Stroman Realty, Inc. v. Allison
| Decision Date | 13 June 2017 |
| Docket Number | NO. 4-15-0501,4-15-0501 |
| Citation | 2017 IL App (4th) 150501 -U |
| Parties | STROMAN REALTY, INC., Plaintiff-Appellee, v. KREG ALLISON, Acting Director of The Illinois Division of Real Estate; and THE DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION, DIVISION OF REAL ESTATE, Defendants-Appellants. |
| Court | United States Appellate Court of Illinois |
NOTICE
This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from Circuit Court of Sangamon County
Honorable John P. Schmidt, Judge Presiding.
Justices Holder White and Appleton concurred in the judgment.
¶ 1 Held: The appellate court reversed the administrative decision below, which ruled that application of the Real Estate Timeshare Act of 1999 (765 ILCS 101/1-1 (West 2006)) and the Real Estate License Act of 2000 (225 ILCS 454/1-1 (West 2006)) to plaintiff's activities in the timeshare resale market did not constitute an impermissible extraterritorial application of Illinois law.
¶ 2 In 2005, defendant, the Illinois Department of Financial and Professional Regulation, Division of Real Estate (Department), received a complaint from an Illinois resident, William B. Humphreys, who alleged that he paid plaintiff, Stroman Realty, Inc. (Stroman)—a Texas company—$499 to sell his interest in a timeshare property in Gatlinburg, Tennessee. When Stroman failed to perform to Humphreys' expectations, Humphreys complained to the Department.
¶ 3 In August 2005, the Department filed an administrative complaint against Stroman, which it later amended, alleging that Stroman had violated the Real Estate Timeshare Act of 1999 (Timeshare Act) (765 ILCS 101/1-1 to 90-10 (West 2004)) and the Real Estate License Act of 2000 (License Act) (225 ILCS 454/1-1 to 999-99 (West 2004)) (collectively, Acts) by acting as a timeshare resale agent without a license. Stroman filed an answer, arguing, inter alia, that applying those Acts to Stroman's activities violated the first amendment of the United States Constitution (U.S. Const., amend. I) and the dormant commerce clause (U.S. Const., art. I, § 8), as well as constituting an extraterritorial application of Illinois law. After an April 2010 hearing before an administrative law judge (ALJ), the ALJ concluded that Stroman had violated the Acts. In December 2010 the Real Estate Administration and Disciplinary Board (Board) of the Department adopted the ALJ's findings of fact, conclusions of law, and recommendations. In April 2011, the Director of the Department adopted the Board's recommendations and ordered Stroman to pay a civil penalty of $25,000.
¶ 4 In May 2011 Stroman filed a complaint for administrative review in the circuit court. In its complaint, Stroman did not challenge the finding that it had violated the Acts. Instead, Stroman raised three legal issues: (1) the proceedings lacked personal jurisdiction over Stroman; (2) the Department's application of the Acts to Stroman's activities violated the commerce clause and Illinois' rule against "extraterritorial application" of Illinois law; and (3) requiring Stroman to obtain a license violated the first amendment of the United States Constitution. After a March 2015 hearing, the court agreed with Stroman that application of the Acts to its business activities violated the first amendment and the dormant commerce clause. As a result, the court reversed the Director's April 2011 order.
¶ 5 On appeal, the Director argues that the circuit court erred by determining that the Acts were unconstitutional as applied to Stroman's business activities. For the following reasons, we conclude that application of the Acts to Stroman constituted an impermissible extraterritorialapplication of Illinois law. As a result, we do not reach the Director's constitutional arguments. Because the Acts do not apply to Stroman, we reverse the Director's decision imposing a civil penalty against Stroman.
¶ 8 In January 2005, Humphreys—an Illinois resident—complained to the Department. Humphreys explained that he owned an interest in a timeshare property in Gatlinburg, Tennessee, which he decided to sell in 2003. Humphreys noticed an advertisement for Stroman's services in the USA Today newspaper. In the ad, Stroman stated that it could help people like Humphreys sell their timeshare interests. Humphreys spoke with a Stroman representative over the telephone about selling his timeshare. As a result of that discussion, in December 2003, Humphreys paid Stroman $499 with the expectation that Stroman would sell Humphreys' timeshare interest. In January 2005, Humphreys complained to the Department because he was upset with Stroman's failure to sell his timeshare.
¶ 9 In May 2005, the Department sent a letter to Stroman, demanding that Stroman either (1) cease and desist from engaging in the practice of timeshare brokerage in Illinois or (2) obtain the appropriate Illinois license to do so.
¶ 10 In August 2005, the Department filed an administrative complaint against Stroman, alleging that Stroman violated the Timeshare Act (765 ILCS 101/1-1 to 90-10 (West 2004)) and the License Act (225 ILCS 454/1-1 to 999-99 (West 2004)) by acting as a timeshare resale agent without a license.
¶ 12 In June 2005, Stroman filed suit in federal court in Texas, alleging that the De-partment's regulation of Stroman's business ventures violated the commerce clause of the United States Constitution (see U.S. Const., art. I, § 8, cl. 3). Stroman sought to enjoin the Department from enforcing its licensing rules against Stroman. The Department filed a motion to dismiss, alleging lack of personal jurisdiction and asking the court to abstain from deciding the federal case because of the Department's pending action against Stroman in an Illinois state court. The Texas federal court transferred the case to the Northern District of Illinois, which granted the Department's request to abstain from deciding the case under Younger v. Harris, 401 U.S. 37 (1971). The Seventh Circuit affirmed. Stroman Realty, Inc. v. Martinez, 505 F.3d 658 (2007).
¶ 14 Sometime thereafter, Stroman filed a complaint for a writ of mandamus, seeking to compel the Department to dismiss its administrative complaint for lack of personal jurisdiction. The trial court granted the Department's motion to dismiss the writ of mandamus. The First District Appellate Court affirmed. Stroman Realty, Inc. v. Lyons, No. 1-07-2276 (2008) (unpublished order under Supreme Court Rule 23).
¶ 16 In April 2009, the Department filed an amended administrative complaint. The amended complaint claimed that Stroman had committed several violations of the Acts. Specifically, the Department alleged that Stroman violated the License Act by acting as a "broker," as defined by section 1-10 of the License Act (225 ILCS 454/1-10 (West 2008)), without the license required by section 5-15(a) (225 ILCS 454/5-15(a) (West 2008)). The Department alleged that Stroman violated the Timeshare Act by acting as a timeshare "resale agent," as defined by section 1-15 of the Timeshare Act (765 ILCS 101/1-15 (West 2008)), without being licensed as required by section 10-20 of the Timeshare Act (765 ILCS 101/10-20 (West 2008)). In particular,the complaint alleged that Stroman had acted as a broker for sellers of timeshare interests who were Illinois residents and for sellers of timeshare interests that were located in Illinois. The amended complaint alleged further that Stroman had solicited timeshare owners in Illinois through direct postal mailings.
¶ 17 In detail, the amended complaint alleged that Stroman violated the License Act by acting as a broker without a license. Specifically, the Department alleged that Stroman engaged in the following activities without being licensed: (1) selling timeshare interests owned by Illinois residents; (2) selling timeshare interests in properties located in Illinois; (3) offering to sell timeshares owned by Illinois residents; (4) offering to sell timeshare interests in properties located in Illinois; (5) negotiating the sale of timeshare interests owned by Illinois residents; (6) negotiating the sale of timeshare properties located in Illinois; (7) listing for sale timeshare interests owned by Illinois residents; (8) listing for sale timeshare properties located in Illinois; (9) advertising itself to Illinois residents as in the business of selling timeshares; and (10) assisting in the negotiation of the intended sale of timeshare properties located in Illinois or owned by Illinois residents.
¶ 18 The Department alleged further that Stroman had violated the Timeshare Act by engaging in the following activities without a license: (1) acting as a timeshare resale agent for people who live in Illinois, as well as for people who own timeshare properties in Illinois; (2) acting as a timeshare resale agent for developers who have timeshare properties or business offices in Illinois; and (3) offering timeshare resale agent services to Illinois residents through the U.S. Postal Service and by electronic mail.
¶ 19 In June 2009, Stroman filed an answer, raising the following affirmative defenses relevant to this appeal: (1) the Department's claims were barred by the commerce clause of theUnited States Constitution (U.S. Const., art. I, § 8, cl. 3); (2) the Department was regulating commercial speech in violation of the first amendment to the United States Constitution (U.S. Const., amend. I); and (3) the State lacked subject-matter jurisdiction over Stroman because the Department was attempting to apply the Acts "extraterritorially." The ALJ later struck Stroman's defenses because the Department's rules contained in the Illinois Administrative Code did not allow for...
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