Optionality of NAR’s no-commingling rule takes center stage at REX appeal hearing

The appeal of REX Real Estate’s antitrust suit against the National Association of Realtors (NAR) and Zillow began in earnest on Thursday when the three parties, along with the Department of Justice (DOJ), gathered at the Ninth District Court of Appeals in Honolulu for oral arguments before a three-judge panel.

Originally filed by REX in March 2021, the lawsuit alleges that changes made to Zillow’s website “unfairly hides certain listings, shrinking their exposure and diminishing competition among real estate brokers.”

Two months prior to that, Zillow began moving homes not listed on the MLS out of initial user search results and onto a second tab. This adhered to an optional NAR rule, which prevents those who choose to adopt it from commingling MLS listings with non-MLS listings. Despite noting that it did not support this rule, Zillow claims it was forced to adopt it to obtain IDX feeds from MLSs that had, precipitating the two-tab design for MLS listings and “other listings.”

In May 2022, REX ceased its brokerage operations. And a little over a year later, the three parties involved in the case each filed motions for summary judgment on either the entirety of the lawsuit or portions of it.

Judge Thomas Zilly, who oversaw the case, dismissed REX’s antitrust claims against NAR and Zillow. But he allowed the discount brokerage’s false advertising claim under the Lanham Act, along with a claim for unfair or deceptive trade practices under the state of Washington’s Consumer Protection Act, to stand.

At a trial in September 2023, the court ruled in favor of Zillow on the remaining charges. Roughly six weeks later, REX filed its motion for a new trial. In the request, REX argued that it was unfairly prevented from presenting testimony about agent commissions to the jury.

A Seattle jury ultimately found that REX did not prove Zillow used false advertising in its decision to put non-MLS listings on a different section of the website, and that Zillow proved its defense on REX’s second claim that Zillow acted deceptively and unfairly.

REX appealed Zilly’s judgment denying the now-defunct brokerage a new trial in February 2024. In its request for a new trial, REX argued that it was unfairly prevented from presenting testimony about agent commissions to the jury.

Zilly ruled that the jury verdict was not the result of a “procedural flaw” or an “error on the part of the court” but due to REX’s shortcoming in presenting evidence that convinced the jury it had been harmed. Due to this, Zilly ruled in January 2024 that REX would not be granted a new trial.

The DOJ became involved in the appeal in June 2024 when it filed an amicus curiae brief. Like REX, the DOJ had some issues with how the district court handled the suit. 

The DOJ argued that despite being optional, NAR’s “no commingling” rule may still support anticompetitive behavior, something it claims the district court did not fully examine in its ruling.

In the filing, the DOJ outlined three ways it believes optional rules can involve concerted action by the parties involved in its creation or implementation.

1) A purportedly optional rule could be mandatory in practice.

2) An association’s adoption of an optional rule can itself be concerted action. 

3) An optional rule can invite others to participate in a common plan.

The DOJ reiterated these three frameworks during the five minutes of time it was granted to speak at the appeal. 

Alice Wang, who represented the DOJ at the hearing, said that the department was there “to protect the legal framework for concerted action.” 

Wang noted that NAR and Zillow did not dispute any of these theories in their filings with the district court. According to Wang, there are aspects of the scheme to segregate and conceal listings alleged by REX that fit within the third framework the DOJ presented. 

“As the district court found, NAR created and adopted the no-commingling rule and it published the handbook, the rule in its handbook, for the MLSs to adopt. There was also evidence in the record that the relevant provisions of the handbook prohibited MLSs that adopted the rule from making any modifications such that all members would adopt the same rule if they chose to do so. And then we have action showing acceptance,” Wang said.

“The district court found that a majority of MLSs accepted that invitation and chose to adopt the no-commingling rule. And then they require their members like Zillow to implement and follow the no-commingling rule.”

The DOJ felt that the district court only considered the first framework, determined that the rule was optional and that no enforcement mechanism existed, and moved on. 

“If there’s no enforcement mechanism, that probably suggests that the rule is truly optional,” Wang argued. “But under theory three, for example, there doesn’t need to be an enforcement mechanism in order for there to be an invitation to a common plan that’s subsequently adopted.”

Due to this, the DOJ urged the appeals court to vacate Zilly’s ruling and remand the case to the lower court. 

When asked if the rule was truly optional, Ursula Ungaro, who spoke on behalf of REX, argued that the rule was no longer optional when an MLS adopted it. This forced all participants to abide by it, which is how Zillow came to adopt the no-commingling rule in order to obtain access to IDX feeds. 

“If the MLS has adopted it, the rule required that the MLSs impose the rule on the MLS participants who are like the subscribers in the MLS,” Ungaro said. “At one level, it is optional, but it is mandatory if the MLS adopts it.” 

According to Ungaro, Zillow — which has been a vocal critic of the no-commingling rule — would not have adopted its two-tab website design if not for the rule. By segregating REX’s listings away from MLS listings, Zillow became an active member of the conspiracy, she said. 

In their rebuttals of the DOJ’s and REX’s arguments, NAR and Zillow both noted that only 71% of MLSs had adopted the rule. NAR added that it did not know this figure until it was forced to compile the data as part of the discovery for this suit. 

“I think Rex would have a stronger case if it was 99.9%,” said Chris Michel, NAR’s legal counsel at the hearing. “Some of the largest MLSs, including the California Regional MLS, the largest in the country, have not adopted it. They remain the largest MLS in the country with no consequences from NAR, and not only does NAR not impose consequences, we don’t even track which MLSs are doing that.”

Michel also addressed REX’s claim that Zillow entered into a conspiracy with NAR. 

“First and foremost, NAR’s optional model rule is not an agreement with anyone to do anything. It is fully optional,” Michel said. “To the extent that Zillow was required to not co-mingle its listings, that is because of the intervening decisions of the distinct MLSs.”

Steve Engel, Zillow’s counsel, told the court that when it comes to discussing the optionality of rules, this is not the suit to be addressing it, since the rule was not optional for Zillow. Engel maintained that Zillow was signing up for IDX feeds and had to implement the rule within the jurisdictions of the MLSs that had adopted the rule. 

“The district court correctly granted summary judgement on the record because REX had established no evidence of an agreement between NAR and Zillow to boycott, demote, conceal REX’s listings,” Engel said.

He also noted that Zillow independently created its two-tab website design and reiterated the fact that Zillow had lobbied NAR against the rule. 

At the close of the arguments, the court noted that the matter had been submitted. It is unclear when the appeals court will issue its ruling.