Judge Wendy Beetlestone of the Eastern District of Pennsylvania has become the second federal judge to affirm the legal foundation of buyer-filed commission lawsuits, as she earlier this week rejected Howard Hanna’s request to throw out a lawsuit against the company on technical grounds.
While noting that she had yet to consider arguments regarding whether plaintiffs had sufficiently alleged antitrust violations and conspiracy, Beetlestone wrote in a lengthy order Tuesday that recent homebuyers have standing to sue the company, adding that the seller class-action settlements do not negate potential claims by buyers.
“Hanna argues that because home sellers are in fact seeking the same relief as Plaintiffs in other litigation, Plaintiffs should be barred from seeking damages here,” Beetlestone wrote. “Plaintiffs have specifically pleaded that home sellers pass on their inflated broker fees to buyers by raising the prices of the homes they sell. If this allegation is taken as true—which it must be, at this stage—then the damages potentially recoverable by Plaintiffs would not be truly ‘duplicative’ of whatever damages home sellers may recover.”
The ruling represents another affirmation that buyer-filed class-action lawsuits remain a threat to the industry despite the resolution of seller-filed litigation, although notably, Beetlestone also dismissed federal claims by plaintiffs that included court-ordered rule changes (while still allowing them to refile at a later time).
Dave Gringer, a lawyer representing Howard Hanna in the case, tells RISMedia that Beetlestone has yet to rule on other substantive arguments the company is making that could end the case.
“We still have pending motions to dismiss for failure to state a claim,” he says. “She may very well rule on them in our favor. Eventually, she’s going to rule on them one way or the other…the case may go forward, but it may not go forward.”
At the same time, Beetlestone’s detailed analysis of some of the relevant questions provides a preview of how buyer-filed cases may play out, as nearly all big real estate brokerages—and the National Association of REALTORS® (NAR)—still face accusations from homebuyers that they conspired to inflate commissions.
Damages in those cases could still easily reach into the billions, even after a ruling in the seller lawsuits shrank the number of buyers able to make claims.
Beetlestone additionally noted the seller settlement agreements did not modify all the rules targeted by buyers, including those limiting lockbox access and governing modifications to commission offers. She further referenced the Department of Justice’s (DOJ) assertion that new policies enacted through the NAR settlement could still violate antitrust laws as a reason to allow plaintiffs to move forward with the lawsuit.
“For all these reasons, Hanna has not met its ‘formidable burden’ of showing that there is no longer a live controversy remaining between the parties,” Beetlestone wrote.
Gringer says he is not reading too much into that decision, with plenty more opportunities to argue for dismissal of the case.
“I think we will just have to see whether the case moves forward or not,” he says.
Beetlestone’s order is generally a setback for Howard Hanna, which won dismissal from the larger, legacy buyer-filed lawsuit (known as Batton) a year ago on jurisdictional grounds. The same plaintiff lawyers quickly refiled their claims in Pennsylvania, however, bringing the allegations before Beetlestone.
Gringer says that the company is still confident in its arguments and the strength of its defense, saying that each buyer case is different and that Howard Hanna has some “unique” arguments to make related to the alleged conspiracy and antitrust violations that Beetlestone has yet to rule on.
“Our home MLS, which is West Penn MLS, didn’t have the rules being challenged, and we’ve already been dismissed from a lawsuit claiming that there was a conspiracy there,” he says. “So if we were part of a conspiracy, you would imagine that there would be (those rules at West Penn). So that’s pretty unique from my perspective.”
Buyer claims and standing
While much of Beetlestone’s ruling delves into similar technical issues that were examined by the two other judges who have (so far) allowed buyer cases to move forward, Beetlestone appears to be the first so far to reject arguments related to the NAR settlement. Howard Hanna had cited rulings both in the Burnett case and the Batton case in its attempt to have the case thrown out.
“Without reaching the merits of Hanna’s argument, it does not carry the day here,” Beetlestone wrote.
In Florida, HomeServices faces a similar situation, having been dismissed from Batton but facing a copycat case by the same plaintiffs. The judge in that case has not yet issued any substantive rulings.
For her part, Beetlestone also pointed out that the NAR settlement is still being appealed, while noting that there are “concerns” related to plaintiffs double-dipping on damages.
“(T)he specter of duplicative recovery alone is not enough to doom Plaintiffs’ claims,” she stated.
Beetlestone also cited Judge Andrea Wood of the Northern District of Illinois, who previously oversaw Batton (before recusing herself last fall) in affirming that “(i)nflated total commissions are incorporated into the home purchase price, thereby causing buyers to pay higher prices for homes.”
“(A)s the parties agree, Plaintiffs are not the direct purchasers of the overpriced buyer-broker services, they are the direct recipient of those services, and they separately allege that the prices of homes—which they do directly purchase—are artificially inflated to cover the increased cost of those services. In this regard, Plaintiffs allegations suggest that they ‘have suffered the greatest, if not the most direct, injury of alleged antitrust conspiracy,’” she wrote.
Like Wood, Beetlestone also rejected Hanna’s contention that plaintiffs should not be allowed to bring their claims using a hodge-podge of state-level antitrust statutes and consumer protection laws, at least at this stage—though she acknowledged potentially relevant distinctions between certain states antitrust, consumer protection and “unjust enrichment” laws.
Gringer says there is still the potential for Beetlestone (and likely other judges) to shrink the buyer cases by dismissing claims made in certain states, once (or if) they get to later stages.
“I’m not going to predict what a court’s going to do on a case that’s pending,” he says. “That’s certainly a path forward for her if that’s how she chooses to proceed.”
