RAYMOND JOHN ANDERSON, Plaintiff and Respondent, v. DEPARTMENT OF REAL ESTATE et al., Defendants and Appellants.
Civ. No. 54049
Second Dist., Div. One.
May 11, 1979.
79 Cal. App. 3d 696
Evelle J. Younger and George Deukmejian, Attorneys General, Arthur C. de Goede, Assistant Attorney General, and Richard W. Bakke, Deputy Attorney General, for Defendants and Appellants.
Friedman & Warner, Daniel Friedman, Lascher & Wilner, Edward L. Lascher, Wendy Cole Wilner and Robert N. Alt, Jr., for Plaintiff and Respondent.
Opinion
THOMPSON, J.—This appeal is from a judgment in administrative mandate (
Facts
As required in judicial review of administrative action affecting a fundamental vested right (here the revocation of a real estate broker‘s license), the trial court applied the independent judgment test in determining the applicable facts. (Bixby v. Pierno (1971) 4 Cal.3d 130 [93 Cal.Rptr. 234, 481 P.2d 242].) Because neither the department nor respondent challenge the findings of fact of the trial court, we summarize the facts as recorded in the findings.
Raymond John Anderson, doing business as Homefinders and Homefinder‘s Guide, was licensed as a real estate broker by the Department of Real Estate. Effective July 7, 1975, Anderson caused his license to be placed on inactive status.
In the period from July 7, 1975 through February 29, 1976, Anderson conducted a business under the name of Homefinders in which he obtained information from landlords and newspaper advertising respecting residential property that was available for rent and compiled the information into a list of available rentals which he sold to clients for a subscription price. In four separate instances, people who answered Homefinders’ newspaper ads offering houses for rent contacted Homefinders and were solicited to come to a Homefinders’ office where each would be provided with rental information if he became a subscriber to the Homefinders’ service for the prescribed fee.
Three of the four people so solicited after answering a Homefinders’ ad paid subscription fees of $25 or $30. Each of them received a list of rental properties and a “rental information contract.” There were some inaccuracies in the compilation. None of the three or four persons succeeded in arranging a rental of property from the lists furnished. In two of the instances, the registration fee was not refunded upon request.
Concluding that Anderson‘s activity violated its regulation governing the conduct of “advance fee rental agents” because it was conducted without the imprimatur of an active real estate license, the department instituted disciplinary proceedings against him. After a hearing, the department found the charges to be true and revoked Anderson‘s inactive real estate license.
On judicial review of the administrative action, the trial court found the facts as recited but concluded that the conduct was not a cause for discipline. It entered its judgment in the form of a peremptory writ ordering the department to annul its action revoking Anderson‘s license.
Regulatory Scheme
The Real Estate Commissioner is empowered to control the issuance of licenses to real estate brokers and real estate salesmen. Applicants for either license may be required to establish their honesty and truthfulness and must pass an examination. (
It is unlawful for any person to engage in conduct requiring a real estate broker‘s or salesman‘s license unless he is licensed. (
Anderson‘s conduct meets the test of an “advance fee rental agent.” (Rees v. Department of Real Estate (1977) 76 Cal.App.3d 286, 294 [142 Cal.Rptr. 789].) If, therefore, the regulatory scheme satisfies constitutional standards as applied to Anderson‘s activity, the department properly imposed discipline upon him for acting without an active license. We thus turn to analysis of the constitutionality of the regulatory scheme as applied in the case at bar.
Constitutionality of Regulatory Scheme
The regulatory scheme applicable to “advance fee rental agents” engaging in activity similar to Anderson‘s has previously been held not to violate the constitutional guarantees of procedural due process and equal protection. (Rees v. Department of Real Estate, supra, 76 Cal.App.3d at pp. 298-301.) Anderson mounts an attack upon the scheme not previously considered. He claims the statutes as construed by the regulations constitute an unconstitutional infringement upon his freedom of commercial speech if applied to his activity in distributing lists of available rentals for a fee.2 That claim has merit.
The focus of the case at bar is thus upon the validity of the licensure requirements of the pertinent statutes and regulations of the Department of Real Estate as applied to Anderson‘s constitutionally protected right of commercial speech.
Some limitation upon commercial speech is permissible so long as the regulation is “written narrowly and explicitly, in furtherance of a legitimate police power purpose.” (Welton v. City of Los Angeles, supra, 18 Cal.3d 497, 504; see also Goldberg v. Barger (1974) 37 Cal.App.3d 987, 997 [112 Cal.Rptr. 827].) Where the regulation takes the form of licensure, it must be exercised setting forth “definite, objective guidelines for the issuance of [the license]” which as a minimum must “bear a rational relationship to a valid governmental purpose.” (Perrine v. Municipal Court (1971) 5 Cal.3d 656, 661, and 663 [97 Cal.Rptr. 320, 488 P.2d 648]; cert. den., 404 U.S. 1038 [30 L.Ed.2d 729, 92 S.Ct. 710].)
Licensure of “advance fee rental agents” whose activity parallels that of Anderson seems permissible. In amending Business and Professions Code section 10131 in 1959 to bring advance fee loan solicitation within its sweep, the Legislature noted that many persons and concerns engaged in advance fee businesses embarked upon fraudulent practices including the collection in advance of amounts to be charged against future commissions that might be earned. It said: “To protect . . . owners of property, as well as the general public . . . it is necessary to subject the advance fee business to regulation and to limit the persons or entities who engage in the advance fee business to those of proven honesty and integrity, and to establish a fiduciary relationship between the promoters and the owners by requiring that they be licensed as real estate or business opportunity brokers and salesmen, and to require them to account to their principals for the expenditure of the funds entrusted to them. . . .” (Tyrone v. Kelley (1973) 9 Cal.3d 1, 9-10, fn. 6 [106 Cal.Rptr.
The licensure requirements here involved are definite and objective. There remains the question, however, whether they bear at least a rational relationship to the valid governmental purpose articulated by the Legislature.
Clearly the good character requirements for licensure of real estate brokers and salesmen bear that rational relationship. So do the various provisions of the statutes creating the fiduciary relationship of broker and salesman to customer and for accountability. The examination requirements for licensure of real estate brokers and salesmen are another matter as is the requirement of the regulations that an “advance fee rental agent” work for, and from the office of, a licensed real estate broker.
Anderson‘s activity consists of ascertaining available residential rental units, compiling a list of them, advertising the lists for sale, and selling the lists for a fee. His knowledge of the principles of real estate and business opportunity conveyancing, the law applicable to agency contracts, deposit receipts, deeds of trust, chattel mortgages and the like, or of land economics or appraisals, or even of the obligations between principal and agent is not germane to that activity.
The statutory purpose of fiduciary accountability can be fully served by means short of requiring the “advance fee rental agent” to be an employee of a licensed broker. In effect, the legislation and regulations, in order to achieve the proper objectives of creating a fiduciary relationship between persons in Anderson‘s class and their customers and that licensees be of good character, require that they meet tests of qualification unrelated to the purpose. The tests, while relevant to persons who negotiate sales of real property, are not germane to the actions of “advance fee rental agents” acting as does Anderson. As to those agents who do no more than publish, promote, and sell lists of available rental units, the scheme is thus overly strict in its licensure requirement. In light of the constitutional protection of commercial speech, the overly strict requirements of licensure cannot be saved by the administrative convenience incident to including the “advance fee rental agents” in existing license categories imposing the requisite fiduciary and related duties so
The lack of a rational relationship between the manner in which an “advance fee rental agent” may obtain licensure and the legislative purpose for the license strikes at the heart of the reason for constitutional protection of commercial speech. The protection exists in large part to preserve the consumer‘s right to be informed. (Bates v. State Bar of Arizona, supra, 433 U.S. 350, 364.) Here the statutes and regulations impose both psychic and economic disincentives to the supply of information through the medium of publication of lists of available rental properties useful to the consumer in his search for housing.
Real estate brokers and salesmen who qualify for licensure must meet the standard of learning which the statutes and regulations prescribe for their profession. One who has met the standard of learning to qualify is necessarily pulled toward putting the learning to use. Given the choice of so acting or of becoming a mere compiler of lists, the incentive is toward the use of the learning.
If the real estate broker or salesman structures his activity so that he acts as a negotiator of rentals of residential property, he will be compensated by a commission generally based upon a percentage of consideration received by the lessor. If he publishes a list of available rental units which he sells for a fee of $25 or $30 as did Anderson, he gets no more than that. Only if the person sells lists at a multiple in excess of the difference between the price of the list and his average commission can he be economically ahead. There is no indication in the record or briefs that absent significant activity to promote the list device there will be such a demand that real estate brokers and salesmen will find any economic advantage in competing with their own commission business by publication. So long as the group of persons who may publish the lists is limited to those whose economic incentive seems to the contrary, the promotional activity necessary to wide dissemination is at least significantly inhibited.
Thus psychic and economic disincentives to means by which the consumer may be informed through a maximum number of channels are created by: (1) the examination requirements of the statute which limit
We therefore conclude that the licensure requirements for “advance fee rental agents” as now drawn are so overly broad as to violate constitutional protection of commercial speech when applied to activity such as that of Anderson which involves no more than the ascertainment of available residential housing, the publication of lists of available units, the solicitation of customers for the lists, and the sale of the lists for a fee.
Because the licensure requirement is overly broad as applied to his activity, the trial court properly determined that Anderson was improperly disciplined for acting without the license.
Disposition
The judgment is affirmed.
Lillie, Acting P. J., concurred.
HANSON, J., Concurring and Dissenting.—I concur in that portion of the majority opinion which concludes that the manner in which petitioner/respondent Raymond John Anderson (hereinafter Anderson) carried on his activities as briefly described in the majority opinion constituted conduct of an “advance fee” rental agent as defined in
on which respondent Department of Real Estate based its administrative decision and order, and denied the petition.
The Court of Appeal affirmed, holding that the trial court properly exercised its independent judgment on the evidence in making its decision and further held that petitioner Rees was acting both as a real estate broker and as an advance fee rental agent in conducting his business activities and hence was subject to the applicable licensing statutes and administrative regulations, and that his activities did not come within the finder‘s exception to such licensing requirements. The reviewing court also held that the licensing statutes and regulations as applied to persons selling rental information to prospective renters were in accordance with a valid state purpose and consequently did not violate petitioner Rees’ rights to due process and equal protection.
The Rees court said at pages 297-298: “[A]s found by the court below, appellant‘s activities in furnishing rental information to a prospective tenant for a fee payable in advance of services, falls within the separate licensee classification of ‘advance fee rental agent’ as defined in section 2850, subdivision (a), title 10 of the California Administrative Code (fn. 6, ante). Given the legislative history concerning past abuses associated with advance fee operators (Tyrone v. Kelley, supra, 9 Cal.3d 1, 9-10, fn. 6 [106 Cal.Rptr. 761, 507 P.2d 65]), it seems equally clear that the intendment of the regulation was to specifically supervise advance fee rental commerce in order to protect the public from similar reprehensible practices of unlicensed operators that once plagued the real estate lenders’ and sellers’ market.” (Fn. omitted.)
Accordingly, by reason of the foregoing, I would reverse the superior court‘s judgment which concluded as a matter of law, although its findings of fact employing the independent judgment test were practically identical to those of the administrative law judge, that Anderson‘s activities did not constitute an “advance fee” rental business and as such did not require a real estate broker‘s license.
I PART COMPANY with the majority opinion when it concludes that the licensure requirements for “advance fee rental agents” as now drawn are so overly broad as to violate constitutional protection of commercial speech, “that as applied by the department to respondent‘s [Anderson‘s] activity, the key statute and regulation infringe upon respondent‘s [Anderson‘s] right to freedom of commercial speech by imposing overly restrictive requirements for licensure,” and affirms the superior court judgment on that ground.7
While I am anything but indifferent to the fundamental societal value of our free (private) enterprise system8 or to the great importance of preserving commercial speech under the umbrella of our First Amendment rights (see Board of Medical Examiners v. Terminal-Hudson
obtain a rental. A demand from the prospective tenant for the return of the fee, or any part of it, shall be made within 10 days following the final day on which the real estate licensee has contracted to perform services to the prospective tenant. In the event that rental information is not current or accurate in regard to the type of rental desired, the full fee shall be repaid to the tenant. Such contract or receipt shall also conform to the regulations adopted by the commissioner in order to effect disclosure of material information regarding the service to be provided to the prospective tenant.”
In Board of Medical Examiners v. Terminal-Hudson Electronics, Inc., supra, 73 Cal.App.3d 376, this court held that statutes which prohibited advertising of the stipulated price for furnishing a lens, lenses, glasses or frames and fittings or other commodities by a registered dispensing optician were unconstitutional as violating the free speech guaranteed by the First Amendment. We pointed out that in recent years the trend of the decisions, which held that commercial speech lay outside the pale of First Amendment protection, has been reversed and commercial speech has been brought within the scope of First Amendment protection and its dissemination is guaranteed in relation to such enterprises as dispensing pharmaceutical preparations (Va. Pharmacy Bd. v. Va. Consumer Council (1976) 425 U.S. 748) and offering legal services (Bates v. State Bar of Arizona (1977) 433 U.S. 350). We pointed out that the United States Supreme Court in Va. Pharmacy Bd. “emphasized that the consumer‘s interest in commercial speech is substantial and that such speech often carries information of significant societal import since in serving to inform the public of the availability, nature and prices of products and services it performs an indispensable role in the allocation of resources in a free enterprise system, and it assures informed and reliable decisionmaking.” (Board of Medical Examiners v. Terminal-Hudson Electronics, Inc., supra, 73 Cal.App.3d 376, 385.)
Thus, in Va. Pharmacy Bd., Bates and Board of Medical Examiners the focus was on the consumers’ interest in commercial speech and the indispensable role it plays in the free enterprise system while in the instant case the focus is on the reverse side of the coin—consumer protection.
It is well established that the basic purpose of the Real Estate Act in general is to protect the buying and selling public from such practices by insuring as far as possible that real estate brokers and salesmen will be “honest, truthful and of good reputation.” (Riley v. Chambers (1919) 181 Cal. 589, 591 [185 P. 855, 8 A.L.R. 418]; Buckley v. Savage (1960) 184 Cal.App.2d 18 [7 Cal.Rptr. 328]; Ferguson v. Schuenemann (1959) 167 Cal.App.2d 413 [334 P.2d 668]; Koeberle v. Hotchkiss (1935) 8 Cal.App.2d
Turning specifically to the “advance fee” rental business, the Supreme Court in Tyrone v. Kelley (1973) 9 Cal.3d 1, pointed out in footnote 6 at pages 9-10, that the Legislature stated that it found it necessary to enact legislation pertaining to “advance fee” deposits or retainers in that since 1948 a number of individuals and corporate entities engaged in the business of, amongst other things, making false and fraudulent misrepresentations to the owners, lessees or renters of property for the purpose of inducing them to entrust money to them for promised services. Some of such promoters often misrepresented that there would be no charge for the services unless and until the service was produced. Often the promises were made by the promoters with no intent of making a bona fide effort to render such services or with the intent to render merely token services and the effectiveness and efficiency of their services were grossly misrepresented resulting in the loss of millions of dollars by the consuming public. By reason of the foregoing practices the Legislature in Sacramento found it necessary “[t]o protect . . . the general public, and to insure the general welfare, . . . to subject the advance fee business to regulation and to limit the persons or entities who engage in the advance fee business to those of proven honesty and integrity, and to establish a fiduciary relationship between the promoters and the owners by requiring that they be licensed as real estate or business opportunity brokers and salesmen, and to require them to account to their principals for the expenditure of the funds entrusted to them. . . .” (Id., at p. 10, fn. 6.)
In Rees v. Department of Real Estate, supra, 76 Cal.App.3d 286, the appellant who conducted activities similar in many respects to those conducted by Anderson in the instant case contended “that the licensing statutes as applied to his activities are overbroad and violate the Fifth and Fourteenth Amendments to the federal Constitution. While conceding the validity of the licensing statutes, he argues there is no reasonable relationship between the skills required in the conduct of his business and those subject to regulation under the real estate licensing laws. Focusing upon certain statutory qualifications for a real estate license, he argues that to impose such irrelevant requirements upon him is arbitrary and unduly burdensome and tantamount to an unlawful taking of his property without due process and a denial of equal protection of the law. . . .” (Id., at p. 298, fns. omitted.)
Sections 2850 through 28569 of the Administrative Code which pertain to “advance fee” rental agent transactions and which were promulgated by the Commissioner of Real Estate under the authority of section 10080 as reasonably necessary for the enforcement of the provisions of the licensing statutes are set out in haec verba in footnote 9 below.
shall be made by prospective tenant within ten days following the expiration of this contract. THIS CONTRACT EXPIRES ON (Full caps, bold face or italicize) ___________,’ [¶] (c) ‘A demand for a refund referred to above may be made in person at ______________ or by mail directed to ____________________’ ” Section 2852.1 provides: “The form of contract proposed to be used by an advance fee rental agent to effect compliance with Section 2852 shall be filed with the Real Estate Commissioner prior to use. Any modification of a form previously filed with the commissioner, including a change in the name or business address of the advance fee rental broker, shall also be filed with the commissioner prior to use.” Section 2852.2 provides: “If an advance fee rental agent proposes to move his business office to a different location, he shall, prior to effecting the move, give notice of the address of the new location and his telephone number, if new, in a manner reasonably calculated to reach the prospective tenants with whom he has outstanding contracts.” Section 2852.3 provides: “A real estate broker who acts as an ‘advance fee rental agent’ shall deposit the amount of each advance rental fee collected less the amount thereof denominated ‘service charge,’ which shall not exceed $10 per prospective tenant, into a trust fund account not later than the next business day following receipt of the advance rental fee. The funds deposited into the trust account shall not be withdrawn therefrom earlier than ten days after the expiration of the contract referred to in Section 2852 with the following exceptions: [¶] (1) The funds may be withdrawn from the trust fund account at any time for the purpose of returning the funds to the payor thereof in accordance with the terms of the contract referred to in Section 2852. [¶] (2) The funds may be withdrawn from the trust fund account when and if the broker reasonably believes from evidence available to him that the payor of the funds has obtained a rental through information supplied by or on behalf of the broker.” Section 2853 provides: “An exact copy of said contract shall be furnished to the prospective tenant and the original shall be retained by the broker for a period of three years subject to the inspection of the commissioner and his deputies.” Section 2854 provides: “A list of all addresses given to said prospective tenant shall be prepared in duplicate, and the list shall clearly indicate the address of the property, a brief description thereof and the amount of the monthly rental. Where subsequent addresses are furnished to said prospective tenant by telephone or otherwise, said addresses shall be noted on the broker‘s copy of said list. Said list shall indicate by which broker or employee of the broker said addresses were furnished and the broker‘s copy shall be retained by him for a period of three years subject to examination by the commissioner and his deputies.” Section 2855 provides: “Any real estate broker who acts as an ‘advance fee rental agent’ shall make a written registry of all advertisements published or caused to be published by said licensee together with the address of the property advertised, the name of the party who offered the property for rent and his or her telephone number, if any. Said register shall be retained by the broker for a period of three years subject to inspection by the commissioner and his deputies.” Section 2856 provides: “No ‘advance fee rental agent’ shall furnish a prospective tenant with the address of a prospective rental unless such licensee has received specific authorization to offer said property for rent from the owner or its authorized agent. [¶] An advance fee rental agent shall not refer a prospective tenant to a rental listing unless the availability of the listing has been verified within three business days of the referral.”
In the case at bench the majority opinion wipes from the books the protection afforded the general public needing and seeking rental housing in respect to “advance fee” rental business operations. It frustrates the clear legislative intent forcing the Legislature back to the drawing board without any indication whatsoever what specific “key statutes and regulations” it alludes to and without giving any guidance on how such statutes or regulations could be redrafted to pass constitutional muster.
I would reverse the judgment of the superior court, thus affirming the findings of fact and law of the administrative law judge as adopted by the Department of Real Estate.
Appellants’ petition for a hearing by the Supreme Court was denied July 19, 1979. Mosk, J., was of the opinion that the petition should be granted.
to Homefinder‘s Guide. Said Weber telephoned petitioner‘s employee at the Long Beach office and said employee invited Weber to come into the office to subscribe to a list of rentals for a subscription cost. Said Weber went to Homefinder‘s office and paid $25.00 to petitioner‘s employee and received a list of rentals and in connection therewith a rental information contract. Said contract provides for a refund within ten (10) days after expiration of the contract if Weber failed to obtain a rental through the service. Said Weber did not obtain a rental through the lists furnished her by petitioner‘s employee and found much of the information on the list to be inaccurate. Said Weber demanded a refund from the petitioner and petitioner refused to grant said refund on the basis that the contract provided that a refund would not be made for a period of two (2) years. “In October 1975 one Marie Miller read an advertisement in the Huntington Park Signal Newspaper advertising houses for rent and referring the reader to Homefinder‘s Guide. Said Marie Miller went to Homefinder‘s Office on Gage Avenue in Huntington Park. Petitioner‘s employee advised said Marie Miller that it would be necessary to subscribe for a list of rentals and pay a $25.00 subscription cost which was done by said Miller. Mrs. Miller made inquiries of rentals furnished her on the Homefinder‘s list and found substantially all of the places had been rented. Approximately a week later Marie Miller demanded an additional list of information and was refused a new list by petitioner‘s employee on the grounds that he had cancelled her contract. A demand was then made by said Marie Miller for the return of her money and was refused a refund.”