QUICK HITS

 

• Mark Sunderland filed a proposed class-action lawsuit alleging a conspiracy among major real estate brokerages as well as CREA and TRREB; Sunderland’s perspective is that he was obliged to pay the standard commission to the buyer’s agent and their brokerage when selling his home in the GTA.
• The lawsuit alleges that the defendants engaged in anti-competitive practices, including price-fixing, and seeks damages on behalf of individuals who sold property listed on the Toronto MLS after Mar. 11, 2010.
• However, establishing the existence of the conspiracy and meeting the requirements for class certification are difficult tasks in Canada.

The recent Sunderland statement of claim has made waves in the legal and real estate communities, raising allegations of conspiracy and abuse of dominance against some of Canada’s largest real estate boards and brokerages. 

Some believe that, if Sunderland is successful, buyer real estate representatives and brokers will cease to exist in their current form, making this case a critical one all real estate pundits are following (as an aside — even if successful, I don’t believe this will have a long-lasting and massive impact, but that’s for another article). 

What stokes the fire of fear is the success of such claims in the U.S. and the assumption that Canadian cases have similar outcomes as we share similar laws. We don’t. In this article, I speak with David Dunbar, who is of counsel with Caravel Law LLP and was senior general counsel of the Competition Bureau and has extensive work experience in Competition compliance. We delve into the hurdles that the Sunderland statement of claim must overcome to establish its claims. 

First of all, what is the Sunderland case about? 

Mark Sunderland, a Toronto resident, initiated the proposed class-action lawsuit on Apr. 9, 2021, alleging a conspiracy involving brokerages and real estate associations. Sunderland’s perspective is that he was obliged to pay the standard commission to the buyer’s agent and their brokerage when selling his home to an alleged price-fixing conspiracy among various brokerages in the GTA and various Canadian boards and organizations.

The Sunderland lawsuit, based on Section 36 of the Competition Act, alleges that the defendants conspired to control real estate brokerage commission rates for transactions on the Toronto MLS, violating Section 45(1) of the Competition Act. 

The plaintiff claims that this alleged arrangement resulted in damages, including higher commissions for home sellers, elimination of price competition, and increased costs for brokerage services. The plaintiff also seeks damages, asserting that the defendants’ conduct was deliberate and motivated by economic considerations. 

The lawsuit outlines specific actions the defendants took to fix and control commission rates, including participating in meetings, exchanging non-public information, and imposing rules restricting access to commission information.

The plaintiff aims to certify the lawsuit as a class proceeding, representing individuals who sold property listed on the Toronto MLS after Mar. 11, 2010. They allege the defendants conspired to fix and control commission rates during this period. The plaintiff also seeks declarations that the defendants and their co-conspirators acted in furtherance of the alleged conspiracy and that the Toronto Regional Real Estate Board (TRREB) and the Canadian Real Estate Association (CREA) aided and abetted the conspiracy. 

Additionally, the plaintiffs claim general and special damages, as well as prejudgment and post-judgment interest. They also request the costs of investigating and prosecuting the action, as allowed under section 36(1) of the Competition Act, and any other relief deemed appropriate by the court.

Sounds quite compelling until we dig into the evidentiary requirements, as Mr. Dunbar pointed out during our conversation. 

Conspiracy allegations require clear evidence to be proven valid

One of the primary challenges faced by Sunderland, according to Dunbar, is proving the existence of a conspiracy. While the claim alleges criminal conduct, it must meet the civil standard of proof, which requires establishing the conspiracy beyond a balance of probabilities. This burden is not easily met, particularly without concrete evidence. In order to prove a claim of conspiracy, most plaintiffs making such a claim typically have a “smoking gun,” such as a whistleblower or email exchanges that show criminal intent to form a price-fixing conspiracy. 

“I haven’t seen the evidence that Sunderland might have,” says Dunbar, “but as a general matter, proving a conspiracy is a difficult thing to do. Because conspiracies are usually secretive and shady, there often isn’t much documentation of the wrongdoing. Without a whistleblower, it can be really difficult to prove that the alleged conspirators were actually up to no good.”

The defendants have access to a specific set of arguments called the Regulated Conduct Defense.

Dunbar explains, “Given that Ontario legislates the conduct and payment of real estate brokers, the defendants will almost certainly argue that the fee structure they follow is mandated by provincial real estate law, and therefore their actions comply with the letter of the law, and it would be inappropriate to conclude their activities violated the Competition Act.”

TRESA’s Code of Ethics, specifically setting out the rules regarding cooperation and how real estate salespeople are to be compensated, is written to be compliant with those provincial rules. This defense raises a key question: how can conduct be deemed criminal or a “conspiracy” when it aligns with regulatory requirements? In essence, this appears to be a powerful argument for the defense and could very well stop this case in its tracks.

Class certification still hasn’t been approved.

The claimant in the Sunderland case seeks class certification, a process that determines whether the case can proceed as a class action lawsuit. While certification does not guarantee success, it adds legitimacy to the claims and increases the potential impact of the case. 

However, the claimant has yet to show it can meet the criteria for class certification, demonstrating that common issues exist among the class members and that a class action is the preferable way to resolve the dispute. At this time, such certification has not been granted. While the bar for certifying cases is not as difficult as proving the full case, class certification is not guaranteed. Dunbar points out that if certification is not granted, then the above is moot. 

If the American case, Moehrl, is successful, won’t this mean that the Sunderland case is a slam dunk? 

In Canada, the Sunderland plaintiffs are required to prove specific elements of the criminal offense under section 45(1), which include conspiring with a competitor regarding a product to fix the price for its supply. As mentioned above, proving a conspiracy can be challenging. 

In contrast with the limited actions available to Canadian plaintiffs, American plaintiffs have historically had a wider range of private antitrust actions available to them. They can bring cases based on criminal price-fixing conspiracies, known as “per se” conspiracies, as well as private actions alleging unfair, coordinated, anti-competitive behaviour by defendants, referred to as “rule of reason” cases.

The American case of Moehrl, which bears similarities to Sunderland, appears to fall under the “rule of reason” framework (whereas the Sunderland case makes a claim about conspiracy). In such cases, the American plaintiffs will need to establish economic harm as a central aspect of their claims. 

Since Canada recently amended its Competition Act to allow for private actions related to abuse of dominance (known as the “rule of reason” in America), it is conceivable that Sunderland could seek permission from the court to incorporate an abuse of dominance argument into their claim. If that were to happen, the Sunderland plaintiffs would need to present an economic harm argument as part of their case. However, this is merely speculation at this point. As such, even if Moehrl is successful in making its claims against the industry, it doesn’t follow that Sunderland will also be successful in its claims — their claims are very different, requiring very different evidence.

What if Sunderland amends its statement of claim to replace the claims of conspiracy with claims of abuse of dominance? 

As Dunbar points out: “In theory, proving an abuse of dominance case should be easier than establishing a criminal conspiracy. Nevertheless, it would still pose challenges in this particular situation. There appears to be a conceptual issue in arguing which party, either the seller or the buyer, bears the economic burden of a specific broker fee structure in a real estate transaction. 

“Both brokers’ fees essentially impact both parties’ finances. Moreover, sellers must consider market conditions when initially determining the percentages for broker fees. If sellers set the fee too high, it could potentially make their house less attractive to buyers. One could argue that the broker structure being contested by Sunderland is merely a reflection of market dynamics, and their dissatisfaction stems from the market price for buyer broker services. It is likely that the American plaintiffs in the Moehrl case, as well as Sunderland if they pursue a similar path, would face these types of defense arguments”.

What’s the Summary?

The Sunderland statement of claim faces numerous hurdles in its pursuit of proving allegations of criminal conspiracy within the real estate industry. From establishing a conspiracy to providing concrete evidence of the alleged conspiracy and obtaining class certification, the path ahead is challenging. 

As the case progresses, it will be intriguing to observe how these obstacles are addressed and whether the claimant can successfully navigate them to achieve their objectives. However, even if the claim is successful, the long-term transformative impact on the industry remains uncertain. After all, today’s buyers are not thinking about the Sunderland case but, rather, finding a home. 

Natalka Falcomer

Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.