SARA LADD, SAMANTHA HARRIS, AND POCONO MOUNTAIN VACATION PROPERTIES, LLC, Appellants v. REAL ESTATE COMMISSION OF THE COMMONWEALTH OF PENNSYLVANIA AND DEPARTMENT OF STATE (BUREAU OF PROFESSIONAL AND OCCUPATIONAL AFFAIRS) OF THE COMMONWEALTH OF PENNSYLVANIA, Appellees
No. 33 MAP 2018
IN THE SUPREME COURT OF PENNSYLVANIA MIDDLE DISTRICT
May 19, 2020
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ. JUSTICE DOUGHERTY
[J-71-2019] ARGUED: September 11,
OPINION
JUSTICE DOUGHERTY
We consider the Commonwealth Court‘s holding that the broker licensing requirements codified in the Real Estate Licensing and Registration Act,
I. Background
We begin by describing the relevant provisions of RELRA, which set forth the statutory licensing requirements for real estate brokers in Pennsylvania. Specifically, RELRA requires that any person engaged in the business of real estate, including those persons “acting in the capacity of a broker or salesperson,” be “licensed or registered as provided in this act[.]”
Any person who, for another and for a fee, commission or other valuable consideration:
(1) negotiates with or aids any person in locating or obtaining for purchase, lease or an acquisition of interest in any real estate;
(2) negotiates the listing, sale, purchase, exchange, lease, time share and similarly designated interests, financing or option for any real estate;
(3) manages any real estate;
(4) represents himself to be a real estate consultant, counsellor, agent or finder;
(5) undertakes to promote the sale, exchange, purchase or rental of real estate: Provided, however, That this provision shall not include any person whose main business is that of advertising, promotion or public relations;
(5.1) undertakes to perform a comparative market analysis; or
(6) attempts to perform any of the above acts.
RELRA requires real estate “brokers” to take an examination before becoming “licensed” to engage in any of the above-described activities in Pennsylvania. To be eligible to sit for the “broker‘s license examination,” an individual is required to: (1) be 21 years-old; (2) have a high school degree or its equivalent; (3) “have completed 240 hours in real estate instruction in areas of study prescribed by the rules of the commission, which [ ] shall require instruction in the areas of fair housing and professional ethics[;]”3 and (4) “have been engaged as a licensed real estate salesperson for at least three years or possess educational or experience qualifications which the commission deems to be the equivalent thereof.”
Any person employed by a licensed real estate broker to perform comparative market analyses or to list for sale, sell or offer for sale, to buy or offer to buy or to negotiate the purchase or sale or exchange of real estate or to negotiate a loan on real estate or to lease or rent or offer to lease, rent or place for rent any real estate or collect or offer or attempt to collect rent for the use of real estate for or in [sic] behalf of such real estate broker.
Only upon completion of the requisite three years as a real estate salesperson, and assuming the other three criteria in
We now turn to the facts of the present case. Appellant Sara Ladd, a New Jersey resident, owns two vacation properties on Arrowhead Lake in Monroe County, Pennsylvania, an area commonly known as the Pocono Mountains. Petition for Review in the Nature of a Complaint for Declaratory and Injunctive Relief, 7/18/2017 at ¶¶15-18. Ladd started renting one of these properties in 2009 and the other in 2013 to supplement her income after being laid off from her job as a digital marketer.
Ladd acted as an “independent contractor” for her “clients” and entered into written agreements with them related tо her services.
Ladd managed PMVP alone and operated a majority of its business from her
In January 2017, the Commonwealth‘s Bureau of Occupational and Professional Affairs (the Bureau), charged with overseeing the Commission‘s enforcement of RELRA, called Ladd to inform her she had been reported for the “unlicensed practice of real estate.”
Ladd filed a complaint in the Commonwealth Court‘s original jurisdiction, seeking declaratory judgment and a permanent injunction.7 Specifically, Ladd alleged RELRA‘s broker requirements and the Bureau‘s practices violate her substantive due process rights pursuant to
of Bureau enforcement. Id., citing Bayada Nurses, Inc. v. Dep‘t. of Labor & Industry, 8 A.3d 866, 875-76 (Pa. 2010) (applying the exception announced in Arsenal Coal Co., 477 A.2d at 1339 permitting pre-enforcement review when the effects of enforcement are sufficiently “direct and immediate“) and Pennsylvania Independent Oil & Gas Ass‘n. v. Dep‘t. of Envtl. Protection, 135 A.3d 1118, 1125-26 (Pa. Cmwlth. 2015) (same). Ladd further argued demurrer should be overruled because she was not required to prove the
The Commonwealth Court first considered whether the matter was ripe for judicial review, or whether Ladd was first required to exhaust administrative remedies, noting that the principles behind both defense objections are distinct but they are often considered together when a party seeks pre-enforcement judicial review. Id. at 1076. The court then determined both doctrines were satisfied and pre-enforcement review was warranted because the effect off RELRA‘s licensing requirements on Ladd were sufficiently “direct and immediate” as she faced substantial criminal and civil sanctions for noncompliance pursuant to
The Gambone Court held a law restricting social and economic rights, like the right to pursue a lawful occupation, “must not be unreasonable, unduly oppressive or patently beyond the necessities of the case, and the means which it employs must have a real and substantial relation to the objects sought to be attained.” 101 A.2d at 637. Applying Gambone‘s heightened rational basis test to the present factual scenario, the panel below concluded RELRA‘s licensing scheme as applied to Ladd was not unconstitutional. Ladd, 187 A.3d at 1077. The panel determined the purpose of RELRA‘s licensing requirement is “‘to protect buyers and sellers of real estate, the most expensive item many persons ever buy or sell, from abuse by persons engaged in the business.‘” Id. at 1077-78, quoting Kalins v. State Real Estate Comm‘n, 500 A.2d 200, 203 (Pa. Cmwlth. 1985). Next, the panel observed professional licensing schemes are generally accepted across many professions to ensure competency, regardless of the number of hours worked or the number of clients. Id. at 1078 (“We would no sooner obviate the requirement for a professional engaging in the practice of real estate to hold a license than we would obviate the licensure requirement for an attorney, physical therapist, or any other professional, merely because they have limited clients or only practice part of the year.“). The panel rejected the premise that “a license requirement becomes unreasonable or oppressive” for individuals who provide professional services “in a limited fashion,” because it would “effectively upend the legitimacy of any requirement by the Commonwealth for a professional license.” Id. The panel thus concluded “RELRA bears a real and substantial relationship to the interest in protecting from abuse buyers and sellers of real estate and is similar to licensing requirements in other fields.” Id. The panel recognized RELRA‘s requirements would likely be “unduly burdensome” to Ladd due to the “small volume of real estate practice she conducted[,]” but “[t]he Pennsylvania Constitution . . . does not
require the General Assembly to establish a tiered system for every profession that it regulates” to account for such disparities. Id.
The panel also distinguished Nixon, supra, where this Court struck down as unconstitutional a statute prohibiting the employment of certain formerly convicted
Ladd filed a direct appeal to this Court and we granted oral argument to determine:
[Whether] the Commonwealth Court fail[ed] to correctly apply the Pennsylvania rational-basis test, as set forth by this Court in Gambone v. Commonwealth, 101 A.2d 634, 636-37 (Pa. 1954), and its progeny, by[:]
1. Failing to hold an occupational-licensing scheme to the same “means-ends” review under
Article I, Section 1 of the Pennsylvania Constitution that this Court hаs uniformly applied to all other restrictions on the right to pursue a chosen occupation?2. Sustaining [the Commonwealth‘s] demurrer on the ground that, as applied to Appellant Ladd‘s vacation property management services, RELRA bore a “real and substantial relationship to the interest in protecting from abuse buyers and sellers of real estate,” even though Appellant Ladd – who does not buy or sell real estate – credibly alleged that her services posed no such risk?
3. Sustaining [the Commonwealth‘s] demurrer without considering whether applying RELRA to Appellant Ladd‘s vacation property management services imposed burdens that were “unduly oppressive or patently beyond the necessities of the case[?]”
Appellant‘s Brief at 4. Our standard of review in this appeal from the Commonwealth Court‘s decision to sustain preliminary objections in the nature of a demurrer is de novo, and our scope of review is plenary. Mazur v. Trinity Area Sch. Dist., 961 A.2d 96, 101 (Pa. 2008), citing Luke v. Cataldi, 932 A.2d 45, 49 n.3 (Pa. 2007). We recognize a demurrer is a preliminary objection to the legal sufficiency of a pleading and raises questions of law; we must therefore “accept as true all well-pleaded, material, and relevant facts alleged in the complaint and every inference that is fairly deducible from those facts.” Id.; see also Yocum v. Commonwealth, Pa. Gaming Control Bd., 161 A.3d 228, 234 (Pa. 2017). A preliminary objection in the nature of a demurrer “should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted.” Id.
II. Arguments
Ladd begins by observing occupational restrictions must satisfy the Gambone heightened rational basis test — rather than the less stringent federal test discussed in Shoul v. Commonwealth, Dep‘t of Transportation, Bureau of Driver Licensing, 173 A.3d 669 (Pa. 2017) — because
basis test is “‘the degree of deference [each] affords to legislative judgment.‘” Id. at 28-29, quoting Shoul, 173 A.3d at 677. Under the federal test, a statute restricting an economic liberty, like the right to earn a living, is presumed constitutional and a plaintiff is required to rebut every conceivable basis, whether or not it is in the record, to support the law. Id. at 29. However, when this Court applies the Gambone test, the Commonwealth‘s stated reason for enacting a given statute must be supported in the record or an objecting plaintiff may provide evidence to rebut that alleged reason. Id. at 29-30, citing Warren v. City of Phila., 127 A.2d 703, 705 (Pa. 1956) (plaintiff can rebut presumption of constitutionality by producing sufficient evidence) and Commonwealth ex rel. Woodside v. Sun Ray Drug Co., 116 A.2d 833 (Pa. 1955) (statute intended to protect public from mere “possibility” of being deceived is not sufficient to overcome challenge to statute as being unconstitutional and invalid exercise of police power).
Ladd argues the Commonwealth Court did not apply Gambone in a meaningful way in her case because it generally concluded, without consideration of her services, that application of RELRA‘s broker requirements bear a real and substantial relationship to the purpose of “protect[ing] buyers and sellers of real estate, the most expensive item many persons ever buy, or sell, from abuse,” and because the panel never discussed whether the burdens imposed on her were “unduly burdensome or patently beyond the necessities of the case.” Id. at 31-32, citing Ladd, 187 A.3d at 1077-78 (case involves a “‘mere’ licensing requirement[ ] [and those] are common ‘across many career fields‘” and that to distinguish her services “‘would effectively upend the legitimacy of any requirement by the Commonwealth . . . for a professional license‘“). Further, Ladd faults the panel for failing to understand that her services are unique and wholly different from a traditional real estate broker. Id. at 33 & n.24, citing Ladd, 187 A.3d at 1078 (licensing requirement not unreasonable or oppressive for individuals who provide regulated services in a
“limited fashion“); id. at 13-16 (arguing definition of “broker” is rooted in practice of real estate at time RELRA was enacted, which involved buying, selling, and leasing properties in large and often more permanent transactions). Although this Court never applied Gambone to a case exactly like Ladd‘s, she argues it is possible for her challenge to an occupational licensing law to succeed because other jurisdictions have applied similar tests to deem such laws unconstitutional. Id. at 34-35 n.25, 36-37 n.27 & n.28 (collecting cases). She emphasizes she alleged sufficient facts to show RELRA failed both prongs of the Gambone test or, at the very least, to survive a demurrer because it is not “‘free and clear from doubt‘” that RELRA, as applied, satisfies both prongs. Id. at 38-39, quoting Mazur, 961 A.2d at 101.
Regarding Gambone‘s mandate the law bear a “‘real and substantial relation‘” to a legitimate policy objective, Ladd alleges the government‘s stated interest is to protect buyers and sellers of homes. Id. at 39, quoting Gambone, 101 A.2d at 637. Ladd specifically argues none of RELRA‘s three broker requirements — the apprenticeship, instructional hours, or physical office space — bear a real and substantial relation to her services as a short-term vacation property manager because she does not assist individuals in buying or selling homes.
Ladd argues the apprenticeship requirement contains no objective measure of
RELRA are broadly stated real-estate topics with no clear relation to her unique services. Id. at 48; see also id. at 47 (arguing even federal case law applying less restrictive rational basis test, e.g., Cornwell v Hamilton, 80 F.Supp.2d 1101 (S.D. Cal. 1999), determined laws were unconstitutional on this basis). Finally, Ladd argues the brick and mortar office requirement is an archaic concept that bears no relation to her online, home-based business. Ladd asserts requiring her to maintain physical office space in Pennsylvania would not enhancе the Commonwealth‘s ability to regulate, see id. at 50-51 (noting other real estate professionals regulated by RELRA are not subject to the brick and mortar requirement), nor does it have any impact on the competency of the services she provided.
Regarding Gambone‘s directive that a reviewing court determine whether a statutory requirement is “‘unreasonable, unduly oppressive or patently beyond the necessities of the case,‘” Ladd argues the Commonwealth Court failed even to consider whether RELRA‘s broker requirements outweighed the government‘s purported policy objective when applied to her services. Id. at 52-53, quoting Gambone, 101 A.2d at 637. Ladd claims that, assuming arguendo RELRA‘s broker requirements have a “real and substantial relation” to the legislative goal, they are nevertheless unreasonable and unduly oppressive because those requirements still disproportionally burden her ability to earn a living and there are less drastic means of regulation available. Id. at 53, citing Mahony v. Twp. of Hampton, 651 A.2d 525, 528 (Pa. 1994) (applying Gambone to condemn economic regulation where “less drastic and intrusive alternative[s]” are available). Ladd argues the apprenticeship requirement is unduly oppressive because it places her ability to work at the discretion of licensed brokers and forces her to be financially subordinate to them for three years while forgoing her own business, when there are other less restrictive alternatives available. Ladd emphasizes less restrictive
alternatives already exist within RELRA for builder-owner salespersons,
Edward Joseph Timmons, Ph.D, who submitted an amicus brief in support of Ladd, suggests that, instead of licensing, short-term vacation property managers should be subject to a registration requirement, which is a less restrictive method of regulation. Timmons’ Brief at 24. Timmons opines subjecting short-term vacation property management services to RELRA‘s onerous broker licensing regime will have negative implications for consumers because operating costs will increase and be passed on to them.
cosmetology license, where only 430 hours or 52% of the coursework was relevant to their profession, was “not just unreasonable or harsh, but [] so oppressive” that it violated the Texas Constitution).11 Here too, Ladd argues, it would be oppressive to require her to spend three years, study hundreds of hours of unrelated materials, and forgo income to operate her limited business. Finally, Ladd argues the brick and mortar office requirement is unduly oppressive because it is analogous to imposing an excessive fee on her right to work, id. at 63-64, citing Olan Mills, Inc. v. City of Sharon, 92 A.2d 222, 224 (Pa. 1952) (transient business license fee was unusual and unjustifiable extra expense imposed by the city), and the UTPCPL is available as a less restrictive alternative.
The Commonwealth responds that RELRA is constitutional as applied to Ladd because the General Assembly‘s intent was to protect the public when they buy or sell real estate regardless of the volume of work engaged in by a broker. Appellee‘s Brief at 12. The Commonwealth emphasizes the right to pursue a chosen occupation is not a fundamental right.
The Commonwealth notes RELRA is designed to “‘protect the public from abuse by those who are engaged in the business of trading real estate.‘”
requirements to ensure brokers are adequately trained to provide quality services. Id., citing
The Commonwealth further argues the statutes involved in Gambone and Nixon were internally inconsistent and failed to further the General Assembly‘s respective purposes, in addition to creating an absolute prohibition on an individual‘s ability to engage in certain activities, whereas RELRA merely provides requirements for participation. Id. at 17-18, 20 n.11; see, e.g., Gambone, 101 A.2d at 637 (limiting the size of signs showing the price of gas would not prevent fraud and larger, more visible signs might actually better prevent fraud and deception); Nixon, 839 A.2d at 281-82, 289-90 (statute arbitrarily and improperly distinguished between convicted individuals who worked at a covered facility for more or less than one year). Here, the Commonwealth asserts if an exception is created for Ladd‘s services then RELRA will be subject to the same internal inconsistencies that plagued the invalid statutes in Gambone and Nixon because the public will be protected when purchasing, selling or renting some real estate, but not when renting vacation properties. Id. at 18-19.
The Commonwealth warns that if the General Assembly is not permitted to set the minimum standards for real estate brokers it will likewise not be able to protect the public
from incompetent professionals in other fields. Id. at 19. It argues an exсeption for Ladd will create new due process rights for individuals who practice medicine without attending medical school, but intend not to perform major surgery, or architects who only design small houses, or pharmacists who only work weekends and do not prescribe narcotics. Id. The Commonwealth urges affirmance of the panel‘s decision because Ladd has not shown her due process rights were violated and the licensing requirements of RELRA are rationally related to the General Assembly‘s purpose of protecting the public. Id.
In a reply brief, Ladd argues the Commonwealth misconstrues the Gambone test as requiring only that a statute be internally consistent, when neither Gambone nor Nixon discussed consistency. Appellant‘s Reply Brief at 8. Ladd nevertheless asserts RELRA is internally inconsistent because certain individuals are totally exempt from its requirements, see id., citing
Commonwealth Court erroneously required her
III. Analysis
A claim, like Ladd‘s, that a Pennsylvania statute violates substantive due process is subject to a “means-end review” where the court “weigh[s] the rights infringed upon by the law against the interest sought to be achieved by it, and also scrutinize[s] the relationship between the law (the means) and that interest (the end).” Nixon, 839 A.2d at 286-87, citing Adler, 311 A.2d at 640-41. The level of scrutiny we apply to that means-end review is dependent upon the nature of the right allegedly infringed. When that right is fundamental, we apply strict scrutiny and will uphold the law only if it is narrowly tailored to achieve a compelling state interest. Id. at 287. A right that is not fundamental, however, is subject to rational basis review. Id.. The rational basis test under Pennsylvania law is less deferential to the legislature than its federal counterpart. Shoul, 173 A.3d at 677.14
[A] law which purports to be an exercise of the police power must not be unreasonable, unduly oppressive or patently beyond the necessities of the case, and the means which it employs must have a real and substantial relation to the objects sought to be attained. Under the guise of protecting the public interests the legislature may not arbitrarily interfere with private business or impose unusual and unnecessary restrictions upon lawful occupations. The question whether any particular statutоry provision is so related to the public good and so reasonable in the means it prescribes as to justify the exercise of the police power, is one for the judgment, in the first instance, of the law-making branch of the government, but its final determination is for the courts.
Id., quoting Gambone, 101 A.2d at 636-37 (citation and footnotes omitted) and citing Nixon, 839 A.2d at 287 n.15 (recognizing “more restrictive” test). At this stage, we review the record to determine whether, accepting all well-plead facts as true, Ladd “clearly and without a doubt fail[ed] to state a claim for which relief may be granted.” Yocum, 161 A.3d at 234. We accept as true Ladd’s allegation that she is a short-term property manager where “short-term” is defined as a period less than thirty days. See Complaint at ¶2 n.1. Those services, as she defines them, see id. at ¶¶10-11, clearly fall within RELRA’s definition of real estate broker. See
Accordingly, we must determine: (1) whether RELRA’s real estate broker licensing requirements — apprenticeship, instructional coursework and examinations, and brick and mortar location — are “‘unreasonable, unduly oppressive, or patently beyond the necessities of the case[;]’” and (2) whether those requirements bear a “‘real and substantial rеlation’” to the public interest they seek to advance when applied to Ladd under the circumstances alleged in her complaint. Nixon, 839 A.2d at 287, quoting Gambone, 101 A.2d at 637. We also recognize there is a strong presumption the statutory scheme is constitutional; the presumption may be rebutted
Preliminarily, we reject the attempt by the panel below to limit Gambone and Nixon to legislation that acts as a “blanket ban” or “an absolute bar” on conduct; the panel erroneously distinguished the present case from those earlier decisions on the grounds RELRA does not completely prohibit certain conduct. See Ladd, 187 A.3d at 1079 (“Rather than a blanket ban on certain individuals from working as real estate brokers, RELRA merely requires a real estate broker’s license prior to engaging in the practice of real estate.“). It is true these earlier cases involved statutory prohibitions. See Gambone, 101 A.2d at 636 (“No sign or placard showing the price of liquid fuels sold or offered for sale or relating to pricе or prices, other than the signs or placards thus provided for, shall be posted or displayed on the premises . . . unless the signs . . . [are] similar . . . to the sign . . . posted on the pump.“); Nixon, 839 A.2d at 281 (prohibiting all individuals convicted of enumerated crimes from working at a covered facility if they did not work at that facility for one year prior). However, this particular factual detail is not dispositive as Gambone and its progeny nevertheless stand for the proposition that the General Assembly, when exercising its police powers to curtail a non-fundamental right, will be subject to a heightened rational basis review. See Nixon, 839 A.2d at 287-88 (recognizing the Gambone test is the appropriate test when a law restricts “undeniably important” rights); Shoul, 173 A.3d at 676-77 (same).
Applying Gambone here, we first consider the purpose behind RELRA’s broker licensing requirements. The Commonwealth Court has held and Ladd argues the purpose of RELRA is “to protect buyers and sellers of real estate, the most expensive item many persons ever buy or sell, from abuse by persons engaged in the business.” Kalins, 500 A.2d at 203. However, the Commonwealth argues the statute is more broadly intended to protect the public from fraudulent practices by those “‘engaged in the business of trading real estate.’” Appellee’s Brief at 15, quoting Meyer, 756 A.2d at 69 n.2. The General Assembly did not articulate a specific purpose for RELRA within its provisions; accordingly, we сonsider the origins of Pennsylvania law mandating licensure of real estate brokers to glean some insight. We conclude the Commonwealth correctly asserts RELRA was enacted to protect the public from fraud by those “engaged in the business of trading real estate.” Meyer, 756 A.2d at 69 n.2.
We begin by observing RELRA’s predecessor, The Real Estate Brokers’ License Act of 1929, “comprehensive[ly] regulat[ed] [ ] the business of selling real estate for others” and defined “real estate broker” as including “all persons who, for another and for a fee. . . rent, or . . . negotiate the…rental” of real estate. Verona v. Schenley Farms Co., 167 A. 317, 318-19 (Pa. 1933). The Verona Court determined the “obvious purpose of the Act of 1929 [was] to prevent fraud and public wrong by correcting well recognized mischief” that existed at the time, including: “[c]ollecting rents without accounting for them; embezzling of down money; deceiving principal as to the identity of [the] buyer; acting as agent for both buyer and seller; [and] misrepresentation by salesm[e]n as to [the] rental of property[.]” Id. at 319-20 & n.1. It is thus clear the Act of 1929 was intended to regulate the practice
As a preliminary matter, we recognize the government’s legitimate interest in protecting consumers from fraudulent conduct by those “engaged in the business of trading real estate.” Id. Whether the legislative goal is licensing individuals who assist with buying, selling or leasing properties, the Commonwealth clearly has a “strong interest” in regulating professions within its borders and the legislature has “broad power[s]” to establish the standards that will achieve that end. Khan v. State Bd. of Auctioneer Exam‘rs, 842 A.2d 936, 947 (Pa. 2004). Here, the General Assembly identifiеd a bundle of services to describe the activities of a “broker” and imposed a series of requirements — apprenticeship, instructional coursework and examinations, and brick and mortar location — ostensibly designed to ensure individuals providing those services would not defraud the public. See id. at 948 (“[a] state may impose those professional requirements that it believes necessary to protect its citizenry“). The present appeal implicates Ladd’s as-applied challenge rather than the proposition that the RELRA licensing scheme is properly aimed at a legitimate government purpose. See Ladd, 187 A.3d at 1078 (recognizing RELRA’s requirements generally bear a real and substantial relation to the government’s objective and are similar to requirements in other fields).
Accordingly, even if RELRA’s broker licensing requirements generally bear a real and substantial relationship to protecting the public from the fraudulent practices of those “engaged in the business of trading of real estate,” Meyer, 756 A.2d at 69 n.2, we must now proceed to consider their specific application to Ladd’s actual business model: short-term vacation property management services. As we explain below, we conclude the Commonwealth Court erred when it sustained the Commonwealth’s demurrer; Ladd’s complaint raises a colorable claim that RELRA’s requirements are unconstitutional as applied to her because they are, in that context, unreasonable, unduly oppressive and patently beyond the necessities of the case, Gambone, 101 A.2d at 637, thus outweighing the government’s legitimate policy objective.
The issue is one of first impression for this Court, but decisions from other jurisdictions that have conducted a Gambone-like analysis in the context of occupational licensing requirements are instructive. In Patel, supra, the Texas Supreme Court struck down a statute that required eyebrow threaders to obtain a cosmetology license because it violated the Due Course
The parties in Patel agreed that at least 320 hours or 42% of the coursework was unrelated to threading, and the court’s analysis focused on the “quantitative aspect of the [instruction] hours represented by the percentage and the costs associated with them[.]” Id. at 89-90. The court determined the number of unrelated hours, though less than fifty percent of the total coursework required, was “highly relevant” to its analysis because of the significant quantity of time and cost associated with completing them. Id. at 90. Specifically, the court held the statute was “not just unreasonable or harsh, but it [was] so oppressive,” and thus unconstitutional, because so much study time was not relevant while requiring expenditures of money as well as forgone employment. Id.; see also Cornwell, 80 F.Supp.2d at 1110-1111, 1113 (applying less restrictive federal rational basis test to conclude cosmetology statute was not rationally related to government’s health and sanitation ends as applied to hair braider where “well below ten percent” of training hours were related to hair braiding).
Ladd is similarly faced with 315 hours of coursework (75 hours for her salesperson license and 240 for her broker license) in various topical areas that pertain to the work of traditional real estate brokers, but not to the services contemplated by her unique business model. See supra at nn.2-3. The only topics listed that are arguably related to her services are the general two-credit “Commission-developed or approved law course” and maximum four-credit “Real Estate Law” and “Residential Property Management” courses which satisfy at most 150 hours of the 315 hour requirement. See
Notably, the Patel court had before it coursework alone when it determined the statutory licensure requirements were unduly oppressive. See also Cornwell, 80 F.Supp. 2d at 1111 (statute irrational and unreasonable because so much of cosmetology curriculum was not relevant to hair braiders). Here, RELRA imposes an apprenticeship and a brick and mortar office requirement in addition to an instructional coursework requirement, which obviously increases the economic burden.17 Considering both the quantity of non-relevant hours and the cost of completing those hours, see, e.g., Patel, 469 S.W.3d at 89, the three-year apprenticeship requirement would impose a substantial cost on Ladd; during that time she would ostensibly learn the traditional real estate trade, e.g., completing transactions involving thousands, if not hundreds of thousands of dollars to buy, sell, or lease properties. But, this practical knowledge would be neither relevant nor directly applicable to a short-term vacation property management business involving rentals that last only a few dаys and cost only a few hundred dollars. See Complaint at ¶¶ 31-32. Adding to the equation the lost opportunity cost of shuttering PMVP during the apprenticeship, we conclude Ladd has stated a claim that the broker license requirements are unreasonable, unduly oppressive and patently beyond the necessities of the case. Gambone, 101 A.2d at 637.
Similarly, we conclude the brick and mortar office requirement, as applied to Ladd’s self-described business model, appears to be disproportionate to the government’s interest in safeguarding the public from fraudulent practices by those who “trad[e] in real estate.” Meyer, 756 A.2d at 69 n.2. According to Ladd, she performed her professional services solely online from her home in New Jersey, see Complaint at ¶24, and a requirement that she obtain physical office space in Pennsylvania is tantamount to an excessive fee for entry into a profession. See, e.g., Olan Mills, 92 A.2d at 223-24 ($200 license fee for transient businesses was “out of all reason too high” and unnecessary to protect the city from “unreliable fly-by-night operators“). The allegations of Ladd’s complaint — taken as true — indicate her business model is sustainable only because she can provide quality services with limited overhead, see Complaint at ¶40, and requiring additional оverhead, including rental or mortgage, taxes, insurance, and maintenance of a property does not further the statutory objectives of RELRA.18
We are further persuaded that it appears application of RELRA to Ladd is unconstitutional when we consider the fact that individuals who manage and facilitate rentals of lodging in apartment complexes and duplexes on behalf of their owners are completely exempt from the statute’s broker licensing requirements, see
Notably, Ladd routinely advised her clients they must comply with the Commonwealth’s “hotel tax,”
Indeed, it is these exemptions that remove from Ladd’s challenge the specter raised by the Commonwealth, that is, a ruling in Ladd’s favor will undermine all professional licensing schemes and subject them to challenges from individuals seeking tiered licensing regimes to practice their trade part-time or in limited subject areas.19 See supra at 18. In contrast to those hypothetical challenges, Ladd raises a colorable claim that RELRA’s most onerous requirements are unreasonable, unduly oppressive, and patently beyond the necessities of her case, Gambone, 101 A.2d at 637, because there are clearly “less drastic and intrusive alternative[s]” already built into the licensing scheme. Mahony, 651 A.2d at 528.
Moreover, it is clear Ladd’s business, as described in her complaint, would not operate without regulation and oversight in the absence of a broker license. See e.g., Spellacy, 136 A.2d at 806 (“This is not to imply that [real-estate] activities such as the plaintiffs carry on cannot, consistently with constitutional limitations, be regulated.“). Indeed, it appears her services would clearly fall under Pennsylvania’s UTPCPL, as do the services of the RELRA-exempt hotel and apartment complex managers. See
Finally, we reiterate that the Commonwealth’s police power must be exercised in a constitutional manner, one that is not unreasonable, unduly oppressive, or patently beyond the necessities of the case, and bears a real and substantial relation to the purported policy objective. Gambone, 101 A.2d at 637. We conclude Ladd’s allegations present a colorable claim that RELRA’s requirements, as applied to her self-described services, are unreasonable, unduly oppressive and patently beyond the necessities of the case, and it is not clear and “without a doubt” those requirements bear a real and substantial relation to the statutory goal of protecting the public from fraud. See Yocum, 161 A.3d at 234 (demurrer “should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted“). Accordingly, we reverse the Commonwealth Court’s order dismissing Ladd’s complaint and remand for further proceedings consistent with this opinion.
Chief Justice Saylor, and Justice Baer, Todd and Donohue join the opinion.
Justice Wecht files a dissenting opinion.
Justice Mundy files a dissenting opinion.