FTC v. Louisiana Real Estate Appraisers Board: Lessons for REALTOR Risk Management

1. FTC v. Louisiana Real Estate Appraisers Board:Lessons for REALTOR Risk Management • Stephen Cannon • Counsel, Louisiana Real Estate Appraisers Board • National Association of REALTORS • Risk Management Issues Committee • May 15, 2019

2. Key Risk Issues • The Supreme Court’s 2015 North Carolina Dental Board decision exposes to antitrust liability actions of state professional regulatory boards controlled by “active market participants.” Thus, boards may be viewed as a trade association for antitrust purposes unless the requirements of state action immunity are met. • The FTC has attempted to enforce these requirements in a restrictive manner that does not give appropriate weight to the issues of state sovereignty that are at stake. • REALTORS who rely on actions of Real Estate Boards or are members of such boards need to be alert to actions that may be viewed by enforcers as anticompetitive.

3. FTC vs. LREAB • Complaint issued on May 31, 2017 alleges: • LREAB controlled by active market participants. • LREAB “has unreasonably restrained price competition for real estate appraisal services provided to appraisal management companies” by requiring that AMCs compensate appraisers at a “customary and reasonable rate” as required by Dodd-Frank and implemented by LREAB’s Rule 31101. • LREAB has “effectively” required “AMCs to match or exceed appraisal rates listed in a published survey.”

4. State Action Defense Requirements Where a state board is controlled by active market participants: • “[A] state law or regulatory scheme cannot be the basis for antitrust immunity unless, first, the State has articulated a clear policy to allow the anticompetitive conduct, and second, the State provides active supervision of [the] anticompetitive conduct.’ N.C. Dental, 135 S. Ct. 1101, 1111-12.

5. FTC’s April 10, 2018 Opinion and Order • Denied LREAB’s Motion to Dismiss, finding: • Actions of the Commissioner of Administration and the House and Senate Commerce Committees were not sufficient active supervision of the repromulgation of Rule 31101. • Contract requiring ALJ oversight could leave some enforcement actions unsupervised. • Granted the FTC’s motion for partial summary decision finding that actions of the Louisiana legislature in reviewing the initial promulgation of Rule 31101 were insufficient to constitute active supervision, and judicial review did not constitute active supervision of enforcement actions • Dismissed LREAB’s state-action immunity defenses

6. The FTC’s Enforcement Framework • “To be clear, neither antitrust enforcement nor the state action doctrine is a vehicle for the federal government to micromanage the affairs of the sovereign states.” • However, “[T]he critical inquiry is “whether the State’s review mechanisms provide ‘realistic assurance’ that a nonsovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.’” April 10, 2018 Opinion at 1-2 (emphasis added)

7. Latest Developments • February 28, 2019 – 5th Circuit dismissed LREAB Appeal of April 10 FTC Decision on narrow jurisdiction grounds; rehearing denied • April 11, 2019 – Administrative Procedure Act complaint and motion for stay filed • In U.S. District Court in Baton Rouge • APA litigation referenced by 5th Circuit Opinion as potential mechanism to avoid jurisdictional difficulties • May 6, 2019 – FTC Opinion recognizing legitimacy of LREAB’s “good faith regulatory compliance” defense • Depending on specific facts, LREAB’s efforts to comply with “customary and reasonable” provision of Dodd-Frank may negate antitrust liability.

8. Conclusions • Be proactive, rather than reactive, regarding possible antitrust exposure for boards. • Most regulatory board actions should not raise antitrust concerns. • However, if challenged, the FTC’s approach has been to focus on any supposed defects in state action requirements for boards having market participants. • Conversely, FTC staff might not provide guidance as to what is sufficient. • Changing board activity after FTC challenge may be viewed as too late. • Thus, REALTORS may be at risk as board members or participants in a regulatory proceeding with potential anticompetitive effects regarding pricing or exclusion of potential competitors. 8

9. Additional Resources • North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015): https://caselaw.findlaw.com/us-supreme-court/13-534.html • FTC Staff Guidance on Active Supervision of State Boards: https://www.ftc.gov/system/files/attachments/competition-policy-guidance/active_supervision_of_state_boards.pdf • FARB Regulatory Law Seminar September 28, 2018 Presentation: https://constantinecannon.com/wp-content/uploads/2018/10/FARB-Regulatory-Law-Seminar-2018.pdf • AARO October 20, 2018 Presentation: https://constantinecannon.com/wp-content/uploads/2019/05/AARO-10-22-18-Pres-Final.pdf • FTC, May 6, 2019 Decision Denying Trial Staff Motion for Summary Decision on Louisiana Real State Board’s Regulatory Compliance Defense: https://www.ftc.gov/system/files/documents/cases/lreab_opinion_and_order.pdf • FTC case docket (public pleadings): https://www.ftc.gov/enforcement/cases-proceedings/161-0068/louisiana-real-estate-appraisers-board

10. Thank you W. Stephen Cannon Constantine Cannon LLP 202-204-3502 scannon@constantinecannon.com