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The National Association of Realtors has “very many grounds” to appeal the jury verdict in the Sitzer | Burnett bombshell commission lawsuit, one of the trade group’s attorneys told hundreds of attendees at its annual conference Tuesday.
Meanwhile, an attorney for the plaintiffs in the case said NAR should instead voluntarily agree to change its behavior or else the plaintiffs would seek a nationwide injunction against the association and ask for assistance from the Justice Department.
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Matt Troiani, NAR’s senior counsel and director of legal affairs, spoke at a meeting of the association’s Risk Management Issues Committee at NAR NXT in Anaheim, California, this week.
Troiani began his legal update with a message for NAR’s nearly 1.6 million members: “Keep calm. Carry on. We still have a very long road ahead.”
He summarized the Sitzer | Burnett suit; a larger, similar suit known as Moehrl; and a suit brought by homebuyers now known as Batton 1 (formerly, Leeder); and the NAR rule being challenged under the Sherman Antitrust Act: NAR’s cooperative compensation rule, also known as the Participation Rule, which requires listing brokers to make an offer of compensation to buyer brokers in order to submit a listing to a Realtor-affiliated MLS.
“NAR is unwavering in its commitment that the offer of compensation — the detailed information that is included in the MLS listings — ensures efficient, transparent and equitable marketplaces where sellers can sell their homes for more and have their home seen by more buyers, while buyers have more choices of homes and can afford representation,” Troiani said.
In the Sitzer | Burnett case, on Oct. 31, after less than two and a half hours of deliberations, a Kansas City jury found NAR, Keller Williams, Anywhere (formerly, Realogy), RE/MAX, HomeServices of America and two of its subsidiaries BHH Affiliates and HSF Affiliates conspired to inflate broker commission rates paid by homesellers, awarding the plaintiffs nearly $1.8 billion in damages, which will be tripled by law to nearly $5.4 billion.
As NAR’s legal team did on Monday, Troiani noted that there would be post-trial motions filed in the case and only after the court addresses those requests would NAR be in a position to file an appeal.
“We do understand that it’s worrisome,” Troiani said. “But at the end of the day, we are working very, very hard. We are here to make sure that we see this through to the end because we believe in these rules. We believe in these policies.”
Grounds for appeal
Troiani pointed to “copycat lawsuits being filed across the country” and said they were “all the more reason why we have to get it right here” with the Sitzer | Burnett case.
“We do have very many grounds for appeal despite what you might be hearing in the media,” Troiani said.
“The jury verdict was unsupported by the facts and unsupported by the law. We do feel very confident and strong about our decision to appeal, if it comes to that.”
During a Q&A session after Troiani’s update, an attendee asked what NAR’s best three bases for appeal might be. Troiani listed some that he said “immediately” came to mind.
“We did preserve our rights to continue to challenge the original certification of the class,” he said.
“Because we know that every real estate transaction is different. There’s no such thing as a typical transaction” despite the plaintiffs’ counsel trying to paint hundreds of thousands of transactions with “such a broad brush,” he added.
NAR originally challenged the district court’s decision to grant class-action status in Sitzer | Burnett last year, but the U.S. Court of Appeals for the Eighth Circuit rejected the trade group’s request. Under federal law, defendants don’t have the automatic right to appeal a class certification decision immediately but can do so after a final judgment.
Lesley Muchow
Troiani also repeated an argument made by NAR General Counsel Lesley Muchow on Monday blaming the jury’s verdict on a decision by the judge, Stephen R. Bough, to evaluate the claims in the case under a “per se” rule analysis rather than a “rule of reason” analysis. The latter would have allowed the jury to consider the alleged “pro-competitive benefits” of the cooperative compensation rule.
“Per se analysis is reserved for those situations where it is so obvious that there is some kind of anti-competitive agreement, or the behavior is so egregious, that it essentially makes the case for them, and you’re just trying to play defense at that point,” Troiani said.
“In this case, we felt that it was completely inappropriate for the court to treat it as a per se case instead of under the rule of reason.”
Troiani also pointed to evidence NAR feels the jury should or should not have heard.
“There were also certain things that we tried to introduce into evidence that either were not allowed or certain things that the plaintiffs’ counsel was able to get away with, that we felt was error,” Troiani said.
“For example, Missouri law specifically states that offers of cooperation can be offered from the listing brokerage to the buyer brokerage. Well, it’s really hard to violate antitrust law if you’re actually adhering to the law in the jurisdiction.”
Judge Stephen R. Bough
Bough did not allow reference to that state law to be included in the jury’s instructions, despite a request from the defendants. After the plaintiffs dismissed their own state claims, the case proceeded solely under the federal claim. In addition, the Missouri law allows, but does not require, commission sharing and it is the requirement under NAR’s cooperative compensation rule that the plaintiffs objected to during the trial.
Troiani pointed to “certain things the plaintiffs were not supposed to be able to present” that he said the plaintiffs’ counsel did “without a whole lot of correction or anything from the judge.”
Troiani did not offer specifics, but the defendants’ (ultimately rejected) motion for mistrial in the middle of the proceedings provides some clues, including the showing of a “vulgar” Tom Ferry podcast video featuring Berkshire Hathaway HomeServices exec Allan Dalton, mention of Inman’s article about NAR’s recent decision to allow listing brokers to offer buyer brokers nothing in compensation, and references to U.S. Department of Justice (DOJ) investigations.
Plaintiffs’ attorney responds
Michael Ketchmark
In response to NAR’s planned avenues for appeal, Michael Ketchmark of Ketchmark & McCreight, lead counsel for the Sitzer | Burnett plaintiffs, said the trade group had already made those arguments “over and over during the trial and they just lack merit.”
“We’re not concerned about any of the issues that they’re raising,” he said. “If they would spend one ounce of the energy trying to solve the problems that the jury pointed out, that they do in trying to continue to explain and excuse their behavior, our country would be better off and their members would be better off.”
NAR’s appeal bond
The same conference attendee asked Troiani about the bond NAR would have to post to appeal the verdict. Before any defendants appeal, they’ll have to post a bond of a to-be-determined amount to guarantee they can pay the plaintiffs their due if they don’t succeed in convincing a higher court to see things their way.
“We’re going to have a series of post-trial motions to try to set aside the verdict, for a new trial, [and] to reduce the damages because we didn’t feel that there was actually a factual basis to support the verdict from the jury,” Troiani said.
“Something else to consider too on appeal is that it is possible to actually negotiate with the other side. The purpose of the appeal bond is actually to stay the enforcement of the judgment during the appeal and appeals in federal courts can take years. The higher the bond amount that’s involved, that bond becomes more expensive.
“If the plaintiffs lose on appeal, then they could be responsible for the cost of the bond so it’s not necessarily in their interest in having a huge bond unless they feel really, really good about their case on appeal. They could be out of pocket for that.”
‘NAR has no shame’
Ketchmark called this particular strategy “despicable.”
“So what NAR is doing is they’re threatening a retired school teacher, a retired police officer, a public school advocate, and an elderly rights attorney with bankruptcy if they have to post an appeal bond,” Ketchmark said.
“It’s despicable behavior. Because that’s what they mean — that the named plaintiffs in this case could have to pay their appeals bond if they prevail on appeal. Well, they won’t prevail on appeal. And if they did, what, they’re gonna bankrupt these people? Have they no shame? I know the answer to that is no, they have no shame.”
He said he would not take that threat into consideration when negotiating the appeal bond.
“They need to have some adults take over the legal defense of this at NAR because they clearly have a bunch of people who do not care about the facts or the law, and all they want to do is continue to threaten people, and it won’t work,” Ketchmark said.
“Our named plaintiffs are not afraid of them. Nor am I.”
“I would have thought at a convention of real estate agents where they just got what’s going to be a $5 billion verdict handed against them — the largest antitrust verdict in the history of the United States of America — that they would show some level of contrition and willingness to change,” Ketchmark added.
Ketchmark said he hoped NAR’s new interim CEO, Nykia Wright, who will take the helm on Nov. 20, will “step up and take some responsibility and get control of their lawyers, of their staff, and get rid of all the people who have allowed this to happen for so long.”
‘NAR needs to get out of the MLS business’
Troiani warned conference attendees that NAR expects the Sitzer | Burnett plaintiffs to ask the court to order the association to change its rules, “which we will, of course, oppose,” Troiani said.
NAR “absolutely” needs to be concerned about the plaintiffs asking the court to step in if the trade group doesn’t voluntarily agree to change its “illegal behavior,” according to Ketchmark.
“We’ll go beyond Missouri,” Ketchmark said. “We will seek an injunction to shut them down nationwide.”
“It’s our goal first to give them a chance to voluntarily do the right thing,” he added. “If they refuse to do that, we’re going to call upon the Department of Justice to join with us in shutting this system down nationwide.”
Ketchmark has previously said his firm has been in talks with DOJ officials before, during, and after the trial.
If NAR doesn’t agree to change its ways by the end of the year, “they can expect swift action on our behalf to shut this practice down nationwide,” Ketchmark said.
He said NAR was using the MLS system as a nationwide “price-fixing vehicle” to prop up real estate commissions.
“They need to get out of the MLS business,” Ketchmark said. “They have no reason to have their hands involved in it, other than corporate greed.”
NAR and its associations should not be owning and operating MLSs, Ketchmark added.
“At trial we proved to the jury that the NAR rule is at the trunk of the tree of this price-fixing scheme and they need to get out of that business,” he said.
“We’re going to chop that tree to the ground. They just should have no involvement at all in enforcing this commission-sharing rule.”
