Bowden Corp. v. Tn Real Estate

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
BOWDEN BUILDING CORPORATION, )
)
FILED
Plaintiff/Appellee, ) Shelby Chancery No. 108519-2 R.D.
) July 20, 1999
VS. ) Appeal No. 02A01-9807-CH-00175
) Cecil Crowson, Jr.
TENNESSEE REAL ESTATE ) Appellate Court Clerk
COMMISSION, ET AL, )
)
Defendants/Appellants. )
APPEAL FROM THE CHANCERY COURT OF SHELBY COUNTY
AT MEMPHIS, TENNESSEE
THE HONORABLE FLOYD PEETE, JR., CHANCELLOR
PAUL G. SUMMERS
Attorney General & Reporter
MICHAEL E. MOORE
Solicitor General
CHARLES L. LEWIS
Assistant Attorney General
Nashville, Tennessee
Attorneys for Appellants
RICHARD GLASSMAN
JOHN BARRY BURGESS
HEATHER W. THOMPSON
GLASSMAN, JETER, EDWARDS & WADE, P.C.
Memphis, Tennessee
Attorneys for Appellee
REVERSED AND DISMISSED
ALAN E. HIGHERS, J.
CONCUR:
W. FRANK CRAWFORD, P.J., W.S.
DAVID R. FARMER, J.
The Tennessee Real Estate Commission (“the Commission”), the individual
members of that commission (“the Commission members”), and the Tennessee Attorney
General sought permission to appeal from the trial court’s interlocutory order denying their
motion to dismiss. We granted their application for permission to appeal and, for the
reasons hereafter stated, we reverse the trial court’s denial of the Defendants’ motion to
dismiss.
FACTS AND PROC EDUR AL HISTORY
This action, which was originally commenced by Bowden Building Corporation
(“Bowden”) in November 1996, pertains to the construction, enforcement, and
constitutionality of particular provisions of the Tennessee Real Estate Broker License Act
of 1973 (“the Licensing Act”),1 and involves claims for declaratory relief, injunctive relief,
compensatory damages, punitive damages, and attorney fees. Bowden asserts its claims
for relief in reliance upon: (1) 42 U.S.C. sections 1983 and 1988 (for alleged violations of
the First and Fourteenth Amendments to the United States Constitution); (2) Article I,
section 8 and Article XI, section 8 of the Tennessee Constitution; (3) Tennessee Code
Annotated section 39-17-309; (4) Tennessee Code Annotated section 29-14-101 et seq.
(“the Declaratory Judgment Act”); and (5) the Uniform Administrative Procedures Act.2
Claims for declaratory and injunctive relief are asserted against the Commission, the
Attorney General3 (who is expressly sued in his official capacity only), and each
Commission member (based upon both the individual capacity and the official capacity of
each such member). Bowden’s claims for compensatory damages are asserted only
against each individual Commission member (based only upon the personal or individual
capacity of each such member), and its claim for punitive damages is asserted only against
defendant Bobbi Gillis, who is one of the named Commission members. The facts alleged
by Bowden to support its claims for relief are set forth in the following paragraph.
1. See Tenn. Code Ann. §§ 62-13-101 et seq. (1997 & Supp. 1998 ).
2. See Tenn. Code Ann. §§ 4-5-101 et seq. (1998).
3. The Tennessee Attorney General was made a party based upon Tennessee Code Annotated section 29-
14-107(b), which provides that “the attorney general of the state shall also be served with a copy of the
proceeding and be entitled to be heard” where a statewide statute is alleg ed to be u ncons titutional. See Tenn.
Code Ann. § 29-14 -107(b) (1980).
2
Bowden is a Tennessee corporation “engaged in the business of acquiring and
selling real estate for its own account in Shelby County, Tennessee, through . . . corporate
representatives,” some of which are not licensed real estate brokers. These corporate
representatives “are salaried employees and are not paid on a commission basis in relation
to the value of the corporate real estate which is sold by the representative.” On or about
December 9, 1996, the Commission, by and through counsel, notified Bowden that “the
Commission voted unanimously to request counsel to take action to prevent violations of
the Real Estate Broker’s Act by [Bowden].” The letter that was sent to Bowden explained
that an investigation had revealed that Bowden (through its employees) was violating the
Licensing Act, which is a criminal offense.4 This letter further stated,
This office hereby directs [Bowden] to Cease and Desist. Any continued
illegal activity . . . will result in this office requesting action by the State
Attorney General and also by the local District Attorney.
Also, on December 9, 1996, the Commission sent letters to two named Bowden employees
similarly informing them that an investigation indicated that they were “acting as real estate
broker[s] without proper licensure,” and explaining, “This activity is a criminal offense,
which could be subject to criminal prosecution, or to civil action by the State Attorney
General.” Bowden’s complaint claims that the Commission’s action, through its members,
amounts to “bad faith harassment” and that the Commission has selectively enforced the
Licensing Act in an improper manner. Other allegations were asserted by Bowden in
relation to specific claims, but we will address any such pertinent allegations below in
context with our analysis of the claims to which the allegations specifically relate.
Bowden’s complaint, as amended, requests the trial court to afford the following
relief:
a) Enter a judgment against all defendants declaring that the
actions of the plaintiff through its duly authorized representatives involving
the disposition of real estate owned by the plaintiff as described herein are
exempt from the provisions of the [Licensing Act] as provided by T.C.A. § 62-
13-104.
b) In the alternative, enter a judgment declaring T.C.A. § 62-13-
104(6) to be unconstitutional and that the provisions of the [Licensing Act]
are therefore unenforceable against corporations engaged in the practice of
4. Tennessee Code Annotated section 62-13-110(a) provides, “Any person acting as a broker . . . without first
obtaining a license comm its a Class B misdem eanor.” Tenn. Code A nn. § 62-13-110(a)(1) (1997).
3
selling real estate owned by said corporation.
c) Issue a temporary injunction and permanent injunction
enjoining future enforcement of the [Licensing Act] by the [Commission], the
Attorney General, in his official capacity, or the individual members of the
[Commission] in their personal/individual and/or official capacities, against
[Bowden] for the sale of property owned by [Bowden] by authorized officers
and/or representatives of [Bowden].
d) Issue a temporary injunction and permanent injunction
enjoining the future enforcement of T.C.A. § 62-13-109 or § 62-13-110 by the
[Commission], the Attorney General, in his official capacity, or the individual
members of the [Commission] in their personal/individual and/or official
capacities, against [Bowden] in relation to the sale of any property owned by
[Bowden] through duly authorized officers and/or representatives of
[Bowden].
e) Award damages against the individual members of the
[Commission] in their personal or individual capacities to [Bowden] for the
deprivation of [Bowden’s] fundamental constitutional and civil rights in the
amount of $500,000.00 and an additional $100,000.00 actual and
$250,000.00 in punitive damages against the Defendant, Gillis.
f) Award attorney’s fees pursuant to 42 U.S.C. Section 1988.
g) Award [Bowden] the costs of this action.
On August 6, 1997, the Defendants collectively filed a motion to dismiss Bowden’s
complaint, as amended. In their motion to dismiss, the Defendants asserted that dismissal
was proper as to Bowden’s general claims for declaratory relief because Bowden failed to
seek such relief in the Davidson Chancery Court in accordance with the Uniform
Administrative Procedures Act.5 The Defendants also asserted that dismissal was proper
as to any 42 U.S.C. section 1983 claims because “the defendants are entitled to absolute
and/or qualified immunity,” and because Bowden “failed to state a claim under 42 U.S.C.
§ 1983.” Furthermore, the Defendants asserted that Bowden “failed to state a claim for
relief under Tenn. Code Ann. § 39-17-309.” Last, the Defendants sought dismissal of this
suit “in its entirety” based upon Bowden’s failure to state a claim upon which relief can be
granted.
On November 13, 1997, the trial court denied the Defendants’ motion to dismiss.
In its order, it stated:
Based upon T.C.A. § 20-4-107, it is the opinion of the Court that venue is
proper within this judicial district and that further this Court does have
5. See Tenn. Code A nn. §§ 4-5-223 and -225 (19 98).
4
jurisdiction over the issues and parties outlined in the pleadings. To allow for
any appeal which might be taken as to this ruling of the Court, the
Defendants’ Motion to Dismiss is otherwise denied subject to the
Defendants’ renewal of the Motion after appropriate discovery is conducted.
Both the trial court and this Court thereafter granted the Defendants permission to appeal
this interlocutory order pursuant to Rule 9 of the Tennessee Rules of Appellate Procedure.
ANALYSIS
Before reviewing the trial court’s denial of the Defendants’ motion to dismiss, we find
it appropriate to note that, on appeal, Bowden contends that the trial Court expressly ruled
only upon the Defendants’ venue challenge, and that this Court’s review should be limited
to jurisdictional or venue matters relating to Bowden’s general claims for declaratory relief.
We reject this contention, however, because, while the trial court’s November 13, 1997
order may have specifically discussed the Defendants’ venue challenge, the order further
expressly provided, “the Defendants’ Motion to Dismiss is otherwise denied.” Accordingly,
contrary to Bowden’s position, the trial court’s order did in fact deny all aspects of the
Defendants’ motion to dismiss (regardless of the order’s added language stating “subject
to the Defendants’ renewal of the Motion after appropriate discovery is conducted”).
I. Federal Civil Rights
A. Section 1983 Claims Against the State
Bowden failed to state a claim against the Commission to whatever extent that its
claims were asserted based upon section 1983. Section 1983 establishes,
Every person who, under color of any statute, ordinance, regulation, custom,
or usage, of any State . . . subjects, or causes to be subjected, any citizen
of the United States or other person within the jurisdiction thereof to the
deprivation of any rights, privileges, or immunities secured by the
Constitution and laws, shall be liable to the party injured in an action at law,
suit in equity, or other proper proceeding for redress . . . .
42 U.S.C.S. § 1983 (Supp. 1998) (emphasis added). A state, however, is not a "person"
as contemplated by section 1983, and may not be sued under the statute. Will v. Michigan
5
Dep't of State Police, 491 U.S. 58, 64, 71, 109 S.Ct. 2304, 2308, 2312, 105 L.Ed.2d 45,
53, 58 (1989). Therefore, section 1983 does not authorize Bowden’s claims against the
Commission.
B. Section 1983 “Official-Capacity” Claims Against State Officials
Similarly, Bowden failed to state a section 1983 claim against the Commission
members, to the extent that its claims were asserted against the Commission members in
their official capacity, and against the Attorney General, who was sued only in his official
capacity. In a recent opinion Hamilton v. Cook, No. 02A01-9712-CV-00324, 1998 WL
704528 (Tenn. App. Oct. 12, 1998), this Court explained the following:
Just as section 1983 does not authorize a suit against the state, the statute
also does not authorize suits for damages against state officials in their
official capacities. Will v. Michigan Dep't of State Police, 491 U.S. 58, 71,
109 S.Ct. 2304, 105 L.Ed.2d 45 (1989). The rationale for this rule is that
state officers sued for damages in their official capacities are not "persons"
within the meaning of section 1983 because such officers "assume the
identity of the government that employs them." Hafer v. Melo, 502 U.S. 21,
27, 112 S.Ct. 358, 116 L.Ed.2d 301 (1991). In an official-capacity suit, the
real party in interest is the governmental entity and not the named official.
Id. at 25. As the United States Supreme Court has explained,
[A] suit against a state official in his or her official capacity is not a suit
against the official but rather is a suit against the official's office.
Brandon v. Holt, 469 U.S. 464, 471, 105 S.Ct. 873, 877, 83 L.Ed.2d
878 (1985). As such, it is no different from a suit against the State
itself.
Will v. Michigan Dep't of State Police, 491 U.S. at 71.
Moreover, in distinguishing between official-capacity suits and
personal-capacity suits, the Supreme Court has explained:
Personal-capacity suits seek to impose personal liability upon
a government official for actions he takes under color of state law. ...
Official-capacity suits, in contrast, "generally represent only another
way of pleading an action against an entity of which an officer is an
agent."
Kentucky v. Graham, 473 U.S. 159, 165, 105 S.Ct. 3099, 87 L.Ed.2d 114(1985) (quoting Monell v. New York City Dep't of Soc. Servs., 436 U.S. 658,
690 n. 55, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978)).
Therefore, section 1983 does not authorize Bowden’s claims against either the
Commission members or the Attorney General, to the extent that such claims were
asserted based upon those defendants’ official capacities.
6
C. Section 1983 “Individual-Capacity” Claims
Section 1983 claims are limited to cases which involve “the deprivation of any rights,
privileges, or immunities” secured under federal law. Accordingly, no claim for relief can
be granted absent the deprivation of such rights. In this case, Bowden asserts that the
Commission members’ efforts to enforce the Licensing Act violated Bowden’s constitutional
rights based upon the First and Fourteenth Amendments to the United States Constitution.
Therefore, in order to resolve whether Bowden’s remaining section 1983 claims should
have been dismissed for failure to state a claim upon which relief can be granted, we find
it appropriate to construe, as a matter of law, the Licensing Act as it relates to corporations
and corporate employees, and to determine whether enforcement of the Licensing Act
violates Bowden’s First and Fourteenth Amendment rights.
1. The Licensing Act
In Business Brokerage Centre v. Dixon, 874 S.W.2d 1 (1994), the Tennessee
Supreme Court set forth the following relevant overview of the Licensing Act:
The [Licensing Act] is designed to protect the public from irresponsible
or unscrupulous persons dealing in real estate. Prowell v. Parks, 767
S.W.2d 633, 634 (Tenn.1989). To achieve this end, the Act requires
persons dealing in real estate to obtain a real estate broker's license, Tenn.
Code Ann. § 62-13-301, and the failure to obtain a broker's license before
engaging in acts defined as "brokering" is punishable as a Class B
misdemeanor. Tenn. Code Ann. § 62-13-110(a)(1). Moreover, the Act also
denies a nonlicensed person access to the courts to recover any
commission, finders fee, or other compensation for the prohibited acts.
Tenn. Code Ann. § 62-13-105. To maximize the deterrent effect of the Act,
the Legislature drafted its provisions broadly. The basic provision, Tenn.
Code Ann. § 62-13-103, provides that
(a) Any person who, directly or indirectly for another, with the intention
or upon the promise of receiving any valuable consideration, offers,
attempts or agrees to perform, or performs, any single act defined in
§ 62-13-102, whether as a part of a transaction, or as an entire
transaction, is deemed a broker, affiliate broker or time share
salesperson within the meaning of this chapter.
(b) The commission of a single such act by a person required to be
licensed under this chapter and not so licensed constitutes a violation
thereof.
The term "broker" is defined in § 62-13-102 as
7
[A]ny person who for a fee, commission, finders fee or any other
valuable consideration, or with the intent or expectation of receiving
the same from another, solicits, negotiates or attempts to solicit or
negotiate the listing, sale, purchase, exchange, lease or option to buy,
sell, rent or exchange for any real estate or of the improvements
thereon or any time-share interval as defined in the Tennessee
Time-Share Act, compiled in title 66, chapter 32, collects rents or
attempts to collect rents, auctions or offers to auction, or who
advertises or holds himself out as engaged in any of the foregoing.
The term "real estate" is also defined broadly. Section 62-13-102(4)
defines the term as "leaseholds, as well as any other interest or estate in
land, whether corporeal, incorporeal, freehold or nonfreehold, and whether
the real estate is situated in this state or elsewhere."
Business Brokerage Centre v. Dixon, 874 S.W.2d at 3. As defined, “broker” generally
pertains to persons6 who receive or expect to receive some form of consideration from
another for their efforts in soliciting or negotiating the listing, sale, or purchase of real
estate. The mere receipt of consideration for the real estate itself (and not for efforts in
soliciting or negotiating the listing, sale, or purchase of the real estate) does not satisfy this
general definition of broker. Accordingly, an owner of property who lists or sells its own
interest in property is not a broker requiring licensing. Any other person, including an
employee or other agent of the owner, who lists or sells that property, however, qualifies
as a broker if he or she receives or expects to receive any valuable consideration that is
associated with their efforts in soliciting or negotiating the listing, sale, or purchase of the
real estate. In fact, section 62-13-102 further specifically provides:
“Broker” also includes any person employed by or on behalf of the owner or
owners of lots or other parcels of real estate, at a salary, fee, commission,
or any other valuable consideration, to sell such real estate or any part
thereof, in lots or parcels or other disposition thereof.
Tenn. Code Ann. § 62-13-102(3)(B) & (12) (1997) (emphasis added). Moreover, section
62-13-104 specifically provides that the provisions of the Licensing Act do not apply to “An
owner of real estate with respect to the property owned or leased by such person.” Id. §
62-13-104(a)(1) (Supp. 1998).
Insofar as we have thus far reviewed the Licensing Act’s provisions, Bowden would
not directly violate the Licensing Act as related to the allegations in the instant case
because Bowden itself is not required to obtain a real estate broker’s license. Bowden’s
6. “‘Person’ means and includes individuals, corporations, partnerships or associations, foreign and
domes tic.” Tenn. Code Ann. § 62-13-10 2(3)(B) & (12) (1997).
8
employees to which Bowden refers in its complaint, however, would thus far be required
to possess a real estate broker’s license. Our analysis of the Licensing Act’s provisions,
however, is not yet complete. Under section 62-13-104(a)(6), the Licensing Act does not
apply to the following:
A corporation ... acting through an officer duly authorized to engage in such
real estate transaction, where the transaction occurs as an incident to the ...
sale or other disposition of real estate owned by the corporation; however,
this exemption does not apply to a person who performs an act described in
§ 62-13-102(3)(A) either as a vocation or for compensation, if the amount of
the compensation is dependent upon, or directly related to, the value of the
real estate with respect to which the act is performed ....
Id. § 62-13-104(a)(6). According to Bowden’s complaint, the employees used for selling
its real estate who are not licensed real estate brokers “are salaried employees and are not
paid on a commission basis in relation to the value of the corporate real estate which is
sold by the representative.” Standing alone, however, this fact does not satisfy section 62-
13-104(a)(6)’s exemption. These employees must also be corporate officers authorized
to engage in such real estate transactions, and must not perform such real estate services
as a vocation. Failure to satisfy either of these requirements removes Bowden’s
employees from section 62-13-104(a)(6)’s exemption, and they would be required to
possess a real estate broker’s license.
Bowden’s section 1983 claims are premised upon the argument that enforcement
of the Licensing Act violates Bowden’s constitutional rights (even though Bowden
alternatively sought a declaration that the actions of its unlicensed employees satisfied
section 62-13-104(a)(6)’s exemption). More specifically, as related to Bowden’s section
1983 claims against the individual Commission members, Bowden asserted that the
members “voted to enforce the provisions” of the Licensing Act and that their enforcement
and/or threatened enforcement of the Licensing Act violates Bowden’s constitutional rights.
Therefore, for purposes of reviewing whether Bowden stated any section 1983 claims upon
which relief can be granted (and for purposes of reviewing Bowden’s Tennessee civil rights
claims -- discussed below), we must assume that Bowden’s unlicensed employees did not
satisfy section 62-13-104(a)(6)’s exemption to the general licensing requirement (i.e., we
must assume the Licensing Act required that Bowden’s subject employees be licensed).
9
If enforcement of the Licensing Act would not violate Bowden’s asserted federal
constitutional rights under such circumstances, Bowden’s section 1983 claims fail to state
any claim upon which relief can be granted.
2. Bowden’s Fourteenth Amendment Rights
Section one of the Fourteenth Amendment to the United States Constitution
provides:
No State shall . . . deprive any person of life, liberty, or property without due
process of law; nor deny any person within its jurisdiction the equal
protection of the laws.
U.S. CONST . amend. XIV, § 1. Bowden contends “that an owners [sic] right to alienate
property is a fundamental right protected by the Fourteenth Amendment to the United
States Constitution,” and that the Licensing Act impairs its right to alienate its property if
Bowden can only utilize employees who are licensed real estate brokers in the sale of its
property. Moreover, Bowden contends that the Licensing Act creates an “unreasonable,
irrational, arbitrary and impermissible” classification as between individual and corporate
owners of real property, in that an individual can freely engage in the business of “acquiring
and selling real estate for [his or her] own account” without the use of a licensed broker (by
utilizing his or her own services), but a corporation cannot act as such because “a
corporation cannot act except through its employees or officers” or other agents.
In the context of testamentary dispositions of real property, the Tennessee Supreme
Court has stated, “The power to dispose of . . . real estate . . . depends entirely upon
statute.” Epperson v. White, 156 Tenn. 155, 299 S.W. 812, 815 (1927). Moreover, the
right to dispose of real property by will “is not a natural or constitutional right, and may be
limited and regulated by legislation.” Id. See also Calhoun v. Campbell, 763 S.W.2d 744,
749 (Tenn. 1988). However, even though the power to dispose of property “is not a natural
or constitutional right,” it has been commonly referred to as a “fundamental” right. See,
e.g., T.P.I.--CIVIL § 11.51 (2d ed. 1988) (stating, “The right to dispose of property by will is
a fundamental right assured by law . . .”). Of course, this “fundamental” right is limited and
10
controlled by state statutes.
As we have already stated, Bowden asserts that an owner’s right to alienate
property is a fundamental right protected by the Fourteenth Amendment. In support of this
contention, it cites State v. Greeson, 174 Tenn. 178, 124 S.W.2d 253 (1939), for the broad
and generalized proposition that the Constitution guarantees, among other things, “the right
to acquire, hold and dispose of property.” See 124 S.W.2d at 256. As with the right to
dispose of real property by will, however:
Property interests . . . are not created by the Constitution. Rather they
are created and their dimensions are defined by existing rules or
understandings that stem from an independent source such as state law --
rules or understandings that secure certain benefits and that support claims
of entitlement to those benefits.
Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33
L.Ed.2d 548 (1972). Accordingly, in reviewing the constitutionality of state legislation, “[t]he
right freely to alienate real property is not a ‘fundamental right’ that calls for application of
strict scrutiny.” National Western Life Ins. Co. v. Commodore Cove Improvement Dist., 678
F.2d 24, 26 (5th Cir. 1982) (citing Seoane v. Ortho Pharmaceuticals, Inc., 660 F.2d 146,
149 n. 6 (5th Cir. 1981)). See also Central Security Nat’l Bank of Lorain County v. Royal
Home, Inc., 371 F.Supp. 476, 482 (E.D. Mich. 1974) (recognizing that the right to alienate
one’s property is not a fundamental right like the rights of privacy, free expression, and
interstate travel). Instead, any statute that impairs the ability to alienate real property freely
must satisfy only the “rational basis” standard of review. National Western Life Ins. Co.,
678 F.2d at 26; Central Security Nat’l Bank, 371 F. Supp. at 482. Therefore, in this case,
we must simply determine whether the Licensing Act is a reasonable means of achieving
a legitimate governmental goal. National Western Life Ins. Co., 678 F.2d at 26-27.
Our review of the Licensing Act leads us to conclude that the challenged statutory
scheme presents a reasonable means of achieving a legitimate governmental goal. Cf.
Boise Cascade Home & Land Corp. v. New Jersey Real Estate Comm’n, 296 A.2d 545,
553 (Super. Ct. Ch. Div. 1972) (holding that legislation requiring a corporate plaintiff’s
telephone operators/solicitors to be licensed real estate brokers is reasonably related to
11
a valid state interest). The Tennessee Supreme Court has stated:
After considering the [Licencing] Act as a whole, and after reviewing its
legislative history, this Court firmly believes that the central, overriding
objective of the Act is to protect purchasers against unfair and deceptive
practices that are peculiar to the sale of real property.
Business Brokerage Centre v. Dixon, 874 S.W.2d 1, 5 (1994). In order to contest the
reasonableness of the Licensing Act’s statutory scheme, Bowden relies in part upon
Florida Real Estate Comm’n v. McGregor, 336 So.2d 1156 (Fla. 1976), wherein the Florida
Supreme Court set forth the following analysis:
It is necessary ordinarily to regulate a real estate broker or salesman
because misrepresentations of [sic] misconduct on his part cannot
necessarily be visited upon the person or entity he represents. A member
of the public who is injured by the acts or representations of a broker or
salesman does not necessarily have recourse to the principal whom the
broker or salesman represents. But when one deals with the employee of
a corporate owner of property the conduct of such employee is the
responsibility of the employer under the doctrine of respondeat superior.
While sanctions which can be imposed by the Florida Real Estate
Commission upon an errant broker or salesman obviously are necessary to
protect the public because of his peculiar legal status and duties, no
analagous [sic] argument can be maintained successfully where an injured
third party has direct recourse to the owner for the actions of the employee.
336 So.2d at 1159 (citations omitted). We do not concur, however, with the Florida
Supreme Court’s conclusion that “no analagous [sic] argument can be maintained
successfully where an injured third party has direct recourse to the owner for the actions
of the employee.” Just as a buyer of real property may not have recourse against a mere
principal for a broker’s act or representations, a buyer may not be able to obtain effective
relief from an employer for an employee’s acts or representations, as any type of business
defendant may be or become insolvent prior to recovery. It would be purely speculative
for us to assume that every buyer who purchases property through an employee can
secure effective relief from the employer/seller. The Licensing Act, however, requires:
Each licensee who is licensed under [the Licensing Act] shall, as a
condition to licensing, carry errors and omissions insurance to cover all
activities contemplated under [the Licensing Act].
Tenn. Code Ann. § 62-13-112(a) (1997). The terms and conditions of coverage required,
including the minimum limits of coverage, the permissible deductible, and the permissible
exemptions, are prescribed by the Commission in accordance with section 62-13-112(f).
This uniform requirement of errors and omissions insurance serves to promote the
objective of the Licensing Act -- “to protect purchasers against unfair and deceptive
12
practices that are peculiar to the sale of real property” -- in all instances involving the sale
of real property through any form of agent (whether it be an employee or otherwise).
Moreover, we find that the challenged statutory scheme presents a reasonable means of
achieving its legitimate governmental goal. The effect of the Licensing Act presents only
a limited restriction on a corporate property owner’s ability to alienate its property, and does
not deprive it of that property or prevent it from disposing of that property.
As we mentioned earlier, aside from Bowden’s substantive due process challenge
to the Licensing Act, Bowden also asserts an equal protection challenge to the Licensing
Act by asserting that the Licensing Act creates an “unreasonable, irrational, arbitrary and
impermissible” classification as between individual and corporate owners of real property,
in that an individual can freely engage in the business of “acquiring and selling real estate
for [his or her] own account” without the use of a licensed broker, but a corporation cannot
act as such.7
The Equal Protection Clause of the Fourteenth Amendment
commands that no State shall “deny to any person within its jurisdiction the
equal protection of the laws,” which is essentially a direction that all persons
similarly situated should be treated alike.
City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 439, 105 S.Ct. 3249, 3254, 87
L.Ed.2d 313 (1985) (emphasis added). We conclude that Bowden has failed to state a
claim based upon an equal protection violation because Bowden’s equal protection
challenge does not involve similarly situated persons. The fact that an individual can freely
engage in the business of selling real estate without the use of a licensed broker, while a
corporation has no such unlimited ability, results from the plain fact that a corporation
cannot act except through its employees, officers, or other agents. In the limited context
of the present case, corporations and individuals are not similarly situated.
Even if corporations and individuals were similarly situated for purposes of the
present case, Bowden would still have failed to state a claim based upon an equal
7. Add itiona lly, Bow den ’s complaint makes a conclusory assertion that the Commission selectively enforced
the Licensing Act in an improper m anner. W e find it unnecessary to address this “selective enforc eme nt”
allegation, however, because we have already determined that the Com miss ion was n ot a proper defendant
for Bowden’s section 1983 claims.
13
protection violation. In the context of Fourteenth Amendment Equal Protection challenges
to legislation, “[t]he general rule is that legislation is presumed to be valid and will be
sustained if the classification drawn by the statute is rationally related to a legitimate state
interest.” City of Cleburne v. Cleburne Living Center, 473 U.S. at 440, 105 S.Ct. at 3254.
“The general rule gives way, however, when a statute classifies by race, alienage, or
national origin,” or by some other form of classification expressly recognized to receive a
higher standard of review. Id. In this case, the purported classification would be subject
to the general rule requiring the “rational basis” standard of review and, as we have already
discussed, the challenged statutory scheme is rationally related to the legitimate state
interest of protecting purchasers “against unfair and deceptive practices that are peculiar
to the sale of real property.” See Business Brokerage Centre v. Dixon, 874 S.W.2d 1, 5
(1994). Cf. also Boise Cascade Home & Land Corp., 296 A.2d at 553.
3. Bowden’s First Amendment Rights
Bowden’s complaint further asserts that the Commission members’ conduct violated
Bowden’s right to free speech under the First Amendment8 “by unlawfully preventing and
restraining [Bowden] from exhibiting or displaying [its] property to the public” and “by
unreasonably preventing [Bowden] from promoting or advertising the sale of property which
it owns.” This case involves what has been characterized as “commercial speech.” See
Central Hudson Gas v. Public Service Comm’n of New York, 447 U.S. 557, 561, 100 S.Ct.
2343, 2349, 65 L.Ed.2d 341 (1980).
The First Amendment, as applied to the states through the Fourteenth
Amendment, protects commercial speech from unwarranted governmental
regulation. However, commercial speech enjoys a more limited measure of
protection, commensurate with its subordinate position in the scale of First
Amendment values, and is subject to modes of regulation that might be
impermissible in the realm of noncommercial expression.
Commercial speech receives a limited form of First Amendment
protection so long as it concerns a lawful activity and is not misleading or
fraudulent; once it is determined that the First Amendment applies to the
particular kind of commercial speech at issue, then such speech may be
restricted only if the government’s interest in doing so is substantial, the
8. Though the First Amendment pertains solely to acts of Congress, the varying rights and freedoms secured
thereunder are applied to the states through the concept of “liberty” establishe d by the Fo urteenth
Amendment, which Bowden has also relied upon in support of its section 1983 claims.
14
restrictions directly advance the government’s asserted interest, and the
restrictions are no more extensive than necessary to serve that interest. In
order to determine whether a government restriction on commercial speech
is permissible, a court examines four factors: (1) whether the expression
concerns a lawful activity and is not misleading; (2) whether the
government’s interest is substantial; (3) whether the restriction directly serves
the asserted interest; and (4) whether the restriction is no more extensive
than necessary.
16A AM . JUR . 2d, Constitutional Law § 480 (1998). See also Central Hudson Gas, 447
U.S. at 566, 100 S.Ct. at 2351; Memphis Publishing Co. v. Leech, 539 F. Supp. 405 (W.D.
Tenn. 1982). As indicated above, the first factor (“whether the expression concerns a
lawful activity and is not misleading”), pertains to whether the speech receives
constitutional protection. Even assuming the speech receives constitutional protection,
however, the restriction on speech is constitutionally permissible if the second, third, and
fourth factors are satisfied, i.e. the restriction directly serves a substantial governmental
interest and is no more extensive than necessary. We conclude that the Licensing Act’s
restriction of commercial speech is permitted in accordance with these remaining three
factors. Cf. Santer v. Globe Publications, Inc., 499 N.E.2d 389, 396 (Ohio App. 1985). In
addition to directly serving a substantial governmental interest, we note that the Licensing
Act does not create an outright ban on real estate solicitation. Moreover, we note that
Bowden has not asserted the existence of any alternative means of regulating the exercise
of this commercial speech that would serve the government’s interest, yet be less
extensive.
D. Immunities
On appeal, the individually named Real Estate Commission member defendants
contend that, even if a valid constitutional claim existed, they are absolutely immune from
liability in their individual capacities under 42 U.S.C. § 1983 as to Bowden’s damages
claims because they acted as members of a licensing board in a “quasi-judicial” capacity.
They further contend that they possess qualified immunity from liability in their individual
capacities as to Bowden’s damages claims because their conduct did not violate any
clearly established constitutional or statutory right. We find it unnecessary to address
these issues, however, having already determined that Bowden failed to state a 1983 claim
15
upon which relief could be granted. We therefore pretermit these issues.
E. Section 1988 Claims for Attorney Fees
Bowden’s complaint asserts “that pursuant to 42 U.S.C. Section 1988, [Bowden] is
entitled to attorneys fees incurred in this action to eradicate the deprivation of [Bowden’s]
civil rights by the acts or threatened acts of the defendants.” This claim, however, is
dependent upon a valid section 1983 claim. Because we have already determined that
Bowden failed to state a valid section 1983 claim, Bowden has likewise failed to state a
valid section 1988 claim for attorney fees.
II. Tennessee Civil Rights
Apart from Bowden’s section 1983 claims, which were based upon purported federal
constitutional violations, Bowden’s complaint also asserts claims for relief based upon the
Tennessee Constitution and Tennessee Code Annotated section 39-17-309. As with
Bowden’s assertions regarding federal constitutional violations, Bowden asserts that the
Licensing Act’s statutory scheme “creates an impermissible classification in violation of
Article 1 § 8 and Article 11 § 8 of the Tennessee Constitution and also violates due
process provisions under said constitution.”9
Under federal law, a person whose federal constitutional rights are violated by a
9. Article I, section 8 of the Tennessee Constitution provides:
That no man shall be taken or imprisoned, or disseized of his freehold, liberties or privileges,
or outlawed, or exiled , or in any m ann er de stroye d or d epriv ed of his life , liberty o r prop erty,
but by the judgment of his peers or the law of the land.
T E N N . C ONST . art. I, § 8. Article XI, section 8 of the Tennessee Constitution provides:
The Legislature shall have no power to suspend any genera l law for the benefit of any
particular individual, nor to pass any law for the benefit of individuals inconsistent with the
general laws of the land; nor to pass any law gra nting to any individual or individuals, rights,
privileges, imm unitie, [imm unities] or ex emp tions othe r than such as may be, by the same
law extended to any member of the community, who may be able to bring himself within the
provisions of such law. No corporation shall be created or its powers increased or diminished
by special laws but the General Assembly shall provide by general laws for the organization
of all cor pora tions , here after crea ted, w hich laws ma y, at any time, be altered or repealed and
no such alteration or repe al sha ll interfere with or divest rights which have become vested.
T E N N . C ONST . art. XI, § 8.
16
federal officer can maintain a private cause of action for damages against the federal
officer, even though no statute expressly creates such a cause of action. See Bivens v.
Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388, 395-97, 91
S.Ct. 1999, 2004-05, 29 L.Ed.2d 619 (1971). Tennessee, however, has not recognized
any such implied cause of action for damages based upon violations of the Tennessee
Constitution. Lee v. Ladd, 834 S.W.2d 323, 324 (Tenn. App. 1992); Cline v. Rogers, 87
F.3d 176, 179 (6th Cir. 1995). Beyond Bowden’s claims for damages, however, we find
that Bowden otherwise failed to state any due process or equal protection claim under the
Tennessee Constitution for the reasons explained above with reference to Bowden’s
section 1983 claims and the purported federal constitutional violations. See also Dickerson
v. Sanders Manuf. Co., 658 S.W.2d 535, 539 (Tenn. App. 1983) (summarily rejecting state
constitutional challenges, including an Article I, section 8 challenge, to the Licensing Act).
While the Tennessee Supreme Court has recognized that interpretations of the federal
constitution “only establish a minimum level of protection” that the Tennessee Constitution
affords, and that the Tennessee Constitution may afford a higher level of protection in
some cases, we find no authority for any such higher protection as related to the instant
case. See Burford v. State, 845 S.W.2d 204, 207 (1992). Accordingly, Bowden failed to
state any claim based upon violation of the Tennessee Constitution.
As to Bowden’s section 39-17-309 claims, 10 we are unaware of any prior authority
10. Ten nes see Cod e An nota ted s ectio n 39- 17-3 09, w hich is a cr imin al statute proscribing “Civil rights
intimidation,” provides:
(a) The general assem bly finds and d ecla res that it is the right of every person
regardless of race, color, ancestry, religion or national origin, to be secure and protected from
fear, intimidation, harassment and bodily injury caused by the activities of groups and
individuals. It is not the intent of this section to interfere with the exercise of rights protected
by the constitution of the United States. The general assembly recognizes the constitutional
right of every citizen to harbor and express beliefs on any subject whatsoever a nd to
assoc iate with others who share similar beliefs. The general assembly further finds that the
advocacy of un lawfu l acts by gro ups or ind ividua ls against other persons or groups for the
purpose of inciting and provoking damage to property and bodily injury or death to persons
is not cons titutionally protecte d, pose s a threa t to public order and safety, and should be
subject to criminal sanctions.
(b) A person commits the offens e of intim idating othe rs from exercis ing civil rights
who:
(1) Injures or threatens to injure or coerces another person with the intent to
unlaw fully intimidate another from the free exercise or enjoyment of any right or privilege
secured by the constitution or laws of the state of Tennessee;
(2) Injures or threatens to injure or coerces another pe rson with the intent to
unlaw fully intimidate another because that other exercised any right or privilege secured by
the consti tution or laws of the United States or the constitution or laws of the state of
Tennessee;
...
17
recognizing such an implied private cause of action for damages. See Young v. State
Farm Mut. Auto. Ins. Co., 868 F. Supp. 937,941-42 (W.D. Tenn. 1994); Vafaie v. Owens,
No. 92C-1642, 1996 WL 502133 * 5-6 (Tenn. App. Sept. 6, 1996). Moreover, we feel it
would be anomalous to suggest that the legislature intended an implied cause of action for
damages for the violation of a statutory right, when Tennessee does not even recognize
such an implied cause of action for the direct violation of state constitutional civil rights.
See Lee v. Ladd, 834 S.W.2d 323, 324 (Tenn. App. 1992); Cline v. Rogers, 87 F.3d 176,
179 (6th Cir. 1995). Regardless of whether section 39-17-309 creates an implied cause
of action for damages, however, Bowden still would not have stated a claim upon which
relief could be granted under section 39-17-309 because, as with Bowden’s section 1983
claims, Bowden’s claim based upon section 39-17-309 is premised upon its assertion that
enforcement of the Licensing Act would violate Bowden’s rights to due process, equal
protection, or free speech.
III. Bowden’s Remaining Claims for Relief / Venue
As mentioned earlier, aside from Bowden’s civil rights claims, Bowden sought
declaratory relief as to whether its unlicensed employees are subject to section 62-13-
104(a)(6)’s exemption.11 (Bowden also sought declaratory relief as to whether the Licensing
Act is unconstitutional as applied to corporations engaged in the practice of selling real
estate owned by the corporation, though it was necessary for us to address this issue of
law earlier in the context of Bowden’s civil rights claims.) The Defendants, however,
sought dismissal of Bowden’s general claims for declaratory relief because Bowden did not
seek such relief in Davidson Chancery Court in accordance with the Uniform Administrative
Procedures Act. Therefore, the only issue remaining before this Court that has been
(d) A violation of subs ection (b) is a Class D felony. . . . .
(e) The penalties provided in this section for intimidating others from exer cisin g civil
rights do n ot preclud e victims from seekin g any othe r rem edies, crim inal or civil, otherwise
available under law.
Tenn. Code A nn. § 39-17-309 (1997) (em phasis added).
11. As se t forth earlie r in this opinio n, de term inatio n of th is iss ue de pen ds up on w heth er Bo wde n’s
employees are d uly aut horize d off icers , whe ther its em ployee s eng age in selling real estate as a vocation, and
whether its emp loyees are com pensa ted in relation to the value o f the real es tate. See Tenn. Code Ann. §
62-13-104(a)(6) (Supp. 1998 ).
18
raised by the parties is whether Bowden’s remaining claim for declaratory relief could be
brought in Shelby County. 12
Bowden contends that venue is proper in Shelby County based on Tennessee Code
Annotated section 20-4-107, which provides:
Notwithstanding any other provision of law or rule of procedure to the
contrary, any action the subject matter of which involves real property in
which the state of Tennessee, or any agency thereof, is a party, may be
properly instituted in any county in which such property is located.
Tenn. Code Ann. § 20-4-107 (1994). Bowden asserts that the subject matter of this suit
involves real property located in Shelby County, Tennessee. We first note, however, that
Bowden, in its appellate brief, recognizes that, while the real property that it sells is, in part,
located in Shelby County, its business is not limited solely to properties located in Shelby
County. 13 Nor is there any specific property to which this suit relates.
In reviewing section 20-4-107's application to the instant case, we are guided by our
prior opinion in Barry v. Commissioners of Commerce & Ins., No. 01A01-9404-CH-00156,
1994 WL 485588 (Tenn. App. Sept. 9, 1994). In Barry, the plaintiff, who was not licensed
to practice architecture or engineering in Tennessee, was developing a specific property
that he owned, and personally developed his own set of plans for remodeling the building
on that property. 1994 WL 485588 at *1. After proceeding with the construction without
the benefit of a licensed architect or engineer, he received an order from the Board of
Architectural and Engineering Examiners to cease the unlicensed practice of architecture
and engineering. Id. After he filed suit for declaratory and injunctive relief in the county
in which the property was located, which was Wilson County, the trial court dismissed the
complaint for lack of proper venue. Id. On appeal, the plaintiff argued that the subject
matter of the suit involved the property located in Wilson County, and relied upon section
20-4-107 (quoted above) to support venue. Id. We determined, however, “that the
12. We need not resolve whether Bowden’s claims for injunctive relief were asserted solely in reliance upon
its civil rights claims, because inasmuch as such claims for injunctive relief may have otherwise been
asserted, such claims would be predicated on the determination of the parties’ respective rights in this case
(i.e., declaratory relief).
13. At on e poin t, Bow den ’s brie f stat es th at it is “engaged in the business of acquiring real estate, building
homes, and selling that real estate for its own ac count including real estate in Shelby C ounty, Te nness ee.”
Later, Bowden characterizes the real estate with which it deals as “mos tly located in Shelby County.”
19
gravamen of his complaint is his right to practice unlicensed architecture or engineering.”
Id. Accordingly, because the official residence of state agencies and state officers lies in
Davidson County, and because lawsuits brought against state officers generally must be
brought in the county of the officer’s official residence, we affirmed the trial court’s
dismissal based on improper venue. Id. (citing Delta Loan & Finance Co. of Tennessee,
Inc. v. Long, 336 S.W.2d 5 (Tenn. 1960); Morris v. Snodgrass, 871 S.W.2d 484 (Tenn.
App. 1993)). W e similarly find that, in this instant case, the gravamen of Bowden’s
complaint relates to the right of its employees to engage in unlicensed real estate
brokering. Moreover, section 4-5-225 of the Uniform Administrative Procedures Act
provides:
The legal validity or applicability of a statute . . . to specified
circumstances may be determined in a suit for a declaratory judgment in the
chancery court of Davidson County, unless otherwise specifically provided
by statute, if the court finds that the statute, rule or order, or its threatened
application, interferes with or impairs, or threatens to interfere with or impair,
the legal rights or privileges of the complainant. The agency shall be made
a party to the suit.
Tenn. Code Ann. § 4-5-225(a) (1998). Accordingly, the proper venue for Bowden’s
remaining claims is in Davidson County.
CONCLUSION
Based upon the foregoing, we reverse the trial court’s denial of the Defendant’s
motion to dismiss and dismiss the complaint herein. Costs of this appeal are taxed to
Bowden, for which execution may issue if necessary.
HIGHERS, J.
CONCUR:
20
CRAWFORD, P.J., W.S.
FARMER, J.
21