Conway et al v. RealPage, Inc. et al

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UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
IN RE: REALPAGE, INC., RENTAL
SOFTWARE ANTITRUST
LITIGATION (NO. II)
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NO. 3:23- -03071
MDL No. 3071
THIS DOCUMENT RELATES TO:
ALL CASES
MEMORANDUM OPINION
Bell Partners, Inc., Brookfield Properties Multifamily LLC, CONAM Management
Corporation, ECI Group, Inc., Equity Residential, Independence Realty Trust, Inc., Mid-America
Apartment Communities, Inc., Mid-America Apartments, L.P., Morgan Properties Management
Company, LLC, The Related Companies, L.P., Related Management Company, L.P., Security
Properties Residential LLC, Simpson Property Group, LLC, Thrive Communities Management,
LLC, Windsor Property Management Company, WinnCompanies LLC, and WinnResidential
Manager Corp. (collectively the “LRO Defendants”)1 filed a Motion to Dismiss the Multifamily
Plaintiffs’ Second Amended Complaint (Doc. No. 580) and Memorandum in Support (Doc. No.
582) on October 9, 2023. Multifamily Plaintiffs responded (Doc. No. 621), and the LRO
Defendants filed a Reply (Doc. No. 635). The motion is ripe for review. For the reasons that
follow, the Court will deny the motion.
1 The LRO Defendants are Owner-Operators and Managers who used one of RealPage’s revenue
management services, Lease Rent Options (“LRO”), during the relevant period. (Doc. No. 530
¶¶ 77, 85, 94, 109, 112, 130, 145, 151, 160, 172, 178, 181, 188, 190). The Motion is not joined
by all Defendants alleged to have used LRO. (See Doc. No. 530 ¶¶ 70, 121, 124, 154, 166).
Furthermore, several of the sixteen LRO Defendants bringing this motion are also alleged to
have use RealPage’s YieldStar or AIRM in addition to LRO. (See id. ¶¶ 77, 94, 112, 130, 145,
151, 172).
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BACKGROUND
The following allegations are taken from Multifamily Plaintiffs’ Second Amended
Complaint (“Multifamily Complaint”) (Doc. No. 530) and are considered to be true to resolve the
pending motion.
RealPage, Inc. (“RealPage”) developed an “integrated technology platform that provides
software solutions for the multifamily housing market.” (Doc. No. 530 ¶ 2). RealPage rolled out
its first revenue management software, YieldStar, after acquiring it from Camden Property Trust
in 2002. (Id. ¶ 209). From 2002 to early 2016, YieldStar operated as a rent advisory service. (Id.
¶ 212). In early 2016, RealPage transitioned YieldStar to become a “rent-setting software.” (Id.).
RealPage then acquired Lease Rent Options (“LRO”) from Rainmaker Group in 2017. (Id. ¶ 26).
It integrated LRO and YieldStar into a “unified platform.” (Id. ¶ 221). In 2020, RealPage launched
AI Revenue Management (“AIRM”), a “combination of its legacy revenue management platforms
[YieldStar and LRO] and a super-charged price optimization and revenue management tool.” (Id.
¶ 221). Today, RealPage operates this full suite of revenue management services, which also
includes RealPage Revenue Management (“RPRM”) (collectively the “Revenue Management
Solutions” or “RMS”). (Id. ¶ 2).
RealPage’s clients include owners of residential properties (“Owners”), companies that
serve as both owners and operators of residential properties (“Owner-Operators”), and property
management companies (“Managers”). (Id. ¶ 3). These companies are horizontal competitors.
(Id. ¶ 6). As of December 2020, RealPage “had over 31,700 clients, including owner operators
and each of the 10 largest multifamily property management companies in the United States.” (Id.
¶ 61 (internal quotations omitted)).
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Multifamily Plaintiffs allege that RealPage and its clients have formed an illegal price-
fixing cartel. (Id. ¶ 6). It begins when RealPage touts its ability to help clients obtain the optimal
price for multifamily housing units regardless of market forces. RealPage’s clients, including the
Owner, Owner-Operator, and Manager Defendants, each separately contract with RealPage,
paying RealPage periodic fees and, critically, providing RealPage their independent commercially
sensitive pricing data. (Id. ¶¶ 5, 13). RealPage then applies its revenue management algorithm to
this data pool of competitor information to determine optimal rent prices for each of RealPage
clients, which is then available for each RealPage client to apply to multifamily and student
apartment units in each of the markets where those clients are located. (Id. ¶ 4). Not all RealPage
clients utilize RealPage’s entire RMS suite; for example, some use only LRO while others have
used YieldStar, LRO, and AIRM. (See, e.g., id. ¶¶ 70, 85, 88, 124). But regardless of which
services a client subscribes to, by “no later than 2020, . . . all RealPage RMS were combined into
a single unified database.” (Id. ¶ 222).
By using the RMS, RealPage’s clients are able to “price their units according to their
collective goal of securing revenue lifts by increasing rents without regard for the typical market
forces that drive supply and demand in a competitive environment.” (Id. ¶ 11). They do this by
(1) collectively agreeing to price their rental units in accordance with RealPage’s RMS pricing
recommendations, (Id. ¶¶ 11, 15); (2) controlling the supply of rental units by “allow[ing] a larger
share of their units to remain vacant,” (id. ¶ 31); and (3) staggering lease renewals to “minimize
naturally occurring periods of oversupply.” (Id. ¶ 36). This collective behavior, driven by
RealPage’s pricing recommendations, has resulted in “parallel pricing that cannot be explained by
typical economic factors” among the Owners, Owner-Operators, and Managers who use
RealPage’s RMS. (Id. ¶ 22). Additionally, between March 2015 and March 2023, “increased
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usage of RealPage’s RMS correspond[ed] with increasing rents over th[e] same period.” (Id. ¶
21).
LEGAL STANDARD
The Parties recognize, as they must, that to survive a motion to dismiss for failure to state
a claim, a complaint must include “a short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In reviewing a motion to dismiss, the Court must
“construe the complaint in the light most favorable to the plaintiff, accept all well-pleaded factual
allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff.”
Courtright v. City of Battle Creek, 839 F.3d 513, 518 (6th Cir. 2016). However, the Court will
“disregard bare legal conclusions and naked assertions” and “afford[] the presumption of truth
only to genuine factual allegations.” Dakota Girls, LLC v. Philadelphia Indem. Ins. Co., 17 F.4th
645, 648 (6th Cir. 2021) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2007)) (internal quotations
omitted). Nor can the Court “credit a threadbare recital of the elements of a cause of action . . .
supported by mere conclusory statements.” Dakota Girls, 17 F.4th at 648 (citing Iqbal, 556 U.S.
at 678)) (internal quotations omitted). The “factual allegations in the complaint need to be
sufficient to give notice to the defendant as to what claims are alleged, and the plaintiff must plead
‘sufficient factual matter’ to render the legal claim plausible, i.e., more than merely possible.”
Cabinets to Go, LLC v. Qingdao Haiyan Real Est. Grp. Co., 605 F. Supp. 3d 1051, 1057 (M.D.
Tenn. 2022) (quoting Fritz v. Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010)),
reconsideration denied sub nom. No. 3:21-CV-00711, 2023 WL 5013055 (M.D. Tenn. Aug. 7,
2023). “Ultimately, only a complaint that states a plausible claim for relief survives a motion to
dismiss.” Dakota Girls, 17 F.4th at 648 (quoting Iqbal, 556 U.S. at 679)) (internal quotations
omitted). To avoid dismissal under Rule 12(b)(6), a complaint must contain either direct or
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inferential allegations with respect to all material elements of each claim. Wittstock v. Mark A.
Van Sile, Inc., 330 F.3d 899, 902 (6th Cir. 2003).
ANALYSIS
To state a plausible claim under Section 1 of the Sherman Act, a plaintiff must allege three
elements: 1) the existence of a contract, combination, or conspiracy among two or more separate
entities that 2) unreasonably restrains trade and 3) affects interstate or foreign commerce. See
Hobart-Mayfield, Inc. v. National Operating Committee on Standards for Athletic Equipment, 48
F.4th 656, 663 (6th Cir. 2022). The LRO Defendants’ Motion attacks only the first element. They
argue that a necessary ingredient to the alleged conspiracy is RealPage’s use of its clients’ non-
public, proprietary commercial information to make pricing decisions. (Doc. No. 582 at 7-8; Doc.
No. 635 at 4-5). They further argue that, contrary to this central conspiracy feature, Multifamily
Plaintiffs’ earlier-filed complaints alleged that LRO uses only public data to make its pricing
recommendations, (Doc. No. 582 at 3-4), and Multifamily Complaint does not specifically allege
that after acquiring LRO, RealPage began to use non-public information as part of LRO’s
algorithm, (id. at 6; Doc. No. 635 at 4-5). Because Multifamily Plaintiffs have not alleged a central
feature of the conspiracy as to LRO, the LRO Defendants argue that dismissal of the Section 1
Sherman Act claims, as they relate to LRO, is required. (Doc. No. 582 at 7-8).
Multifamily Plaintiffs oppose the motion because the LRO Defendants misconstrue the
allegations from their earlier-filed complaints, including their reliance upon a ProPublica article,
“Rent Going Up? One Company’s Algorithm Could Be Why.” (Doc. No. 621 at 8-9. See also
Doc. No. 530 ¶ 1 n.1). Multifamily Plaintiffs contend that those statements do not contradict their
conspiracy claims. (Doc. No. 621 at 8-9). They further argue that the Multifamily Complaint
supersedes their earlier-filed pleadings, and at most, the earlier statements are possible evidentiary
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admissions that should not be used against them to resolve the motion to dismiss phase of the case.
(Id. at 9-11).
There are at least three reasons why the LRO Defendants’ motion must be denied:
1. The Multifamily Complaint Adequately Alleges That the “Enhanced” LRO
Uses Private Data
The Multifamily Complaint adequately alleges that RealPage’s “enhanced” LRO uses
private data after acquiring it from Rainmaker Group. Specific to LRO, the Multifamily Complaint
alleges: (1) in 2017, RealPage acquired LRO from Rainmaker Group, (Doc. No. 530 ¶ 26); (2)
after the acquisition, RealPage “enhance[d]” LRO and “integrated both YieldStar and LRO,” (id.
¶ 28); and (3) by no later than 2020, YieldStar and LRO “were combined into a single unified
database . . . on the RealPage side at the software and data levels,” (id. ¶¶ 222-23). By converting
the data inputs from both LRO and YieldStar into “single unified database,” (id. ¶ 222), RealPage
comingled public data from LRO and non-public data from YieldStar—or Plaintiffs are at least
entitled to this inference from their allegations.
In their Reply, the LRO Defendants rely heavily on the recent District of Nevada decision,
Gibson v. MGM Resorts International, 2023 WL 7025996 (D. Nev. Oct. 24, 2023). (See generally
Doc. No. 635). While the allegations in that case, on their face, appear analogous to this case, the
devil is in the details. There, the court found that “it is unclear whether the pricing
recommendations generated to Hotel Operators include [competitors’] confidential information
fed in; perhaps they only get their own confidential information back, mixed with public
information from other sources.” Id. at *5. Here, the Multifamily Complaint clearly alleges that
RealPage’s revenue management software inputs a melting pot of confidential competitor
information through its algorithm and provides price recommendations based on that private
competitor data. For example, Multifamily Plaintiffs allege:
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RealPage also tells its RMS clients exactly whose non-public data is being used for
pricing decisions. For each client, including Owners, Owner-Operators, and
Managing Defendants, RealPage maintains a “peer list” of that client’s peers whose
transaction data will be used as an input in RealPage’s algorithm for that client’s
pricing. Peer lists explicitly state that the competitors listed will be used “to
determine the magnitude of a change in rent . . . .” Clients, including Defendants,
are able to review and comment on their peer list, and they can even request that
specific competitors are included on the list. RealPage then quickly pushes the non-
public, daily, real-time data from those competitors’ properties into an algorithm to
influence RealPage’s pricing decisions. In this way, each Owner Defendant,
Owner-Operator, and Managing Defendant consciously commits to using non-
public data from its direct horizontal competitors to price its own units.
(Doc. No. 530 ¶ 289). As the Gibson court acknowledged, “a successful hub and spoke theory of
Sherman Act liability based on the use of algorithmic pricing depends in part on the exchange of
nonpublic information between competitors through the algorithm.” Gibson, 2023 WL 7025996,
at *4. That is what Multifamily Plaintiffs have alleged here.
The Multifamily Complaint alleges that RealPage clients using LRO contribute to the
price-fixing conspiracy by being “informed that their data may be included in pooled data sets and
that they likewise may be provided with their regional competitors’ pooled data.” (Id. ¶ 290). The
LRO Defendants argue that this allegation “bar[s] any inference of conspiracy” because the
Plaintiffs concede that client data is aggregated and not specifically identifiable to the client. (Doc.
No. 635 at 5). Their argument is a hyperbole because Multifamily Plaintiffs do not concede that
information shared by RealPage with its clients is not specifically identifiable. In fact, they allege
the opposite. (Doc. No. 530 ¶ 12 (“Witness interviews confirm that through RealPage’s RMS
platform, the user was in fact able to ascertain the identity of competitors that were using
RealPage’s RMS based on the address of the properties that were listed as comparables on the
RMS platform.”); see also id. 245-46 (same)).
Even if the Defendant clients of RealPage only had access to aggregate data, the crux of
Multifamily Plaintiffs’ claims is that RealPage compiles the Defendants’ private data and then uses
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its algorithm against that private data to recommend multifamily unit prices to the Defendants. It
is irrelevant then in what form the Defendants monitor their competitors’ data—they still use that
private data through their reliance on RealPage’s pricing algorithm.
The two cases the LRO Defendants rely upon in their Reply do not help their argument. In
In re Citric Acid Litigation, the court held that receipt of aggregated data in trade association
reports, without more, did not establish that a defendant, Cargill, was participating in a price-fixing
scheme. 191 F.3d 1090, 1098-99 (9th Cir. 1999). That opinion was written at the summary
judgement phase of the case, and the plaintiffs did not offer any other evidence of Cargill’s
participation. Id. Furthermore, the trade association compiled data from sellers of citric acid
worldwide and aggregated the data at the country level when it disseminated it to organization
members. Id. Nor did the trade association make any price recommendations to its members, not
to mention recommendations based on more granularly-focused data. See id. at 1098.
Similarly, the defendant, ShareBuilder, in In re Local TV Advertising Antitrust Litigation
distributed aggregate data to its broadcast company clients. 2022 WL 3716202, at *4 (N.D. Ill.
Aug. 29, 2022). This aggregate data included both local and national data in addition to each
client’s individual data. Id. at *2. True, ShareBuilder did sometimes make pricing
recommendations to its clients “on an ad hoc basis.” Id. at *8. But unlike Multifamily Plaintiffs’
allegations here, the Local TV Advertising plaintiffs only alleged that ShareBuilder acted as “a
conduit of information exchange between and among [broadcast companies].” Id. at *4. In this
case, Multifamily Plaintiffs allege that the Defendants use RealPage far more than a simple conduit
of information—they delegate their multifamily apartment pricing to RealPage with the knowledge
that RealPage makes its recommendations by relying upon their competitors’ private data. (See,
e.g., Doc. No. 530 ¶ 289).
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Multifamily Plaintiffs further allege that one RealPage LRO client, AvalonBay,2 was so
concerned about “information sharing and price setting” that it “insisted on a contractual provision
. . . that prohibited [RealPage] from: (1) utilizing any data in the LRO solution provided to
AvalonBay other than AvalonBay’s own data and publicly available data; and (2) utilizing
AvalonBay’s data or disclosing the LRO recommendations made to AvalonBay to any other
[RealPage] client.” (Id. ¶ 219).3 The LRO Defendants do not address this allegation in their
Memorandum or Reply.
Multifamily Plaintiffs’ allegations satisfy the pleading standard at this phase of the case.
Discovery may reveal that following RealPage’s acquisition, LRO continued to make pricing
recommendations based only on publicly available data, and the LRO Defendants are free to renew
their arguments at summary judgment. But the Court will not prematurely dismiss Multifamily
Plaintiffs’ claims as they relate to LRO, especially because “price fixing conspiracy[ies] would be
expected to leave little publicly available evidence of [their] existence . . . [and] [i]f private
plaintiffs, who do not have access to inside information, are to pursue violations of the law, the
pleading standard must take into account the fact that a complaint will ordinarily be limited to
allegations pieced together from publicly available information.” In re Broiler Chicken Antitrust
Litigation, 290 F. Supp. 3d 772, 804 (N.D. Ill. 2017).
2 AvalonBay is not a defendant in this case.
3 The AvalonBay Master Services Agreement (“MSA”) was entered into between AvalonBay and
Rainmaker on March 27, 2017, one month after the RealPage acquisition of Rainmaker was
announced but before the transaction closed. (Doc. No. 530 ¶ 219). In 2022, RealPage signed an
amendment to the LRO MSA that extended the provisions concerning the use of AvalonBay’s
proprietary data and the inputs used for AvalonBay’s pricing recommendations. (Id. ¶ 219 n.114).
The amendment also named RealPage as Rainmaker’s successor in interest to the MSA. (Id.).
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2. Multifamily Plaintiffs’ Earlier Filed Complaint Does Not Contradict the
Operative Complaint
Multifamily Plaintiffs’ allegations about RealPage’s enhancements to LRO after acquiring
it are not inconsistent with the allegations in prior complaints that before LRO was acquired by
RealPage, its creator used only public data to develop LRO’s pricing algorithm. (Doc. No. 582 at
3-4). Nor do these allegations contradict the statements the LRO Defendants quote from a
ProPublica article cited in the Multifamily Complaint. (See id. at 4; Doc. No. 530 ¶ 1 n.1). That
article simply states:
Donald Davidoff, the primary developer of rival software called Lease Rent
Options, or LRO, said he designed his program differently [from RealPage’s
YieldStar], to head off any concerns about collusion. Instead of relying on a digital
warehouse that includes competitor data, Davidoff used a complex formula and
public market data to steer LRO’s algorithm.
Heather Vogell, Rent Going Up? One Company’s Algorithm Could Be Why, ProPublica, Oct. 15,
2022.4 Both the prior allegations and the current allegations in the operative complaint can be
true. When it was created and sold by the Rainmaker Group, LRO could have been limited to
public data. Then, after being acquired by RealPage, RealPage could have altered the program to
rely upon both public and private data. That is exactly what Multifamily Plaintiffs have alleged
happened, as described above.
The cases the LRO Defendants cite are inapposite. In each of those cases, the Court found
that the earlier-filed pleadings contradicted the later-filed pleadings. In Pennsylvania Railroad
Company v. City of Girard, a city sued a railroad company for damages resulting from the city’s
clean-up of ashes and debris emitted from the railroad onto a city street. 210 F.2d 437, 438 (6th
Cir. 1954). A key issue in the case concerned whether an underpass beneath a section of the
4 This article is available at https://www.propublica.org/article/yieldstar-rent-increase-realpage-
rent.
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railroad tracks was owned by the railroad or had been dedicated for public use. Id. The court
determined that the initial cross-petition filed by the railroad admitted that the underpass had been
dedicated for public use. Id. at 440. The railroad later filed a superseding cross petition that
omitted this admission, but the court determined the earlier-filed statement to be an admission
against interest because it contradicted the railroad’s later argument that it owned the underpass.
Id.
Likewise, in PetroJebla, SA de C.V. v. Betron Enterprises, Inc., the defendants made
arguments that directly contradicted their earlier pleadings. The defendants’ original answer
admitted that “Betron L.P. Gas Inc. [“BLPG”] does not exist.” 2020 WL 95802, at *4 (E.D. Mich.
Jan. 8, 2020). This statement was supported by the plaintiff’s report to the court showing that
BLPG existed but was dissolved in 2002. Id. Nonetheless, the defendants later argued that BLPG
did exist and as a result, the court should not pierce the corporate veil and find the individual
defendant liable for BLPG’s alleged conduct. Id. The court considered both the defendants’ prior
admission and the report of dissolution provided by the plaintiffs in deciding to pierce the corporate
veil. Id. Unlike the scenarios in Pennsylvania Railroad Company and PetroJebla, no contradiction
exists here. Thus, the LRO Defendants’ argument for dismissal falls apart.
3. Multifamily Plaintiffs’ Earlier-Filed Statements Are Possible Evidentiary
Admissions Not Appropriate for Judicial Notice
Even if the allegations in the prior complaint and ProPublica article contradicted
Multifamily Plaintiffs’ allegations in the Multifamily Complaint, the LRO Defendants’ argument
for dismissal at this stage would still fail. The allegations in the earlier-filed complaint are, at
most, possible evidentiary admissions against interest and not statements for which the Court will
take judicial notice. See Davis v. Echo Valley Condo. Ass’n, 349 F. Supp. 3d 645, 653 (E.D.
Mich. 2018), aff’d, 945 F.3d 483 (6th Cir. 2019). “[B]ecause the case is now before the Court on
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a Rule 12(b)(6) motion to dismiss, the Court will not resolve—solely on the pleadings and without
arguments from the Parties—whether [the Multifamily Plaintiffs’] statements made in prior
pleadings amount to admissions against interest.” Am. Nat. Prop. & Cas. Co. v. Campbell Ins.,
Inc., No. 3:08-0604, 2010 WL 1754358, at *2 (M.D. Tenn. Apr. 30, 2010), order set aside due to
settlement, No. 3:08-CV-00604, 2011 WL 6259473 (M.D. Tenn. Oct. 14, 2011).
In short, the Multifamily Plaintiffs and LRO Defendants appear to agree on one thing—
that the use of non-public proprietary data is a component of the alleged price fixing conspiracy.
(See Doc. No. 530 ¶ 13; Doc. No. 582 at 7; Doc. No. 621 at 4-5). Multifamily Plaintiffs have
sufficiently alleged that the LRO service offered by RealPage both collected this non-public data
from LRO clients and used this non-public data in LRO’s algorithm. The Court will not dismiss
the claims as they relate to LRO from the Multifamily Complaint.
An appropriate order will be entered.
__________________________________________
WAVERLY D. CRENSHAW, JR.
CHIEF UNITED STATES DISTRICT JUDGE
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