United Home Rentals, Inc. v. Texas Real Estate Com'n

• Decision Date: 03 October 1983
• Docket Number: No. 82-1672,82-1672
• Citation: 716 F.2d 324
• Parties: UNITED HOME RENTALS, INC., Michael A. Livingston and W. Eugene Bushman, Plaintiffs-Appellees, v. TEXAS REAL ESTATE COMMISSION and The State of Texas, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 324

716 F.2d 324

UNITED HOME RENTALS, INC., Michael A. Livingston and W Eugene Bushman, Plaintiffs-Appellees, v. TEXAS REAL ESTATE COMMISSION and The State of Texas Defendants-Appellants.

No. 82-1672.

United States Court of Appeals Fifth Circuit.

Oct. 3, 1983.

Mark White, Atty. Gen., Nancy N. Lynch, George Warner, Asst. Attys. Gen., Austin, Tex., for defendants-appellants.

Rhodus, Jones & Brutsche, Steve Brutsche, Dallas, Tex., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GEE, GARZA and TATE, Circuit Judges.

GEE, Circuit Judge:

On this appeal we are asked to perform the initial review of a decision by the Texas Real Estate Commission that its rules, promulgated pursuant to the Texas Real Estate License Act, ¹ require licensure of employees of a rental information service who telephone landlords to obtain rental information, or to verify the continued accuracy of rental listings, or who describe the services offered by the rental information agency to prospective subscribers. Appellees contend that this interpretation of the Act and regulations promulgated thereunder violate their rights of commercial speech guaranteed by the first amendment. For the reasons set out below, we conclude that the district court should have abstained from considering the constitutionality of the statute's interpretation by the state real estate licensing agency pending review of this administrative interpretation by the state agency or the state courts.

I.

Appellee United Home Rentals (UHR) is a Texas corporation that owns and operates a real estate rental information service. ² UHR places advertisements in newspapers indicating that real estate of a certain description is available for rent and listing the UHR office telephone number. Potential consumers may respond to the advertisement by calling UHR and requesting information about the property. The UHR employee who answers the telephone will inform the potential consumer that he must come to the office personally and purchase a "membership" or subscription to the service before any more information will be released. Payment of the membership fee entitles the customer to examine a catalogue of rental property information maintained by UHR which contains the names and addresses of owners or landlords.

According to the stipulated facts, UHR employees perform the following functions:

(1) Gathering rental information from landlords, classified ads, and other sources;

(2) Verifying the information on catalogued property and periodically checking its continued accuracy;

(3) Handling incoming telephone calls in response to ads or to give information regarding newly catalogued rental properties to subscribers;

(4) Explaining the information service and selling memberships to customers.

The same employee may perform one or more of these functions.

Approximately half of UHR's employees, primarily those in supervisory and counseling positions, are licensed under the Texas Real Estate License Act ("the Act"). Section 2 of the Act defines the activities requiring licensure:

(2) "Real estate broker" means a person who, for another person and for a fee, commission, or other valuable consideration, or with the intention or in the expectation or on the promise of receiving or collecting a fee, commission, or other valuable consideration from another person:

(A) sells, exchanges, purchases, rents, or leases real estate;

(B) offers to sell, exchange, purchase, rent, or lease real estate;

(C) negotiates or attempts to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate;

(D) lists or offers or attempts or agrees to list real estate for sale, rental, lease, exchange, or trade;

(E) appraises or offers or attempts or agrees to appraise real estate;

(F) auctions, or offers or attempts or agrees to auction, real estate;

(G) buys or sells or offers to buy or sell, or otherwise deals in options on real estate;

(H) aids, attempts, or offers to aid in locating or obtaining for purchase, rent, or lease any real estate;

(I) procures or assists in procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate; or

(J) procures or assists in the procuring of properties for the purpose of effecting the sale, exchange, lease, or rental of real estate.

(3) "Broker" also includes a 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 the real estate or any part thereof, in lots or parcels or other disposition thereof. It also includes a person who engages in the business of charging an advance fee or contracting for collection of a fee in connection with a contract whereby he undertakes primarily to promote the sale of real estate either through its listing in a publication issued primarily for such purpose, or for referral of information concerning the real estate to brokers, or both.

(4) "Real estate salesman" means a person associated with a Texas licensed real estate broker for the purposes of performing acts or transactions comprehended by the definition of "real estate broker" as defined in this Act.

Tex.Rev.Civ.Stat.Ann. art. 6573a Sec. 2 (West Supp.1983) (emphasis added).

Section 6 of the Act specifies the licensing requirements:

(b) To be eligible for a license, an individual must ... satisfy the commission as to his honesty, trustworthiness, integrity, and competency. However, the competency of the individual, for the purpose of qualifying for the granting of licensure privileges, shall be judged solely on the basis of the examination referred to in Section 7 of this Act.

Tex.Rev.Civ.Stat.Ann. art. 6573a Sec. 6 (West Supp.1983).

Section 7(a), Tex.Rev.Civ.Stat.Ann. art. 6573a Sec. 7(a) (West Supp.1983), sets out nine "core real estate courses" that an applicant must have studied before he or she may take an examination for the real estate license. The core courses include subjects such as: principles of real estate, real estate appraisal, real estate law, real estate finance, real estate marketing, real estate mathematics, real estate brokerage, property management, and real estate investments.

Pursuant to the rulemaking power granted it in Section 2 of the Act, appellant Texas Real Estate Commission ("the Commission") has enacted the following relevant regulations:

Rule 402.03.02

.003.4 Real estate broker licensure is required for the operation of a rental agency. This section does not prohibit employment of an answering service which is identified to callers as such and which provides information concerning the size, price and terms of property advertised.

.005.1 Locating and bringing together a buyer and seller through correspondence or telephone constitutes negotiation if done from within the borders of Texas.

005.5 Real estate licensure is required of rental agents doing all solicitation by telephone unless such agents are employees of the owner of the property concerned.

.005.6 A clerical employee of a real estate broker is not required to be licensed if such employee engages in no solicitation work and does not hold himself or herself out as authorized to act as a real estate agent.

.005.7 Answering of the telephone and acts of a secretarial nature done in a broker's office do not require real estate licensure.

.010.1 (a) Real estate licensure is required for the operation of an apartment selector/locator service or home-finding service in Texas.

.010.2 (b) The compilation and sale of listings of rental vacancies available in an area is activity requiring real estate licensure. This is true even if the property is not shown, sold, leased or managed.

.011.1 This section prohibits a person not licensed as a Texas real estate broker or salesman from receiving a referral fee from another concerning the sale, exchange, purchase, rental or lease of real estate.

.011.2 Real estate licensure is required for one to procure or assist in the procuring of prospective tenants of real property for compensation in any form, including but not limited to rent bonuses, discounts, gifts or other things of value.

.011.3 The referral of a prospective purchaser, for compensation, is an act requiring real estate licensure.

.013.1 Real estate licensure is required of those who advertise for others regarding real property, accept calls received in response to such advertisements, and refer the callers to the owner of the property.

The Commission has interpreted the Act and the regulations promulgated pursuant to it to require licensure of UHR employees performing the clerical tasks described above (i.e. gathering, verifying and distributing rental information). Accordingly, the Commission has commenced administrative proceedings to revoke the licenses of appellees Livingston and Bushman on the grounds that they had associated with unlicensed persons who had performed acts requiring a license. ³ Pursuit of these administrative actions has been deferred until the present litigation is resolved. Also, the Commission initially denied applications for licenses by three UHR employees on the ground that they misrepresented their activities as UHR employees in their applications. ⁴ However, during the pendency of this appeal, these licenses have in fact been issued.

In a previous federal action, UHR challenged the statute and regulations as applied on first amendment and equal protection grounds. Applying a due process analysis, the district court in that case ruled that the regulations did encompass UHR's activities, and that as applied to UHR, the regulations bore a rational relationship to the legitimate state goal of consumer protection. United Home Rentals, Inc. v. Texas Real Estate Commission, No. CA 3-80-0485-F (N.D.Tex. April 16, 1981) ("UHR I"). The court refused to consider UHR's first amendment argument.

UHR then refiled...