The allegations that the Real Estate Board of New York conspired with Corcoran and Douglas Elliman to “smother” competition move forward.
A federal court on Thursday declined to toss antitrust claims filed by real estate brokerage Compass against the Real Estate Board of New York (REBNY).
In a March 31 order, Judge Alison J. Nathan of the U.S. District Court of the Southern District of New York denied, in part, REBNY’s motion to dismiss a lawsuit filed by Compass in March 2021.
The suit alleges that REBNY conspired with two of its member brokerages, Douglas Elliman and the Corcoran Group, to collectively modify and enforce the trade group’s rules “in an anticompetitive manner” in order to “smother” the newer company.
REBNY, allegedly at the urging of Douglas Elliman and Corcoran, adopted a rule (Article II, Section 7) in 2018 stating that if an agent representing a seller switches to another brokerage, that agent may not contact the seller without the former brokerage’s prior written consent unless the seller signed a certification stating they wished to keep their relationship with the agent.
Compass argued this rule reduced agent mobility and prevented Compass from attracting new agents.
REBNY later modified the rule to eliminate the seller option of signing a certification to move with their agent to a new brokerage, again allegedly at the urging of Corcoran and Douglas Elliman. The complaint contends that the two brokerages collectively have more than 50 percent market share in the Manhattan residential real estate market.
Compass’s lawsuit includes claims that REBNY violated New York’s primary antitrust statute, the Donnelly Act, and the federal Sherman Antitrust Act as well as a claim for tortious interference with prospective economic advantage, which is when a third party intentionally and unlawfully interferes with a business relationship.
The court rejected REBNY’s motion to dismiss the antitrust claims, but granted the trade group’s bid to toss the third claim for tortious interference.
“Compass has plausibly shown, by indirect proof, that the coordinated adoption, revision, and selective enforcement of Article II, Section 7 by REBNY adversely affects competition market-wide,” in part by allegedly preventing consumers from choosing to switch to different brokerages along with their agents, Nathan wrote.
“As Compass alleges, this provision has allowed at least two brokerage firms with over 50 percent market share combined to shrink consumer choice,” Nathan added.
Nathan did not buy a claim from REBNY that exclusive listings are the property of the brokerage, per New York law.
“But by its plain language, only ‘listing information,’ not the listing itself, is property of the brokerage once an agent’s relationship with the brokerage is terminated,” Nathan wrote.
While REBNY had argued that it didn’t make sense to conspire with just two member firms, Nathan said Compass had pled a plausible motive because of the “outsized power and sway” of Corcoran and Douglas Elliman.
“Together they make up over 50 percent of the proposed market and have a disproportionate number of representatives on REBNY’s governance boards,” Nathan wrote. “Taking the allegations in the complaint as true, it is plausible that REBNY is beholden to, and acted in furtherance of, these co-conspirators’ interests.”
Nathan dismissed the tortious interference claim because Compass did not claim interference with a specific business relationship and therefore its allegations were “too vague.”
In an emailed statement, a Compass spokesperson told Inman, “We are pleased that the Court has denied REBNY’s motion to dismiss our antitrust claims and look forward to continuing to demonstrate that REBNY’s anti-competitive actions have a negative impact on buyers and sellers of New York City real estate.”
“We appreciate the Court’s dismissal of the case regarding claims of tortious interference and remain confident in the merits of our defense,” REBNY President James Whelan said in an emailed statement to Inman. “REBNY’s co-brokering rules, which Compass has helped to shape and enforce as a REBNY member, are based upon State law and legal precedent. We look forward to the discovery process and demonstrating the lawfulness of the rules.”
Read the judge’s order: