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REX Real Estate wants to take its case against Zillow and the National Association of Realtors to all of the judges of the Ninth Circuit Court of Appeals.
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On Monday, March 17, the discount brokerage petitioned for a rehearing “en banc,” meaning before all judges of the appeals court, not just the three-judge panel that initially heard its appeal.
“In affirming the district court’s decision upholding NAR and Zillow’s conduct with its memorandum opinion, the panel gave a back-of-the-hand dismissal, not only to REX and the U.S. Department of Justice, but also to the millions of consumers saddled with payment of inflated commission rates,” attorneys for REX wrote in the filing.
“It furthered NAR’s and Zillow’s entrenched dominance of the residential real estate services industry, and also sanctioned a district court decision that provides a blueprint for and incentivizes trade associations, like NAR, to circumvent the antitrust laws by promulgating anticompetitive rules, labeling them as optional, and deploying them through proxies.”
The filing is pushing back against the panel’s March 3 decision to affirm lower court rulings that threw out REX’s antitrust claims against NAR and Zillow and denied the now-defunct real estate brokerage a new trial against Zillow.
The rule at issue in the case is NAR’s no-commingling rule, which Realtor-affiliated MLSs may adopt to prohibit their participants from displaying listings that come from MLSs together with listings that come from non-MLS sources.
Once Zillow changed its business model to become an MLS participant in order to receive MLSs’ Internet Data Exchange (IDX) listing feeds, the company changed its site design to a two-tab display where the default tab showed MLS listings and “Other Listings” appeared in a separate tab that users had to click in order to see. Because for much of its existence REX did not participate in MLSs, the brokerage alleged that the rule, and Zillow’s subsequent implementation, caused traffic to its listings to plummet and violated state and federal antitrust laws.
The panel, made up of judges Sidney R. Thomas, Daniel Aaron Bress, and Ana de Alba, ruled that REX, also known as Real Estate Exchange, had failed to provide direct or circumstantial evidence of “concerted action” between NAR and Zillow and that the NAR rule at issue itself was not direct evidence of such action and, therefore, the lower court did not err in its ruling.
According to REX’s latest filing, however, the panel’s conclusion that the rule wasn’t evidence of concerted action was “flat wrong” because it conflicts with previous precedents from the U.S. Supreme Court, the Ninth Circuit and other circuits.
“Instead of recognizing the Rule for what it is — the end result of concerted action by NAR’s members — the panel treated NAR as if it were a single entity apart from its members, which could not conspire with itself, requiring REX to prove an agreement between NAR and Zillow from scratch,” the filing reads.
“That is error. Because the Rule itself was the product of concerted action among NAR members, there is also concerted action when anyone later joins NAR and agrees to adopt or enforce the Rule, as Zillow did.
“As the DOJ explained in its amicus brief and at oral argument, the Rule is a standing invitation to NAR members to ratify, adopt or enforce the Rule.”
The filing points to the panel’s assertion that the no-commingling rule, which REX calls the Segregation Rule, was “in fact” optional because 29 percent of MLSs chose not to adopt the rule. The filing says that fact is “immaterial” to whether there is concerted action as to the rule’s creation or its adoption.
“The fact that some members of an industry agree to fix prices and others do not, does not negate the existence of a price fixing conspiracy by those members who conspired to fix prices,” the filing says.
“Similarly, identifying which MLSs agreed to adopt the Segregation Rule only goes to the scope of the agreement, not whether there is an agreement. Joinder in a conspiracy is always voluntary.”
The filing blasts the panel’s alleged treatment of Realtor-affiliated MLSs “as if the MLSs had nothing to do with NAR.”
“The record shows, however, that local realtor associations, composed of NAR members, establish NAR-affiliated MLSs, which the associations own or operate, either alone or in conjunction with other associations,” the filing says.
“NAR members serve on national committees that recommend the promulgation of policies and rules that govern NAR members in the conduct of their business. Through those same committees, NAR members set the rules for NAR MLSs which, as of 2022, accounted for around 96 percent of all MLSs. Conduct of NAR MLSs is governed in minute detail by NAR’s Handbook on Multiple Listing Policy.
“Given the control that NAR members exercise over NAR MLSs through their national organization, NAR MLSs are instrumentalities of NAR members.”
Just because NAR delegated enforcement of the no-commingling rule to Realtor-affiliated MLSs doesn’t negate that the rule was produced by joint action of NAR members and that the entities that adopt and enforce it, including MLSs and Zillow, are part of an anti-competitive agreement, the filing alleges.
“Zillow itself recognized that the Segregation Rule is a NAR rule,” the filing says.
“When Zillow sought to rescind the Rule, it appealed to NAR not the NAR MLSs. Zillow directed its petition to NAR’s MLS Technology And Emerging Issues Advisory Board, the first in a series of NAR committees with responsibility for enactment and changes of the rules …”
According to REX’s filing, the panel failed in its task of looking past the “optional” label on the rule to assess the realities of its impact on the marketplace.
“This Court should not let NAR evade antitrust scrutiny through a carefully planned scheme, easily replicated by other trade associations, of promulgating an optional rule and then relying on instrumentalities or proxies (here NAR MLSs) to adopt and enforce it,” the filing says.
The filing also took the panel to task for declaring that the redesign of Zillow’s website allegedly harmed REX, rather than the rule. The filing argues that Zillow’s own executives, including Sara Bonert, Curt Beardsley and Errol Samuelson, knew that the rule was the source of the harm.
“They acknowledged in contemporaneous, internal emails and in deposition testimony as well, that the Segregation Rule was anti-consumer, protectionist, and anti-competitive and that it hindered entry of competing non-MLS brokers,” the filing says.
“Zillow’s executives did not make these striking admissions about the new website,” the filing adds. “This is what they said about the Rule itself. That testimony creates at least a disputed issue of material fact ‘about the source of REX’s anticompetitive harm,’ which at a minimum, should have gone to the jury.”
Zillow also did not “merely accept” and comply with the rule, as the panel said, according to REX’s filing.
“Rather it spent months and millions of dollars engineering a new website that fundamentally altered the way it had done business for fifteen years and ensured through complicated engineering protocols that MLS listings were displayed separately from non-MLS listings,” the filing says.
“When Zillow found a listing under the wrong tab, it moved the listing to enforce the Segregation Rule. Zillow was not merely a passive participant, but rather an active enforcer of the Segregation Rule and a member of the scheme itself.”
REX contends that it is “beside the point” that gaining access to IDX feeds benefited Zillow’s business.
“Joining a conspiracy always confers a benefit on conspirators, otherwise, they would not join. The true issue is whether Zillow, which knew the Segregation Rule was anti-consumer and protectionist, violated federal antitrust law by agreeing with NAR and its proxies to enforce the Rule in exchange for access to IDX data.
“Zillow had choices. It could have kept doing business as it had, with coverage of 98% of the homes for sale in the United States. It could have challenged the Segregation Rule, which it knew was bad for consumers and competition.
“Or it could agree to enforce NAR’s rule despite the harmful consequences because joining the conspiracy was good for Zillow’s bottom line. Zillow made the wrong choice.”
According to the filing, that choice had “an enormous adverse impact on homeowners” by protecting comparatively high commission rates.
“The Segregation Rule protects those inflated rates by preventing competition from innovative companies such as REX that seek to drive down commission rates by operating outside of the NAR/MLS system,” the filing says.
“REX’s expert, Dr. David Evans, opined that but-for the Segregation Rule, competition from REX and copycat companies would have driven down commission rates and collectively saved consumers tens of billions of dollars, … and saved individual consumers thousands of dollars or more.”
If REX’s request for an en banc rehearing is denied, the company will have to decide whether to attempt to take its case from the Ninth Circuit to the U.S. Supreme Court.
Inman has reached out to NAR and Zillow for comment and will update this story if and when responses are received.
Read REX’s filing (re-load page if document is not visible):
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