Anderson v. Department of Real Estate

93 Cal. App. 3d 696, 155 Cal. Rptr. 307, 1979 Cal. App. LEXIS 1803

• Court: California Court of Appeal
• Decided: May 11, 1979
• Docket: Civ. 54049
• Status: Published

Opinions

Opinion

THOMPSON, J.

This appeal is from a judgment in administrative mandate (Code Civ. Proc., § 1094.5) which overturns a decision of appellant Department of Real Estate. In addition to issues of applicability of and statutory authority for the department’s regulation 2850 (Cal. Admin. Code, tit. 10, art. 17, § 2850) requiring licensure of “advance fee rental agents” as defined in the regulation, the case at bench raises an apparently novel issue of the validity of the regulation in light of First Amendment protection of commercial speech.

We conclude that the regulation is authorized by statute and that it covers respondent’s activity. We conclude also, however, that as applied by the department to respondent’s activity, the key statute and regulation infringe upon respondent’s right to freedom of commercial speech by imposing overly restrictive requirements for licensure. Accordingly, we affirm the action of the trial court which annuls a department determination revoking respondent’s inactive real estate license for violation of the licensure requirement.

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 fist 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. In the third, it was. Homefinders was not the owner of any of the properties listed as available for rent by it.

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 disciplinaiy 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. (Bus. & Prof. Code, §§ 10152, 10153, 10153.7.) They are examined on “[appropriate knowledge of the English language, including reading, writing and spelling and of arithmetical computations common to real estate and business opportunity practices. [1Í] An understanding of the principles of real estate and business opportunity conveyancing, the general purposes and general legal effect of agency contracts, deposit receipts, deeds, mortgages, deeds of trust, chattel mortgages, bills of sale, land contracts of sale and leases, and of the principles of business and land economics and appraisals. [f¡ A general and fair understanding of the obligations between principal and agent . . . and the cannons [sic] of business ethics pertaining [to real estate and business opportunity practice].” (Bus. & Prof. Code, § 10153.)

It is unlawful for any person to engage in conduct requiring a real estate broker’s or salesman’s license unless he is licensed. (Bus. & Prof. Code, § 10130.) In 1961, the traditional definition of activity of a real estate broker was broadened. Section 10131.2 was added to the Business and Professions Code stating: “A real estate broker ... is also a person who engages in the business of claiming, demanding, charging, receiving, collecting or contracting for the collection of an advance fee in connection with any employment undertaken to promote the sale or lease of real property ... by advance fee listing, advertisement or other offering to sell, lease, exchange or rent property ... or to obtain a loan or loans thereon.” Read with the provisions of Business and Professions Code section 10131, subdivision (b), which defines a broker’s activities to include solicitation “of places for rent, or . . . for prospective tenants,” section 10131.2 covers the activity of an “advance fee rental agent,” i.e., a person who “furnishes rental information to prospective tenants whereby they are obligated to pay a fee in advance of services whether or not a rental is obtained . . . .” (Cal. Admin. Code, tit. 10, art. 17, § 2850; Review of Selected 1965 Code Legislation (Cont.Ed.Bar 1965) p. 14.)¹ The commissioner’s regulations provide that, “No real estate salesman shall act as an ‘advance fee rental agent’ unless the salesman’s employing broker ... is actively engaged in the real estate or rental business at the same office . . . .” (Cal. Admin. Code, tit. 10, art. 17, § 2851.)

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.

“[S]peech is not removed from the protection of the First Amendment simply because it ‘does “no more than propose a commercial transaction.” ’ ” (Welton v. City of Los Angeles (1976) 18 Cal.3d 497, 503-504 [134 Cal.Rptr. 668, 556 P.2d 1119], quoting Va. Pharmacy Bd. v. Va. Consumer Council (1976) 425 U.S. 748, 762 [48 L.Ed.2d 346, 358, 96 S.Ct. 1817].) In part, commercial speech is afforded constitutional protection because of the listener-consumer’s “concern for [its] free flow.” (Bates v. State Bar of Arizona (1977) 433 U.S. 350, 364 [53 L.Ed.2d 810, 823, 97 S.Ct. 2691].) The protection extends to advertising. (Va. Pharmacy Bd. v. Va. Consumer Council, supra; Bates v. State Bar of Arizona, supra.)

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. , 507 P.2d 65].) The Legislature has thus stated a necessary and legitimate purpose for: (1) a licensure requirement of honesty and integrity of the licensee; (2) a requirement that the “advance fee rental agent” licensee be placed in a fiduciary relationship with his customer; and (3) accountability.

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 long as licensure to those categories depends upon the licensee meeting tests irrelevant to the “advance fee rental agents” activity. The Constitution requires that if necessary they be separately licensed subjected to qualifications rationally related to the reason for licensure.

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 [53 L.Ed.2d 810, 823].) 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 the persons who may publish lists of available rentals by requirements unrelated to legislative purpose; and (2) the regulations which require that the publication be from the office of a licensed broker.

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.

1 “Senate Bill 269 [Stats. 1965, ch. 172, pp. 1134-1135] . . . clarifies that furnishing of lists of rental vacancies to prospective tenants for compensation is an act for which a real estate rental agency license is required.”

2 The department argues that Anderson’s First Amendment argument is not available because it was not raised at the administrative hearing. “[FJailure to raise [a] constitutional issue during an administrative proceeding will not prevent a party from raising it in judicial review proceedings of the agency’s action.” (Deering, Cal. Administrative Mandamus (Cont.Ed.Bar Supp. 1979) § 6.11 A, p. 77.)