements before the consent decrees were filed. The court still said no, as it had the power to do under the Tunney Act. So the two parties had a deal, and the court quashed it.

In this case, the DOJ wants the court to NOT approve any settlements, says we didn’t have a deal… and the court says “Sorry, you had a deal.” What?

Now, here’s something else. The Tunney Act says the following in 15 U.S.C. § 16(b):

Any proposal for a consent judgment submitted by the United States for entry in any civil proceeding brought by or on behalf of the United States under the antitrust laws shall be filed with the district court before which such proceeding is pending and published by the United States in the Federal Register at least 60 days prior to the effective date of such judgment. Any written comments relating to such proposal and any responses by the United States thereto, shall also be filed with such district court and published by the United States in the Federal Register within such sixty-day period. Copies of such proposal and any other materials and documents which the United States considered determinative in formulating such proposal, shall also be made available to the public at the district court and in such other districts as the court may subsequently direct. Simultaneously with the filing of such proposal, unless otherwise instructed by the court, the United States shall file with the district court, publish in the Federal Register, and thereafter furnish to any person upon request, a competitive impact statement… [Emphasis added]

Unless I’m missing something completely, and there’s a case somewhere that says otherwise, or my legal reading skills have all gone to shit, all of those shall’s are legally meaningful. It means that the DOJ has no choice, and any proposed settlement is invalid, unless all of those “shall-do” things are met.

There’s more “Shall” commandments in the Tunney Act, such as publication of summaries of the proposals in newspapers, consideration of public comments, etc. etc. And then the Tunney Act in paragraph (e) straight up says:

Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest.

As far as I know, and as far as the trial record reflects, nothing was published anywhere because the DOJ pulled out of the deal before the end of the 60-day period. If there was no publication in the Federal Register, no publication of summaries in newspapers, no consideration of public comments, no filing of a competitive impact statement, etc. etc., then under the statutory requirements of the Tunney Act, the court would have been forced to reject it. That is the black letter unambiguous requirement of this statute.

So if I understand the court’s reasoning correctly here, it is saying that despite the fact that the court would have had to reject the consent decree — you know, the actual Proposed Final Judgement that had all kinds of requirements for NAR — for failure to comply with the statutory requirements of the Tunney Act… the agreement that NAR and the DOJ reached as an interim step to get to the consent decree is a legally binding contract?

Let me put this in home sale terms, because that’s easier to grasp for real estate people.

To me, this is like the buyer and seller negotiating the purchase of a home, and as a way to get the deal done, the seller agrees to sell the washer and dryer to the buyer for $100. The deal falls apart, because buyer’s financing falls apart. But the buyer gets the washer and dryer for $100 because they had a deal. Does that even make sense?

I don’t understand that outcome. At all.

By the way, shouldn’t this opinion by the court enforcing a settlement agreement have to have some kind of a finding of how not letting the DOJ investigate NAR is in the public interest under the Tunney Act?

Let’s move on.

About the Government Settlements…

The other thing I find rather curious are the two cases cited by the court for the proposition that government agencies that enter into settlements enter into legally binding contracts. I couldn’t find Burton v. Adm’r, Gen. Servs. Admin. case but I did find the Village of Kaktovik v. Watt case and that one seems to be more important as the court cites language from that opinion.

Well, here’s the actual opinion of the Village of Kaktovik v. Watt. And here’s what the court writes there discussing the procedural history of that case:

In the alternative plaintiffs argue that, even if not deserving of an attorneys’ fees award under the applicable statutory standards, they are entitled to the award agreed upon in their prior settlement with defendants.48

To determine whether that settlement agreement is now enforceable, we must first view the course of the negotiations which preceded it. These negotiations began in August 1980, shortly after the district court ruled that plaintiffs were entitled to an attorneys’ fees award. A stipulation fixing attorneys’ fees at $60,000 was filed in the district court on 21 January 1981. Shortly thereafter, however, the government filed a Notice of Withdrawal from Stipulation. The Notice asserted that the Justice Department had entered into the agreement without proper consultation with the Department of the Interior, that the Interior Department strongly objected to the stipulation, and that the Government therefore withdrew from the stipulation and objected to any reward based upon it. Plaintiffs in response urged the district court to enforce the stipulation.

48: Brief for Appellees North Slope Borough, et al., at 53-61. The settlement was filed with the district court on 20 January 1981 and embodied in the court order of 3 February 1981. North Slope Borough v. Andrus, 507 F. Supp. 106 (D.D.C. 1981). [Emphasis added]

Two things jump out at me here.

First, the settlement agreement in the Kaktovik case was filed with the court and “embodied in the court order.” Meaning, that settlement was an actual done deal, actually filed with the court, and actually put into a court order. It was not a deal reached in order to get to the actual deal; it was the actual deal itself.

Second, the Kaktovik case is not an antitrust case that has Tunney Act statutory requirements attached to it. In that case, it was a matter of the bosses at the Interior Department getting pissed off at the DOJ for agreeing to pay fees. In the current case, it’s a matter of statutory requirements that have not been met, as well as clear statutory command that a court shall determine that a settlement is in the public interest. And unless I am totally mistaken, the court cannot determine jack shit about public interest of a deal absent the other statutory requirements like publication in the Federal Register, publication in newspapers, public comment period, etc. etc. The court can do more, like hold actual hearings, but it cannot do less. That’s how statutes–actual legislation passed by both houses of Congress and signed by the President–work.

In other words, I just don’t see how there could possibly have been any legally valid contract between NAR and the DOJ absent the Tunney Act requirements being met. Since none of those were met, I am having enormous difficulty understanding how there was an enforceable settlement agreement at all.

Back to Tunney Act, For a Moment

If it turns out that an interim agreement with the DOJ that has not gone through the Tunney Act process is enforceable, even if the court ends up rejecting the actual final agreement — the consent decree, the Final Judgment, etc. etc. — then I can’t help but think the Tunney Act is utterly eviscerated and pointless.

The Tunney Act and the whole DOJ settlement thing is more often used in M&A situations, and far less in Sherman Antitrust proceedings.

Let’s say CoStar wanted to acquire Realtor.com, and the DOJ raised concerns about such a deal. Under this opinion’s reasoning, CoStar just needs to get some interim agreements with the DOJ to stop this or that in exchange for CoStar doing some kerfuffles and whachamacallits. Even if the actual consent decree settlement is never filed with the court, never published, and no public comments are heard… CoStar can proceed with the acquisition because those interim agreements are now enforceable contracts?

That makes no sense practically or legally.

But what do I know?

Summarizing and Asking for Help

Let me summarize things a bit here, and why I’m not able to understand this opinion.

• Tunney Act requires all kinds of things and a court to find that any settlement by the DOJ is in the public interest. There can be no deal with the DOJ without the Tunney Act requirements being met, even if the DOJ thinks there is a deal and desperately wants there to be a deal.
• In this case, the DOJ fulfilled none of those Tunney Act requirements, such as publication in the Federal Register, publication in newspapers, or a public comment period.
• The DOJ fulfilled none of those, because the DOJ did not want the deal. The DOJ proposed a change, and NAR said Nyet, so they pulled out of the settlement.
• The court knows that it cannot approve the actual deal — the consent decrees — between the DOJ and NAR because the Tunney Act requirements have not been met. In fact, the DOJ did not even try to meet them, because the DOJ doesn’t want the deal.
• Nonetheless, the court thinks there was an interim sub-deal that is a valid settlement agreement, a legally enforceable contract, between the DOJ and NAR.
• Court will enforce that sub-deal, despite none of the Tunney Act requirements being met because… reasons.

I’d like to ask for help from any reader who is an actual antitrust specialist. Maybe I’m missing something very important. Maybe there was a Supreme Court decision somewhere that said the Tunney Act only applies to Proposed Final Judgments and actual consent decrees, not to each and every settlement with the DOJ in a civil antitrust proceeding. All of those sub-deals are fully enforceable, even if the overall deal is not. If there is some kind of precedent like that, please correct my ignorance.

Should the DOJ appeal this decision, I imagine those lawyers are smart enough to raise all of these Tunney Act concerns. Hell, if I can see them, those experts certainly know these issues inside and out. Maybe further clarification is on its way.

In the meantime, NAR should savor this victory. It’s a big one against the biggest opponent of all: the United States of America.

-rsh