The Department of Justice filed its first brief in its appeal of Judge Timothy J. Kelly’s late January ruling in favor of the National Association of Realtors (NAR) — and it is a doozy.
According to the brief, filed last Friday, the DOJ wants to resume its “consequential investigation of conduct that affects over $100 billion in broker fees paid by Americans annually” and states that is never agreed not to reopen its probe into NAR’s Clear Cooperation Policy and Participation Rule.
“The Department of Justice’s Antitrust Division brings this appeal to restore its authority to investigate potentially anticompetitive rules, policies, and practices of the National Association of Realtors,” the brief states. “Because NAR rules govern most residential home sales across the nation, they can have a significant economic impact on one of the most important transactions in many Americans’ lives.”
In the brief, the DOJ claims that the lower court made “several serious errors of basic contract law” when it stopped its investigation into NAR.
“First, the District Court brushed aside the plain language of a letter merely reporting that an investigation had been closed and read into the letter an unstated forward-looking commitment not to further investigate NAR,” the brief states. “This interpretation also improperly implied a waiver of a sovereign power against the United States and ignored several other textual indications that the Division had no intention to limit its investigative authority.”
In its most recent filing, the DOJ said Kelly’s ruling led to an “absurd” result, which meant that after the DOJ withdrew from the proposed settlement agreement, NAR was released from any obligations under the agreement. However, the DOJ is still not allowed to investigate the commission and pocket listing policies.
The DOJ also disagreed with Kelly’s comment that a change in presidential administration cannot be used to justify the reopening of the DOJ’s investigation into NAR.
“The court’s implication that there is something improper about a prosecutor reopening an investigation that had reached no conclusion is wrong,” the brief states. “Whether as a result of changes in leadership, priorities, or other factors, in our constitutional system those decisions are well within the discretion of the Executive Branch. The Division insisted on maintaining the right to reopen its investigation precisely to preserve that prosecutorial discretion.”
In addition, the DOJ claims in the brief that the lower court “misinterpreted” the original November 2020 settlement agreement between the department and NAR.
“The plain text of the November 2020 letter states only that the Division ‘has closed’ its prior investigation; the letter said nothing about future investigations,” the brief notes.
“Many things open after having closed, as law enforcement investigations often do. The District Court read a term into the letter — a commitment not to undertake any future investigations —that is not there.”
The DOJ highlights that the settlement agreement “expressly reserved the United States’ right to investigate ‘any’ NAR rule.”
According to the DOJ’s most recent filing, the department opened the investigation into NAR after receiving a complaint “from an industry participant,” and alleges that the Clear Cooperation Policy was “[p]rompted by competition from upstart listing services” and “restricts the choices available to home sellers and listing brokers who want to market homes outside the NAR-affiliated MLS system and potentially excludes new listing services that seek to compete against MLSs for home listings.”
The DOJ also claims that NAR’s buyer broker compensation and pocket listing policies, “by effectively affording sellers’ brokers control over what buyers pay their brokers, the rule could curtail price competition among buyer-brokers,” the June 2023 brief states. “Potentially exacerbating these effects, buyer-brokers could steer customers to higher-commission listings — or discourage sellers’ agents from offering lower commissions.”
In November 2020, the DOJ’s antitrust division agreed to a settlement after investigating the trade groups listing and agent compensation policies. The settlement proposed at the time included requirements for NAR to boost transparency about broker commissions and stop misrepresenting that buyer broker services are free.
However, the DOJ, under new leadership in the Biden administration, withdrew the settlement in July 2021. In the June 2023 brief, the DOJ states that “resuming the investigation into these rules was warranted and necessary in light of evidence of the continuing threat of anticompetitive effects of NAR’s rules, policies, and practices on the residential real-estate industry.”
NAR filed a petition in September 2021 to set aside or modify the DOJ’s probes into the trade group. In his ruling, Kelly stated that allowing the DOJ investigation to continue would take away the benefits NAR had negotiated in the original settlement.
Judge Kelly ruled in late January that the earlier settlement terms reached by NAR and the DOJ were still valid.
“The government, like any party, must be held to the terms of its settlement agreements, whether or not a new administration likes those agreements,” Kelly, a Trump appointee, wrote in his ruling.
The DOJ appealed this ruling in March.
The NAR now has until July 21 to file its brief with the appeals court.
“NAR has upheld our end of the agreement, and we expect the DOJ to do the same,” Mantill Williams, a NAR spokesperson, wrote in an email. “As stated in the court’s original decision ‘The government, like any party, must be held to the terms of its settlement agreements…’ It is alarming that the DOJ would try to resume an investigation that the Department committed to closing more than two years ago.”
