Judge Allows Rent-Fixing Lawsuits Against RealPage, More Than 20 Big Multifamily Owners To Proceed

Many of the nation’s largest multifamily players remain on the hook in a massive class-action suit involving rent fixing allegations after a Tennessee federal judge set aside motions to dismiss the claims Monday.

Waverly D. Crenshaw Jr., chief U.S. District Court judge for the Middle District of Tennessee, deferred a series of motions asserting the case against property management software company RealPage and some of the biggest names in commercial real estate should be dismissed for lack of jurisdiction and failure to state a claim.

The judge did, however, order plaintiffs to amend and refile their complaint by Sept. 7 and set a new deadline for additional motions to dismiss.

More than 30 lawsuits alleging software sold by RealPage enabled owners of rental property to collude to inflate rents have been consolidated in Nashville federal court since April, bringing together cases filed by renters from Seattle and Colorado to Boston and New York. Tenants across the nation allege antitrust violations, accusing RealPage and its YieldStar rent-setting software of helping landlords spike apartment rents beyond competitive levels and fostering cartel-like rent inflation.

The case has embroiled large REITs like Essex Property Trust, Equity Residential, Camden Property Trust and Mid-America Apartment Communities as well as industry heavy hitters, including Greystar Real Estate Partners, Lincoln Property Co. and FPI Management.

“This case is about an alleged agreement between rental competitors in the country who are using RealPage as a clearinghouse for their price-fixing conduct,” Patrick Coughlin, co-lead counsel for the class action, told Law.com last month, adding he expected the legal proceedings to continue moving at a rapid pace after the Aug. 7 motion to dismiss hearing.

“If that sort of pace continues, it’s going to be a huge effort to quickly get all the documents and data needed to prove this conspiracy and to take apart the algorithms and see exactly how they are affecting prices,” Coughlin said.

“It’s good that we have the best attorneys at the best law firms in the country working on this; it’s a challenge we’re excited to meet," he said.

Coughlin, a partner and head of complex antitrust class litigation at San Diego-based Scott + Scott, did not respond to calls from Bisnow before publication time. RealPage also declined to comment on the record, though the company has previously released statements saying the allegations are without merit, adding “the complaints filed are wrong on both the facts and the law. Beyond that, we do not comment on pending litigation.”

In a consolidated motion to dismiss, Srinivasan and other defense lawyers asked Crenshaw to throw out the case, arguing “Plaintiffs now claim that any company that agrees with RealPage to use one of its three revenue management products — a group comprising hundreds of companies throughout the country — ‘necessarily’ becomes a member of a nationwide conspiracy to fix prices regardless of which product it uses, much less when or where, and regardless of whether there was an agreement with its competitors to do anything.”

The motion contended the case against RealPage and other companies fails to prove a conspiracy and questions whether plaintiffs have legal standing, among other arguments. 

Crenshaw dispensed with the joint motion to dismiss as well as several others brought individually by Equity Residential, BH Management Services, RealPage parent company Thoma Bravo and others, though he left the door open for future motions based on the amended suit due next month. Sources close to the case said Crenshaw did not rule on the merits of the motions.

The judge’s order came after an in-person status conference in Nashville, with Crenshaw directing defendants to identify and describe any new dismissal motions they expect to file by Sept. 21 ahead of either oral arguments or another status conference in December.

Several multifamily REITs filed disclosures about the suit as part of their 10-Q filings to the Securities and Exchange Commission, including MAA, Essex Property Trust and Independence Realty Trust. All three deny any wrongdoing and promise a vigorous defense, though Essex and MAA noted they cannot guarantee the litigation won’t have an adverse material impact on their bottom lines.

“To the extent that such a matter arises or is identified in the future that has other than a remote risk of having a material impact on the condensed consolidated financial statements, the Company will disclose the estimated range of possible outcomes associated with it, and, if an outcome is probable, accrue an appropriate liability for that matter,” Essex said in its filing.

One major multifamily player, AvalonBay, has been released from all cases in the consolidated suit, per its 10-Q and court records, after speaking “with the plaintiffs’ counsel to explain why it believes these cases are without merit as they pertain to the Company.” 

On an Aug. 2 earnings call, AvalonBay CEO Benjamin Schall declined to discuss why the company had been released from all cases, noting “it's ongoing litigation in the wider industry, we can't make any additional comments about what we included in our disclosure in the earnings release.”

Camden was also quizzed about the litigation on its Q2 earnings call, bringing a curt "no comment" from CEO Ric Campo. 

Earlier this year, Essex CEO Angela Kleiman said Essex had already begun reducing its RealPage usage before lawsuits began flying, adding “we believe that their claim is without any merit, and we're very confident about our defense prospects.” 

In its Q1 earnings call, Equity Residential CEO Mark Parrell said the company had increased its legal reserve, partially as a result of the litigation.

Such cases “aren't resolved in weeks or months. It's more like years,” Parrell said. “But again, we feel very strongly about our position. We think these claims are without merit, and we're going to defend ourselves, and we continue to feel really confident in our prospects there. So there is some small amount, but it's small. Most of that just relates to just continuing legal costs from being in a customer-facing business in an industry that has regulation.”

UPDATE, AUG. 9, 12:26 P.M. CT: This story has been updated to include an order from the judge that plaintiffs must refile an amended version of their complaint by Sept. 7 and to add information that the judge did not rule on the merits of defense motions.