A federal appellate court – the U.S. Court of Appeals for the 5th Circuit – has issued a decision in the long-standing fight between the Louisiana Real Estate Appraisers Board (LREAB) and the U.S. Federal Trade Commission about “customary and reasonable” appraisal fees. I’m venturing here to provide a short, understandable, unbiased summary of the litigation and what this latest court decision means.

What did the Court of Appeals decide?

Here’s the very short summary: The Federal Trade Commission (FTC) is pursuing an administrative complaint it filed in 2017 against LREAB, contending that LREAB’s “customary and reasonable” fee rule unlawfully restrains competition and that LREAB’s enforcement of the rule amounts to illegal price-fixing. LREAB has challenged certain of the FTC’s preliminary rulings by filing a lawsuit in federal court and obtained a stay of the FTC’s proceeding until resolution of that challenge. On October 2, 2020, however, the Fifth Circuit Court of Appeals held in favor of the FTC. It ruled that the order by the lower federal court staying the FTC’s price-fixing enforcement action against LREAB should be reversed and that the lower federal court did not have jurisdiction to hear LREAB’s present challenge to the proceedings before the FTC. The result is that, barring any further appeal, the FTC’s enforcement action against LREAB can go forward before the commissioners of the FTC.

Please read below for a history of how the FTC and LREAB got to this point and what the ramifications of the decision may be.

A short history of the litigation between the FTC and LREAB.

Dodd-Frank and the federal requirements regarding customary and reasonable fees. The Dodd-Frank Act requires that lenders and their agents (i.e., appraisal management companies) compensate real estate appraisers “at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” (15 U.S.C. § 1639e(i)(1).) This “customary and reasonable fee” requirement only applies to appraisal services for consumer credit transactions secured by the consumer’s principal dwelling.

The federal regulations (entitled the “Final Rule on Minimum Requirements for Appraisal Management Companies”) implementing this part of Dodd-Frank establish that there are two specific, but non-exclusive, ways for lenders and AMCs to show that fees paid to appraisers are “customary and reasonable.” (12 C.F.R. § 226.42(f)(2) & (3).) If a lender or AMC can show that the fees are set in either of the following manners, then the fees are presumed to meet the “customary and reasonable” requirement: (1) that the fees are reasonably related to recent rates paid for comparable appraisal services performed in the same geographic market, as adjusted by various factors, or (2) that the fees paid are based on fee schedules prepared by independent third parties, such as government agencies, academic institutions or independent private surveys. An important legal point – in the FTC’s view – is that these two options are not exclusive, meaning that a lender or AMC can still show that their fees are reasonable if they can show that they paid appraisal fees set by the free market.

LREAB’s AMC rule relating to customary and reasonable fees. Like every other state, Louisiana has enacted an appraisal management company registration act. Not all state AMC acts address the subject of customary and reasonable fees, but Louisiana’s act does, and it expressly requires that AMCs pay appraisal fees consistent with the Dodd-Frank requirements. Based on the state’s AMC act, LREAB then adopted a more specific rule to implement the law. The problem here, in the FTC’s view, is that LREAB’s rule regarding appraisal fees (La. Admin. Code, title 46, rule 31101) negated the ability of AMCs to show that they base their fees on free market negotiation. As the FTC alleges, LREAB’s customary and reasonable fee rule requires that reasonableness be measured by one of three tests:

  1. A third-party fee study (such as an academic study or government schedule, like the VA fee schedule) – this is essentially the second presumption in the federal rule discussed above,
  2. A fee schedule adopted by LREAB, or
  3. A evaluation of each appraisal assignment with the fee then based on, at minimum, the following elements: type of property, scope of work, time, appraiser qualifications, appraiser experience and appraiser work quality – this is essentially the first presumption in the federal rule.

By locking AMCs into these three alternatives exclusively, the FTC contends that LREAB’s rule prevents AMCs from showing that the fees they pay are simply the product of negotiating fees through arms-length, market-based negotiations.

The litigation between the FTC and LREAB. In 2017 (and notably after two AMCs had been disciplined by LREAB over fee issues), the FTC commenced an administrative complaint against LREAB, contending that LREAB’s rule unlawfully restrains competition and that LREAB’s enforcement of the rule effectively sets a fee floor – i.e., that LREAB is engaged in price-fixing. This type of administrative proceeding takes place before the Federal Trade Commission itself, meaning that it is decided by the FTC’s appointed commissioners after a period of litigation between the parties.

On top of the issue with LREAB’s rule itself, the FTC also asserted that LREAB was coercing AMCs to adhere to an academic fee study that LREAB had commissioned, and that this coercion was taking place because LREAB’s membership was dominated by real estate appraisers with an interest in fixing appraisal fees above the free market. As the FTC wrote in its complaint: “in subsequently enforcing its regulation, the Board has unlawfully restrained price competition, effectively requiring AMCs to match or exceed appraisal rates listed in a published survey.”

One of the key defenses relied on by LREAB in its defense of the FTC administrative proceeding has been something called the “state-action doctrine.” This defense asserts that LREAB’s activities with respect to regulating appraisal fees are protected and are not illegal anti-trust actions because they are being carried out and overseen by the state government. The FTC’s counter argument is that the defense does not apply because LREAB consists of “market participants” – namely, LREAB’s members include a majority of real estate appraisers who have personal interests in seeing appraisal fees fixed at higher levels. In April 2018, the Commissioners of the FTC decided that LREAB’s state-action defense was invalid and that the proceeding should go forward.

LREAB sues the FTC in federal court. In 2019, after other unsuccessful attempts to challenge the Commission’s decision on LREAB’s state-action and related defenses, LREAB filed a lawsuit in federal court (U.S. District, M.D. La.). In this case, LREAB sought to overturn the Commission’s decision. Until it could resolve the case, the federal district court issued a stay of the FTC’s administrative action.

The FTC’s appeal. The FTC then appealed the district court’s decision to the applicable federal appellate court (the U.S. Court of Appeals for the 5th Circuit) and further appealed on the issue of whether the district court even had jurisdiction.

This finally brings us to where we are now. As mentioned already, on October 2, 2020, the Court of Appeals held in favor of the FTC. It ruled that the order by the district court staying the FTC’s price-fixing enforcement action against LREAB should be reversed and that the district court did not have jurisdiction to hear LREAB’s present challenge to the proceedings before the FTC. The result is that, barring any further appeal, the FTC’s enforcement action against LREAB can go forward before the commissioners of the FTC. This is bad news, of course, for LREAB.

Ramifications of the ruling and future events.

The ultimate outcome of the FTC’s action, if the FTC is successful, will likely be a cease and desist order (or consent order) against LREAB in connection with its alternative customary and reasonable fee rule. The ramifications would likely go beyond that, however. Even without a final order on the issue of whether LREAB engaged in unlawful price-fixing, state appraiser boards in other states already seem to have been hesitant with regard to aggressive application of their own customary and reasonable fee rules/regulations. This appears particularly true in other states in which “market participants” – appraisers – serve on boards with power to discipline AMCs.

The demonstrated weakness of the state action “immunity” doctrine as a defense for appraiser/AMC licensing boards with “market participants” also creates the potential for individual board member liability, perhaps further dissuading aggressive enforcement attempts. Indeed, sitting in the wings is a separate lawsuit (iMortgage Services v. LREAB, et al.) that was filed in December 2019 by one of the AMCs disciplined by LREAB for violations of its customary and reasonable fee rule. This lawsuit alleges that LREAB and its eight individual appraiser members injured the AMC by engaging in the price-fixing conduct alleged by the FTC. In particular, the AMC alleges that it “experienced damages in the form of lost revenue and lost opportunity where former customers ceased ordering appraisals” as a result of LREAB’s and its appraiser-members’ actions. The case has been stayed pending the outcome of the overall litigation between the FTC and LREAB. Once the litigation is resolved, the AMC’s claim for damages, including a potential for treble damages, may go forward.


Peter Christensen

I am an attorney and principal of the Christensen Law Firm. The matters that I handle and the clients whom I serve are focused on valuation services. My work ranges from the regulatory and structural details of providing valuation services to professional liability and disciplinary issues.