Appellants have their final say about commissions settlements 

The three-judge panel tasked with deciding the future of real estate's two most impactful agent commissions settlements in history didn't tip their hands on which way they were leaning at a Jan. 14 hearing.

The judges — Lavenski Smith, Ralph Ericskon and Jonathan Kobes — asked just a few clarifying questions throughout the 90-minute presentation, which was held in the U.S. Court of Appeals for the Eighth Circuit in St. Louis. 

Much of the focus was on the dozen or so attorneys who made their final pitches on whether the Sitzer/Burnett and Gibson settlements should remain in place.

The appeals process is nearing its end, with this week's oral arguments serving as one of the final steps. The judges are expected to announce their ruling later this year — possibly by late spring or early summer.

What the appeals case is about

The initial cases focused on whether longstanding industry procedures resulted in higher commissions and anticompetitive practices. The Sitzer/Burnett and Gibson settlements account for the bulk of the more than $1 billion fund created for homesellers and led to changes on how buyer agent commissions are handled.

Before oral arguments began, those objecting to the settlements filed hundreds of pages with the court that explored whether certain individuals within the seller class had standing, if the amount of damages was fair and who should be included in the settlement.

The oral arguments presented on Jan. 14 focused mostly on award damages and the settlement class.

Damage amounts: Insufficient, or enough without risking bankruptcy?

When it came to debating damages, those appealing the settlements argued either that the dollar amount was too small or that the large number of eligible home sellers diluted the amount awarded to each person.

A too-small amount for a huge class? One of the attorneys for the appellants, Daniel Booker, noted that the Sitzer/Burnett verdict was originally intended for Missouri homesellers, who represent a fraction of sellers nationally. "There are class members all over the country losing large amounts of money that are a portion of the most valuable asset that most of them will ever own," Booker said.

When a judge asked what makes this situation special, Booker agreed that "everybody takes a haircut" when receiving damages from a typical settlement, but in this case, "we're talking about a pennies-on-the-dollar amount for this very large nationwide class."

Bankruptcy concerns a 'corporate trick'? Meanwhile, the attorneys representing those who want the settlements to stand generally argued that the funds were large enough to cause brokerages pain without sending them into bankruptcy, which could lead to an even smaller payout. That argument was countered by allegations that the defendants did not provide enough financial information to draw those conclusions.

"The lower court said that (the settlement amount) was adequate without reviewing any financial data of settling parties," said Patrick Nye, who represents appellants in South Carolina. "Not only did the court not require it, but it denied objectors timely motion for discovery of financial records."

Nye also expressed skepticism about bankruptcy concerns. "I've been practicing law for 53 years. I've heard corporate defendants scream 'we're going to file bankruptcy' hundreds of times. It's a corporate trick. We shouldn't be fooled by that," Nye said.

Who should qualify for payouts?

The central person in the argument about class standing, Tanya Monestier — a professor at the University at Buffalo School of Law who has also criticized certain real estate forms and contracts — was unable to attend the hearing in person. However, the judges are allowing Monestier's written filings to be considered.

At the hearing, arguments about who should be included in the settlement were split. One group of appellants who suggested the class size was too big additionally argued that sellers who also bought homes shouldn't be included.

Another group argued against the Real Estate Board of New York (REBNY) being included in the settlement because they are not tied to the National Association of Realtors. REBNY should instead face a separate trial, that group suggested.

Chris Michel, who was representing NAR, noted that inflated commission prices impacted buyers and sellers. NAR would not have settled for $418 million if the buyer/seller claims were not included in the class, he said.

As it stands, the settlement "demands more than half of NAR's available assets … and it requires the most dramatic practice changes in the real estate industry in decades," Michel said. "In return it brings a decisive end to the nationwide litigation challenging NAR's rules and practices as targeted by the class plaintiffs."

Legal impacts of tossing the settlements

Scott McCreight, an attorney representing those in favor of keeping the settlements, raised concerns about the impact on the industry if the deals are thrown out.

"None of the objectors have presented any realistic alternative to these settlements," McCreight alleged. An avalanche of other litigation — including a revived Moehrl case in Illinois — would last for years if the settlements are tossed, he added.

What NAR is saying

In an email statement, NAR told Real Estate News that it "will continue to advocate for the court-approved commission settlement throughout the appeals process."

"The practice changes enacted following the settlement have further empowered consumers to negotiate compensation and promoted transparency in the marketplace," the statement added. "Importantly, the appellate arguments, by themselves, do not alter the practice changes or any part of the court-approved settlement."