The U.S. District Court for the Eastern District of Pennsylvania recently dismissed a horizontal antitrust conspiracy claim brought by a proposed class of homebuyers against a real estate brokerage company, while allowing the homebuyers’ claims based upon vertical agreements to continue.
In Davis v. Hanna Holdings, Inc., 2:24-cv-02374-WB, homebuyers alleged that Hanna conspired with other brokerage members of the National Association of Realtors (NAR) to inflate buyer-agent commissions by promulgating and enforcing allegedly anticompetitive rules governing the listing of real estate on Multiple Listing Services (MLSs), controlled by NAR-affiliated boards. According to the homebuyers, NAR rules steered homebuyers toward properties with inflated buyer-broker commissions by (a) requiring that seller-brokers unilaterally offer all buyer-brokers the same commission in their MLS listing; (b) limiting buyer-brokers’ ability to negotiate those listed commission rates; and (c) denying buyer-brokers who are not members of NAR (and therefore not subject to its rules) the ability to show homebuyers properties listed on a MLS. The homebuyers argued that these rules were “direct evidence” of a horizontal antitrust conspiracy amongst real estate brokers subject to the plaintiff-friendly standard of per se illegality, citing the Second Circuit’s decision in Relevent Sports, LLC v. United States Soccer Federation, Inc., 61 F.4th 299 (2d Cir. 2023).
The court disagreed and dismissed the horizontal conspiracy claim that Hanna had conspired with fellow NAR members for two reasons. First, unlike the plaintiffs in Relevent Sports, the homebuyers’ complaint did not allege that the NAR rules were themselves the challenged horizontal agreement. Instead, the homebuyers alleged that brokers entered an “antecedent agreement” to inflate commissions, which allegedly was implemented through the challenged NAR rules. Under Relevent Sports, the court reasoned, the homebuyers therefore needed to plausibly allege direct or circumstantial evidence of the prior horizontal agreement, but they had not done so. Second, the court noted, allegations that the brokers each joined NAR, promulgated and followed NAR rules, and worked together to enforce those rules amounted to mere “conscious parallelism” that was “equally likely to be explained by independent, self-interested business judgment” and insufficient to support a plausible inference of a per se illegal horizontal conspiracy.
The court separately found that the homebuyers plausibly alleged a vertical agreement between Hanna and NAR based on Hanna’s obligations to enforce and obey NAR rules. The court thus allowed the homebuyers’ claim that the NAR rules represented anticompetitive vertical agreements between Hanna and the NAR to proceed under the more defendant-friendly Rule of Reason.
The Hanna case shows how courts will closely scrutinize plaintiffs’ allegations regarding agreements involving industry associations to ensure that the complaint meets the requirements for pleading either a horizontal conspiracy subject to per se illegality or a vertical agreement subject to the Rule of Reason.