Brian Shanklin and Todd Rimmer v. Bassoe Offshore (USA), Inc., Mike Smith, and Jonathan Fairbanks , 2013 Tex. App. LEXIS 5852 ( 2013 )

Concurring opinion issued May 14, 2013
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 12-00563-CV
———————————
BRIAN SHANKLIN AND TODD RIMMER, Appellants
V.
BASSOE OFFSHORE (USA) INC., MIKE SMITH,
AND JONATHAN FAIRBANKS, Appellees
On Appeal from the 127th District Court
Harris County, Texas
Trial Court Case No. 2009-14340
CONCURRING OPINION
The majority’s entire discussion of Real Estate License Act standing is dicta:
the opinion expressly acknowledges that “even if the trial court erred in concluding
that Shanklin and Rimmer lacked standing, its subsequent findings after a bench
trial preclude a reversal of the partial summary judgment.” I agree that the
outcome of the trial on the merits is determinative of this appeal, and it requires
that we affirm. But I do not agree with the majority’s unnecessary frolic into
uncharted legal territory on the subject of RELA standing.
Even if it were necessary to reach the standing issue, I disagree with the
majority’s interpretation of the statute. The allegations brought in this case by
appellants Shanklin and Rimmer, if true, would make them “aggrieved persons”
for purposes of the implied right of action under the RELA. See TEX. OCC. CODE
ANN. § 1101.754(b). These claimants are not harmed by the majority’s restrictive
interpretation of the RELA private cause of action, but a future claimant may be.
Accordingly, I write to explain my disagreement with the majority’s conclusion
that to be an “aggrieved person” eligible to invoke the private cause of action, a
person must have paid a fee to another person improperly acting as a real estate
broker.
I. Bassoe acted as an unlicensed real estate broker
Under the RELA, a person is a “broker” if he “negotiates or attempts to
negotiate the . . . purchase . . . of real estate” and “performs” such actions “for
another person” and “in exchange for a commission or other valuable consideration
or with the expectation of receiving a commission or other valuable consideration.”
TEX. OCC. CODE ANN. § 1101.002(1)(A)(iii). The statute further provides that “[a]
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person acts as a broker . . . under [the RELA] if the person, with the expectation of
receiving valuable consideration, directly or indirectly performs or offers, attempts,
or agrees to perform for another person any act described by Section 1101.002(1),
as a part of a transaction or as an entire transaction.” Id. § 1101.004 (emphasis
supplied). A person or business entity is prohibited from acting as a broker
without holding a license. Id. § 1101.351(a), (a-1).
For purposes of their standing argument, appellees Bassoe, Smith, and
Fairbanks (hereinafter collectively referenced as “Bassoe”) concede that they were
engaged to act as Shanklin and Rimmer’s broker in their attempt to purchase the
Pride assets, including real property located in Huoma, Louisiana. Shanklin and
Rimmer alleged and the trial court found that Bassoe indicated its expectation of a
fee for brokering the transaction. But Bassoe in its capacity as business entity
lacked a real estate brokerage license, and Smith and Fairbanks likewise lacked
broker licenses in their individual capacities. Taking the plaintiffs’ allegations as
true, we thus assume that Bassoe violated the RELA by acting as a broker on the
appellants’ behalf.
II. RELA’s implementing regulations
The RELA establishes a private cause of action to remedy injuries resulting
from violations of the prohibition against acting as a broker without a license. The
statute provides that if “[a] person . . . receives a commission or other
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consideration as a result of acting as a broker . . . without holding a license or
certificate of registration” under the RELA, that person “is liable to an aggrieved
person for a penalty of not less than the amount of money received or more than
three times the amount of money received.” Id. § 1101.754(a). The RELA
imposes numerous requirements upon licensed real estate brokers, all of which
inform the question presented in this case about who might qualify as an
“aggrieved party” for purposes of bringing a private cause of action under the
RELA.
To be eligible to receive a license under the RELA, a person must “satisfy
the [Texas Real Estate Commission] as to the applicant’s honesty, trustworthiness,
and integrity.” Id. § 1101.354(2). The applicant must “complete the required
courses of study, including any required core real estate courses prescribed under
[the RELA].” Id. § 1101.354(4); see also id. §§ 1101.356, .357, .359 (experience
and education requirements to obtain a broker license). The “core real estate
courses” include “agency law,” which subsumes as one of its subtopics “an agent’s
duties, including fiduciary duties.” Id. § 1101.003(1)(D). To obtain a license, a
business entity must designate a managing officer who is a licensed broker as its
agent for purposes of the RELA. Id. § 1101.355.1 These provisions serve to
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In addition, the RELA ensures the financial accountability of licensed
business entities by requiring that they “provide proof that the entity
maintains errors and omissions insurance with a minimum annual limit of
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ensure that any person or entity licensed as a broker has satisfied minimum
standards of character and education deemed necessary to provide real estate
brokerage services.
To facilitate the regulation of real estate brokers, the RELA established the
Texas Real Estate Commission. See id. §§ 1101.051–.059. The general powers
and duties of the TREC include administering the RELA and adopting and
enforcing rules necessary to accomplish that charge. Id. § 1101.151(a)(1), (b)(1).
The TREC is also authorized to “establish standards of conduct and ethics” for
persons licensed under the RELA, both to “fulfill the purposes of” and to “ensure
compliance with” the statutory scheme. Id. § 1101.151(b)(2). The TREC is
statutorily authorized to “file a complaint and conduct an investigation as
necessary” to enforce the RELA or rules adopted under the RELA. Id.
§ 1101.204(a).
The TREC has indicated that its understanding of the general legislative
intent of the RELA “to provide protection for the public in its dealings with real
estate agents.” TEX. REAL ESTATE COMM’N, THE HISTORY OF THE REAL ESTATE
LICENSE ACT, available at http://www.trec.texas.gov/pdf/rela/HistoryOfRELA.pdf.
To that end, the rules adopted by the TREC and codified in Title 22, Part 23 of the
$1 million for each occurrence if the designated agent owns less than
10 percent of the business entity.” TEX. OCC. CODE ANN. § 1101.355(a)(2).
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Texas Administrative Code include “Canons of Professional Ethics and Conduct”
applicable to the profession. The ethical canons include, among other things, rules
relating to fidelity and integrity:
RULE § 531.1 Fidelity
A real estate broker or salesperson, while acting as an agent for
another, is a fiduciary. Special obligations are imposed when such
fiduciary relationships are created. They demand:
(1) that the primary duty of the real estate agent is to represent
the interests of the agent’s client, and the agent’s position, in this
respect, should be clear to all parties concerned in a real estate
transaction; that, however, the agent, in performing duties to the
client, shall treat other parties to a transaction fairly;
(2) that the real estate agent be faithful and observant to trust
placed in the agent, and be scrupulous and meticulous in performing
the agent’s functions;
(3) that the real estate agent place no personal interest above
that of the agent’s client.
RULE § 531.2 Integrity
A real estate broker or salesperson has a special obligation to exercise
integrity in the discharge of the licensee’s responsibilities, including
employment of prudence and caution so as to avoid misrepresentation,
in any wise, by acts of commission or omission.
22 TEX. ADMIN. CODE §§ 531.1–.2 (Canons of Professional Ethics and Conduct).
In addition, every active real estate broker licensed by the TREC is required to
display in a prominent location in each place of business a consumer information
form which provides a public notice designed to facilitate the submission to the
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commission of consumer complaints about real estate brokers. TEX. REAL ESTATE
COMM’N, CONSUMER INFORMATION FORM 1-1, available at
http://www.trec.texas.gov/pdf/forms/miscellaneous/consumerinformationform.pdf;
see also TEX. OCC. CODE ANN. § 1101.202(a) (“The commission by rule shall
establish methods by which consumers and service recipients are notified of the
name, mailing address, and telephone number of the commission for the purpose of
directing a complaint to the commission.”); 22 TEX. ADMIN. CODE § 531.18
(Canons of Professional Ethics and Conduct).
“A broker who represents a party in a real estate transaction . . . is that
party’s agent.” TEX. OCC. CODE ANN. § 1101.557(a).2 Such a broker “shall, at a
minimum, answer the party’s questions and present any offer to or from the party.”
Id. § 1101.557(b)(3). The RELA also requires that a licensed broker provide a
written notice to the represented party to a real estate transaction “at the time of the
first substantive dialogue with the party.” Id. § 1101.558(c). The required notice
states:
“Before working with a real estate broker, you should know that the
duties of a broker depend on whom the broker represents. If you
are . . . a prospective buyer or tenant (buyer), you should know that
2
For these purposes, “‘Party’ means a prospective buyer, seller, landlord, or
tenant or an authorized representative of a buyer, seller, landlord, or tenant,
including a trustee, guardian, executor, administrator, receiver, or attorney-
in-fact. The term does not include a license holder who represents a party.”
TEX. OCC. CODE ANN. § 1101.551(2).
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the broker who lists the property for sale or lease is the owner’s agent.
A broker who acts as a subagent represents the owner in cooperation
with the listing broker. A broker who acts as a buyer’s agent
represents the buyer. A broker may act as an intermediary between
the parties if the parties consent in writing. A broker can assist you in
locating a property, preparing a contract or lease, or obtaining
financing without representing you. A broker is obligated by law to
treat you honestly.
“IF THE BROKER REPRESENTS THE OWNER: The broker
becomes the owner’s agent by entering into an agreement with the
owner, usually through a written listing agreement, or by agreeing to
act as a subagent by accepting an offer of subagency from the listing
broker. A subagent may work in a different real estate office. A
listing broker or subagent can assist the buyer but does not represent
the buyer and must place the interests of the owner first. The buyer
should not tell the owner’s agent anything the buyer would not want
the owner to know because an owner’s agent must disclose to the
owner any material information known to the agent.
“IF THE BROKER REPRESENTS THE BUYER: The broker
becomes the buyer’s agent by entering into an agreement to represent
the buyer, usually through a written buyer representation agreement.
A buyer’s agent can assist the owner but does not represent the owner
and must place the interests of the buyer first. The owner should not
tell a buyer’s agent anything the owner would not want the buyer to
know because a buyer’s agent must disclose to the buyer any material
information known to the agent.
“IF THE BROKER ACTS AS AN INTERMEDIARY: A broker may
act as an intermediary between the parties if the broker complies with
The Texas Real Estate License Act. The broker must obtain the
written consent of each party to the transaction to act as an
intermediary. The written consent must state who will pay the broker
and, in conspicuous bold or underlined print, set forth the broker's
obligations as an intermediary. The broker is required to treat each
party honestly and fairly and to comply with The Texas Real Estate
License Act. A broker who acts as an intermediary in a transaction:
(1) shall treat all parties honestly; (2) may not disclose that the owner
will accept a price less than the asking price unless authorized in
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writing to do so by the owner; (3) may not disclose that the buyer will
pay a price greater than the price submitted in a written offer unless
authorized in writing to do so by the buyer; and (4) may not disclose
any confidential information or any information that a party
specifically instructs the broker in writing not to disclose unless
authorized in writing to disclose the information or required to do so
by The Texas Real Estate License Act or a court order or if the
information materially relates to the condition of the property. With
the parties’ consent, a broker acting as an intermediary between the
parties may appoint a person who is licensed under The Texas Real
Estate License Act and associated with the broker to communicate
with and carry out instructions of one party and another person who is
licensed under that Act and associated with the broker to
communicate with and carry out instructions of the other party.
“If you choose to have a broker represent you, you should enter into a
written agreement with the broker that clearly establishes the broker’s
obligations and your obligations. The agreement should state how
and by whom the broker will be paid. You have the right to choose
the type of representation, if any, you wish to receive. Your payment
of a fee to a broker does not necessarily establish that the broker
represents you. If you have any questions regarding the duties and
responsibilities of the broker, you should resolve those questions
before proceeding.”
Id. § 1101.558(d) (emphasis supplied in italics).
Finally, the RELA generally provides that “[a] licensed broker is liable to
the commission, the public, and the broker’s clients for any conduct engaged in
under this chapter by the broker.” Id. § 1101.803.
III. Interpretation of the RELA’s private cause of action for “aggrieved
persons”
The foregoing regulations demonstrate that the RELA is concerned with the
protection of the general public and anyone who does business with a broker in a
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real estate transaction, not merely those who ultimately pay a commission to a
broker. The appellants’ allegations in this case thus fall squarely within the zone
of consumer protection that the RELA was intended to provide. Shanklin and
Rimmer claim that after engaging Bassoe to act as their real estate broker, they
were harmed by Bassoe’s failure to perform its duties as required under the RELA.
Instead of timely answering questions and faithfully pursuing Shanklin and
Rimmer’s interests, Bassoe is alleged to have actively promoted the acquisition of
Pride’s assets on behalf of another client, Blake. Bassoe is also accused of
misleading Shanklin and Rimmer by representing that Pride was merely too busy
to address their offer when Bassoe knew that Pride would not consider them as
qualified buyers. Bassoe failed to disclose this information to Shanklin and
Rimmer, although it knew that they were not dealing with other brokers or Pride
directly to pursue the acquisition.
All of these allegations, if true, suggested that Bassoe acted as Shanklin and
Rimmer’s real estate broker and breached a fiduciary duty arising from that
relationship. See, e.g., 22 TEX. ADMIN. CODE § 531.1. If Bassoe had been a loyal
agent, Shanklin and Rimmer contend that they could have attempted to address
Pride’s concerns. Likewise, if Bassoe had refused to act as their broker due to their
lack of a real estate license, a loyal broker could have been engaged and injury
possibly avoided. Thus, the alleged harm was of the kind which RELA is intended
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to prevent against by requiring a license for anyone who expects to receive a
commission for the sale of real estate.
The majority nevertheless concludes that the appellants are not “aggrieved
persons” as contemplated by the RELA, solely because the appellees ultimately
collected their fee from another party. I disagree with the majority’s narrow
interpretation. When reading statutes, we ascertain and give effect to the
legislature’s intent, as drawn from the plain meaning of the words of the statute.
See, e.g., Texas Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 452 (Tex. 2012).
Nothing in the text of section 1101.754 confines the concept of “aggrieved parties”
to the parties who actually paid the consideration to the offending unlicensed
broker.
The majority focuses upon the payment of a commission as the operative
fact that makes one a possibly “aggrieved person.” But the text of
section 1101.754 relies on the receipt of a commission or other compensation only
as the predicate condition that makes a broker an eligible defendant, without
further limitation as to the source of the payment. 3 The question presented by this
3
Cf. Flenniken v. Longview Bank & Trust Co., 661 S.W.2d 705, 706 (Tex.
1983) (noting, with respect to the statutory definition of “consumer” under
the Deceptive Trade Practices Act, that it “only describes the class of
persons entitled to bring suit . . . it does not define the class of persons
subject to liability,” and further noting that the “range of possible defendants
is limited only by” specific statutory exemptions).
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appeal is more directly concerned with the class of eligible plaintiffs—i.e., who
qualifies as an “aggrieved person”? If the legislature had intended to restrict the
class of “aggrieved persons,” it knew how to do so explicitly, as it did for purposes
of recoveries from the Real Estate Recovery Trust Account established in the
RELA. In that part of the RELA, the statute expressly provides: “An aggrieved
person is entitled to reimbursement from the trust account if a person described by
Section 1101.601 engages in conduct described by Section 1101.652(a)(3) or (b) or
1101.653(1), (2), (3), or (4).” TEX. OCC. CODE ANN. § 1101.602. Unlike the right
of recovery described in Subchapter M, there is no statutory limitation on the
general reference to an “aggrieved person” entitled to file a private right of action
under section 1101.754.4
Distinguished commentators have recently observed that “[p]erhaps no
interpretive fault is more common than the failure to follow the whole-text canon,
which calls on the judicial interpreter to consider the entire text, in view of its
structure and of the physical and logical relation of its many parts.” ANTONIN
SCALIA & BRYAN A. GARNER, READING LAW 167 (2012). Consideration of the full
4
See also TEX. BUS. & COM. CODE ANN. § 17.50 (confining private DTPA
cause of action to defined class of “consumers”); Riverside Nat. Bank v.
Lewis, 603 S.W.2d 169, 173 (Tex. 1980) (“To ignore the Legislature’s
definition of ‘consumer,’ and permit any aggrieved person to maintain a
private cause of action under the DTPA, ignores the well established
presumption that legislative choice of words is such that every word has
meaning.”).
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scope of the RELA regulatory scheme supports a broader understanding of the
class of persons who may be considered as “aggrieved” due to the unauthorized
practice of real estate brokerage by unlicensed persons or entities, 5 and thus also
supports a broader scope of potential liability for violating the RELA. 6 In contrast,
the majority’s interpretation of “aggrieved person” can only be justified by reading
section 1101.754 in complete isolation from the remainder of the RELA.
5
See, e.g., TEX. OCC. CODE ANN. § 1101.558 (“at the time of the first
substantive dialogue with the party,” the broker must provide written notice
that “[a] broker is obligated by law to treat you honestly,” that “[a] buyer’s
agent . . . must place the interests of the buyer first,” and that “[i]f you
choose to have a broker represent you, you should enter into a written
agreement with the broker that clearly establishes the broker’s obligations
and your obligations”); 22 TEX. ADMIN. CODE § 531.1 (“A real estate
broker . . . while acting as an agent for another, is a fiduciary. . . . [1] the
primary duty of the real estate agent is to represent the interests of the
agent’s client, and the agent’s position, in this respect, should be clear to all
parties concerned in a real estate transaction . . . [2] the real estate agent
[must] be faithful and observant to trust placed in the agent, and be
scrupulous and meticulous in performing the agent’s functions . . . [3] the
real estate agent [must] place no personal interest above that of the agent’s
client.”); Id. § 531.2 (“A real estate broker . . . has a special obligation to
exercise integrity in the discharge of the licensee’s responsibilities, including
employment of prudence and caution so as to avoid misrepresentation, in
any wise, by acts of commission or omission.”).
6
Cf. TEX. OCC. CODE ANN. § 1101.803 (establishing broker liability “to the
commission, the public, and the broker’s clients for any conduct engaged in
under this chapter by the broker”).
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IV. Holloman and Dohalick are distinguishable
In reaching its conclusion about the meaning of “aggrieved person,” the
majority relies upon two cases from other courts of appeals, both of which are
distinguishable.
Thirty years ago the Waco Court of Appeals decided Holloman v. Denson,
which concerned two real-estate transactions involving a subdivision owner,
Holloman. 640 S.W.2d 417, 419 (Tex. App.—Waco 1982, writ ref’d n.r.e.). Both
transactions also involved the Densons, who purchased one lot and sold another in
the subdivision. Id. Despite being unlicensed to act as a real estate broker,
Holloman collected a broker’s fee on both transactions—one from the Densons as
sellers, and the other from the homeowner who sold his house to the Densons. Id.
The case involved no allegation of wrongdoing or injury other than the bare fact
that Holloman was unlicensed and therefore prohibited from collecting a fee. See
id. at 420. The Waco court held that the Densons were entitled to recover the fee
that they had paid to Holloman. Id. With respect to the purchase of the Densons’
house, for which Holloman’s fee had instead been paid by the seller, the court held
that there was “no way the Densons could be found to be the aggrieved persons”
when they had not been affected by the transaction. Id. They paid the price the
seller asked for the house, and it was “no concern of theirs” whether the seller paid
a commission. Id.
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The present case is thus distinguishable from Holloman on the facts. If the
appellants had neither alleged nor suffered an actual injury resulting from the
unlicensed broker’s RELA violations, then they would not become “aggrieved
parties” by the mere fact that another party had paid a commission to the appellees.
But this case is not so simple; the appellants in this case allege that they retained
the appellees to act as their agents in a proposed real estate transaction, and that
they were injured by the appellees’ breaches of duties arising from that agreement.
The other case relied upon the majority is Dohalick v. Moody National Bank,
a case involving the interpretation of a completely different regulatory scheme
under the Texas Finance Code. 375 S.W.3d 537, 541 (Tex. App.—Houston [14th
Dist.] 2012, no pet.). Construing a different provision authorizing a recovery by an
“aggrieved person” of fees paid to an unlicensed mortgage broker, the Fourteenth
Court reasoned:
Under the plain meaning of [Finance Code] section 156.406(b),
the damages that an aggrieved person may recover are “damages in an
amount that is not less than the amount of the fee or profit received
and not to exceed three times the amount of the fee or profit received,
as may be determined by the court.” Act of May 25, 1999, 1999 Tex.
Gen. Laws at 4346. An “aggrieved person” may recover these
damages based upon the mortgage broker’s receipt of “money, or the
equivalent of money, as a fee or profit because of or in consequence
of the person acting as a mortgage broker or loan officer without an
active license or being exempt under [Chapter 156].” Id. Because
this is the conduct by which the claimant is aggrieved, we conclude
that to be an aggrieved person under section 156.406(b), the claimant
must have paid all or part of the fee or profit to the unlicensed
mortgage broker or loan officer.
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Id. at 541. The court acknowledged that its interpretation of “aggrieved person” in
that case was dependent on context, including “the action through which the person
is aggrieved and the remedy provided to the person aggrieved.” Id. at 542. The
Dohalick court did not address any broader regulatory considerations under the
Finance Code which may or may not have influenced that court’s conclusion about
whether a claimant bank could qualify as an “aggrieved party” when it alleged that
an unlicensed mortgage broker fraudulently induced the bank to advance funds that
the borrower then used to pay the broker’s fee. See id. at 539. Rather than
deciding an issue under the Finance Code that is not presented by this appeal in
order to justify relying upon Dohalick as a potentially persuasive authority to
support the majority’s interpretation of Occupations Code section 1101.754, I
would instead conclude that the different regulatory context of the RELA
distinguishes the Dohalick case and justifies a different interpretation in this case.
Conclusion
The Real Estate License Act private right of action must be interpreted in
light of the full scope of its statutory and regulatory context. That context compels
the conclusion that the appellants alleged a direct injury of the nature that the
RELA is intended to prevent. They alleged that Bassoe acted on their behalf as
broker when they attempted to negotiate the purchase of real estate as part of the
purchase of the Pride assets. Liberally construed, the petition alleged numerous
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violations of the RELA and its implementing regulations. Had the RELA and its
regulations been followed, appellants never may have engaged the appellees as
agents because they had no license to act as a broker, and if Bassoe had acted in
accordance with RELA regulations, none of the subsequent factual background of
this dispute may have occurred.
The appellants are part of the class of persons intended to be protected by
the RELA regulatory scheme. Their injury allegedly resulted from RELA
violations. Accordingly, from the perspective of the RELA’s legislative purpose of
protecting the public in its dealings with real estate agents, the appellants are
“aggrieved persons,” entitled to pursue the private cause of action created under
the RELA. Accordingly, I concur only in the result without joining the opinion of
the court.
Michael Massengale
Justice
Panel consists of Justices Jennings, Bland, and Massengale.
Justice Massengale, concurring.
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