In the latest chapter of a long-running investigation by the U.S. Department of Justice (DOJ) Antitrust Division into real estate industry practices, the D.C. Circuit revived DOJ’s 2021 investigation of the National Association of Realtors (NAR) and strengthened the Division’s authority to reopen investigations.1
As a result, DOJ may continue to investigate broker compensation and listing practices in the real estate industry, and possibly bring additional enforcement actions that go further than NAR’s recent settlement of the private class action litigation over compensation rules.
Historical Context
Since the 1940s, DOJ has been investigating NAR and litigating about its rules related to broker compensation.2 Fast forward 70 years to the joint DOJ/Federal Trade Commission (FTC) workshop on competition in the residential real estate brokerage industry in 2018, when the enforcement agencies again discussed concerns about the lack of competition on broker commission rates and multiple-listing service (MLS) rules that allegedly hinder competition.3
DOJ Investigation Opened and Closed
After the brokerage workshop, DOJ opened an investigation into NAR which culminated in the filing of a complaint alleging that four NAR rules violated Section 1 of the Sherman Act by: (1) prohibiting disclosure to home buyers of the amount of commission the buyer’s agent would earn; (2) allowing seller brokers to represent that buyer broker’s services were “free”; (3) enabling buyer brokers to filter listings based on the level of buyer broker commissions offered and exclude homes with lower commissions; and (4) limiting access to lockboxes to agents working with an NAR-affiliated MLS.4
DOJ contended that these rules caused buyer agents not to compete with each other by offering to accept lower commissions.5 DOJ also claimed that the rules led buyer brokers to steer potential home buyers away from properties with low commission offers.
DOJ and NAR settled the case with a proposed consent decree, in which NAR agreed to change each of the four rules.6 As part of the settlement, DOJ agreed to close its investigation into two other policies, the Clear Cooperation Policy and the Participation Rule.
The Clear Cooperation Policy requires listing brokers to list a property on an MLS within one day of marketing the property. Under the Participation Rule, listing brokers must offer the same commission to all buyer-brokers when property is listed on an MLS.
Before settling, NAR insisted that DOJ provide a closing letter regarding its investigation of the Participation Rule and Clear Cooperation Policy. DOJ agreed, providing a letter stating DOJ had closed its investigation and there was no obligation to respond to two Civil Investigative Demands (CIDs) regarding those rules.
DOJ’s letter also stated that “[n]o inference should be drawn, however, from the Division’s decision to close its investigation into these rules, policies or practices not addressed by the consent decree.”7 As part of the settlement process (as with all proposed consent decrees), DOJ noted that “[t]he United States may withdraw its consent at any time before the entry of the proposed [consent decree].”8
DOJ Investigation Re-Opened
Eight months (and one presidential election) later, however, DOJ—with a new head of the Antitrust Division—decided to re-open its investigation into the two NAR policies. In July 2021, DOJ withdrew the proposed Final Judgment before the district court had finalized or ruled upon the consent decree.9 DOJ also voluntarily dismissed its lawsuit against NAR.10 (A week later, President Biden issued his Executive Order on Promoting Competition in the American Economy, instructing the FTC to consider rulemaking regarding “unfair tying practices or exclusionary practices in the brokerage or listing of real estate.”)11
Days later, DOJ issued a new CID regarding the Participation Rule, the Clear Cooperation Policy, and other NAR rules, policies, and practices that, in DOJ’s view, raised antitrust concerns.12 In September 2021, NAR petitioned the federal court to set aside DOJ’s subpoena, claiming that as part of the settlement the Antitrust Division had agreed to refrain from investigating the Participation Rule or Clear Cooperation Policy in the future and NAR relied on that promise.13
In January 2023, the United States District Court for the District of Columbia granted NAR’s petition, finding that “the government breached the [settlement] agreement by reopening the investigation into those same rules and serving the new CID.”14
On appeal, the U.S. Court of Appeals for the D.C. Circuit reversed. Over a dissent, two judges on the panel reasoned that the plain language of the settlement letter “closing” the DOJ’s investigation did not prevent a later “reopening” of the investigation.15
The court placed heavy emphasis on the fact that DOJ reserved its rights by inserting the “no inference” language and because no unstated term (such as a promise to not reopen an investigation) can be implied against a government enforcer. As the Court wrote: “Put simply, the fact that DOJ ‘closed its investigation’ does not guarantee that the investigation would stay closed forever.”16 In dissent, one judge articulated that because of the majority’s holding, “Buyer Beware” is the lesson for future parties negotiating a settlement with the Antitrust Division.17
According to the head of the Antitrust Division: “Real-estate commissions in the United States greatly exceed those in any other developed economy, and [the Court’s] decision restore[d] the Antitrust Division’s ability to investigate potentially unlawful conduct by N.A.R. that may be contributing to this problem.”18
Key Takeaways
Assuming NAR does not appeal the panel’s decision en banc, or petition the Supreme Court, there are several valuable lessons to take away from the D.C. Circuit’s decision:
- A settlement with a government enforcer “closing” an investigation does not prevent it from being “reopened” at a later date, unless a tightly drafted agreement waives a sovereign’s prosecutorial authority forever.
- Proposed consent decrees do not become final judgments until federal courts enter them as court orders in the public interest under the Tunney Act.
- Despite the $1.8 billion Sitzer verdict in October 202319 and the NAR’s settlement in March 2024 that would the eliminate the Participation Rule by prohibiting offers of broker compensation in MLS listings,20 DOJ will still want to investigate NAR’s rules and may bring its own enforcement action to secure an enforceable consent decree should DOJ determine that NAR’s rules create anticompetitive effects which any private class action settlement will not extinguish.
1 Nat’l Ass’n of Realtors v. U.S., No. 23-5065 (D.C. Cir. Apr. 5, 2024), available here.
2 E.g., U.S. v. Nat’l Ass’n of Real Estate Boards, 339 U.S. 485, 488 (1950) (stating, in price fixing investigation of NAR code of ethics provision, that “[b]rokers should maintain the standard rates of commission adopted by the board and no business should be solicited at lower rates.”).
3 Transcript at 4, What’s New in Residential Real Estate Brokerage Competition –An FTC-DOJ Workshop (June 5, 2018) (“These concerns are also documented in a 2007 FTC-DOJ report, where we again noted the lack of competition on commission rates, as well as obstacles in competition such as restrictive MLS rules that discriminated against nontraditional brokers.”), available here.
4 Complaint, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. Nov. 19, 2020), Dkt. 1, available here.
5 Competitive Impact Statement, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. Dec. 10, 2020), Dkt. 11, available here.
6 Proposed Final Judgment, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. Nov. 19, 2020), Dkt. 2-1, available here.
7 Ltr. From Asst. Attorney General Makan Delrahim to William Burck, Nov. 19, 2020, Ex. 12 to Petition to Set Aside, or in the Alternative Modify, Civil Investigative Demand No. 30729, Nat’l Assn’ of Realtors v. U.S., No. 1:21-cv-02406 (D.D.C. Sept. 13, 2021), Dkt. 1-13.
8 Stipulation and Order at ¶2, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. Nov. 20, 2020), Dkt. 5, available here.
9 Notice of Withdrawal of Consent to Entry of Proposed Final Judgment, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. July 1, 2021), Dkt. 14.
10 Notice of Voluntary Dismissal, U.S. v. Nat’l Ass’n of Realtors, No. 1:21-cv-02406 (D.D.C. July 1, 2021), Dkt. 15.
11 Exec. Order No. 14036, Promoting Competition in the American Economy, §5(h)(vi) (July 9, 2021), available here.
12 CID 30729, Ex. 2 to Petition to Set Aside, or in the Alternative Modify, Civil Investigative Demand No. 30729, Nat’l Ass’n of Realtors v. U.S., No. 1:21-cv-02406 (D.D.C. Sept. 13, 2021), Dkt. 1-3.
13 Petition to Set Aside, or in the Alternative Modify, Civil Investigative Demand No. 30729, Nat’l Ass’n of Realtors v. U.S., No. 1:21-cv-02406 (D.D.C. Sept. 13, 2021), Dkt. 1.
14 Nat’l Ass’n of Realtors v. U.S., 2023 WL 387572, at *4 (D.D.C. Jan. 25, 2023).
15 Slip op. at 11, Nat’l Ass’n of Realtors v. U.S., No. 23-5065 (D.C. Cir. Apr. 5, 2024) (“the plain language of the closing letter does not bar [DOJ] from reopening its investigation and issuing a new CID regarding the Participation Rule and the Clear Cooperation Policy.”)
16 Slip op. at 12, Nat’l Ass’n of Realtors v. U.S., No. 23-5065 (D.C. Cir. Apr. 5, 2024).
17 Dissent, Slip op. at 13, Nat’l Ass’n of Realtors v. U.S., No. 23-5065 (D.C. Cir. Apr. 5, 2024) (Walker, J., dissenting).
18 Press Release, Dep’t of Justice, U.S. Court of Appeals Confirms Justice Department’s Authority to Investigate Potentially Anticompetitive Conduct by the National Association of Realtors (Apr. 5, 2024), available here (“The Antitrust Division is committed to fighting to lower the cost of buying and selling a home.”)
19 Debra Kamin, Home Sellers Win $1.8 Billion After Jury Finds Conspiracy Among Realtors, N.Y. Times (Oct. 31, 2023), available here.
20 Press Release, Nat’l Ass’n of Realtors, National Association of REALTORS® Reaches Agreement to Resolve Nationwide Claims Brought by Home Sellers (Mar. 15, 2024), available here.