Now unshackled, the DOJ casts a large shadow over the commission lawsuit settlement

Many real estate executives and analysts believe that the Department of Justice, now with the green light to reopen its investigation into the National Association of Realtors, will shake up the civil commission lawsuit settlement agreement. But legal experts are not as certain.

Now unshackled, the DOJ could file a statement on interest in the Sitzer/Burnett commission lawsuit and express concerns about the terms of NAR’s settlement agreement. Although this would slow down the settlement approval process, it does not necessarily have to completely derail the work put in by NAR and the plaintiffs’ attorneys.

“They could certainly intervene in the settlement negotiations, but they are not a party — they are just a party of interest,” said Paul Rogers, a professor of law who specializes in antitrust at Southern Methodist University’s Dedman School of Law. “It would still be up to the court to decide whether or not to approve the settlement. The DOJ can express its opinion, but that opinion is not binding on the court, but it might be influential, you just never know.”

This influence is why analysts at investment bank Keefe, Bruyette & Woods (KBW) believe the drama surrounding NAR’s commission lawsuit settlement agreement is far from over.

In a report published on Sunday, the KBW analysts noted that they believe the DOJ, which has already made its desire for an end to cooperative compensation publicly known, will take issue with the off-MLS compensation workaround made possible by the terms of NAR’s settlement agreement.

Under the terms of the agreement, set to go into effect mid-July, real estate agents and brokers would no longer be allowed to make offers of cooperative compensation on the MLS, however, they may make those offers elsewhere, including on personal agent websites.

“While there has been some debate around whether the DOJ has already signed off on the NAR settlement behind the scenes, we do not believe that the agency has given its approval, and that NAR was taking a chance in settling under the hope that the DOJ would not be permitted to intervene,” KBW wrote in its note.

The analysts believe the DOJ will file a statement of interest in the Sitzer/Burnett suit in the coming weeks.

Chuck Cain, senior vice president of the national agency division at FNF Family of Companies and a real estate attorney, agrees with the KBW analysts that the DOJ may have an influence on the court’s decisions surrounding NAR’s settlement agreement. However, he feels the DOJ may not even need to file a statement of interest in order to influence the judge’s decision.

“It sort of changes the perspective of the judge’s ruling on the settlement agreements that have been reached in the case,” Cain said. “Prior to the Court of Appeals decision may have just accepted everything, but now with the DOJ in the mix, he may decide to delay approval to wait and see what happens with the DOJ.”

If the DOJ does decide to file a statement of interest, Cain believes it will not be to object to the terms of NAR’s settlement.

“The one thing I think it may object to is the amount of the civil remedy,” Cain said. “They may want the actual amount to be higher [than the currently proposed $418 million] to send a message.”

Frances Riley, a real estate attorney at Saul Ewing LLP, believes the DOJ is nowhere near done with NAR. But he does not foresee the DOJ getting involved in the court’s approval process of NAR’s commission lawsuit settlement agreement, even to ask for more money.  

“The DOJ no longer needs that platform to push for the decoupling of seller and buyer agent commission, so no need to expend resources in the venue. The DOJ fervently wants NAR to issue a rule that prohibits any coupling of commission paid by a seller to its listing broker and any commission that might be sought by a buyer’s broker for procuring the buyer,” Riley said. “NAR’s settlement of the class actions did not achieve this goal, thus there will be further investigation by DOJ of NAR and likely litigation.”  

In addition to the potential for more civil litigation, since a jury verdict has already been reached in a civil suit against NAR, some industry experts feel that the DOJ may choose to press criminal charges against NAR executives. While the Sherman Antitrust Act is at the center of the civil lawsuits NAR is currently fighting, the law is actually a criminal statute.

“The DOJ always had the option to indict NAR, bunch of NAR executives, folks who served on NAR’s Leadership Team, local REALTOR Associations and MLSs, their executives and directors, and possibly even some brokerage and franchise companies and their leaders,” Rob Hahn, an industry analyst, wrote in the April 8 edition of his Notorious ROB email newsletter. “The DOJ always had that card up its sleeve.”

Cain also acknowledged the possibility of the DOJ pressing criminal charges, but he does not believe it a likely path for the department to take.

“It is certainly in their jurisdiction if that is how they choose to proceed, but that burden of proof is far higher than a civil suit,” Cain said. “But ultimately whether or not they choose to proceed civilly or criminally will depend on what they have before them.”

While the DOJ’s next move currently remains unknown, it is clear that the appeals court’s decision has caused a lot of uncertainty across the real estate industry.

“There was already a cloud of unknown and it just got cloudier,” Cain said.