The MLS Membership Rule – Antitrust or Not?
Wisconsin and Kentucky Say No!
by Brett M. Woodburn, Esq.
In 2005, federal trial courts dismissed two antitrust lawsuits directed against Multiple List Services (MLS) organizations that required REALTOR® association membership to access MLS data. Examined together, these cases provide some insight, and perhaps some comfort, to association-owned MLSs.
On December 9, 2005, the Honorable William O. Berrelsman, Judge for the United States District Court for the Eastern District of Kentucky, dismissed an antitrust lawsuit that was brought by a licensed real estate brokerage, Buyer’s Corner Realty, Inc., against the Northern Kentucky Association of REALTORS®, (“NKAR”), and the Northern Kentucky Multiple Listing Service, (“NKMLS”). Judge Berrelsman’s decision follows the same line of reasoning detailed by the United States District Court for the Western District of Wisconsin in Reifert v. South Central Wisconsin MLS Corporation.
The facts of the Buyer’s Corner case closely parallel those of the Reifert case. Buyer’s Corner Real Estate is a corporation duly licensed to perform real estate related activities. Buyer’s Corner operates exclusively as buyers’ agents in all transactions. Similarly, Reifert is a licensed real estate broker, whose brokerage exclusively represents buyers.
The NKMLS and the Wisconsin MLS are both wholly-owned subsidiaries of their parent local association of REALTORS®. Both MLS organizations require membership in any local association of REALTORS® in order to have access to the MLS data. Both courts took notice of the fact that a licensee did not have to be a member of the parent association in order to access the MLS data; the licensee had to be a member of any local association of REALTORS® to use the MLS.
Sherry Edwards, the broker of record for Buyer’s Corner, wanted to cancel her membership with NAR and its affiliates because, in her opinion, it is unethical to permit licensees to represent buyers and sellers in the same transaction. Edwards claimed that access to the NKMLS was the only reason that she paid her membership dues to NKAR. Reifert also wanted to terminate his membership with the Wisconsin Association of REALTORS® and its affiliates, but to continue his participation in the MLS. In both lawsuits, Edwards and Reifert alleged that the “membership rule” constituted an unlawful tying arrangement and group boycott, violating the United States antitrust laws.
In both instances, the federal trial courts determined that requiring membership in local associations of REALTORS® in order to participate in an association-owned MLS was not an unlawful tying arrangement. Although Edwards and Reifert testified that they would not have purchased REALTOR® memberships but for the membership rule, the United States Supreme Court has established that having to buy an unwanted product, in and of itself, does not amount to an antitrust violation. Important to this rationale is the fact that there were no rival sellers of the tied product (real estate association services) that were foreclosed by the tie. In other words, there is no evidence that either broker would have purchased a membership in another REALTOR® association, but for the membership requirement of the MLS. Likewise, no competing association of REALTORS® complained that it lost members because of the MLS membership requirement. Finally, neither Edwards nor Reifert claimed that they would have joined a competing association of REALTORS® but for the MLS membership requirement. Therefore, neither broker suffered an antitrust injury as a matter of law.
Edwards and Reifert also lost their unlawful group boycott claims because they could not prove that the membership rule suppressed or destroyed competition. A key element in the courts’ analyses was the lack of evidence that the MLS membership rule had an anti-competitive effect in the market place for real estate association services. In their discussions, the courts examined various other professional organizations to which Edwards and Reifert belonged, and determined that none of those organizations was interchangeable with, or in the same product market as, REALTOR® associations.
There are some important factors to keep in mind when considering the impact of these two cases on your local MLS, because any change in these facts could lead to a different conclusion. First, in both Buyer’s Corner Realty and Reifert, the MLS was wholly-owned by the local association of REALTORS®. Second, the membership requirement for each MLS was membership in any local association of REALTORS®. Third, the anti-competitive impact necessary to establish antitrust damages must be tied to the product market. If access to the MLS is “tied” to a REALTOR® association membership, then under the current law for these federal districts, any anti-competitive impact on selling real estate is immaterial. The “tied” market is real estate association services, and the anti-competitive impact must be on those services.
Does your local MLS have a membership requirement? If so, does that requirement foreclose competition in the real estate association services market? With the popularity of antitrust suits being brought by non-REALTORS® against association-owned MLS organizations, these facts and factors warrant close consideration. The facts in Buyer’s Corner Realty and Reifert were remarkably similar. To what extent would a variation in facts affect the outcome? When considering such delicate issues, either as an MLS or as a real estate licensee considering litigation against an MLS, consult with your counsel before drawing any final conclusions.
Brett Woodburn is an attorney with Caldwell & Kearns, and serves as general counsel to PAR. A substantial portion of Mr. Woodburn’s practice is dedicated to representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He is also one of the voices of the Legal Hotline. To see the other members of Caldwell & Kearns and the Legal Hotline, visit www.caldwellkearns.com.