Business Brokers Asso. v. McCauley

Proceedings begun October 1, 1947, by Business Brokers Association, Inc., a Wisconsin corporation, Henry Zastrow, doing business as Lincoln Appraisal Company, Harvey R. Bitter, doing business as American Business Company, Stewart H. Ingram, doing business as United Appraisal Company, and Edward J. Winslow, doing business as the Winslow Company, to restrain William J. McCauley, district attorney of Milwaukee county, Harvey L. Neelen, judge of the district court of Milwaukee county, August C. Schmidt, clerk of the district court of Milwaukee county, and F. E. Altendorf, Oscar A. Swenby, J. S. Miller, and Elliott N. Walstead, members of the Wisconsin Real Estate Brokers' Board, from enforcing the provisions of secs. 136.19 to 136.36, Stats., inclusive, which regulate "business-opportunity brokers" on the ground that the statutes are in violation of the "equal protection of the law" and "due process of law" provisions of the state and federal constitutions.

Plaintiffs are business-opportunity brokers in the city of Milwaukee and they brought this action to enjoin the enforcement officers from carrying out the provisions of secs. 136.19 to 136.36, Stats., inclusive, requiring business-opportunity brokers to be licensed.

The pertinent provisions are as follows:

"136.19 . . . definitions. . . .

"(2) ``Business-opportunity broker' means any person, firm or corporation, not excluded by subsection (3):

"(a) Who for another, and for commission, money or other thing of value, sells, exchanges, buys or rents, or offers or attempts to negotiate a sale, exchange, purchase or rental of any business, its good will, inventory, fixtures or an interest therein; or

"(b) Who is engaged wholly or in part in the business of selling business opportunities or good will of an existing business or who is engaged wholly or in part in the business of buying and selling, exchanging or renting of any business, its good will, inventory, fixtures or an interest therein.

"(3) The term ``business-opportunity broker' does not include:

"(a) Receivers, trustees, administrators, executors, guardians or other persons, appointed by or acting under the judgment or order of any court; or

"(b) Public officers while performing their official duties; or

"(c) Any bank, trust company, savings and loan association, or any land-mortgage or farm-loan association organized under the laws of this state or of the United States, when engaged in the transaction of business within the scope of its corporate powers as provided by law; or real-estate brokers holding a license issued by the Wisconsin real estate brokers' board; or

"(d) Employees of persons, companies or associations enumerated in paragraphs (a), (b), and (c) when engaged in the specific performance of their duties as such employees.

"(4) ``Business-opportunity salesman' means anyone who is employed by a business-opportunity broker to perform any act authorized by sections 136.19 to 136.36 to be performed by a business-opportunity broker."

"136.20 Brokers licensed. No person, firm or corporation shall engage in or follow the business or occupation of, or advertise or hold himself or itself out as or shall act temporarily or otherwise as a business-opportunity broker or business-opportunity salesman in this state, without first procuring a license therefor as provided in sections 136.19 to 136.36. Licenses shall be granted only to persons who are trustworthy and competent to transact the business of a business-opportunity broker or business-opportunity salesman in such a manner as to safeguard the interests of the public, and only after satisfactory proof thereof has been presented to the board."

"136.22(2) In determining competency, the board shall require proof that the applicant for a business opportunity-broker's license or a business-opportunity-salesman's license has a fair knowledge of the English language, a fair understanding of the general purposes and general legal effects of bills of sale, chattel mortgages, conditional sales contracts, the provisions of the bulk sales law, leases, and a general and fair understanding of the obligations between principal and agent as well as of the provisions of sections 136.19 to 136.36."

Plaintiffs contend that these provisions are unconstitutional because they do not give plaintiffs the equal protection of the laws and deprive them of their property without due process of law. This claim is based on the contention that in exempting the persons and corporations in sec. 136.19(3)(a) through (c), Stats., the legislature has made an unconstitutional classification.

On October 1, 1947, the trial court issued an order to the defendants to show cause why they should not be enjoined from enforcing these provisions and issuing a temporary injunction.

The defendants filed a general demurrer to the complaint. The attorney general representing the Wisconsin Real Estate Brokers' Board moved that the action be dismissed as to Business Brokers Association, Inc., because it appeared on the face of the complaint that it was not a real party in interest and for change of venue to Dane county pursuant to sec. 261.01(9), Stats., because the action was in fact against the Wisconsin Real Estate Brokers' Board.

The trial court granted the motion to dismiss as to Business Brokers Association, Inc., because it was not a real party in interest but denied the motion for change of venue. It ruled that the classification in the statute was a valid one and sustained the demurrer with leave to plaintiffs to amend their complaint within twenty days or the court would dismiss it with costs. On April 23, 1948, judgment dismissing plaintiffs' complaint was entered. Plaintiffs appeal. If the statute in question is unconstitutional, the plaintiffs are entitled to the relief they seek. InOlson v. State Conservation Comm. 235 Wis. 473, 478,293 N.W. 262, this court said: "Courts unquestionably have the power to enjoin state officials from enforcing statutes which contravene the constitution. John F. Jelke Co. v. Beck,208 Wis. 650, 661, 242 N.W. 576." See also Williams v. Hudson,219 Wis. 119, 262 N.W. 607 (city officials enjoined from enforcing an unconstitutional city ordinance); Bonnett v. Vallier, 136 Wis. 193, 116 N.W. 885 (injunction against enforcement by state officials of building statute on ground that the statute was unconstitutional).

It is conceded that a "business-opportunity broker" is a proper subject for regulation under the police power. Plaintiffs object to the classification because certain persons and corporations are exempt from the provisions of the statute. On this appeal they confine their attack to the exemption of real-estate brokers.

The rule is that ". . . in the exercise of its police power to require licenses, a state may make any reasonable classification which it deems necessary to the police purpose intended to be attained by the legislation." 33 Am. Jur., Licenses, p. 353, sec. 30. ". . . the legislature may, without denial of equal protection of the laws, classify businesses and occupations for purposes of regulation, provide different rules for different classes, limit a regulation to a particular kind of business, extend to some persons privileges denied to others, or impose restrictions on some but not on others, where the classification or discrimination is based on real differences in the subject matter and is reasonable, and the legislation affects alike all persons pursuing the same business under the same conditions." 16 C.J.S., Constitutional Law, p. 1013, sec. 510.

Furthermore the discretion of the legislature in making these classifications is great. As was said in State v. Neveau,237 Wis. 85, 99, 294 N.W. 796, 296 N.W. 622: "We are not required under the law to find a proper basis of classification, but the classification made by the legislature is presumed to be valid unless the court can say that no state of facts can reasonably be conceived that would sustain it. All reasonable doubts must be resolved in favor of the legislative classification." See also Servonitz v. State, 133 Wis. 231,113 N.W. 277; State v. Wetzel, 208 Wis. 603, 243 N.W. 768.

In State ex rel. Ford Hopkins Co. v. Mayor, 226 Wis. 215,222, 276 N.W. 311, this court reviewed the general rules applicable to classifications under the police power:

"(1) All classification must be based upon substantial distinctions which make one class really different from another.

"(2) The classification adopted must be germane to the purpose of the law.

"(3) The classification must not be based upon existing circumstances only.

"(4) To whatever class a law may apply, it must apply equally to each member thereof.

"Johnson v. Milwaukee, 88 Wis. 383, 390, 60 N.W. 270.

"In State ex rel. Risch v. Trustees, 121 Wis. 44, 54,98 N.W. 954, 957, the same general rules are held essential for a constitutional classification, with the following addition to No. (3):

"``It must not be so constituted as to preclude addition to the numbers included within a class.'

"And by adding a fifth rule, as follows:

"``(5) That the characteristics of each class should be so far different from those of other classes as to reasonably suggest at least the propriety, having regard to the public good, of substantially different legislation.'" See also State v.Potokar, 245 Wis. 460, 15 N.W.2d 158.

The business of a business-opportunity broker is sufficiently distinct from other businesses to warrant the legislative classification. The business-opportunity broker deals in the sale of businesses. His field in its nature differs from others and its characteristics are distinct from those of the real-estate broker, for example: Because of his limited field he feels his compensation should be higher. When he makes a sale, he gets compensation only on the fixtures and good will of the business. There is some significance attached to the term "business opportunity." These are some of the reasons which the legislature might have had in mind in regulating business-opportunity brokers in a class by themselves.

The act so obviously fulfils the other requirements set out in State ex rel. Ford Hopkins Co. v. Mayor, supra, that there is no need to discuss any except (2) which is, "The classification adopted must be germane to the purpose of the law."

The purpose of the statute in question was to regulate business-opportunity brokers who previously had not been regulated. It appears that all persons and corporations exempted under the terms of the Business Opportunity Brokers' Statute are regulated by some other provision of the statutes relating to their particular class. As pointed out in the trial court's opinion: "Banks and the transaction of banking business is regulated by chs. 220, 221, and 222, Stats.; trust companies by ch. 223, Stats.; building and loan associations by ch. 215, Stats.; loan companies by ch. 214 and secs. 216.01 and 115.09, Stats., and real-estate brokers by ch. 136, secs. 136.01 — 136.18. As respects land-mortgage or farm-loan associations, organized under the laws of this state, or of the United States, ``no associations' are authorized or exist under the laws of Wisconsin except those enumerated and which are subject to regulation under one of the provisions above cited. Those organized under federal statutes arepublic corporations, under the control of the federal government, and do not affect the business broker." Manifestly the legislative intent was to exclude those businesses which were different and which were already regulated.

Plaintiffs rely on State ex rel. Kempinger v. Whyte,177 Wis. 541, 188 N.W. 607, and In re Raleigh, 177 Cal. 746,171 P. 950. The Kempinger Case is clearly not in point. That case involved a statute which the court interpreted as requiring an undertaker to obtain an embalmer's license as a condition to conducting his business. Since undertaking and embalming are two distinct businesses, the court held that this could not be done.

In In re Raleigh the statute set up certain requirements for persons engaging in the real-estate business but exempted insurance agents, companies, etc., from the provisions of the act. However, it appears that the standards for a real-estate license and for an insurance license were substantially different. The California court states (p. 749):

"When the laws relating to the procurement of licenses of insurance companies, agents, or brokers are consulted, it is found that their requirements for the obtaining of licenses from the insurance commissioner are much more simple and far less burdensome than those which, by the terms of the act in question, are imposed upon real-estate brokers and salesmen. Had these burdens been equal or in any degree equivalent, had the safeguards cast about the business of insurance agents or brokers to insure honesty of character and fair dealing in business been the same as or similar to those which this act requires of real-estate brokers or salesmen, it might well be argued that the possession by a corporation, firm, or individual of a license to engage in any form or department of the insurance business would suffice as an acceptable substitute for the license, bond, recommendations, and other safeguards provided for in the real-estate agent's act."

It appears that the quotation from the opinion of the California court not only distinguishes that case from the one before us but also indicates an important difference and is authority for holding that under our statutory setup the exemption of real-estate brokers from the provisions of the Business Opportunity Brokers' Act is not an unconstitutional classification. The requirements set up in sec. 136.22(2), Stats., for a license as a business-opportunity broker and those in sec. 136.05(2), for a license as a real-estate broker are similar so far as qualifications are concerned in that the real-estate broker and the business-opportunity broker are required to have a fair knowledge of the English language, a fair understanding of the legal instruments with which they deal and of the statutory provisions affecting their field of activity.

However, plaintiffs contend that the exemption of real-estate brokers from the requirements of the Business Opportunity Brokers' Act discriminates against the latter because it allows the real-estate brokers to engage generally in the sale of businesses without a business-opportunity broker's license but does not allow business-opportunity brokers the same privilege as to real-estate sales. That is definitely a twisting of the legislative intent. The exclusions in sec. 136.19(3), Stats., do not permit the real-estate broker to invade the territory set apart as that of a business-opportunity broker. True, a piece of real estate may include a store building, but the broker in selling the property is acting in his capacity as a real-estate broker. "Classification is not to be condemned because there may be occasional instances in which it does not fit the situation; it is proper if the great mass of situations to which the law applies justify the formation of a class and the application of some special or different legislative provisions to that class." Peterson v. Widule, 157 Wis. 641, 648,147 N.W. 966. The line of demarcation between the business of a real-estate broker and of a business-opportunity broker is so distinct that if a real-estate broker wished to engage generally in the selling of businesses he would have to obtain a license for that particular purpose.

It is considered that secs. 136.19 to 136.36, Stats., inclusive, are constitutional.

By the Court. — Judgment affirmed.

BROADFOOT, J., took no part.