Missouri’s liberal Supreme Court judges dissent in favor of free enterprise, while majority protects licensed real estate leasing agents

Judge Wolff (who has announced his imminent retirement) and  Chief Justice Teitleman of the Missouri Supreme Court have often been characterized as liberals, soft on criminals and hard on business. However, when the First Amendment’s protection of free speech is at stake, Wolff and Teitleman can blow the trumpet for free enterprise. Wolff’s keen dissent (to which Teitleman joined) in Kansas City Premier Apartments, Inc. v. Missouri Real Estate Commission, stands in stark contrast to the majority’s stodgy defense of the real estate brokerage industry’s state-sanctioned cartel.

Unquestionably, licensed real estate agents perform valuable services to sellers and buyers of real estate. I refer my clients to several whom I have found to be ethical, energetic, and effective in the selection of property for buyers and in the marketing of property for sellers. Real estate commissions are often very hard-earned.

The Missouri Real Estate Commission, a government agency that issues licenses to real estate brokers and salespersons, petitioned the trial court for an injunction against KCPA’s website advertising and use of rental advisors to match prospective tenants with housing. KCPA claimed that the Missouri statutes requiring licenses for this activity were unconstitutional, denying KCPA its rights of free speech, due process and equal protection. The trial court’s injunction prohibited KCPA from contracting with property owners to receive payment for referrals of tenants, from performing other acts for which real estate licenses are required and from dispensing $100 gift cards to tenants.

As Wolff points out, the majority of the Missouri Supreme Court affirmed an injunction against Kansas City Premier Apartments (KCPA), which had done nothing more than convey “truthful information through its website and through its ‘rental advisors’ to potential renters who are in the market for apartments.” KCPA was paid for these services by the owners of the property to be rented. Wolff calls the injunction against KCPA’s activities “the state’s suppression of KCPA’s distribution of this information.”

The statute at issue is section 339.010 RSMo, which defines real estate brokerage by listing the activities for which a real estate license is required, along with many exceptions. Under section 339.010.7(5), a license is not needed for “any person employed or retained to manage real property by, for, or on behalf of the agent or the owner of any real estate if the person’s activities are limited to delivering a lease, receiving a lease application, showing a rental unit, conveying information prepared by an owner or other clerical or administrative tasks. These exempt activities obviously encompass much of what licensed real estate agents do under listings agreements for rental property.

The court’s majority rejected KCPA’s argument that its activities fit into the exemption, stating that the legislature intended to protect the public from “the evils of fraud and incompetency” by enacting the real estate licensing statutes. The majority of the court found that KCPA’s activities “are not limited enough” to fit the exemption, because KCPA provided rental advisors who assisted with matching tenant’s desires to particular units and advised about “apartment search strategies.”

In a part of the opinion relating to KCPA’s allegation that the application of the licensing law denied KCPA’s freedom of speech, the majority cryptically stated that it would defer to the trial court’s weighing of the evidence about the extent of KCPA’s activities, then cited several federal court decisions that have upheld professional licensing statutes, applying the “intermediate scrutiny” test to hypothetical facts, rather than those found by the trial court. In free speech cases, the United States Supreme Court applies a “strict scrutiny” test to governmental regulations restricting non-commercial speech (political and artistic expression) and the “intermediate scrutiny” test to commercial speech, such as advertising.

The majority rejected KCPA’s claim of denial of equal protection, which was based on the assertion that the licensing statute creates exemptions that do not advance the purposes of the licensing statute. The court found the exempt classes of persons exempted by the licensing statute (attorneys, persons leasing their own property, trustees, governmental employees, advertising media, etc.) met the applicable standard of minimum rationality. The court briefly dispensed with the due process argument, claiming that the simple words of the statute defined with clarity which activities were prohibited without a license.

Wolff’s dissent, like the majority opinion, doesn’t contain an elaboration of the trial court’s fact-finding. Instead, Wolff merely points out that there was no evidence that KCPA conveyed anything other than truthful information. Wolff’s dissent argues that the recent U. S. Supreme Court decision, Sorrell v. IMS Health, requires that the Missouri courts apply a “heightened scrutiny” test to the licensing statute.

“Heightened scrutiny” is appropriate to evaluate a restriction on commercial speech when the regulation is “content-based” and “speaker-based.” The Missouri real estate licensing statute is directed at the content of real estate advertising (listing information and advertising of rentals and homes) and the identity of the speaker (persons not holding licenses are targeted). Without facts to show that KCPA’s activities were harmful or untruthful, Wolff asserts that the “state has no business suppressing this speech under its police power to regulate occupations, and [that] the broad injunction that the Court upholds in the principal opinion violates the First Amendment.”

Occupational licensing has replaced unionization, in some ways, as a method of restricting competition. Each regulated occupation has a trade association and many have political action committees. These organizations make campaign contributions and hire lobbyists to influence legislation that protects the occupation from competition. Legislators appear to be pro-business when they seek to protect occupational licensing, while they appear to  be anti-business if they protect unions.

In this new opinion, the majority’s opinion took a non-activist position, respecting the legislature’s creation of a system of licensing for real estate agents. The dissenting judges took a fundamental rights approach, giving less deference to the legislation and more to the constitutional protection of speech. In a sense, the majority protected property (the value of real estate licenses) at the expense of liberty (the freedom of consumers and entrepreneurs to provide a service without governmental interference).