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The National Association of Realtors and real estate franchisors HomeServices of America and Keller Williams are asking a federal judge to undo a historic jury verdict that sent shockwaves throughout the real estate industry in a commission lawsuit known as Sitzer | Burnett.
NAR and the franchisors are seeking for the court to enter a judgment disregarding the jury’s verdict and in their favor. Barring that, they’re asking for a new trial and decertification of the homeseller class covered by the suit.
“[T]he previous trial resulted in a miscarriage of justice through a verdict against the weight of the evidence, an excessive damage award, and legal errors at trial,” NAR attorneys wrote in their motion for a new trial.
NAR’s attorneys specifically called out “legal errors in the jury instructions and Plaintiffs’ counsel’s pervasive and prejudicial misconduct” to justify a new trial.
In response, the plaintiffs’ lead counsel, Michael Ketchmark of Ketchmark & McCreight, told Inman that he wasn’t concerned about the post-trial motions, which he said rehash arguments already made at trial, and he expects the court to rule in the plaintiffs’ favor in regards to the motions and on appeal.
On Oct. 31, after less than two and a half hours of deliberations, a Kansas City jury in the U.S. District Court in Western Missouri 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. If the damages amount stands, the amount will be tripled by law to nearly $5.4 billion.
After the verdict, NAR said it would ask the court for a reduction in the damages award, but no such filing was posted by Monday’s deadline. Inman has asked why and will update this story if and when a response is received.
The suit challenged a NAR rule known as the Cooperative Compensation Rule or the Participation Rule, which requires listing brokers to offer compensation to buyer brokers in order to submit a listing to a Realtor-affiliated multiple listing service and has for decades underpinned the way real estate agents get paid nationwide.
Defendants seek a ruling in their favor disregarding the verdict
In their filings, NAR, KW and HomeServices offer several arguments for the overturning of the verdict, alleging:
- the plaintiffs don’t meet a requirement that they be direct purchasers of the defendants’ services to bring a federal antitrust claim
- NAR’s commission rule is not an unreasonable restraint of trade
- the plaintiffs presented no evidence that NAR, KW or HomeServices conspired with anyone; and
- the plaintiffs failed to prove injury or damages resulting from the challenged rule
“NAR has filed motions asking the Court to set aside the trial verdict and enter judgment as a matter of law in favor of NAR or, at the very least, order a new trial,” NAR spokesperson Suzanne Bouhia told Inman in a statement.
“These motions are part of the post-trial process and detail NAR’s arguments that the verdict was wrong and defied precedent, logic, and the evidence. As detailed in our briefing, we believe we have solid grounds for our continuing objections to the verdict.”
NAR’s arguments for a new trial
For their motions to be successful, the defendants will have to convince the judge in the case, Stephen R. Bough, that some of the decisions he made before and during the trial were erroneous. For instance, in a filing accompanying NAR’s motion for a new trial, the 1.5-million-member trade group objected to Bough’s decision to have the jury evaluate the claims in the case under a “per se” rule analysis rather than a “rule of reason” analysis, which was reflected in the trial’s jury instructions.
While “rule of reason” allows a jury to consider a practice’s actual effect on the market or the intentions of the people who engaged in the practice, a “per se” violation is illegal regardless of those considerations. Price-fixing, which was the allegation in Sitzer | Burnett, is almost always a per se violation, according to Cornell’s Legal Information Institute.
“The Court’s error in instructing the jury on a per se theory substantially diminished the showing necessary for Plaintiffs to establish liability and did not permit the jury to consider the pro-consumer benefits of the Model Rule within the MLS system,” NAR’s attorneys said in the filing.
“It was thus unquestionably prejudicial. Defendants presented a wealth of evidence that NAR model rules ‘promote[] . . . an efficient system in a very complex real estate transaction’ and ‘make the process easier and better for consumers’ (and are prepared to present a full case at a new trial with proper rule of reason instructions).”
NAR also objected to Bough not allowing reference to a Missouri 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. The Missouri law allows, but does not require, commission sharing. It is the requirement under NAR’s Cooperative Compensation Rule that the plaintiffs objected to during the trial.
Bough’s decision left “the jury with a one-sided and misleading view of Missouri law and fundamentally distort[ed] the jury’s consideration of the but-for world” that would have existed absent the rule, according to NAR’s filing.
“That was clearly prejudicial,” the filing said. “A jury told that, contrary to Plaintiffs’ suggestions, commission-sharing has the imprimatur of Missouri law would have been likely to analyze the practical effect of the Model Rule differently.”
The defendants all back each other up
In a statement, KW spokesperson Darryl Frost told Inman that the buyer agent role in residential real estate “may not be in jeopardy if not for serious errors” in the Sitzer | Burnett trial.
“The court allowed the jury to believe that homesellers wouldn’t pay a buyers’ agent even one cent, failing to mention that this is the very practice allowed under Missouri statute,” Frost said.
“Because of the disturbing verdict, many plaintiffs’ attorneys are filing baseless copycat suits. Evidence was presented at trial but not admitted — which misinformed the jury.”
Since the verdict, more than a dozen other lawsuits have been filed challenging NAR’s commission rule and other rules like it across the country.
Theodore J. Boutrous Jr.
In a statement, Theodore J. Boutrous Jr., of Gibson, Dunn & Crutcher LLP told Inman HomeServices welcomes the court’s review of its motions. HomeServices hired Boutrous in the wake of the trial to lead the team that will be seeking to appeal the verdict.
“These motions are an important step toward reversing this misguided and excessive verdict, which if left to stand would condemn a century-old practice that provides proven benefits to homebuyers, homesellers, and the American real estate industry,” Boutrous said.
NAR, Keller Williams and HomeServices each submitted separate motions for a new trial and for judgment as a matter of law, but each stated that they supported each other’s motions.
“[T]he Court’s erroneous evidentiary rulings, which were wrong when issued and should now be reconsidered in light of the full trial record, irrevocably tainted the jury’s verdict,” KW’s attorneys said in a filing supporting their motion for a new trial.
“Over Defendants’ objections, the Court admitted references to national average commission rates that had no relevance to the alleged conspiracy, highly prejudicial notes of [former KW senior industry analyst] Michelle Figgs that contained inadmissible hearsay, irrelevant and misleading evidence regarding a common chief executive for three of HomeServices of America’s subsidiaries, evidence regarding the [NAR] Clear Cooperation Policy that served only to confuse the jury, and testimony from a purported expert that should have been excluded from trial at the outset,” the filing said.
In their joint motion seeking to decertify the Sitzer/Burnett class, which is made up of about 500,000 Missouri homesellers, the defendants said the trial showed the extent to which any class members was injured, if at all, “depends largely on individualized proof,” rather than proof that could be applied to the class as a whole.
“The trial documented the highly individualized facts that influence whether any class member would have authorized cooperative compensation in the ‘but-for’ world (and if so, in what amount),” the motion said.
“This plaintiff-specific evidence includes class members’ subjective preferences about the sales of their homes and market conditions at the time of the sale.”
Allegations of ‘impropriety’
In their motion for a new trial, NAR’s attorneys also pointed to what they said was “a spree of impropriety” from the plaintiffs’ lead counsel, Michael Ketchmark of Ketchmark & McCreight, that they said “fundamentally distort[ed] the fact-finding process and grievously prejudic[ed] Defendants.”
They faulted Ketchmark for allegedly repeatedly injecting into the trial his personal opinion on the evidence, credibility of witnesses, and culpability of the defendants; violating the court’s orders in regards to the evidence that could be presented; injecting local prejudice by repeatedly mentioning his own Missouri residence; and showing of a “lewd, inflammatory” Tom Ferry podcast video featuring Berkshire Hathaway HomeServices exec Allan Dalton “without any notice, permission, authentication, foundation, or competent sponsoring witness.”
“Plaintiffs’ counsel’s misconduct was severe, calculated, and pervasive,” the filing said. “Time and again, Plaintiffs’ counsel shifted the spotlight from the law and the evidence to himself and other improper subjects, wrongfully diverting the jury’s attention and violating cardinal principles of fairness and due process.”
Ketchmark responds
Michael Ketchmark
In a phone interview with Inman, Ketchmark said wasn’t concerned about any of the defendants’ Monday filings.
“Every time someone files post-trial motions, you kind of hold your breath and wonder if there’s something you missed,” Ketchmark said. “It’s clear here that we didn’t miss anything. They just have no basis for challenging us.”
“We’ve read all of the motions and the same arguments have been made over and over again at trial and they went nowhere,” he added. “We expect to win the post-trial motions and win on appeal and put an end to this price-fixing.”
Ketchmark said there was no merit to the allegations of impropriety.
“I did nothing improper,” he said. “There were no objections [during trial] made to the things they talked about in the briefs. My experience is that if you have the facts, you argue the facts. If you have law, you argue the law. If not, you just point the finger at the other side and complain and that’s what they’re doing here.”
The plaintiffs have until Feb. 26 to submit filings opposing the defendants’ post-trial motions and then the defendants have until March 18 to reply to those oppositions.
