Kansas City Premier Apartments, Inc. v. Missouri Real Estate Commission , 2011 Mo. LEXIS 203 ( 2011 )

ZEL M. FISCHER, Judge.

Kansas City Premier Apartments, Inc. (“KCPA”) appeals an injunction entered by the trial court finding it in violation of chapter 339 and prohibiting it from continuing any activities requiring real estate licensure. KCPA claims that the trial court misapplied § 339.010.1, RSMo Supp. 2010.¹ It also claims that the trial court erred in not declaring § 339.010.1 and § 339.010.7 unconstitutional. This Court has exclusive jurisdiction over this appeal under article V, section 3, of the Missouri Constitution, as the appeal involves the validity of a state statute. Judgment affirmed.

Facts

In 2001, Tiffany Lewis and Ryan Gran founded KCPA, a business devoted to assisting owners of rental property in locating prospective renters (“prospects”). Neither Lewis nor Gran has a Missouri real estate brokerage license. KCPA’s business model is built on entering into non-exclusive performance-based agreements with property owners. The property owners agree to pay a fee to KCPA for each new tenant who submits to the property owner a card verifying that he or she was referred to the property by KCPA. KCPA offers a $100 gift card to each prospect who gives a property owner a card that results in a payment to KCPA.

KCPA operates through its website, www.kcpremierapts.com. The website offers a searchable database of rental listings provided by property owners. It also offers prospects the option of direct, interactive contact with rental advisors. These advisors are independent contractors who will respond to any questions asked by prospects, recommend which properties to rent, and contact property owners to arrange appointments. The record shows that 80% of prospects take advantage of KCPA’s rental advisors.

In 2004, the Missouri Real Estate Commission received a complaint about KCPA and began an investigation to determine if KCPA was unlawfully engaged in real estate activities. In 2006, the Commission sent Lewis a letter stating it had determined that KCPA was “conducting real estate activity without a Missouri real estate license ... in violation of Missouri law and must cease immediately.”

In January 2007, KCPA responded, stating that it believed it was in compliance with the law. In March, the Commission sent another letter to KCPA insisting that it was “illegally operating as a real estate broker ... without the required Missouri real estate broker license.” The letter threatened immediate legal action. In April, KCPA preempted the Commission by filing a lawsuit requesting a declaratory judgment that § 339.010.1 does not encompass its business activities, that § 3B9.010.7 exempts KCPA from the licen-sure requirements of chapter 339, and that the Commission’s interpretation of chapter 339 violates KCPA’s rights under the United States and Missouri constitutions.

In 2009, after two years of litigation, the Commission filed its own petition for a preliminary injunction, seeking to bar KCPA from performing real estate activities. In 2010, the two cases were consolidated and tried. The trial court issued an injunction prohibiting KCPA from “[e]on-tracting with property owners to receive compensation in return for referring prospective tenants” and from performing “any act requiring real estate licensure.” It also prohibited KCPA from dispensing rebate cards to tenants and denied KCPA’s request for declaratory judgment.

Application of § 339.010

KCPA challenges the trial court’s judgment claiming that it erroneously applied § 339.010. KCPA claims that while it meets the definition of a “real estate broker” under § 339.010.1, it qualifies for an exemption under § 339.010.7.

Standard of Review

This Court must sustain the trial court’s judgment “unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law.” Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).

Analysis

Section 339.010.1 defines a “real estate broker” as a person or corporation who for valuable consideration does or attempts to do any of the following:

(3) Negotiates or offers or agrees to negotiate the sale, exchange, purchase, rental or leasing real estate;

(4) Lists or offers or agrees to list real estate for sale, lease, rental or exchange;

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(7) Assists or directs in the procuring of prospects, calculated to result in the sale, exchange, leasing or rental of real estate;

(8) Assists or directs in the negotiation of any transaction calculated or intended to result in the sale, exchange, leasing or rental of real estate;

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(10) Performs any of the foregoing acts on behalf of the owner of real estate, or interest therein, or improvements affixed thereon, for compensation.

§ 339.010.1. Section 339.020 makes it unlawful for any person or corporation to act as a real estate broker without a license, and a violation is a class B misdemeanor. Section 339.170.

KCPA argues the trial court’s judgment erroneously applies these provisions because KCPA is retained by landlords to list and otherwise assist them in marketing their rental properties and, therefore, it qualifies for an exemption from the chapter 339 licensure requirements under § 339.010.7(5). Section 339.010.7(5) states that the provisions of chapter 339 do not apply to:

[a]ny person employed or retained to manage real property by, for, or on behalf of the agent or the owner of any real estate shall be exempt from holding a license, if the person is limited to one or more of the following activities:

(a) Delivery of a lease application, a lease, or any amendment thereof, to any person;

(b) Receiving a lease application, lease, or amendment thereof, a security deposit, rental payment, or any related payment, for delivery to, and made payable to, a broker or owner;

(c) Showing a rental unit to any person, as long as the employee is acting under the direct instructions of the broker or owner, including the execution of leases or rental agreements;

(d) Conveying information prepared by a broker or owner about a rental unit, a lease, an application for lease, or the status of a security deposit, or the payment of rent, by any person;

(e) Assisting in the performance of brokers’ or owners’ functions, administrative, clerical or maintenance tasks....

KCPA argues that because the statute does not define what it means for a person to be “employed or retained to manage real property,” the term “retain” must be given its ordinary meaning as found in the dictionary. In re Coffman, 225 S.W.3d 439, 444 (Mo. banc 2007). It relies on the Black’s Law Dictionary 1316 (6th ed.1990) definition of “retain,” which is “to engage the services of an attorney or counselor to manage a specific matter.” Based on this definition, KCPA argues that it is retained by property owners to list and otherwise assist them in marketing their rental properties; therefore, it qualifies for the exemption given under § 339.010.7(5).

KCPA’s broad interpretation of the § 339.010.7(5) exemption ignores the plain and ordinary meaning of the statute and the intent of the legislature. “The primary rule of statutory construction is to ascertain the intent of the legislature from the language used, to give effect to that intent if possible, and to consider words used in the statute in their plain and ordinary meaning.” Howard v. City of Kansas City, 332 S.W.3d 772, 779 (Mo. banc 2011). “Exemptions are interpreted to give effect to the General Assembly’s intent, using the plain and ordinary meaning of the words.” Brinker Missouri, Inc. v. Dir. of Revenue, 319 S.W.3d 433, 437 (Mo. banc 2010).

This Court has previously found that “the manifest intention” of the legislature in enacting chapter 339 was “to protect the public from the evils of fraud and incompetency.” Miller Nationwide Real Estate Corp. v. Sikeston Motel Corp., 418 S.W.2d 173, 176-77 (Mo.1967). Therefore, KCPA “must present a clear case, free from all doubt” that it fits under an exemption from chapter 339, and any such exemption “must be strictly construed against [it] ... and in favor of the public.” Id. at 177.

KCPA has failed to meet this burden. KCPA’s interpretation of the exemption under § 339.010.7(5) ignores the language limiting the activities that can be performed by an unlicensed person “employed or retained to manage real property ... to one or more of the ... activities” listed in subsections (a) through (e). Section 339.010.7(5). Of these subsections, § 339.010.7(5)(d) is most applicable to the activities performed by KCPA. This subsection allows the “[c]onveying [of] information prepared by a broker or owner about a rental unit, a lease, an application for lease ... by any person.” Section 339.010.7(5)(d). However, KCPA’s activities are not limited enough to fit under this exemption. KCPA provides other services that exceed all of the exemptions provided by § 339.010.7, such as providing rental advisors who market select units to prospects based on the prospect’s particular needs and providing detailed advice about apartment search strategies. Because none of the exemptions applies to this type of assistance, KCPA cannot rely on any of the exemptions.

Constitutional Validity of § 339.010

KCPA challenges the constitutional validity of § 339.010.1(3), (4), (7), (8), and (10) and § 339.010.7.

Standard of Review

This Court reviews a constitutional challenge to a statute de novo. In re Brasch, 332 S.W.3d 115, 119 (Mo. banc 2011). “A statute is presumed valid and ■will not be held unconstitutional unless it clearly contravenes a constitutional provision. The person challenging the statute’s validity bears the burden of proving the act clearly and undoubtedly violates the constitution.” Id.

Freedom of Speech under the United States Constitution

KCPA argues that the challenged provisions should be struck down because they dramatically impair the ability of unlicensed persons to share knowledge about real estate and limit a potential renter’s ability to receive this knowledge. KCPA essentially asserts that the State should not be able to license and regulate people who choose to perform real estate activities in Missouri. In making this assertion, KCPA offers no case law that stands for the proposition that a state cannot regulate professional conduct because it violates the constitutional right to freedom of speech.²

If KCPA merely wanted to advertise or provide information, as suggested by the dissenting opinion, it would be exempt from regulation by the Commission. Further, the terms of the circuit court’s judgment do not enjoin providing information, which would be considered protected commercial speech. In fact, the dissenting opinion suggests that this Court, rather than accepting the findings and conclusions of the circuit court, should reweigh the evidence and re-find the facts and re-conclude that KCPA merely “communi-cat[ed] to the public information about the availability of rental housing.” Op. at 175. The findings and conclusions of the circuit court indicate that KCPA did much more than provide information and, in fact, crossed over the line into activities limited to those that the legislature has determined require a real estate license. These determinations are supported by substantial evidence and should be given due deference. In fact, many of these activities were not denied by KCPA.

There are, however, numerous cases that have upheld the regulation of professional conduct even if that conduct takes the form of speech. In Ohralik v. Ohio State Bar Ass’n, the United States Supreme Court addressed whether the Ohio State Bar Association could discipline an attorney for personally soliciting automobile accident victims, or whether this conduct was a protected exercise of that attorney’s right to free speech. 436 U.S. 447, 98 S.Ct. 1912, 56 L.Ed.2d 444 (1978). The Supreme Court found that Ohio did not lose the ability to regulate commercial activity to protect the public simply because speech was a component of that activity. Id. at 456, 98 S.Ct. 1912. The Supreme Court also found that there was no need for proof that Ohralik’s conduct actually harmed the public for Ohio to regulate it; all that was necessary was the potential for harm. Id. at 464, 98 S.Ct. 1912. Ultimately, the Supreme Court found that the regulation of the practice of law in Ohio is “within the State’s proper sphere of economic and professional regulation” and, therefore, “is subject to regulation in furtherance of important state interests.” Id. at 459, 98 S.Ct. 1912.

Many other courts have reached a similar conclusion to that in Ohralilc, finding that the regulation of professions is necessary to protect the public and, therefore, is not unconstitutional simply because the regulations had an incidental effect on the free speech rights of unlicensed individuals. Courts have upheld the regulation of professionals such as psychologists, National Ass’n for the Advancement of Psychoanalysis v. California Bd. Of Psychology, 228 F.3d 1043 (9th Cir.2000), securities broker-dealers, Underhill Associates, Inc. v. Bradshaw, 674 F.2d 293 (4th Cir.1982), accountants, Accountant’s Soc’y of Virginia v. Bowman, 860 F.2d 602 (4th Cir.1988), and, most recently, interior designers, Locke v. Shore, 634 F.3d 1185 (11th Cir.2011).

A state, however, does not have unlimited power to directly restrict speech through the regulation of a profession. Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 770, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976). Instead, to the extent that specific provisions of a regulatory scheme directly restrict speech, those provisions must survive either strict scrutiny or intermediate scrutiny standard. In determining which standard to apply, the United States Supreme Court has recognized a “ ‘commonsense’ distinction between speech proposing a commercial transaction, which occurs in an area traditionally subject to government regulation, and other varieties of speech.” Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557, 562, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980) (quoting Ohralik, 436 U.S. at 455-56, 98 S.Ct. 1912). For this reason, the lesser standard of intermediate scrutiny applies to state regulations of commercial speech. Id. at 562-63, 100 S.Ct. 2343.

The information KCPA displays as part of its real estate activities is commercial speech. Commercial speech, as defined in Central Hudson, is an “expression related solely to the economic interests of the speaker and its audience.” Id. at 561, 100 S.Ct. 2343. The information that KCPA displays serves its economic interest in that it gets paid when a prospect chooses one of the rental properties it advertises. The information also serves KCPA’s prospects’ economic interest by helping them find the rental that best fits their needs and by providing them with the additional incentive of a $100 gift card for using KCPA’s services. Because chapter 339 only regulates commercial speech, this Court’s review of the challenged provisions must apply the four-part intermediate scrutiny test as described in Central Hudson. Id. at 566, 100 S.Ct. 2343.

In the first part of the Central Hudson test, this Court “must determine whether the expression is protected by the First Amendment.” Id. “For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading.” Central Hudson, 447 U.S. at 566, 100 S.Ct. 2343. If this Court determines that the speech in question is protected by the First Amendment, then it must determine “whether the asserted governmental interest is substantial.” Id. If the governmental interest is substantial, this Court must “determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.” Id.

Assuming the information displayed on KCPA’s website is lawful and not misleading, this Court must determine whether the Commission has asserted a substantial governmental interest. The governmental interest behind the challenged provisions is to protect the public from fraud and incompetence. Miller Nationwide, 418 S.W.2d at 176-77. Because this is a substantial governmental interest, this Court must perform the next step as described by Central Hudson to determine if the challenged provisions survive intermediate scrutiny. 447 U.S. at 566, 100 S.Ct. 2843.³

Intermediate scrutiny requires compliance with two criteria:

First, the restriction must directly advance the state interest involved; the regulation may not be sustained if it provides only ineffective or remote support for the government’s purpose. Second, if the governmental interest could be served as well by a more limited restriction on commercial speech, the excessive restrictions cannot survive.

Id. at 564, 100 S.Ct. 2343. Chapter 339 and the challenged provisions meet the requirement of directly advancing a state interest. The requirements of licensure directly relate to the honesty and competency that the legislature seeks to assure in those who practice real estate in this state.

Chapter 339 is also not excessive. In Central Hudson, the Supreme Court defined the second requirement of intermediate scrutiny as allowing “the regulatory technique [to] extend only as far as the interest it serves.” Id. at 565, 100 S.Ct. 2343. A state cannot reach beyond its interest and regulate speech that poses no danger to that state’s interest. Id. The restrictions imposed by chapter 339 and the challenged provisions do not go beyond the State’s interest in regulating “real estate brokers” as described by the definition in § 339.010.1. Because the challenged provisions survive immediate scrutiny, they do not violate KCPA’s freedom of speech and are not unconstitutional.

Freedom of Speech under the Missouri Constitution

KCPA asserts that even if the challenged provisions do not violate the right to freedom of speech under the United States Constitution, these provisions still violate the right to freedom of speech under the Missouri Constitution. KCPA claims that the right to freedom of speech under article I, section 8, of the Missouri Constitution is broader than the federal right.⁴ It claims that the article I, section 8, requires the Commission to demonstrate why KCPA’s communications of information about rental properties should be considered an “abuse” of its expressive freedoms.

This Court addressed a similar argument in Missouri Libertarian Party v. Conger, 88 S.W.3d 446 (Mo. banc 2002). In Conger, this Court disagreed with the argument that the right to free speech under article I, section 8, was so broad that it granted an absolute right to speech without restriction. Id. at 447-48. Instead, this Court held that “[t]he right to free speech is subject to the state’s inherent right to exercise its police power.” Id. at 448. This Court has previously held that chapter 389 serves an important purpose and is a proper exercise by the State of its police power. Miller Nationwide, 418 S.W.2d at 177. Therefore, chapter 339 does not violate the right to freedom of speech under article 1, section 8, of the Missouri Constitution.

Equal Protection Clause of the United States and Missouri Constitutions

KCPA argues § 339.010.7 violates the equal protection clause⁵ and article I, section 2, of the Missouri Constitution because it arbitrarily discriminates by creating exemptions “not based on differences reasonably related to the purposes” of the statute. Petitt v. Field, 341 S.W.2d 106, 109 (Mo. banc 1960). Both the equal protection clause and article I, section 2, provide “that a law may treat different groups differently, but it cannot treat similarly situated persons differently without adequate justification.” Comm. for Educ. Equal. v. State, 294 S.W.3d 477, 489 (Mo. banc 2009). Whether adequate justification exists is determined by applying either strict scrutiny if a “fundamental right” is impacted by the law or rational-basis review if one is not. Id. at 489-90. No fundamental right exists to engage in the profession of real estate brokerage, so this Court will review chapter 339 under the rational-basis standard.

Rational-basis review requires that this Court find a “reasonably conceivable state of facts that ... provide[s] a rational basis for the classification.” F.C.C. v. Beach Commc’ns, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993). Review under this standard is not an opportunity for this Court to question “the wisdom, fairness, or logic of legislative choices.” Id. Instead, all that is required is that this Court find a plausible reason for the classification in question. Id. at 313-14, 113 S.Ct. 2096.

Plausible reasons exist for the exemptions provided by § 339.010.7. The persons exempted from the licensure fall into four general categories; all of these persons have a plausible reason for being exempt. The first category includes persons acting on their own behalf, with regard to property under their legal control. This first category is created by § 339.010.7(1), (3), (5), (7), (10), and (12), which allows exemptions for property owners and their employees, auctioneers, property managers retained by owners, railroads and other public utilities, developers, and neighborhood associations, respectively. The plausible reason for these exemptions is to allow these persons to handle their own affairs without having to hire a real estate broker. The second category is encompassed by § 339.010.7(2) and is limited to attorneys. The exemption of attorneys is rational because each attorney has been licensed professionally and is regulated by this Court and, therefore, does not need to be governed by chapter 339. The third category is made up of persons who have the authority of law to deal in land transactions. These persons are covered by § 339.010.7(4), (6), and (11) and consist of receivers, trustees, guardians, or executors; federal, state or local government employees; and employees of nonprofit organizations engaged in economic development. It is rational for the legislature to think that the persons in this category do not need to be regulated under chapter 339 because they already act in an official capacity under the authority of law. The fourth and final category consists of newspaper publishers and other representatives of media. They are exempted under § 339.010.7(9) as long as their advertising of real estate is incidental to their operation. This exemption is reasonable in that it allows newspapers and other media sources to continue to post classified advertisements for real estate. Because all the exemptions under § 339.010.7 have a reasonably conceivable rational basis, they do not violate the equal protection clause or article I, section 2, of the Missouri Constitution.

Special Law Provision of the Missouri Constitution

KCPA claims that § 339.010.7 violates article III, section 40(30), of the Missouri Constitution because it is a special law. Article III, section 40(30), prohibits the legislature from passing any special law “where a general law can be made applicable, and whether a general law could have been made applicable is a judicial question to be judicially determined without regard to any legislative assertion on that subject.” This Court has previously recognized that “whether a law is special or general can most easily be determined by looking to whether the categories created under the law are open-ended or fixed, based on some immutable characteristic.” City of Springfield v. Sprint Spectrum, L.P., 203 S.W.3d 177, 184 (Mo. banc 2006).

Chapter 339 classifies persons based on whether they are licensed real estate brokers. Section 339.040 provides a framework for how a person can become a licensed real estate broker. Many of the exemptions described in § 339.010.7 are also open-ended — a person can become a licensed attorney or an auctioneer, for example. For this reason, § 339.010.7 is not a special law in violation of article III, section 40(30).

Vagueness

KCPA’s final argument is that § 339.010.1(3), (4), (7), (8), and (10) and § 339.010.7 are unconstitutionally vague. It avers that the legislative definition of the practice of “real estate brokerage” is so vague that it violates due process.

“Due process requires that all be informed as to what the State commands or forbids, and that men of common intelligence not be forced to guess at the meaning of the criminal law.” Smith v. Goguen, 415 U.S. 566, 574, 94 S.Ct. 1242, 39 L.Ed.2d 605 (1974) (internal quotations omitted). This Court has reviewed vagueness challenges to the language of a statute “by applying it to the facts at hand.” State v. Entm’t Ventures I, Inc., 44 S.W.3d 383, 386 (Mo. banc 2001). “A valid statute provides a person of ordinary intelligence a reasonable opportunity to learn what is prohibited.” Id.

The words used in the challenged provisions are not vague; the conduct prohibited is defined clearly. The words and phrases that KCPA challenges such as “negotiates,” “listing,” and “assists or directs in the procuring of prospects for rental” have everyday meanings. “[I]f the words or terms used in the statute are of common usage and are understandable by persons of ordinary intelligence they will satisfy the constitutional requirement as to definiteness and certainty.” State v. Williams, 473 S.W.2d 382, 384 (Mo. banc 1971). Applying these statutes to the facts at hand, the prohibitions of chapter 339 are easily understood. These statutes gave KCPA adequate notice that it was acting in violation of chapter 339 by assisting and directing in the procuring of prospects for rental.

Conclusion

KCPA has failed to demonstrate that the trial court erroneously declared or applied the law by entering an injunction against KCPA. It also has failed to demonstrate that the challenged provisions are unconstitutional. The judgment is affirmed.

RUSSELL, BRECKENRIDGE, STITH and PRICE, JJ., concur. WOLFF, J., dissents in separate opinion filed. TEITELMAN, C.J., concurs in opinion of WOLFF, J.

1 . KCPA’s challenge to the injunction is governed by the version of chapter 339 now in effect. Goerlitz v. City of Maryville, 333 S.W.3d 450, 453 (Mo. banc 2011). "This is because an injunction looks forward by addressing what conduct or actions will be permitted in the future.” Id. For this reason, all statutory references in this opinion are to RSMo Supp.2010.

2 . KCPA cites to Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), which declared unconstitutional a regulation that prevented licensed pharmacists from disseminating any information regarding the prices of prescription drugs. Id. at 756, 96 S.Ct. 1817. However, in doing so, the Supreme Court held only that a state could not completely suppress commercial speech but did not address to what extent commercial speech could be regulated. Id. at 771, 96 S.Ct. 1817. It is also important to note that this case is further distinguishable from the current case because it dealt with the regulation of the commercial speech of persons licensed under the regulation in question.

3 . This case does not involve the combination of both “content based” and "speaker based” speech that was present in Sorrell v. IMS Health, 564 U.S. -, 131 S.Ct. 2653, 180 L.Ed.2d 544 (2011), relied on by the dissenting opinion to justify applying heightened scrutiny. “Heightened scrutiny” has not in the past and is not likely in the future to be expanded to all commercial speech because to do so would significantly change the legislative/judicial balance in a way that significantly weakens the legislature's authority to regulate commerce and industry. Traditionally, commercial speech can be subject to greater governmental regulation than noncommercial speech because of the government’s neutral interest in preventing commercial harms. City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 113 S.Ct. 1505, 123 L.Ed.2d 99 (1993). The speech-related consequences here are incidental, and if KCPA would limit its activity to the speech-related activity, it would not be subject to regulation by the Commission.

4 . "While provisions of our state constitution may be construed to provide more expansive protections than comparable federal constitutional provisions, analysis of a section of the federal constitution is strongly persuasive in construing the like section of our state constitution.” Doe v. Phillips, 194 S.W.3d 833, 841 (Mo. banc 2006) (internal quotations omitted). This Court has traditionally given due deference to United States Supreme Court precedents when our state constitutional provisions are the same as the United States constitutional provisions.

5 . “No State shall make or enforce any law which shall ... deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const. Amendment XIV, § 1.