The opinion of the court was delivered by
This case arose as an interpleader action to settle the rights to one-half of a brokerage commission resulting from a residential real estate transaction. Reece & Nichols Realtors, Inc. (RAN), the listing broker, refused to split the brokerage commission with
We affirm, holding that an attorney is exempt from the provisions of the KREBSLA, including the prohibition in K.S.A. 2011 Supp. 58-3062(a)(10) against splitting a fee with a nonlicensee, only to the extent he or she is performing activities that are encompassed within or incidental to the practice of
Facts and Procedural Background
RAN’s and McGrath’s motions for summary judgment were based on the following joint stipulation of facts:
“1. This case began as an interpleader action filed by Plaintiff Stewart Title... . As a title company, it held in escrow a portion of a commission earned in a residential real estate contract in tire sum of $13,802.91 (the ‘Funds’).
“2. The Funds represent one-half of the commission paid by Defendant J-Right, Inc. (‘J-Right’) on the sale of a lot and residence to Gregory J. Lausier (‘Lausier’). The property is located at 21311W. 96th Terrace, Lenexa, Kansas (the ‘Property’).
“3. The total commission, or six percent (6%) of the Property’s sales price, was calculated pursuant to the terms of an Exclusive Right to Sell Contract (the ‘Listing Agreement’) and was $27,605.82. The Listing Agreement is attached as Exhibit 1 and incorporated by reference.”
The Listing Agreement states, in part:
‘‘a) Seller agrees to pay Reece & Nichols Realtors a Broker’s Administrative Commission of $175.00 and a sales commission of 6% of the selling price. . . . The commission is due and payable if BROKER or anyone else, including SELLER, produces or finds a purchaser ready, willing, and able to purchase the Property at the price and terms offered now or at the price and terms acceptable to SELLER at a later date. Seller authorizes the payment of the commission to BROKER from SELLER’S proceeds at closing.
“b) BROKER shall offer a commission split of 3% listing side and 3% selling side.”
RAN and McGrath further stipulated:
“4. The full amount of the commission was paid to Stewart Title for distribution in accordance with the real estate transaction documents and Kansas law.
“5. As the listing broker, RAN was paid one-half of the commission or $13,802.91. RAN objected to the release of the remaining commission to McGrath and it was held by Stewart Title.”
In June 2007, Stewart Title of the Midwest, Inc., d/b/a Stewart Title of Kansas City (Stewart Title) filed in district court an inter-pleader action asking tire court to require McGrath and RAN to be interpleaded in the action and to settle the rights to the funds. The district court ordered Stewart Title to deposit the funds with the clerk of tire district court. The order stated:
“6. Stewart Title has paid the Funds into Court. See Journal Entry filed June 29, 2007.
“7. Following the deposit of the Funds, Plaintiff Stewart Title was dismissed. Defendant J-Right has also been dismissed from this action. Defendant McGrath and Defendant RAN are the only remaining parties.
“8. Both Defendant McGrath and Defendant RAN claim a right to the Funds.”
The parties’ joint stipulation then set out the legal basis for each party’s claim to the funds and their agreements about how the case should be resolved depending on which legal argument was accepted by the district court. Specifically, the parties stipulated:
“13. In tire event that KREBSLA does not preclude RAN from paying the commission to McGrath, then RAN admits that McGrath is entitled to the funds held by tire Court in full satisfaction of tire commission due and owing for his services as a buyer’s agent.
“14. In the event that KREBSLA does preclude RAN from paying tire remaining commission to McGrath, dren McGraÜr admits that RAN is entided to the funds held by the Court in full satisfaction of tire commission due and owing under tire Listing Agreement.
“16. McGradr is an attorney licensed to practice in tire State of Kansas. For the purposes of this case, McGrath acted as an agent for Lausier and rendered legal professional duties and services as an attorney to Lausier (said legal professional duties and services included negotiating and contracting for the purchase and construction of Lausier’s new home; as well as tire rendition of professional services requiring tire knowledge and application of legal principles and technique to serve tire interests of'Lausier at Lausier’s request). McGrath and Lausier had an attorney-client relationship and it was contemplated between McGrath and Lau-sier that McGrath’s professional services would be compensated solely out of tire 3% commission. Lausier is, and has always been, extremely satisfied with the services McGrath provided with respect to this real estate transaction.
“17. RAN’s only objection to paying McGrath the 3% commission at issue in this case is that RAN believes it is barred from doing so under KREBSLA.”
The district court adopted the parties’ Joint Stipulation of Facts. The court noted that prior to McGrath’s involvement in the transaction, RAN was already acting as the listing broker for the property; thus, McGrath was aware that a brokerage was involved in the real estate transaction. The court found the attorney exemption contained in K.S.A. 2011 Supp. 58-3037(c) is limited to those professional activities that are encompassed within and incidental to the practice of law in the context of an attorney-client relationship. The court ruled that this limited exception does not permit McGrath to act as a “ licensed real estate agent’ ” thereby entitling him to a commission.
The district court also found that the language of K.S.A. 2011 Supp. 58-3062(c)(l) clearly and unambiguously provides that RAN, as a broker, shall not pay a commission to a nonlicensee. Further, tire court quoted K.S.A. 2011 Supp. 58-3062(a)(10) and ruled: “There is nothing in the language of the KREBSLA that would exempt RAN from this requirement and permit it to pay a commission to a non-licensee regardless of whether the non-licensee is an attorney.” Accordingly, the court entered summary judgment in favor of RAN.
McGrath timely appeals. This court transferred the appeal from the Court of Appeals pursuant to K.S.A. 20-3018(c).
Standard of Review
This court has de novo review of cases decided on the basis of documents and stipulated facts.
In re Trust D of Darby,
In addition, where the parties’ arguments require the interpretation of various statutes, this court has unlimited review.
In re Trust D of Darby,
These rules must be applied to the various statutes within the KREBSLA that are the focus of the parties’ arguments. RAN focuses on the fee-splitting prohibitions under the KREBSLA, K.S.A. 2011 Supp. 58-3062(a)(10) and (c)(1), to argue it is absolutely prohibited
Fee-Splitting Prohibitions
We begin our analysis with RAN’s contention that K.S.A. 2011 Supp. 58-3062(a)(10) and (c)(1) absolutely prohibit it from paying a commission or fee of any kind to anyone not licensed under the KREBSLA. In 58-3062, the legislature describes activities that are prohibited under the KREBSLA, with subparagraphs (a)(10) and (c)(1) being the portions that specifically address payment of commissions. Under the first of tírese two provisions, K.S.A. 2011 Supp. 58-3062(a)(10), no “licensee” shall “[p]ay a commission or compensation to any person, not licensed under the act, for performing any activity for which a license is required under this act.” The second provision, K.S.A. 2011 Supp. 58-3062(c)(l), provides that no “broker” shall “[p]ay a commission or compensation to any person for performing the services of an associate broker or salesperson unless such person is licensed under this act and employed by or associated with the broker.” A separate statute, K.S.A. 58-3065(a), provides that a violator of any provisions of the KREBSLA faces statutory penalties of fines or imprisonment.
In support of its argument that the KREBSLA absolutely prohibits fee splitting with a nonlicensee, RAN relies on
Burchfield v. Markham,
RAN argues the same conclusion applies to the Kansas provisions, and the district court agreed. In making this argument, RAN ignores critical differences between the Texas and Kansas statutes. Specifically, in contrast to the Texas fee-splitting provision that applies to anyone who is not licensed under the act regardless of the iype of activity the person performs, both of tire Kansas fee-splitting provisions contain qualifying language that defines a limited group to whom tire provisions apply.
One of the Kansas provisions, K.S.A. 2011 Supp. 58-3062(c)(l), prohibits a broker from paying another “for performing the services of an associate broker or salesperson unless such person is licensed under this act and employed by or associated with the broker.” (Emphasis added.) The statutory definitions of “associate broker” and “salesperson" require the person to be employed by or associated with a broker and to have “participatefd] in any activity described in subsection (f),” which defines “broker” by, in part, listing activities a broker would perform. K.S.A. 2011 Supp. 58-3035(c), (f), (o).
RAN focuses solely on the “activity” component of this provision, discussing the nature of the services provided by McGrath. According to the stipulated facts, these services included “negotiating and contracting for the purchase and construction of Lau-sier’s new home; as well as the rendition of professional services requiring the knowledge and application of legal principles and technique to serve the interest of Lausier at
Applying this provision to the facts of this case, nothing in the stipulated facts suggests McGrath was employed by or associated with anyone else who was acting as a broker; in other words, there is no suggestion that he functioned as an associate broker or a salesperson. Therefore, K.S.A. 2011 Supp. 58-3062(c)(l) does not apply in this case.
The second provision on which RAN relies is broader in scope but still contains a critical limitation not found in the Texas statute considered in Burchfield. This Kansas provision, K.S.A. 2011 Supp. 58-3062(a)(10), limits the prohibition against paying a commission to any person not licensed under the act to persons who are being paid “for performing any activity for which a license is required under this act.” (Emphasis added.) The activities for which a license is required are defined by K.S.A. 58-3036, which begins with the phrase “[ujnless exempt from this act under K.S.A. 58-3037.” Consequently, in contrast to the Texas statute, 58-3062(a)(10) does not absolutely prohibit splitting a fee with any nonlicensee and potentially allows payment of a commission if the nonlicensee’s activities are exempt from application of the KREBSLA.
Because McGrath relies on an exemption under 58-3037(c), this brings us to his argument.
Attorney Exemption
McGrath suggests our conclusion that there is not an absolute prohibition against sharing a commission would end the dispute between the parties because, he argues, RAN conceded in the stipulation of facts that the attorney exemption of K.S.A. 2011 Supp. 58-3037(c) applies if the fee-splitting provision is not absolute. We do not read RAN’s stipulation this broadly, however. RAN’s stipulation regarding McGrath’s right to receive a share of the commission was qualified, stating: “In the event that KREBSLA does not preclude RAN from paying the commission to McGrath, then RAN admits that McGrath is entitled to the funds held by the Court in full satisfaction of the commission due and owing for his services as a buyer’s agent.” This is not a stipulation that the KREBSLA allows payment of the commission to McGrath as the buyer s attorney; it limits the basis of the payment to the performance of services as a “buyer s agent.”
Yet, the attorney exemption does not refer to services as a buyer’s agent. Rather, the exemption provides: “The provisions of this act shall not apply to . . . (c) Services rendered by an attorney licensed to practice law in this state in performing such attorney’s professional duties as an attorney.” (Emphasis added.) K.S.A. 2011 Supp. 58-3037(c). Consequently, the stipulation does not answer the question of whether McGrath can receive a portion of his commission for his services as an attorney. Therefore, we must consider the parties’ arguments regarding the scope and application of the attorney exemption found in 58-3037(c).
In seeking application of the exemption, McGrath makes several arguments that we have organized into three categories. First, he maintains the attorney exemption is absolute. Second, he argues he is entitled to share in the brokerage commission even if the exemption is not absolute because he acted in his capacity as an attorney representing Lausier, not as a broker. Third, he makes a public policy argument as to why an attorney must be allowed to share in the commission.
Absolute Exemption
First, we consider McGrath’s argument that K.S.A. 2011 Supp. 58-3037(c) absolutely and unqualifiedly exempts attorneys from the KREBSLA and its fee-splitting prohibitions. If we accept this argument, an attorney could act in any capacity and perform any activity as a real estate broker without a license
In
Metcalf Assocs.-2000,
the question was whether an attorney could receive a finder’s fee as part of a real estate transaction under the exemption of 58-3037 even though the attorney was not a broker. The Court of Appeals did not answer the question because it determined it did not have jurisdiction over the attorney. Nevertheless, the court noted: “Arguably, . . . [the attorney] should not have been entitled to a finder’s fee simply because he is an attorney — his performance of professional duties as [an] attorney didn’t involve the task of finding a buyer.”
Metcalf Assocs.-2000,
Although not directly discussing
Metcalf Assocs.-2000,
McGrath argues for a different interpretation of the attorney exemption, one where there would not bé limitations on an attorney’s activities in a real estate transaction and an attorney would be allowed to receive a portion of the brokerage commission as a finder’s fee or for any other purpose. For support he cites this court’s decision in
Lambertz v. Builders, Inc.,
In
Lambertz,
the court considered an early version of the laws covering real estate licensees in Kansas. Lambertz brought suit for an alleged breach of contract by his employer, Builders. Lambertz was involved in Builders’ commercial real estate business, which included negotiating leases on Builders’ property. Lambertz alleged he had an oral contract to receive a commission on lease agreements that he negotiated. Builders denied the factual allegations and also argued Lambertz could not bring the suit because of a statute, G.S. 1949, 67-1019, which prohibited a person from
bringing an action for compensation for real estate transactions without alleging and proving the person is a licensed real estate broker or salesperson. In response, Lambertz argued he did not have to be licensed because the real estate licensing act in effect at that time exempted real estate transactions made by the property owner or the owners employee when acting on behalf of the owner. See G.S. 1949, 67-1003. This court agreed with Lambertz, concluding he was not required to plead or prove that he was licensed under the act because tire services he performed fell within the exemption.
Lambertz,
According to McGrath, Lambertz stands for the proposition that “those specifically exempt from the statute can participate in real estate transactions and receive compensation.” While Lambertz can be read to stand for this principle, the holding is not directly applicable to the attorney exemption under K.S.A. 2011 Supp. 58-3037(c) because the statute does not provide that all activities performed by an attorney are exempt. Rather, as we have noted, under the clear terms of the provision, an attorney is exempt only to the extent he or she is “performing such attorney’s professional duties as an attorney.” K.S.A. 2011 Supp. 58-3037(c).
This limitation or qualification also distinguishes the KREBSLA attorney exemption from other state statutes that have been held
In contrast to statutes that require only that an attorney have a law license in order to be exempt from real estate licensure requirements, K.S.A. 2011 Supp. 58-3037(c) requires an attorney, such as McGrath, to show that he or she was performing services consistent with his or her professional duties as an attorney to fall under tire KREBSLA exemption. Under this plain language, it is clear tire KREBSLA attorney exemption is not absolute.
Despite the limiting language in 58-3037(c), McGrath argues it was the “clear and unambiguous intent of the legislature” to exempt attorneys because there is no concern about dishonesty, fraud, or incompetence — which KREBSLA was created to prevent — because “attorneys, presumably, are better regulated than real estate salespersons.” See
Furr v. Fonville Morisey Realty, Inc.,
This argument is inconsistent with our rules of statutory interpretation. Under those rules, we give effect to the legislature’s express language. Only if the statute’s language or text is unclear or ambiguous does the court employ canons of construction, legislative history, or other background considerations to divine the leg
islature’s intent and construe the statute accordingly.
State v. Trautloff,
Here, the express language is clear and unambiguous: K.S.A. 2011 Supp. 58-3037(c) does not allow an attorney to engage generally in the business of a real estate broker but does allow an attorney to perform some activities a broker would perform if the attorney s activities are encompassed within and incidental to the practice of law, are within the context of an attorney-client relationship, and are consistent with the attorney’s professional duties.
Professional Duties as an Attorney
This standard for application of the attorney exemption is consistent with and similar to the standard applied under many other states’ real estate licensing statutes. See, e.g.,
Spirito v. New Jersey Real Estate Comm’n.,
McGrath argues he met this standard because he provided legal services to Lausier within an attorney-client relationship. Consequently, he argues, his activities are exempt from the KREBSLA license requirement. Contrary to this argument, we conclude that most cases applying this standard do not support McGrath’s position and support a determination that, as a matter of law, McGrath is not entitled to share in the commission.
That does not mean there is no support for McGrath’s position. In applying a standard similar to that adopted in
Spirito,
at least one court has concluded an attorney is entitled to share in a broker’s commission.
E.g., Lance v. Lyman,
No. 549,853,
However, the prevailing view is that a buyer’s attorney cannot share in a commission with the seller’s broker. In essence, the courts adopting this prevailing view hold that fee-splitting is prohibited even if there is not a provision of the state’s real estate licensing act drat absolutely prohibits an attorney from splitting a brokerage commission. In other words, the attorney’s request to share in the brokerage commission survives a facial interpretation of the exemption statute but fails under an “as applied” interpretation of the exemption statute.
Often, as a starting point for analysis, courts note that the right to share in a commission originates in the contract between the seller and the seller’s broker; it is the seller who is obligated to pay the commission and the seller’s broker who agrees to split the commission. Many courts have found it significant that an attorney representing the buyer does not have an attorney-client relationship with or perform legal services for either the seller or the seller’s broker. On this basis alone, some courts have held that the buyer’s attorney is not entitled to share in the commission.
E.g., Provisor v. Haas Realty,
Inc.,
Implied in the rationale of these cases is a concept that is more extensively discussed in
Sherman v. Bruton,
For example, in the Texas case of
Sherman,
In reaching this conclusion, the
Sherman
court focused on the nature of the contract that allowed the attorney to earn the commission. According to the parties’ description of what the attorney was hired to do, the attorney was to “ ‘study the property and appraise it, expose it to the market, and find out the highest and best
use and who wanted to pay the most money for it on a ground lease.’ ”
Sherman,
The New Jersey Supreme Court, in
Roth,
also noted that one earns a real estate commission by performing primarily brokerage services, meaning any legal services were subordinate to the brokerage services.
Roth,
In determining if this test had been met, the
Roth
court found the manner of compensation to be highly relevant. The court noted die long-standing rule that a broker must be the efficient procuring cause of the contract between buyer and seller in order to receive a commission and concluded that a claim of entitlement to a commission is necessarily evidence of the performance of substantial brokerage services.
Roth,
“Common sense and ordinary experience tell us that an attorney who performs sufficient work as a broker to be entitled to a commission for tiróse services would not be acting as a broker in a manner only incidental to the normal practice of law. Conversely, an attorney performing brokerage services that are really only incidental to his or her work as a lawyer would not be entitled to a commission because . . . those incidental services would be substantially less significant than the ‘activities normally associated with a real estate broker.’ We therefore hold that an attorney whose actions as a broker are undertaken pursuant to the ‘attorney’ exemption to the licensing law, N.J.S.A. 45:15-4, may perform brokerageservices that are only incidental to the normal practice of law, which cannot be the basis for a claim of compensation as a broker.” Roth, 120 N.J. at 673-74 .
Similar to the New Jersey standard, this court has held that a real estate broker is entitled to a commission if he or she is “the efficient and procuring cause of a consummated sale.”
Campbell-Leonard Realtors v. El Matador Apartment Co.,
“a) Seller agrees to pay Reece & Nichols Realtors a Broker’s Administrative Commission of $175.00 and a sales commission of 6% of the selling price. . . . The commission is due and payable if BROKER or anyone else, including SELLER, produces or finds a purchaser ready, willing, and able to purchase the Property at the price and terms offered now or at the price and terms acceptable to SELLER at a later date. Seller authorizes the payment of the commission to BROKER from SELLER’S proceeds at closing.” (Emphasis added.)
Consequently, McGrath could have performed all manner and amounts of legal services, but he would not have been able to share in the commission if he had not produced a ready, willing, and able buyer. That action, not his providing legal services incidental to closing the sale, serves as the basis for claiming a right to split the brokerage commission with RAN. Yet, as our Court of Appeals noted in
Metcalf Assocs.-2000,
Consequently, any legal services performed by McGrath were incidental to his procuring a sale. See
In re Adoption of B. C.
S.,
An additional consideration arises under the KREBSLA’s attorney exemption because of two words in K.S.A. 2011 Supp. 58-3037(c) — “professional duties.” An attorney’s professional duties are many and varied, depending on the circumstances, but always include compliance with the Kansas Rules of Professional Conduct (KRPC) imposed by this court on all attorneys licensed in Kansas. See Preamble to KRPC (2011 Kan. Ct. R. Annot. 407). Rased on considerations of professional duties, other states have held an attorney cannot share in a real estate brokerage commission. See
Kentucky Bar Ass’n v. Burbank,
More significantly, tírese courts have focused on conflict of interest concerns. Conflict of interest complications arise, the courts noted, because in a commission-split situation the fee of a buyer’s attorney would be paid by the seller under an agreement the seller has made with the seller’s broker, meaning a third party would pay the attorney’s fee. This potential conflict is exacerbated by the attorney’s personal interest in the outcome of the transaction and is heightened where the attorney acts as an agent for the buyer because the attorney earns a higher fee if his or her client, the buyer, pays more for the property. Hence, the attorney’s personal benefit irreconcilably clashes with that of his or her client.
In finding this inherent conflict prevents the attorney from ethically making claim to the commission, the courts cited rules of professional conduct that correspond with KRPC 1.7(a)(2) (2011 Kan. Ct. R. Annot. 484) and KRPC 1.8 (2011 Kan. Ct. R. Annot. 494). KRPC 1.7(a)(2) provides that “[a] concurrent conflict of interest exists if: . . . (2) there is a substantial risk that the representation of one or more clients will be materially limited ... by a personal interest of the lawyer.” According to KRPC 1.8(f) (2011 Kan. Ct. R. Annot. 495), “[a] lawyer shall not accept compensation for representing a client from one other than the client.” See
Roth,
These statements in KRPC 1.7 and KRPC 1.8 are followed by exceptions and qualifications that may allow an attorney to continue representation of a client despite a conflict. Both the New Jersey and South Dakota Supreme Courts recognized similar ex
ceptions in their attorney discipline rules, yet both courts adopted a blanket rule prohibiting an attorney who does not have a real estate license from receiving all or a portion of a real estate commission.
Roth,
The South Dakota Supreme Court also expressed concerns about the reasonableness of the attorney fee.
Estate of Schuldt,
We note there are other potential issues under the KRPC. For example, KRPC 5.4(a) (2011 Kan. Ct. R. Annot. 593), prohibits splitting a legal fee with a nonattorney. This provision would be violated if the attorney is a seller’s broker sharing a fee with the buyer’s broker, and it arguably is violated if the attorney is the buyer’s broker. Further, in some cases, as noted by RAN, there will be a conflict between the duties of an attorney to
In summary, the very nature of the basis for a claim to a real estate commission — being the efficient and procuring cause of a consummated sale — means an attorney asserting a claim to a brokerage commission has performed primarily brokerage services. Even if legal services were performed, when an attorney claims a right to a brokerage commission, by default those legal services are incidental to the ultimate activity that produces the commission. While an attorney acting within the realm of an attorney-client relationship may perform some of the same services as would a real estate broker, those brokerage-type services must be incidental or ancillary to the performance of legal services for an attorney to fall within the attorney exemption under K.S.A. 2011 Supp. 58-3037(c). And, because of the inherent tension between a claim for fees arising from a real estate commission and the duties of an attorney under the KRPC, an attorney may not be separately compensated for brokerage services through the payment of a real estate commission.
Consequently, K.S.A. 2011 Supp. 58-3037(c), the attorney exemption to the KREBSLA does not exempt an attorney from the prohibition in K.S.A. 2011 Supp. 58-3062(a)(10) against splitting a fee with a nonlicensee because the commission is not earned by primarily performing services encompassed within and incidental to the practice of law, within the context of an attorney-client relationship, and in a manner consistent with the attorney s professional duties.
Public Policy
McGrath makes an additional argument, contending a determination that he cannot share in the commission would violate public policy because barring attorneys from participating in commission-based compensation unreasonably restrains competition in the brokerage service market. McGrath, however, cites no credible support for his argument. See
McCain Foods
USA,
Inc. v. Central Processors, Inc.,
Conclusion
The district court reached the correct conclusion that McGrath was not entitled to share in the brokerage commission. The activities McGrath performed to earn the fee were primarily brokerage services, and any attorney services were incidental. Yet to fall within die attorney exemption of K.S.A. 2011 Supp. 58-3037(c), McGrath had to have primarily performed legal services and any broker’s services must have been minor, incidental, ancillary, and subordinate to die legal services performed. Furthermore, Mc-Grath sharing in the fee would be inconsistent with his professional duties as an attorney.
As a result, under K.S.A. 2011 Supp. 58-3062(a)(10), RAN cannot pay a share of the commission to McGrath, and McGrath is not entitled to the funds at issue in this interpleader action.
Affirmed.