NAR Appeals Circuit Court Decision Allowing DOJ to Restart Investigation

The National Association of REALTORS® (NAR) is appealing a recent court decision that allowed federal antitrust investigators to re-open their inquiry into real estate rules and practices, making another push to stymie potential further efforts by regulators to alter policies foundational to the industry.

Filed late yesterday in the D.C. Circuit Court of Appeals, NAR is asking both for a rehearing in front of the original three-judge panel that last month allowed the Department of Justice (DOJ) to reboot their investigation of several NAR rules, as well as a chance to argue their case in front of the full cadre judges on the circuit court.

“The panel’s errors are far-reaching and exceptionally important. Every day, federal agencies resolve civil and criminal enforcement actions through agreements with private parties,” NAR lawyers wrote in the filing. “It is a bedrock principle that the government must honor its word in those contracts, no matter who occupies the White House or leads the Antitrust Division.”

In a statement provided to RISMedia, an NAR spokesperson did not address whether the organization has been in contact with the DOJ since the initial ruling. 

“As part of our commitment to championing the interests of our members and the home buying and selling public, we are petitioning the U.S. Court of Appeals for the D.C. Circuit to review the April 5, 2024 decision, uphold the district court’s determination, and hold the Department of Justice to the terms of our 2020 agreement,” the spokesperson said.

The legal battle between NAR and the DOJ is now stretching into its fifth year, with the current dispute centered on a 2020 letter and agreement. After the DOJ launched a probe into several NAR policies in 2019, including the “participation rule,” which has been central to commission-focused class-action lawsuits, both parties seemed to find a resolution as the DOJ agreed to close the inquiry in exchange for changes to some—but not all—the challenged rules.

But that was under the administration of former president Donald Trump. A few months later, when current president Joe Biden took office, the DOJ sought to re-launch the same investigation, with NAR quickly crying foul and challenging that decision in federal court. 

A district judge subsequently handed NAR a big win in 2023, ruling that the DOJ was bound by a letter it released that characterized the inquiry as “closed.” But the DOJ appealed, and this April, the D.C. Circuit reversed the district judge’s ruling, saying that the letter written by the DOJ made no assurances about how long the investigation would stay closed.

That question—and the fact that one of the circuit judges sharply dissented in the April ruling—appears to have emboldened NAR, as it argues the ruling is at odds with Supreme Court precedent and creates a “perpetual uncertainty” for subjects of future DOJ inquiries.

“(T)he panel majority’s decision allowed DOJ to extract meaningful consideration from a private party through a contract that required the government to provide nothing in return—a violation of basic contract law principles,” NAR wrote.

NAR made similar arguments unsuccessfully when the circuit panel heard oral arguments back in December, claiming that allowing the DOJ to immediately open the investigation after agreeing to close it would prevent anyone from being able to trust or negotiate with government regulators in good faith going forward.

Notably, in its appeal, NAR acknowledged that many of the rules targeted by the DOJ are being altered or retracted due to the landmark settlement agreement of seller commission lawsuits (pending a final approval by a judge). 

But one rule—Clear Cooperation, which requires NAR members to list properties on NAR-affiliated MLSs—has not been touched. That rule was an explicit target of the DOJ’s investigation (though it was also not changed based on the 2020 agreement).

“(T)he settlement does not address the Clear Cooperation Policy, and NAR has not changed that rule, so the contract-interpretation questions in this case will remain live and vitally important even after the Participation Rule is changed,” NAR wrote.

Clear Cooperation is also the main rule at issue in an antitrust lawsuit by a listing service start-up, which recently appeared to ramp up, citing the DOJ investigation among other legal developments.

Law and order

Two of the three judges—Judge Florence Pan, a Biden appointee, and Judge Karen Henderson, appointed by George H.W. Bush—disagreed, noting that nothing in the letter made any promise regarding how long the investigation would stay closed, and also pointing out that NAR used the letter to defend itself in other court cases and touted it to the public.

Those points are key, as contract law requires both parties to receive some sort of benefit, with the DOJ arguing that NAR was given a temporary reprieve and a public relations boon from the letter announcing the investigation’s closure.

In its appeal, NAR relies heavily on the dissent of the third circuit judge, Judge Justin R. Walker, a Trump appointee. 

In his colorful and often scathing critique of the majority’s opinion, Walker compared the DOJ to comic strip character Dennis the Menace, who might quickly close and then open a door to fulfill the strict meaning of a direction from a parent, while ignoring the spirit of the command.

“(E)ven if DOJ’s literalist reading (of the letter) works in the abstract, it fails to capture the command’s true meaning,” Walker said.

NAR also points out in its appeal that Pan and Henderson chose not to address the question of whether the DOJ could have reopened the investigation immediately—days or hours after announcing it was closed—something the DOJ claimed it had the right to do.

“Judge Walker’s dissent…recognized (that) acceptance of DOJ’s position vests the government with unprecedented power to escape its contractual commitments at the expense of private parties,” NAR lawyers wrote. “Particularly given this Court’s distinctive responsibility to police the government’s compliance with the law, such a roadmap for agency overreach warrants rehearing by the panel and the full Court.”

NAR repeatedly quoted one particular line of Walker’s opinion, in which he said the majority opinion treads “where no court has gone before.” According to Walker, the DOJ’s interpretation of the closure letter gives it “no real meaning at all”—something the district judge had also argued.

Additionally, NAR claimed that some of the arguments that the panel majority relied on were not presented explicitly by the DOJ, which also should merit re-hearing, and the the panel misapplied the so-called “unmistakability doctrine,” which reserves all “sovereign rights” not explicitly given up by the government in a contract.

“(T)he Supreme Court and this Court routinely review  cases involving government settlements, plea bargains, consent decrees, and other enforcement-related agreements by applying ordinary ‘principles of contract law,’ not by placing a heavy thumb on the scale for the government,” NAR argued.

But overall, NAR seemed to focus on the common-sense implication of the ruling—that allowing federal investigators to re-open cases and inquiries after agreeing to close them with no safeguards set a bad precedent for everyone.

Quoting Walker once again, NAR called the implications of letter the majority opinion stand “profound.”

As the dissent aptly put it, the panel’s decision permits the government to agree to ‘close’ a case or investigation to ‘lure a party into the false comfort of a settlement agreement, take what it can get, and then reopen the investigation seconds later,’” NAR quoted. “That result will inevitably affect private parties’ conduct going forward.”

It was not immediately clear when the D.C. Circuit would rule on the appeal, with the DOJ given 15 days to file a short response to NAR’s arguments. The D.C. Circuit in particular rarely grants full rehearings of cases, with the Yale Journal on Regulation finding that the court only granted eight of these petitions between 2010 and 2017.

This is a developing story. Stay tuned to RISMedia for updates.

Editor’s note: this story was updated with new information regarding the DOJ’s response on May 22.