Northern District Of Illinois Rejects Home Buyer’s Bid To Challenge Real Estate Broker Commission Rules As Anticompetitive
Antitrust Litigation
This links to the home page
  • Northern District Of Illinois Rejects Home Buyer’s Bid To Challenge Real Estate Broker Commission Rules As Anticompetitive

    On May 2, 2022, Judge Andrea R. Wood of the United States District Court for the Northern District of Illinois granted a motion to dismiss a putative class action complaint brought by a plaintiff home buyer against the National Association of Realtors (“NAR”) and a number of residential real estate brokerages alleging that certain NAR rules governing real estate brokers’ dealings with home sellers violated of Section 1 of the Sherman Act.  Leeder v. The Nat’l Ass’n of Realtors, et al., No. 21-cv-00430, Dkt. No. 81 (N.D. Ill. May 2, 2022).  The Court held that, because the home buyer was not a direct purchaser of the brokerage services, which were the subject of a contract between the seller and the seller’s broker, his claim was barred under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

    The complaint alleged that the NAR’s Handbook on Multiple Listing Policies (“Handbook”) requires any seller-broker listing a property for sale to make a unilateral offer of compensation to any buyer-broker who finds a buyer for the home, which must be expressed as either a percentage of the gross selling price of the home or as a definite dollar amount.  When a homeowner contracts with a seller-broker to list their home, the agreement will set the total commission to be paid to the seller-broker, usually with a portion of the total commission designated to be paid to the buyer-broker.  In a typical home sale, the buyer-broker is compensated from the total commission paid by the home seller to the seller-broker.  The complaint also alleged that the NAR’s ethical rules prohibit brokers from disclosing to homebuyers the commission offered to the buyer-broker.  The complaint alleged that these and other NAR rules result in home buyers paying supracompetitive buyer-brokers’ commissions and artificially inflate the total purchase price paid by home buyers.  In support of these allegations, plaintiff cited commission levels in a number of markets outside the United States, which allegedly were substantially lower than in the United States.

    Defendants moved to dismiss on antitrust standing grounds, contending that, under Illinois Brick Co. v. Illinois, only “the overcharged direct purchaser, and not others in the chain of manufacture or distribution, is the party ‘injured in his business or property’” within the meaning of Section 4 of the Clayton Act.  The buyer-broker’s services in this case, defendants argued, were directly paid for, not by the buyer, but by the seller.  Under these circumstances, the buyer was merely an indirect purchaser and lacked standing to recover antitrust damages.

    The Court agreed, finding that the home seller, not the home buyer, is the direct purchaser of the buyer-broker’s services, because it is the home seller who agrees to pay a single, total commission in connection with the purchase and, from this total, the buyer-broker’s commission is paid.  Plaintiff’s argument that the overcharge on the allegedly supracompetitive commissions is “baked into” the total price paid by the buyer for the home, the Court reasoned, is simply another way of saying that the alleged overcharge was “passed on,” an argument that Illinois Brick rejected as a basis for antitrust standing.

    The Court also rejected the home buyer’s argument that treating the seller as the direct purchaser of the buyer-broker’s services ignores the “economic reality” that the buyer-broker is chosen by, and exclusively serves, the buyer, not the seller.  The end-consumer of a product or service, the Court noted, is often an indirect purchaser.  In the healthcare context, for example, an insurer is considered to be the direct purchaser of healthcare services when it pays the provider directly for services rendered to the insured.

    Finally, the Court rejected plaintiff’s argument that even if the seller, and not the home buyer, is the direct purchaser of the buyer-broker’s services, the homebuyer should still be allowed to recover under the coconspirator exception to Illinois Brick.  To succeed under this theory, plaintiff would need to show that the home seller participated in the alleged conspiracy, an allegation not made in the complaint.

    The Court also dismissed the home buyer’s unjust enrichment claim on the grounds that governing New Jersey state law does not permit unjust enrichment claims to circumvent New Jersey’s direct purchaser standing requirement for damages based on alleged antitrust violations.  The Court also declined to find antitrust standing to seek injunctive relief under Section 16 of the Clayton Act because plaintiff’s damages claims had been dismissed, and more directly injured home-seller plaintiffs were already seeking the same relief in a separate action.

Links & Downloads