United States v. National Ass'n. of Realtors®: NAR's Motion to Dismiss Denied

An Illinois federal court has considered whether to grant NAR’s motion to dismiss part of the lawsuit brought by the United States Department of Justice (“DOJ”) over NAR’s virtual office website (“VOW”) policies.

In May 2003, NAR’s Board of Directors approved a VOW policy for its member associations to adopt. The policy grew out of a discussion on what sort of information MLS participants could provide to their clients over the Internet. These websites became know as “virtual office websites”, as the practice of a broker providing information “virtually” over the Internet was equated with brokers providing the similar information in the broker’s physical office. The VOW policy complemented NAR’s IDX policy, which regulated the public display of listing information on other broker’s websites. Initially, NAR member associations were required to adopt the VOW policy by January 1, 2004.

Shortly after the adoption of the VOW policy, the DOJ opened an investigation into the possible anticompetitive affects of the VOW policy. Therefore, NAR extended the mandatory adoption date for associations during the pendency of the DOJ’s investigation. After two years of discussion with the DOJ, NAR rescinded the VOW policy and instead adopted the “Internet Listing Display” policy, which was intended to address most of the concerns raised by the DOJ as well as combine the VOW and IDX policies into one policy. The ILD policy had a mandatory effective date of July 1, 2006. Click here to learn more about the ILD policy.

Following the adoption of the ILD policy, the DOJ filed a lawsuit against NAR in September 2005. The DOJ alleged that both the VOW policy and the ILD policy violated the federal antitrust laws. NAR suspended the ILD policy pending the outcome of the litigation, and filed a motion to dismiss certain parts of the DOJ’s lawsuit. The trial court considered NAR’s motion.

The United States District Court for the Northern District of Illinois denied NAR’s motion to dismiss. Under the Federal Rules of Civil Procedure, a motion to dismiss “challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted”. When considering a motion to dismiss, the court only looks at the allegations contained in the complaint and assumes all facts in the complaint are true as alleged. The court will only grant a motion to dismiss when “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief”.

NAR argued that the court lacked jurisdiction to consider the VOW policy. NAR argued that it was inappropriate for the court to review the policy because there was no relief for the court to order even if it found that the VOW policy had violated federal antitrust law, as NAR had already voluntarily rescinded the policy. Looking at the relevant law, the court determined that it could review the past conduct which no longer directly threatens competition if the allegations show either continuing violations, continuing effects from past conduct, or the possibility that the defendant will again engage in the past conduct. The DOJ had alleged that the VOW policy and ILD policy were part of a continuing conspiracy by NAR to restrain “VOW brokers”. The DOJ also argued that the VOW policy has continued to harm the market for real estate brokerage services, as the VOW policy allegedly served to restrain competition for a period of time. In addition, the DOJ argued that NAR could re-enact the VOW policy in the future and review of the VOW policy’s history was relevant to evaluate whether NAR had a proper motive in creating both policies. Thus, the court ruled that it had jurisdiction to consider the rescinded VOW policy.

Next, NAR argued that the DOJ had failed to state a claim in its lawsuit. NAR argued that the challenged policies did not restrain competition because the challenged provisions actually gave the power to the participants to act independently. For example, both policies contained opt-out mechanisms, which generally allowed participants to “opt out” of sharing their listings with other participants. NAR argued that the opt-out decision was an independent choice made by each MLS participant. The court rejected this argument, as it determined that the NAR policies were backed by sanctions for noncompliance with the policy rules and so did not allow its members to act in a truly independent fashion.

Finally, NAR argued that the DOJ had failed to allege anticompetitive effects of the ILD policy. NAR argued that all of the facts concerning the anticompetitive effects of the policies related to the VOW policy, and the alleged anticompetitive effects of the ILD policy were pleaded in conclusory fashion. The court found that the DOJ argued that opt out provisions in the ILD policy caused harm to competition by allowing traditional brokers to target Internet-based brokerages. These allegations were sufficient to survive a motion to dismiss, and so the court declined to dismiss these allegations. Thus, the court allowed the DOJ’s lawsuit against NAR to move forward.

United States v. National Ass'n. of Realtors® , No. 05 C 5140, 2006 WL 3434263 (N.D.Ill. Nov. 27, 2006).