Washington District Court Denies Motion To Dismiss In Algorithmic Rent Price-Fixing Case
Antitrust Litigation
This links to the home page
Filters
  • Washington District Court Denies Motion To Dismiss In Algorithmic Rent Price-Fixing Case

    12/17/2024
    On December 4, 2024, the United States District Court for the Western District of Washington denied defendants’ joint motion to dismiss plaintiffs’ class action price-fixing claims under Section 1 of the Sherman Act, allowing property renters to proceed with their allegations that software firm Yardi Systems, Inc. and multifamily property managers conspired to inflate rent prices. Duffy v. Yardi Sys., No. 2:23-cv-01391-RSL (W.D. Wash. Dec. 04, 2024).

    United States District Judge Robert Lasnik ruled that collusion through an algorithm can be considered classic price fixing and subject to a “per se” analysis. Judge Lasnik found that plaintiffs had plausibly alleged facts that defendants had conspired to inflate rent prices by using Yardi’s algorithmic software to share commercially sensitive, non-public information amongst them (namely, rental rates), and that price recommendations were implemented into above-
    market pricing for units. The lawsuit is one of several recent cases accusing companies of relying on information sharing via revenue platforms and computer algorithms to coordinate illegally on pricing rather than making individualized business decisions. The ruling, however, presents a stark contrast with a decision in RealPage1, another price fixing conspiracy case against landlords and software firm RealPage Inc., where a Tennessee federal judge held the alleged price-fixing conspiracy must surpass the more difficult “rule of reason” review. It also differs from decisions in similar cases involving hotel-casinos, like Gibson 2 and Cornish-Adebiyi3, where courts rejected allegations of algorithmic collusion for lack of a plausibly alleged agreement among defendants.

    To successfully establish a Section 1 claim, a plaintiff must allege facts that plausibly show: (1) the existence of a contract, combination, or conspiracy; and (2) that the conspiracy imposed an unreasonable restraint on trade.

    Plaintiffs, renters living in multifamily housing, allege that, beginning in 2011, defendants joined a conspiracy to share detailed, competitively sensitive, non-public information which would be used to establish supracompetitive rental rates in the multifamily housing market in violation of Section 1 of the Sherman Act. The agreement allegedly involved (a) a set of agreements between Yardi Systems, Inc., and each individual lessor defendant to use Yardi’s revenue management product called “RENTmaximizer,” (b) a continuing horizontal agreement between and among the lessor defendants to provide their commercially sensitive, non-public information to Yardi, use the software, and implement generated recommendations, and (c) the shared understanding that Yardi would use the information provided to recommend rental rates above what would be earned in a competitive market.

    Defendants unsuccessfully sought dismissal of plaintiffs’ Section 1 claim on the grounds that the complaint improperly relies on group pleading, failed to plausibly allege a contract, combination, or conspiracy between the lessor defendants, failed to identify a relevant market that is defined in terms of both product and geography, and failed to plausibly allege that defendants have market power in the proposed market.

    The Court found plaintiffs’ allegations of a horizontal agreement plausible. Rejecting the landlords’ arguments that their alleged contracts to use Yardi’s revenue management product at most reflected independent business decisions, the Court reasoned that plaintiffs alleged more than simply parallel conduct and that defendants’ argument ignored all of plaintiffs’ detailed allegations regarding the advertisement and operation of Yardi’s RENTmaximizer. Crucially, plaintiffs alleged that Yardi’s system only works as advertised if each lessor divulges its confidential and commercially sensitive pricing, inventory, and market data, allows Yardi to set the price of each new and renewal lease using that competitively sensitive information, and adopts the recommended price with limited, if any, second guessing. Yardi’s system was also
    advertised “as a means of increasing rates above those available in a competitive market.” Taken in the light most favorable to the plaintiffs, the allegations “amply” suggested that defendants intended to follow and followed Yardi’s price recommendations.

    Having found that plaintiffs’ complaint sufficiently alleged a conspiracy to restrain trade among the defendants, the Court considered whether the restraint is unreasonable. The Court’s analysis first grappled with which standard to use: the per se approach or the rule of reason. Ultimately, the Court imposed a per se standard diverging with the United States District Court for the Middle District of Tennessee’s rule of reason approach in RealPage. Key to the Court’s ruling was its interpretation of Supreme Court and Ninth Circuit caselaw that plausible allegations that competitor defendants “colluded to fix prices at above-market rates and impose those prices on customers is per se anticompetitive conduct,” and its rejection of the argument that the non-traditional nature of plaintiffs’ argument and defendants’ novel algorithm suggested per se treatment is inappropriate.

    The Court also took issue with what it perceived as the Tennessee federal court’s methodology of judging the reasonableness of the alleged RealPage restraint, which focused on the strength of the conspiracy allegations rather than their essential character as allegations of price-fixing among horizontal competitors. In this Court’s view, “no legal authority finds that an adequately alleged horizontal price-fixing agreement could be a reasonable restraint on trade.” The Court held, “When a conspiracy consists of a horizontal price-fixing agreement, no further testing or study is needed. Such agreements are subject to per se analysis because a collective’s power to fix price structures is unreasonable and prohibited by the Sherman Act regardless of whether the prices agreed upon are reasonable or unreasonable.”

    Finding plaintiffs plausibly alleged such a horizontal agreement among defendants that if true would impose a per se anticompetitive and unreasonable restraint on trade, the Court denied defendants’ motion to dismiss.
     
     
    1 In re RealPage, Inc., Rental Software Antitrust Litig. (No. II), 709 F. Supp. 3d 478 (M.D. Tenn. 2023).
    2 Gibson v. MGM Resort Int’l, No. 2:23-cv-00140-MMD-DJA (D. Nev. Oct. 24, 2023).
    3 Cornish-Adebiyi v. Caesars Entertainment, Inc., 1:23-cv-02536 (D.N.J. Sept. 30, 2024).

Links & Downloads