Antitrust Law Daily Wrap Up, ANTITRUST NEWS: State real estate appraiser board allegedly conspired to deny license to competitor, (Aug 5, 2015)

By Linda O’Brien, J.D., LL.M.

A state board of real estate appraisers and individual board members conspired to fix prices and reduce competition in the professional real estate appraiser market by denying a competing appraisal management company a license to operate in the state, according to a complaint filed in the federal district court in Alexandria, Virginia (CoesterVMS.com, Inc. v. Virginia Real Estate Appraiser Board, August 3, 2015).

Coester VMS.com, Inc. (CVMS) is an appraisal management company (AMC) that works with finance companies and real estate appraisers across the U.S. The Virginia Real Estate Appraiser Board is the administrative department of the Virginia Department of Professional and Occupational Regulation which regulates the licensing of individual and business real estate appraisers. The Board is comprised of six fee appraisers, two citizen members, one financial institution representative, and one AMC representative.

The complaint states that, in 2009, the Home Valuation Code of Conduct (HVCC) established certain requirements to promote the independence of professional appraisers from inappropriate influence from lenders, borrowers, or brokers. Under the HVCC, which was adopted by the Federal National Mortgage Association and Federal Home Loan Corporation, fee appraisers are not allowed to have direct contact with loan company origination and production staff. As a result of these rules, many lenders use AMCs to eliminate direct communications between lenders and appraisers, thereby ensuring there is no undue influence over appraisers.

According to the complaint, the Board required CVMS to participate in an informal fact finding conference to determine CVMS’ qualifications for licensure as an AMC in Virginia. In July 2015, CVMS attended the conference and submitted evidence which included consent orders and settlement agreements entered into in five states. CVMS is currently licensed and in good standing in each of those states. CVMS also submitted evidence regarding its remedial efforts it has taken in response to the issues raised in the consent orders and submitted its new comprehensive compliance management system.

Non-board member Betsy Critzer, a fee appraiser who was substituted for board member Glenn James as reviewing officer of the conference, issued a recommendation that the Board deny CVMS’s application for a license. Critzer ignored record evidence, mischaracterized statements made by CVMS in letters to the Board, made inaccurate and erroneous statements of law, and demonstrated extreme pre-textual bias against CVMS. Although Critzer has no relevant experience in regulatory audit, compliance, or compliance management, she based her recommendation on unfounded “oversights” in CVMS’s compliance management system. In fact, CVMS’s compliance management system was drafted by qualified management consultants with years of experience and the system addresses the best practices and expectations set forth by the Consumer Financial Protection Bureau, the complaint states.

The complaint also alleges that the Board and several board members communicated and agreed to restrict CVMS from competing in the marketplace. Before the informal fact finding conference, fee appraiser board members communicated with each other regarding developments in AMC regulation, AMC competition, AMC licensing issues, and multiple negative comments regarding CVMS. The defendants also communicated regarding the price of AMC appraisal services and expressed concerns that AMCs were “ruining the profitability of the profession.”

The board members conspired to adopt Critzer’s recommendations and deny CVMS a license to operate in Virginia at their meeting set for August 18, 2015. In its denial, the Board is removing CVMS from the real estate appraiser market since CVMS will have to cease operating in Virginia if it has no AMC license. The denial of CVMS’ license is an unreasonable restraint of trade and prevents a large AMC entity from offering appraisal services to lenders at competitive prices. Furthermore, CVMS will permanently lose its customer base in Virginia if the Board’s denial of CVMS’ license occurs on August 18, 2015, the complaint alleges.

The plaintiff asserts claims for conspiracy and unreasonable restraint of trade in violation of Sections 1 and 2 of the Sherman Act. The action seeks declaratory and injunctive relief, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-00980-TSE-JFA.

Attorneys: Jason W. McElroy and Michael Y. Kieval (Weiner Brodsky Kider PC) for CoesterVMS.com, Inc.

Companies: CoesterVMS.com, Inc.

News: Antitrust VirginiaNews