If you are a broker or agent paying for MLS services from a regional MLS, look for your costs to go up or down, thanks to an appeals court ruling in California that prevents associations from retailing MLS services and support and charging the same fees across each association.

In short, the court ruled that while Realtor associations cooperate, they are separate business entities, even while sharing a cooperative such as a regional MLS, and that as separate entities may not conspire to fix the cost of MLS services to members.

The class-action lawsuit began in 1998, against Sandicor Inc., five association of Realtors that own Sandicor and their officers, and the California Association of Realtors. San Francisco attorney David Barry, representing plaintiffs Arleen Freeman, James Alexander, and Edward Y. Urata, claimed that "Realtor organizations swindled real estate agents out of millions of dollars" by fixing prices on regional MLS services when the cost of support was different for each cooperating board of Realtors.

Barry first lost the case in district court, where the judge agreed with the boards of Realtors that because they cooperated in a regional MLS, they should be considered as though they were a single entity, and therefore incapable of conspiracy to fix prices for services to agents. Barry appealed, and both sides filed cross motions for summary judgment and awaited the appellate court's ruling. When facts are not in dispute, the judge will rule as a matter of law.

Judge Alex Kozinski ruled against the associations and Sandicor, and has returned the case to district court for hearings on plaintiffs' requests for injunctions and the determination of damages. The plaintiffs are seeking triple damages, or $60 million. That's $7, 500 per agent member who uses Sandicor MLS services if the class action is certified.

To read the appellate court ruling in a PDF file, click here.

The key issue of the case is whether or not real estate associations can fix prices not for regional MLS services as provided by entities such as Sandicor, but for support services. While the associations share the cost of the MLS, they operate as separate corporations, and have very individual costs in support services.

As appellate Judge Alex Kozinski pointed out, "Someone must enroll new MLS subscribers, bill and collect payments, ensure that postings comply with guidelines and provide support staff to answer subscribers' questions." The San Diego Association of Realtors spent only $10 per subscriber per month while the two smallest contributors to the MLS, Fallbrook and Valley Center, spent close to $50. Instead of operating separately, the associations chose a centralized model, which would evenly distribute costs across all participating associations.

If the district court does not allow the case to be reappealed, then the implication for other associations who assist to operate regional MLSs could be affected in how they charge support fees.

Russ Bergeron, CEO of SoCALMLS says, "Our pricing is done differently. We bill a flat fee per member per month to our five shareholder boards. They, in turn, bill the members to include their cost of billing. We don't get involved with member billing. For other boards, I don't know how many are structured the way Sandicor's were, but they are rethinking it today, I'll tell you that."

Says attorney Barry, what won the argument for the appellate judge was basic economics. "The MLS is a central database engine that tracks the data, and they are 24/7. They license software, they have staff, rent to pay, and the MLS has to be gotten to the hands of the user. They chose to be retailers. The retailers are the five boards of realtors, they advertise to get them (agents) in the door, train the agent, collect a check, bill her, and the board of Realtors will provide support. The central database doesn't do that."

To explain, Barry uses this example, "You can't buy a car from GM, you get it from a local dealer. On the other hand, you don't buy AOL from a local dealer. So the choice is to use retailers or not. In this case, they chose to use the retail model, and the price they fixed was on the support. All Chevvy dealers buy Chevvies from GM, but they cannot fix the price, and these five retailers did that. The district court didn't discriminate between the internal workings of the central database where they were one entity. Where they went wrong is adding a mark-up of $25 to cover their support costs, but they had different support costs. Two little weaklings couldn't compete, and they said 'Let's fix prices.'"

While Sandicor attorneys or defendants could not be reached for comment, the California Association of Realtors issued this statement:

The Ninth Circuit Court of Appeal yesterday ruled in Freeman v. San Diego Association of REALTORS® that some local REALTOR® associations violated federal antitrust laws by the way they structured their regional Multiple Listing Service (MLS). In order to form a county-wide MLS, 11 REALTOR® associations gave up their local MLSs in order to create a new regional MLS to better serve real estate professionals and the public. The Ninth Circuit Court of Appeal dismissed the California Association REALTORS® (C.A.R.), which had also been named in the suit. "Although the Court of Appeal upheld the dismissal of the California Association of REALTORS®, we remain concerned that the decision attacks the pro-competitive structure of this regional MLS," said C.A.R. Vice President and General Counsel June Barlow. "The remaining parties will undoubtedly seek review by the full Ninth Circuit Court of Appeals. The California Court of Appeals had previously ruled in 1999 in Freeman v. San Diego that the same structure was not illegal under state antitrust laws, and the Federal District Court had exonerated all parties. We are very disappointed with the reversal and vigorously disagree with the results."

Sandicor and the associations have the option of petitioning for rehearing en banc on one of the following grounds: when consideration bythe full court is necessary to secure or maintain uniformity, or when the proceeding involves a question of exceptional importance, or when the opinion directly conflicts with an existing opinion by another court of appeals and substantially affects a rule of national application in which there is an overriding need for national uniformity, according to FRAP 34, Circuit Rule 35.

The case should be heard by district court in the next several weeks.

Published: March 13, 2003

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