DOJ Sues MLS for Boycotting Discount Brokers

By
Thomas N. Jacobson
The Law Offices of Thomas N. Jacobson

March 24, 2008

The United States Department of Justice (DOJ) has commenced an action in the United States District Court for District of South Carolina alleging the Consolidated Multiple Listing Service (CMLS) of Columbia, South Carolina engaged in certain practices that violate Section 1 of the Sherman Antitrust Law. Specifically, DOJ is concerned about rules impacting discount or unbundled services brokers, including the refusal to accept exclusive agency listings, the obligation of brokers to use mandatory form listing agreements, and subjective criteria for participation in the MLS.

The United States alleges that CMLS has engaged in certain activities relating to the enforcement of its rules, regulations, bylaws, and policies and procedures that unreasonably restrain competition among real estate brokers in the Columbia, South Carolina area. DOJ alleges that access to the MLS is critical to the broker desiring to serve buyers and sellers in the Columbia area and that practices of the MLS relating to discrimination against brokers using what DOJ refers to as non-traditional methods create an anti-competitive environment in the market place. The complaint refers to "Fee for Services" listing arrangements that are available outside the Columbia area, but such listings are not eligible for submission to CMLS. The complaint also refers to exclusive agency listings as marketing practices allowed outside of CMLS but prohibited by the rules and policies of CMLS.

The complaint makes specific reference to the Fee for Services arrangement and specifically alleges that the rules of CMLS requiring brokers submitting listings to have "active involvement in all aspects of the transaction" violates the right of the listing broker to adopt competitive listing and marketing policies. DOJ attacks the use of pre-approved contracts because it contains language concerning the scope of services offered by the listing broker.

The complaint takes specific aim at alternative business models that allow the seller or buyer to perform various aspects of the transaction without the assistance of the broker, such as handling offers and attending the closing of the transaction. DOJ contends this prevents consumers from negotiating brokerage agreements and service terms and reducing the cost of their brokerage services. DOJ alleges that by preventing brokers from using alternative contractual terms, such as exclusive agency listings, and allowing a seller to save on the cost of a commission if the seller found the buyer without the assistance of the broker, CMLS is engaging in anti-competitive behavior.

Another practice addressed in the complaint is a rule by CMLS that in order to be eligible for membership the broker must primarily practice in the geographic area. The membership process allegedly requires the broker to disclose the business type employed and bring it into conformity with the CMLS rules. The complaint alleges that the initiation fee is in excess of the actual cost of processing the initiation.

This case is quite significant to the MLS industry and should be monitored by every organization that operates an MLS. It is also an appropriate time to consider performing a legal check up on each MLS and working with experienced legal counsel to review whether there are any practices or procedures that might need to be modified or altered. DOJ has made its position clear and the MLS industry needs to prepare for the challenge DOJ has presented to the industry.