Real EstateBrokerage

Court rejects REBNY motion to dismiss Compass antitrust suit

Compass alleges that REBNY conspired with Douglas Elliman and Corcoran Group to create anticompetitive rules

A New York federal court declined a motion to dismiss an antitrust lawsuit filed by real estate brokerage Compass against the Real Estate Board of New York (REBNY) on Thursday.

In the March 31 order, Judge Alison Nathan of the U.S. District Court of the Southern District of New York wrote: “For the purposes of a motion to dismiss, the Court takes well-pled allegations in Compass’s complaint as true and draws all reasonable inferences in its favor.”

The lawsuit, originally filed in March 2021 by Compass, alleges that REBNY conspired with two of its member brokerages, Douglas Elliman and the Corcoran Group, to modify the group’s rules “in an anticompetitive manner” that “smother[ed]” newer New York brokerages, like Compass, which was founded in 2012.

In the suit, Compass takes specific issue with a REBNY rule known as Article II, Section 7, which was added in 2018. Compass alleges that the REBNY, after a “campaign spearheaded by Corcoran and Douglas Elliman,” adopted the rule, which states that if an agent representing a seller switches to another brokerage, that agent may not contact the seller without the former brokerage’s prior written consent unless the seller signed a certification stating they wished to keep their relationship with the agent. The provision of having a seller sign a certification to move with their agent to a new brokerage was later removed, which Compass again alleges was at the urging of Douglas Elliman and Corcoran Group.

“Compass has plausibly shown, by indirect proof, that the coordinated adoption, revision, and selective enforcement of Article II, Section 7 by REBNY adversely affects competition market-wide,” Nathan wrote in her ruling. “As Compass alleges, this provision has allowed at least two brokerage firms with over 50 percent market share combined to shrink consumer choice.”

Despite what Compass views as a limitation on its growth potential, the firm has expanded rapidly since its founding a decade ago. The brokerage came in at No. 1 in the 2022 RealTrends 500 brokerage rankings by sales volume and is the first company to reach the top spot in only 10 years of being in business.

The lawsuit also claims that REBNY violated New York’s antitrust statute, the Donnelly Act, as well as the federal Sherman Antitrust Act.

Compass also included a claim for tortious interference with prospective economic advantage, meaning that a third party (Douglas Elliman and the Corcoran Group in this suit) intentionally and unlawfully interfered with a business relationship. Nathan did approve REBNY’s bid to dismiss this claim, as Compass did not claim interference with a specific business relationship causing its allegations to be “too vague.”

In its motion, the REBNY claimed that exclusive listing are the property of the brokerage they are listed with, according to New York law.

“But by its plain language, only ‘listing information,’ not the listing itself, is property of the brokerage once an agent’s relationship with the brokerage is terminated,” Nathan wrote in her ruling.

REBNY also argued that it did not make sense for the trade group to conspire with just two of its member brokerages, though Compass argued the “outsized power and sway” Corcoran and Douglas Elliman have in New York.

“Together they make up over 50% of the proposed market and have a disproportionate number of representatives on REBNY’s governance boards,” Nathan wrote. “Taking the allegations in the complaint as true, it is plausible that REBNY is beholden to, and acted in furtherance of, these co-conspirators’ interests.”

In an email, a Compass spokesperson wrote: “We are pleased that the Court has rejected REBNY’s motion to dismiss our antitrust claims and are prepared to continue demonstrating that REBNY’s anti-competitive behavior negatively impacts buyers and sellers of New York City real estate.”

For its part the REBNY was pleased that the claims of tortious interference were dismissed. “We appreciate the Court’s dismissal of the case regarding claims of tortious interference and remain confident in the merits of our defense,” REBNY president James Whelan wrote in an email. “REBNY’s co-brokering rules, which Compass has helped to shape and enforce as a REBNY member, are based upon State law and legal precedent. We look forward to the discovery process and demonstrating the lawfulness of the rules.”