Antitrust Law Daily Regulatory compliance affirmative defense still an issue in suit against real estate appraisers board
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Thursday, May 9, 2019

Regulatory compliance affirmative defense still an issue in suit against real estate appraisers board

By Gregory Kane, J.D., M.B.A.

The FTC refused partial summary judgment to dismiss the Louisiana Real Estate Appraisers Board’s affirmative defense of good-faith regulatory compliance, ruling that additional factual development was necessary in a matter of first impression.

The Louisiana Real Estate Appraisers Board’s (LREAB) affirmative defense of good-faith regulatory compliance in an FTC action over alleged illegal restraint of trade involving appraisal service fees was not rejected by the Commission at the request of Complaint Counsel. The affirmative defense was an issue of first impression and it required further factual developments (In re Louisiana Real Estate Appraisers Board,FTC Dkt. 9374, May 6, 2019).

Background. The action began last year with the FTC’s issuance of a complaint accusing LREAB—a body that regulates the practice of real estate appraisals in Louisiana—of unreasonably and thus unlawfully restraining price competition for appraisal services provided to appraisal management companies (AMCs) by adopting a rule requiring AMCs to pay appraisers a customary and reasonable fee for real estate appraisal services. The rule, Rule 31101, provides that AMCs can demonstrate compliance with the customary and reasonable requirement by using objective third-party information such as government agency fee schedules, academic studies, and independent private sector surveys or by using a schedule of fees established by LREAB.

The FTC alleged in its complaint that Rule 31101 amounted to an unlawful restraint of competition on its face because it prohibited AMCs from arriving at an appraisal fee through the operation of the free market. It also alleged that LREAB unlawfully restrained price competition through its enforcement of the Rule, because it effectively required AMCs to set rates at least as high as those set forth in a specified survey.

In answering the complaint, the LREAB denied there was unlawful restraint of competition and asserted several affirmative defenses, one of which was that it had acted in good faith to comply with a federal regulations.

Regulatory compliance defense. Exemptions and immunities from antitrust law should be narrowly construed but the analysis should take into account the regulatory context. The good-faith regulatory compliance defense has rarely been invoked and is not well-established, the majority of case law involving issues of denials of or restrictions on interconnections in the telecommunications industry decades ago. The defendant must establish that at the time the alleged anticompetitive acts were taken, it had a reasonable basis to conclude that those actions were necessitated by concrete factual imperatives under regulatory authority. The complaint requests dismissal of the affirmative defense as a matter of law without assessing reasonableness. The good-faith regulatory compliance defense requires the assessment of whether the conduct is anticompetitive within the context of the regulation and allow an opportunity for the defendant to show that their actions were justified by the constraints of the regulatory scheme in which they operated. The defense does not protect anticompetitive conduct that a defendant freely chose to undertake—the actions must have been necessitated by regulatory and factual imperatives.

Determining the application of the good-faith regulatory compliance defense in the present matter requires further development of the facts of the case. Also, application of this defense in the context of Dodd-Frank requirements that led to the present rules is an issue of first impression that is best determined following factual inquiry at trial. As such the motion for partial summary judgment was dismissed by the Commission.

Companies: Louisiana Real Estate Appraisers Board

MainStory: TopStory Antitrust FederalTradeCommissionNews

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