On Feb. 26 a handful of real estate giants, including Compass, Redfin, United Real Estate and Douglas Elliman responded for the first time to the oldest—and largest—Burnett copycat case, revealing how the industry has evolved in its legal strategies against allegations of price-fixing and conspiracy in the wake of a $1.8 billion judgment last year.
The case, known as Gibson, was filed minutes after the Burnett verdict was handed down by the same attorneys who successfully convinced a Kansas City jury that the National Association of REALTORS® (NAR) conspired along with Keller Williams and HomeServices of America to pass and enforce rules that inflated commissions.
Gibson makes almost identical accusations, but expands those claims nationwide and adds what plaintiffs’ lead attorney Michael Ketchmark described as “essentially all” large real estate brokerages.
Just under four months later, these brokerage giants are firing their opening salvo as the industry seeks to adjust from the landmark defeat last October, seemingly taking at least a few lessons from the loss in the Burnett case.
“In a rush to leverage the (Burnett) verdict, Plaintiffs have filed an implausible nationwide class action that disregards the complexities of the real estate industry, which is heavily localized, and fails to establish…core elements to their antitrust claim,” wrote lawyers for Compass.
Across hundreds of pages of filings, the corporate brokerages sometimes revisited the same arguments that failed in Burnett—that discussions or collaboration between brokerages and NAR were nothing more than the normal function of a trade association, or that “standard” commission rates are actually flexible and decided on independently.
But at least some are focusing on new legal arguments to push back against the plaintiffs’ allegations, honing in on what other defendants have publicly described as errors in how Burnett was decided, or illustrating the nuanced and individualized foundation of real estate as they seek to have the case thrown out.
Notably, Judge Stephen R. Bough, who presided over Burnett, is also overseeing Gibson.
NAR and other defendants in that case have questioned whether Bough applied the correct legal framework to Burnett, and Compass specifically used Bough’s previous writings on the case to argue he should immediately reapply a different analysis for Gibson and allow defendants to argue rules that allegedly inflate commissions are actually pro-competitive (something Bough disallowed during the Burnett trial).
“Plaintiffs fail to plausibly allege that the challenged NAR guidelines have such obviously anticompetitive effects that the Court can skip an examination of their real-world effects,” Compass lawyers wrote.
NAR and HomeServices have put forth similar arguments in their ongoing appeal of the Burnett verdict.
Compass also brought up the question of whether homesellers are considered “direct purchasers” under federal antitrust law, with “indirect purchasers” generally not allowed to sue. That issue remains a key dispute across the broader landscape of these commission lawsuits, with the judge in a separate class-action suit filed by homebuyers ruling that sellers are, in fact, direct purchasers.
Other brokerages kept their arguments much more narrow, seeking to undermine the case on jurisdictional or technical grounds at this relatively early stage.
eXp, in a relatively short filing, simply claimed the company followed NAR rules because they benefited from those rules, and noting that the GIbson suit makes very few specific factual allegations related to it.
“At bottom, the Complaint pleads nothing more as to eXp than that ‘eXp commits to following NAR’s rules and policies,’” lawyers for the company wrote.
But attorneys for eXp also reiterated many of the same arguments that fell flat in Burnett, including that membership on NAR boards or committees is unremarkable and not evidence of a conspiracy.
Another avenue that some of the companies, including eXp, appear to be pursuing is the question of arbitration. Early on in the pre-trial portion of Burnett, an appeals court upheld a decision by Bough to nullify arbitration agreements that sellers signed with HomeServices agents—agreements that specifically disallowed them from suing.
HomeServices recently asked the Supreme Court to intervene and overturn that decision, and allow an arbitrator to decide whether or not the arbitration clause should apply.
At least four of the Gibson defendants—Compass, eXp, Douglas Elliman and United Real Estate—specifically reserved their rights to enforce these agreements in their filings. Notably, the appeals court in the Burnett ruling cited the fact that HomeServices did not attempt to enforce arbitration clauses until more than a year after the case was filed, which seemingly contributed to it going forward.
Apart from these procedural issues, some of the companies took issue with how plaintiffs’ claims were applied with a broad brush to their companies, despite obvious differences in how brokerages operate.
Redfin, in its filing, noted that the company’s entire brokerage model is built around discounting commissions.
“Redfin inexplicably finds itself accused of participating in a conspiracy to artificially inflate commission rates in these two putative nationwide class action lawsuits,” lawyers for the company wrote. “Regardless of the merits of Plaintiffs’ challenges to NAR’s rules, Redfin’s history…makes its inclusion as a defendant in these lawsuits wrong both as a matter of common sense and as a matter of law.”
The company also noted that it has attempted to disaffiliate itself from NAR, and has publicly advocated for changes to the rules challenged in Gibson, including mandatory offers of buyer compensation.
Other defendants, including Weichert and United Real Estate, argued the court did not have jurisdiction over their company due to a limited or non-existent presence in the region (in this case, Missouri).
A different judge recently dismissed HomeServices from another commission lawsuit due to lack of jurisdiction, as the company’s only connection with that state (Illinois) was through NAR membership.
