LegalReal Estate

DOJ weighs in on REX’s appeal of its suit against NAR and Zillow

The DOJ said the judge's decision created a "loophole"

It appears the commission lawsuits are not the only legal action in the real estate industry that’s currently of interest to the Department of Justice. On Thursday, the DOJ filed an amicus curiae brief with the Ninth Circuit Court of Appeals, which is overseeing REX Real Estate’s appeal of its antitrust suit against the National Association of Realtors and Zillow.

The now defunct discount brokerage filed its appeal in early February 2024, asking the appeals court to reverse the lower court’s ruling on REX’s motion of a new trial.

REX filed its motion for a new trial in November, roughly six weeks after its September trial concluded. In its request, REX argued that it was unfairly prevented from presenting testimony about agent commissions to the jury. The Seattle jury ultimately found that REX did not prove Zillow used false advertising it its decision to put non-MLS listings on a different section of the website and that Zillow proved its defense on REX’s second claim that Zillow acted deceptively and unfairly.

Originally filed by REX in March 2021, the lawsuit alleges that changes made to Zillow’s website “unfairly hides certain listings, shrinking their exposure and diminishing competition among real estate brokers.”

Two months prior, in January 2021, Zillow began moving homes not listed on the MLS out of users’ initial search result and on a second tab, adhering to an optional NAR rule, which prevents those who choose to adopt it from commingling MLS listings with non-MLS listings. Despite claiming that it did not support this rule, Zillow chose to adopt it and created a two-tab design for MLS listings and “other listings.”

In January 2022, NAR filed a countersuit claiming that REX uses false advertising and misleading claims to deceive consumers in violation of the Lanham Act, but the countersuit was dismissed in late April 2022.

In mid-May 2022, REX ceased its brokerage operations

A little over a year later, in mid-June 2023, the three parties involved in the suit, all filed motions for summary judgment on at least some issues, if not the entire lawsuit.

While Judge Thomas Zilly, who oversaw the case, dismissed REX’s antitrust claims against NAR and Zillow, he allowed the discount brokerage’s false advertising claim under the Lanham Act, and a claim for unfair or deceptive trade practices under Washington’s Consumer Protection Act (WCPA) to stand.

In its brief, the DOJ claims that despite being optional, NAR’s “no commingling” may still support anticompetitive behavior, something it claims the district court did not fully examine in its ruling.

“The district court applied an incomplete legal framework in evaluating whether REX had presented a genuine dispute of material fact on concerted action in this case,” the filing states.

The department also argues that the court’s ruling did not look into the risks of trade groups like NAR avoiding antitrust oversight through optional regulations.

“The judge’s decision created a loophole that could allow associations to sidestep antitrust scrutiny by cloaking restrictive rules as optional,” the DOJ stated in its filing. 

In the brief, the DOJ outlines three ways it believes optional rules can involve concerted action by the parties involved in its creation or implementation.

“1) a purportedly optional rule could be mandatory in practice, (2) an association’s adoption of an optional rule can itself be concerted action, and (3) an optional rule can invite others to participate in a common plan,” the filing states.

“The district court considered and rejected the first theory that NAR’s “optional” no-commingling rule was mandatory in practice,” the filing continued. “But even if the no-commingling rule is optional, that is not determinative on concerted action in this case. In particular, REX’s arguments appear to have the most support under the third theory: REX has alleged a common plan among NAR, MLSs, and their members, under which (i) NAR promulgated the optional no-commingling rule and invited MLSs to adopt it, (ii) knowing that MLSs that adopt the rule will enforce it-unmodified-on their members, and (iii) in which Zillow later acquiesced by complying with the no-commingling rule (despite disfavoring it).”

The DOJ argues that the district court relied on the optional nature of the rule and the lack of an enforcement mechanism by NAR on MLSs to adopt the rule to reach its conclusion that there was no concerted action by Zillow, NAR and the MLSs.

“But the court failed to consider other factors-such as NAR’s role in promulgating the rule to segregate listings and prohibiting modifications by MLSs adopting the rule, the effect of an MLS adopting the rule of making it mandatory on its members, and MLSs’ role in enforcing the rule on their members-that suggest that NAR proposed a common plan to MLSs and their members to segregate and demote non-MLS listings,” the filing states. “If uncorrected, the district court’s incomplete approach creates a risk that associations like NAR could evade antitrust scrutiny for many anticompetitive schemes by using optional rules.”

Despite its beliefs that concerted action may have occurred, the DOJ states that Zillow was not a part of the rule at its formation. However, the DOJ states that Zillow “allegedly joined this common scheme when becoming a member of NAR and affiliated MLSs and complying with the no-commingling rule despite being opposed to it.”

Due to its views, the DOJ recommends in its brief that the Ninth Circuit overturn Judge Zilly’s ruling and reopen the case for further review at the district court level.

 “Zillow was founded on increasing transparency in real estate – and we have a long history of advocating for consumers through our products and services,” a Zillow spokesperson wrote in an email. “We were required to comply with the no co-mingling rule to obtain our IDX feeds but we’ve publicly advocated against this rule for several years because we believe all listing data should be displayed in one place. We look forward to the jury’s verdict and judge’s ruling being affirmed.”

NAR was none too pleased by the DOJ’s brief.

“NAR continues to believe this lawsuit is without merit and that the district court’s determination on summary judgment that there was no antitrust violation should be affirmed. As we have long said, local MLSs benefit competition and fair housing, and provide consumers with the most accurate, transparent and up-to-date information on home listings,” a NAR spokesperson wrote in an email.

REX is understandably pleased by the DOJ’s support of its appeal.

“We are pleased that the DOJ has agreed with our position that summary judgment was improperly granted, and we think the case should be remanded for further proceedings so that it can be resolved on the merits,” attorneys for REX, which include Stephen Zack, Ursula Ungaro and Carl Goldfarb of Boies Schiller, wrote in an email.

NAR did not return a request for comment.

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