It will come as no surprise to anyone in the real estate industry that antitrust has been a hot topic in the past few years. Most of the conversation has been about class-action lawsuits, but a storm has been raging between the National Association of Realtors (NAR) and the U.S. Department of Justice (DOJ). The storm might rage all the way to the U.S. Supreme Court.
In 2019, the DOJ’s Antitrust Division opened an investigation into certain NAR practices and policies, including the “Participation Rule,” the “Clear Cooperation Policy,” and four other NAR policies the DOJ identified as being potentially anticompetitive. As part of the investigation, the DOJ issued two CIDs (essentially, subpoenas) requesting information from NAR.
In 2020, the parties reached a settlement. Through several rounds of negotiations, the parties agreed to enter a Proposed Consent Judgment addressing the four other NAR policies. While the consent judgment included a reservation by the DOJ of its rights to investigate and bring actions in the future, NAR agreed to the settlement only in exchange for the DOJ’s agreement to close its investigation into the Clear Cooperation Policy and the Participation Rule. The DOJ, as required by the agreement, sent the NAR a letter informing it that the DOJ had closed its investigation into the Clear Cooperation Policy and the Participation Rule and was withdrawing the CIDs. In the letter, the DOJ stated, “No inference should be drawn, however, from the Division’s decision to close its investigation into these rules, policies or practices not addressed by the consent decree.”
The Proposed Consent Decree was published in the Federal Register for comment. After the required comment period, the federal district court must consider whether it is in the “public interest” to enter the final judgment.
In January 2021, the DOJ came under a new presidential administration. After an unsuccessful negotiation to change the terms of the agreement, the DOJ, in July 2021, exercised its option to withdraw the Proposed Consent Decree. Five days later, the DOJ issued a new CID requesting information about the Clear Cooperation Policy and the Participation Rule, as well as other policies addressed in the decree.
NAR petitioned the district court to set aside the CID, saying that it violated the settlement agreement, including the DOJ’s promise to close its investigation into the Clear Cooperation Policy and the Participation Rule.
The district court sided with NAR, holding that the government must be held to the terms of its contracts. It was clear that the DOJ’s agreement to close its investigations was an essential term of the settlement agreement. The Court noted that the DOJ’s promise to close the investigation, if it retained the right immediately to reopen it, was an illusory promise. By reopening the investigation, the DOJ breached the agreement.
The D.C. Circuit reversed, over the strong dissent of Judge Justin Walker. NAR has petitioned the U.S. Supreme Court for writ of certiorari, asking the high court to decide the case, raising three grounds.
First, the NAR argues that the majority improperly construed the contract to render DOJ’s promise illusory. An illusory promise is one that imposes no real obligation on the promisor. A contract cannot be construed to say that a party has an obligation to do something, while also having the right not to do it. Essentially, DOJ made a promise to close the investigation, and then reopened it with a cry of “King’s X.”
Second, the NAR argues that the appellate court violated the “Party-Presentation Rule.” That is, the court improperly considered an argument not raised by the DOJ. Courts may only consider points raised by the parties on their own. They may not make the parties’ arguments for them. Neither party argued that the agreement was not binding. The DOJ’s argument was that although the agreement was binding, it did not prevent the DOJ from immediately reopening the investigation. The appellate court based its holding on this point, but nevertheless noted that the closing letter likely became unenforceable when the consent decree was withdrawn. In its view, based on the text of the agreement, the DOJ was free to resume the investigation whenever it wanted. The court appears to have been satisfied that waiting eight months was enough, even though nothing about the two policies changed in the interim.
Finally, NAR argues that the appellate court improperly applied the “unmistakability principle,” which says that courts “will not interpret a contract to cede a sovereign right of the United States unless the government waives that right unmistakably.” This doctrine came from cases where an agency entered into a contract and the contract was affected by a subsequent change in the law by Congress. In this case, the agency entered into a contract relinquishing its own investigative authority, and then unilaterally took up that authority for itself in contradiction of the agreement. NAR argues that the court extended this rule into a context where it has never been applied before.
NAR argues that the U.S. Supreme Court should take up this case to protect the fair administration of justice and confidence in contractual dealings with the government. The petition is pending in the U.S. Supreme Court.
The District Court’s decision can be found at: Nat’l Ass’n of Realtors v. United States, No. CV 21-2406 (TJK), 2023 WL 387572 (D.D.C. Jan. 25, 2023), rev’d and remanded, 97 F.4th 951 (D.C. Cir. 2024).
The Court of Appeals opinion can be found at: Nat’l Ass’n of Realtors v. United States, 97 F.4th 951 (D.C. Cir. 2024), petition for cert. filed, U.S. Oct. 10, 2024) (No. 24-417).
Statements in Texas Real Estate Research Center publications are not legal advice. For advice on a specific situation, readers should consult an attorney of their choice.
