Month: May 2024

Update on NAR broker compensation litigation

Standard

This blog has previously discussed the March 15 proposed settlement by The National Association of Realtors (NAR) of four large antitrust suits involving buyers’ broker commissions. The monetary settlement was set at $418 million. The settlement also involves a new rule prohibiting offers of compensation to buyers’ brokers on the MLS.

There is movement in a related matter between the NAR and the U.S. Department of Justice (DOJ). Last month, a District of Columbia Circuit Court of Appeals panel of judges reversed a lower court decision to set aside a 2021 investigative subpoena from the Antitrust Division of DOJ. That subpoena had been issued in a previously closed investigation into NAR commission policies.

This ruling effectively held that a case being previously closed does not prevent its being reopened, allowing the DOJ to continue its antitrust investigation.

Several news sources are reporting that in a status hearing in a Massachusetts case, the DOJ made its first public comment since the NAR settlement this week. An attorney for the DOJ apparently stated that the DOJ believes offers of compensation to buyers’ agents should not be made anywhere, and certainly not on the MLS.

This dirt lawyer does not have the legal ability to discuss the antitrust issues involved in this litigation. The speculation about how this settlement will ultimately affect the housing industry is widely varied among experts in several professions.

The impetus for the original complaints was to lower housing costs artificially inflated by commissions which seem to be set in stone at six percent. Some experts suggest that our housing market will be completely remodeled, with the end product being lower home prices.

Other experts suggest that buyers will be crippled by having to either forego the assistance of a real estate agent or by agreeing to pay commissions out of pocket. Some of these writers suggest that home prices will increase as a result of these machinations. I’ve even heard that only wealthy buyers will have broker representation.

I’ve seen several suggestions that home buying will remain virtually the same by use of several work arounds. But I’ve seen other experts suggest that the proposed work arounds may also violate antitrust laws.

Some suggest that buyers, sellers and real estate agents will simply negotiate commissions.

One thing that is not in question is that the settlement must be approved in court. The settlement suggests that the new rules will become effective in July, but settlements in these large cases often take months to approve, so I wouldn’t be surprised to see delays beyond this summer.

The industry may be in transition as all the experts digest the settlement and as we await court approval. There is no shortage of articles on the topic. I encourage dirt lawyers to keep their fingers on the pulse of these issues as the litigation dust settles. Any activity from the DOJ will be particularly noteworthy.

Supreme Court holds CFPB’s funding mechanism is constitutional

Standard

The Consumer Financial Protection Bureau’s funding mechanism is constitutional, according to CFPB v. Community Financial Services Association, decided May 16.

Justice Clarence Thomas authored the 7-2 decision. Justices Samuel Alito and Neil Gorsuch dissented.

A payday lender trade association sued the CFPB in 2017, seeking to overturn a rule prohibiting debits from bank accounts and arguing that the CFPB and all its actions since 2010 were unconstitutional because of its funding structure.

The agency is housed inside the Federal Reserve and draws up to $600 million from the Federal Reserve annually. Funding was set up in this manner to insulate the CFPB from industry influence. Normal funding would include the regular appropriations process. Article 1, Section 9 of the Constitution (the Appropriations Clause) states that no money shall be withdrawn from the Treasury “but in the consequence of Appropriations made by Law.”

The association’s argument was that this deviation from the normal appropriations process gave the agency “perpetual” funding. The opinion held, “Under the Appropriations Clause, an appropriation is simply a law that authorizes expenditures from a specified source of public money for designated purposes. The statute that provides the Bureau’s funding meets these requirements.”

In addition to the CFPB, the Customs Service, Postal Service and revenue officers are all funded through non-annual, standing appropriations.

The dissent stated, “Unfortunately, today’s decision turns the Appropriations Clause into a minor vestige. The Court upholds a novel statutory scheme under which the powerful Consumer financial Protection Bureau (CFPB) may bankroll its own agenda without any congressional control or oversight.

From a practical perspective, I can’t imagine how difficult it would have been to undo the many investigations, rulings, and fines during the CFPB’s tenure. This decision holds that the Bureau’s actions stand.

Captain Sam’s Spit is in the news again

Standard

This blog has discussed “Captain Sam’s Spit” in Kiawah Island three times before. Googling that picturesque name will reveal a treasure trove of news, opinion and case law involving the proposed development of a beautiful and extremely precarious tract of pristine beach property on South Carolina’s coast.

In the news, reported by WCSC- TV (Charleston), the town of Kiawah Island, the Kiawah Island Community Association, and the Kiawah Conservancy filed a breach of contract suit against KDP II, LLC, the owner of the spit. According to the reporting, the lawsuit alleges that a 2013 development agreement required KDP to deed a portion of the property to the Kiawah Island Community Association as community open space and to place all remaining undeveloped lands under a conservation easement to be held by the Conservancy.

The most recent blog discussed the 2021 Supreme Court case the latest case* in which the Court refers to the property as one of our state’s only three remaining pristine sandy beaches readily accessible to the general public. The other two beaches are Hunting Island State Park and Huntington Beach State Park. I enjoy the blessing of walking the pristine beach of Huntington Beach State Park on a regular basis, so despite having a career on the periphery of real estate development, I am in favor of maintaining these three state treasures.

The South Carolina Bar’s Real Estate Intensive seminars have included field trips to Captain Sam’s Spit, from a distance at least. Professor Josh Eagle of the University of South Carolina School of Law was an excellent tour guide, and how many opportunities do we, as dirt lawyers, have for field trips? The South Carolina Environmental Law Project, located in Pawleys Island, fights these cases. Amy Armstrong, an attorney with that entity, joined our group to explain the environmental and legal issues.

Here are greatly simplified facts. Captain Sam’s Spit encompasses approximately 170 acres of land above the mean high-water mark along the southwestern tip of Kiawah Island and is surrounded by water on three sides. The Spit is over a mile long and 1,600 feet at its widest point, but the focal point of the latest appeal is the land along the narrowest point (the “neck”), which is the isthmus of land connecting it to the remainder of Kiawah Island. The neck occurs at a deep bend in the Kiawah River where it changes direction before eventually emptying into the Atlantic Ocean via Captain Sam’s Inlet.

The neck has been migrating eastward because of the erosive forces of the Kiawah River. The “access corridor”—the buildable land between the critical area and the ocean-side setback line—has narrowed significantly in the past decade to less than thirty feet. Googling this issue will lead to active maps which show the change over time. The width of the neck is significant because the developer needs enough space to build a road. At the base of the neck is Beachwalker Park, operated by the Charleston County Parks and Recreation Commission. Our fieldtrips were conducted on that Park.

Twice before, the administrative law court (ALC), over the initial objection of DHEC, has granted permits for the construction of an extremely large erosion control device in the critical area. In both cases (citations omitted), the Supreme Court found the ALC erred. The 2021 case arose from the ALC’s third approval of another structure termed “gargantuan” by the Supreme Court—a 2,380-foot steel sheet pile wall designed to combat the erosive forces carving into the sandy river shoreline in order to allow the developer to construct the road to support the development of fifty houses. The Court again reversed and, in effect, shut down the proposed development, at least temporarily. The economic interests of an increased tax base and employment opportunities do not justify eliminating the public’s use of protected tidelands, according to the Court.

I wouldn’t be surprised to see future appellate court cases involving this property.

*South Carolina Coastal Conservative League v. South Carolina Department of Health and Environmental Control, South Carolina Supreme Court Opinion 28031 (June 2, 2021)

Court of Appeals affirms DeBordieu’s groin permit

Standard
Photo from DeBordieu.com

South Carolina’s Court of Appeals affirmed the permit issued by DHEC to DeBordieu Colony Community Association for the construction of anti-erosion groins on DeBordieu Beach*.

In this appeal from the Administrative Law Court, South Carolina Coastal Conservation League contended that the ALC erred in finding the groins would be placed in a high erosion area, that the erosion threatened existing structures, and that the groins would not detrimentally impact the downdrift of sand to other beaches.

The Court defined a groin in footnote 2, referring to DHEC Regulations, as “a structure designed to stabilize a beach by trapping littoral drift. Groins are usually perpendicular to the short and extend from the shoreline into the water far enough to accomplish their purpose.”

The application for the permit was around 2,600 pages, and testimony was solicited by all sides from numerous experts. The Court acknowledged that while differing sides can reasonably debate methods to prevent erosion, our statutes allow the construction of new groins under specified conditions. The Court found that the ALC’s decision, based on probative, substantial, and reliable evidence in the record, is not clearly erroneous nor is it arbitrary or capricious.

An appeal to South Carolina’s Supreme Court is certainly expected in this case.

*South Carolina Coastal Conservation League v. South Carolina Department of Health and Environmental Control, South Carolina Court of Appeals Opinion No. 6058 (May 1, 2024)

Family of teenager shot after ringing the wrong doorbell sues HOA

Standard
Image from The New Yorker

Several media outlets are reporting that the family of Ralph Yarl, a black teenager who rang the wrong doorbell in a white neighborhood in Kansas City, is suing the homeowners’ association in addition to the man who fired the shot.

The theory against the HOA is that it failed to exercise reasonable care regarding the use of firearms in the neighborhood. There are apparently no rules against discharging firearms.

Yarl rang the doorbell on April 13, 2023, mistaking the house for a friend’s home. He had been sent to pick up his siblings, but the correct house was about a block away.  The homeowner opened the door and allegedly shot Yarl twice with a Smith & Wesson .32-caliber revolver. He said he was afraid someone was trying to break into his home.

Missouri has “stand your ground” and “castle doctrine” legislation that indicates a homeowner may use deadly force for self-defense if he reasonably believes that deadly force is necessary. A criminal case is pending against the homeowner in addition to the recently filed civil case.

The HOA is reported to be an unincorporated association with minimal annual assessments.  If that is true, it wouldn’t be surprising to see the individual homeowners named.

Any South Carolina dirt lawyers who represent homeowners’ associations will want to advise them of this lawsuit. Rules and insurance issues should be explored.

Be careful out there!