National Association of Realtors' (NAR) general counsel Laurie Janik is criticizing the Department of Justice (DOJ) for its "lobbying" efforts towards state legislatures and real estate commissions on behalf of limited-service brokers to prevent the organizations from resetting rules which require all brokers to perform at a minimum standard.

The legislatures and associations in Texas and Oklahoma, for example, insist that the rules are for the protection of consumers, while the limited service brokers affected insist that the rules are anticompetitive.

According to a letter that Janik has sent out to all NAR subsidiary state associations, she writes that "in recent weeks, the United States Department of Justice (DOJ) has lobbied several state governments on behalf of limited service brokers, offering its opinion on the wisdom of legislative or regulatory proposals to establish minimum duties for real estate licensees", naming several letters from R. Hewitt Pate, Assistant Attorney General in charge of the Department of Justice's Antitrust Division to Assistant Att'y Gen. to Oklahoma State Representative Todd Heitt (Apr. 8, 2005) and from R. Hewitt Pate, Assistant Att'y. Gen. and Deborah Platt Majoras, Chairman, Federal Trade Commission to Loretta R. DeHay, General Counsel, Texas Real Estate Commission (April 20, 2005).

"The real estate industry has historically viewed the DOJ and the Federal Trade Commission (FTC) in terms of their role in enforcing the laws of the United States. It is rare, perhaps unprecedented, for the DOJ or FTC to lobby state legislatures, or real estate commissions, on matters involving real estate licensure," writes Ms. Janik. "For this reason, the recent letters from the DOJ to the Oklahoma legislature and to the Texas Real Estate Commission have captured the industry's attention." Many in the industry were unaware that, in addition to enforcing the laws of the United States, the DOJ and FTC also comment on legislative proposals. This is not a new role for these agencies, just one that the real estate industry has not experienced.

"Because the recent actions of the DOJ have raised a number of questions for Realtor® associations," she continues, "this memorandum will briefly explain the antitrust implications of laws enacted by a state legislature, regulations issued by a state real estate commission pursuant to state law, and actions by Realtors® in lobbying for legislative or regulatory action."

The following are three basic conclusions in this area:

1. "Statutes enacted by a state legislature are exempt from scrutiny under the federal antitrust laws." Thus, the DOJ and FTC can urge a state legislature not to enact a specific law. However, once the law is enacted, neither the DOJ nor the FTC can successfully challenge that law.

2. "A regulation of a state real estate commission cannot be found to violate the antitrust laws, as long as the regulation was issued pursuant to a policy clearly articulated by the state legislature to displace competition with regulation by a state agency." Thus, if a real estate commission adopts rules that carry out real estate brokerage policy set by the legislature, an attack on those rules by the DOJ or FTC should fail.

3. "Efforts by Realtors® to lobby the state legislature or the state real estate commission for legislative, or regulatory, action are protected by the First Amendment, as long as they are undertaken in good faith." Thus, any action by the DOJ or FTC against a Realtor® association or individual Realtors® based on good faith efforts to secure a law or regulation that the Realtors® regard as sound policy should be dismissed.

"The remainder of this memorandum summarizes the conceptual bases for these three conclusions and explains their application in the context of the real estate industry.

1. "Legislative Action"

   "The federal antitrust laws prohibit certain conduct that suppresses competition." However, more than sixty years ago, the Supreme Court recognized that the antitrust laws were not intended to prevent a state government, acting in its sovereign capacity, from putting in place those policies that the state chooses -- even if those policies might be anticompetitive. Parker v. Brown, 317 U.S. 342 (1943). This limitation on the federal antitrust laws derives from the special role of sovereign states in our American system of federalism. Given this role, the Supreme Court concluded that if Congress had wanted to subject state legislation to the federal antitrust laws, it would have said so explicitly.

   "The DOJ and the FTC, as the federal agencies charged with enforcing the antitrust laws, have a right to present their views to state legislatures." They have a right to argue, to state legislators, that a particular bill is anticompetitive and should not be passed. However, if the legislature determines to enact the bill into law, the federal antitrust agencies have no recourse against the state statute or those who enacted it.

   "Thus, the DOJ and the FTC are free to ask the legislature of Oklahoma, and other states, not to enact legislation that specifies what duties a real estate licensee must provide under state law." But it is up to each state legislature to decide whether it agrees with the antitrust agencies. If a legislature sees fit to enact legislation requiring licensees to satisfy certain duties or perform specified services, that legislation is immune from scrutiny under the federal antitrust laws.

2. "Regulatory Action"

   "The exemption from the federal antitrust laws for actions of the state is not confined to state legislatures." The Supreme Court has recognized that antitrust immunity must be extended to state regulatory agencies when such agencies are implementing a regulatory program, clearly articulated by the state legislature. See, e.g., Southern Motor Carriers Rate Conf. v. United States, 471 U.S. 48, 62-64 (1985). Indeed, if the legislature's intent to establish a regulatory program that displaces unfettered competition is clear, the fact that the legislature did not describe the program in detail does not "subject the program to the restraints of the federal antitrust laws." Id. at 65.

   "Once again, the DOJ and the FTC can urge state real estate commissions not to adopt particular regulations on the responsibilities of licensees to consumers. However, if a real estate commission adopts a regulation pursuant to a state law that is designed to replace competition with regulation, then the action of the commission should be immune from scrutiny under the federal antitrust laws. Significantly, the legislature's intent to displace competition does not have to be explicitly articulated. Rather, it is enough "if suppression of competition is the 'foreseeable result' of what the statutes authorizes." City of Columbia v. Omni Outdoor Adver., 499 U.S. 365 (1991).

   "Thus, for example, the federal Court of Appeals that covers Texas rejected an antitrust challenge to a rule of the Louisiana State Board of Certified Public Accountants that prohibited CPAs from accepting commissions. Earles v. State Bd., 139 F.3d 1033 (5th Cir. 1998). The Court found that the rule was immunized from antitrust challenge because it was issued by a state board pursuant to a state statute that directed the board to regulate the profession of accounting. It held that a legislative grant of "broad rulemaking authority over the profession" was enough to insulate the board and its members from antitrust liability Id. at 1044. See also Porter Testing Lab v. Board of Regents, 993 F.2d 768, 772 (10th Cir. 1993) (governing Oklahoma).

3. "Lobbying Activity"

   "Americans have a First Amendment right to petition government. Under a doctrine known as the Noerr-Pennington doctrine, the First Amendment protects the freedom of individuals, and their associations, to seek action from state legislatures and state regulatory agencies even if that action would have anticompetitive effects. Eastern R.R. Presidents Conference v. Noerr Motor Freight, 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). Indeed, as the Supreme Court has noted, the federal antitrust laws "do not regulate the conduct of private individuals in seeking anticompetitive action from the government." City of Columbia v. Omni Outdoor Adver., 499 U.S. at 379-380.

   "Under the Noerr-Pennington doctrine, Realtors® and Realtor® associations have the right to lobby for legislative and regulatory action that they support -- even if the effect of such action would be anticompetitive. In making this statement, we do not mean to suggest that laws and regulations imposing minimum duties on licensees are anticompetitive. To the contrary, they are intended to assure that the market for the sale of real estate functions efficiently and in the interests of buyers and sellers. But even if the DOJ or FTC believes that these government actions suppress competition, the right to petition for such actions should be unquestioned.

   Written in formal legalese, the letter appears to lay out a states' rights defense to the DOJ as well as to inform the intended recipients, the state associations, that they should have nothing to fear in supporting limited service rules, as long as they are based in statute.