Reading Tea Leaves: Class-Action Status in Sitzer v. NAR

A number of readers have sent me the news and the actual opinion from the court hearing Sitzer v. NAR (Case No. 19-CV-00332-SRB), in which the court basically granted the plaintiffs everything they wanted. This is now officially a class action lawsuit, certified by the court, to include thousands, if not tens of thousands or hundreds of thousands of people.

In a way, this was the least surprising decision as I never thought these lawsuits would be anything other than class action lawsuits, and it never occurred to me that the court would deny class status to the plaintiffs in Sitzer, in Moehrl, in Leeder, in Nosalek, or any of the other “we paid too much because of cooperation and compensation” lawsuits that might be filed.

However, the court wrote a lot of words in making such a simple and obvious decision. Those words are interesting as I think it signals the court’s predisposition. Long story short, unless the jury finds in favor of the defendants somehow (which strikes me as very unlikely, because… well… juries) or some new something emerges during discovery or the trial, the court will be handing down a big loss for NAR, the corporate defendants, and others. I realize most of you reading this blog is not in the least bit surprised by that idea, but you know, in 2022, it’s still surprising how few brokerages, MLSs, and REALTOR Associations are ready for the disruption to come.

So let’s spend at least a few minutes on this.

The Court’s Opinion

First, if you’d like to read the opinion for yourself, I’ve embedded it below. You should be able to download it for yourself.

Second, the result of the opinion is that the plaintiff’s class is set as:

• Everyone who used an agent (“listing broker”) affiliated with Home Services of America, Inc., Keller Williams Realty, Inc., Realogy Holdings Corp., RE/MAX, LLC, HSF Affiliates, LLC, or BHH Affiliates, LLC;
• And sold the home using Heartland MLS, Columbia Board of Realtors, Mid America Regional Information System, or the Southern Missouri Regional MLS;
• And who paid a commission to the buyer’s broker in connection with the sale of the home;
• From April 29, 2015 through today.

For MMPA Class, the date is April 29, 2014 instead of 2015. The rest of it, we’re going to look at a bit, but the main holding is siding with the plaintiffs in forming the class.

Potential Impact

Seeing as how Missouri REALTORS says there are about 100K homes sold in Missouri in 2021, at the average price of $258,435 for a sales volume of $25 billion… but 2021 was up 26% YOY… let’s just say we’re talking about $20 billion in sales volume per year since 2015 with about 100K sellers per year.

But, the class is limited to those sellers who used HomeServices of America, KW, Realogy, RE/MAX, HSF or BHH. Let’s say that’s about half the market? The remaining sellers used some other independent brokerage maybe, like EXP or Redfin or someone else.

So this class action lawsuit might be 7 years x 50K sellers = 350K plaintiffs. They’ll be claiming damages equal to 3% of the sales volume, so… call it 3% of $70 billion = $210 million. (Remember that only half the sales are in the class.) Treble for antitrust, so about $600 million in potential damages.

From this one lawsuit, dealing with maybe half of the sellers, in one state with relatively low home prices.

Reading Tea Leaves

I’m not going to do in-depth paragraph-by-paragraph analysis; you should have your own attorney do that for you. This is not legal advice, and I’m not your lawyer. This is just for entertainment and education purposes.

Let’s just say that the court here sides with the plaintiff in every single instance. Every argument the Defendants bring up, the court shoots down. In a dispute between the plaintiff’s expert witness and the defendant’s expert witness, the court finds for the plaintiff’s expert at least to certify the class. Maybe I’m overthinking this, but it appears to me that the court has already been convinced of the plaintiff’s arguments; it’s just going along, playing referee, for the jury to find for the plaintiffs.

For example, on p. 21, we get this:

At the class certification stage, Plaintiffs must demonstrate through evidentiary proof that, if Plaintiffs’ allegations are true, a conspiracy can be proven with common evidence. After conducting a rigorous analysis, the Court finds that Plaintiffs have met their burden. For example, Plaintiffs attach Defendants’ own documents, including Franchise Disclosure Documents and Subject MLS procedures, requiring compliance with NAR policies including the Challenged Rules. Plaintiffs allege these documents demonstrate that Defendants entered a conspiracy to artificially inflate commission rates for the entire class. Whether Defendants entered a conspiracy in violation of antitrust law creates common issues of fact and law common to the class. In contrast, Defendants do not provide any individual issues which would be more important than those common questions.

When Realogy tries to squirm out, by saying that they want to get rid of mandatory cooperation and compensation rules but they can’t because only NAR can do that, the court slaps them down and keeps them on the hook for the trial.

But what I find interesting is the example the court uses here. The “Plaintiffs attach Defendants’ own documents” and allege they prove the existence of a conspiracy. The court then says this is about “common issues of fact and law” which is what the issue is for class action status. Thing is, once the court says it has conducted rigorous analysis, and the Plaintiffs used the Defendants’ own documents, what is left to prove at the actual trial as far as the conspiracy claim goes?

Then we have this lengthy exchange talking about the two expert witnesses: Dr. Stiroh for the defense, and Dr. Schulman for the plaintiffs. Long story short, the court goes into some detail about why it is holding for the plaintiffs on the issue of Northwest MLS, an MLS not being sued in this case. Seems to me, since Northwest MLS is not being sued, the court could have kept this part pretty short. Instead, we get this explanation:

However, Dr. Schulman addressees the Northwest MLS changes in his report and explains that eliminating the Challenged Rules would be a disruptive event. The real estate market would take considerable time to change the way people think about how the market works and for the information to disseminate. Dr. Schulman cites examples of other United States industries which experienced major disruptions: travel agencies, stock brokerages, cable television, and hard-wired telephones. In each industry, the market adapted to disruption slowly, over the course of several years, and not enough time has passed to see a significant market adjustment in the Northwest MLS. Dr. Schulman opines that in the absence of the Challenged Rules, the United States real estate market would eventually resemble Australia and other countries that lack the Challenged Rules. The Northwest MLS data does not defeat class certification.

That sounds to me like an explanation as to why the Plaintiffs will prevail at the actual trial. No matter what Northwest MLS data might say, the court buys the argument of the plaintiff’s expert that disruptions take time, over the course of years, and once cooperation and compensation is spanked, the US would look like Australia.

The opinion is simply littered with things like this.

Yes, the court is ruling simply on whether to grant class certification to hundreds of thousands of plaintiffs. But the reasoning it uses sounds a whole lot like the reasoning the court would use during the trial itself to determine whether the plaintiff or the defendant should win.

What Comes Next

Given how past opinions on things like motions to dismiss have gone, this opinion and this holding is hardly surprising. At the same time, seems to me that what we have here is not some rogue judge out on a limb all by himself. Seems to me that the courts in Moehrl, Leeder, and others have kind of tended towards the same reasoning as the Sitzer court. Seems to me that the US Department of Justice and the Federal Trade Commission have tended towards the same reasoning.

So what comes next?

The short answer is nobody knows. The longer answer is that we can engage in some informed speculation.

I think what comes next is consolidation of at least Sitzer and Moehrl into one. The two are essentially identical cases, suing the same parties for the same alleged conduct. Federal courts tend not to want to waste time adjudicating the same issue with same defendants; see, e.g., tobacco, asbestos, etc. So, I think we’ll see the two cases merged into one, along with any other cases alleging antitrust on behalf of sellers. There may be some wrangling by the lawyers as to who gets top billing, who pays for what, etc. but consolidation just makes a lot of sense for everyone. The Moehrl case, for example, still has yet to be certified as a class action; well, Sitzer already got there. So joining forces likely makes sense.

What that suggests, of course, is that if you’re a plaintiff’s law firm anywhere in the country, you probably want to be filing lawsuits right now so that it can get merged into the coming mega lawsuit helmed by the best of the best class action lawyers in the world with unlimited deep pockets to pay expert witnesses, pay for lawyers, pay for travel, etc. Find a seller, any seller anywhere who used a REALTOR with any company on any MLS and then file away. It’ll get consolidated into the one mega case for adjudication.

Plus, if they merge the two cases (or more) into one mega national case, they’ll find it far easier to get breathless corporate media coverage which will help their cause immensely.

Leeder v. NAR is different enough (i.e., the buyers are suing, not the sellers) that I think it might be left to itself, but the lawyers in that case should not be in a hurry as any finding for the plaintiffs in Sitzer or Moehrl makes their job so simple as to be routine.

Since the timing looks like a lot of the action will happen in 2023 (this wonderful site has collected a lot of information), I expect that we’ll see official findings and reports from the DOJ and the FTC as to how terrible things are in US residential real estate. The goal would be to influence policymakers, especially as the mid-term elections really heat up, but also to influence the judges hearing all of these cases throughout 2023.

What should happen next is serious conversations at NAR Midyear about settlement, and adjusting to life after mandatory cooperation and compensation. But I’m pretty sure that most certainly will not happen. We’ll get more fighting words, more of how the courts got things wrong, how NAR is going to fight for the status quo, etc. I don’t expect to see real contingency planning until after 2023.

Again, let me reiterate that I could be dead wrong. Nobody really knows what comes next. We’ll all be waiting till the sky falls down. But if you have different opinions, please let me know. Would love to see what I might be missing.

-rsh