Summary
invalidating licensing requirements for short-term vacation property managers on similar grounds
Summary of this case from Tiwari v. FriedlanderOpinion
No. 33 MAP 2018
05-19-2020
Sara LADD, Samantha Harris, and Pocono Mountain Vacation Properties, LLC, Appellants v. REAL ESTATE COMMISSION of the Commonwealth of Pennsylvania and Department of State (Bureau of Professional and Occupational Affairs) of the Commonwealth of Pennsylvania, Appellees
OPINION
We consider the Commonwealth Court's holding that the broker licensing requirements codified in the Real Estate Licensing and Registration Act, 63 P.S. §§ 455.101 - 455.902 (RELRA), satisfy the heightened rational basis test articulated in Gambone v. Commonwealth , 375 Pa. 547, 101 A.2d 634 (1954), and thus do not violate Article I, Section 1 of the Pennsylvania Constitution when applied to a self-described "short-term vacation property manager." We conclude the Commonwealth Court erred in so holding, and therefore reverse and remand for further proceedings pursuant to this opinion.
Article I, Section 1 of the Pennsylvania Constitution provides:
All men are born equally free and independent, and have certain inherent and indefeasible rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness.
Pa. Const. art. I, § 1.
I. Background
We begin by describing the relevant provisions of RELRA, which set forth the statutory licensing requirements for real estate brokers in Pennsylvania. Specifically, RELRA requires that any person engaged in the business of real estate, including those persons "acting in the capacity of a broker or salesperson," be "licensed or registered as provided in this act[.]" 63 P.S. § 455.301. The statute defines a "broker" as:
Any person who, for another and for a fee, commission or other valuable consideration:
(1) negotiates with or aids any person in locating or obtaining for purchase, lease or an acquisition of interest in any real estate;
(2) negotiates the listing, sale, purchase, exchange, lease, time share and similarly designated interests, financing or option for any real estate;
(3) manages any real estate;
(4) represents himself to be a real estate consultant, counsellor, agent or finder;
(5) undertakes to promote the sale, exchange, purchase or rental of real estate: Provided, however, That this provision shall not include any person whose main business is that of advertising, promotion or public relations;
(5.1) undertakes to perform a comparative market analysis; or
(6) attempts to perform any of the above acts.
63 P.S. § 455.201. RELRA expressly exempts from this statutory definition of "broker" certain individuals who engage in the activities described in Section 455.201 and are therefore not required to obtain a broker license before providing the listed services. Notably, the statute exempts, inter alia , "[a]ny person employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property[.]" 63 P.S. § 455.304(10).
Other exemptions include: owners of real estate with respect to their own property; employees of a public utility; employees of energy or mineral resource companies; attorneys pursuant to a power of attorney; a trustee; officer or director of a banking institution during certain transactions; cemetery companies; and auctioneers. 63 P.S. § 455.304(1) -(11).
RELRA requires real estate "brokers" to take an examination before becoming "licensed" to engage in any of the above-described activities in Pennsylvania. To be eligible to sit for the "broker's license examination," an individual is required to: (1) be 21 years-old; (2) have a high school degree or its equivalent; (3) "have completed 240 hours in real estate instruction in areas of study prescribed by the rules of the commission, which [ ] shall require instruction in the areas of fair housing and professional ethics[;]" and (4) "have been engaged as a licensed real estate salesperson for at least three years or possess educational or experience qualifications which the commission deems to be the equivalent thereof." 63 P.S. § 455.511(1) - (4). A real estate "salesperson" is separately defined as:
The topics offered include: "Real Estate Law;" "Real Estate Finance;" "Real Estate Investment;" "Residential Property Management;" "Nonresidential Property Management;" "Real Estate Sales;" "Residential Construction;" "Valuation of Residential Property;" and "Valuation of Income-Producing Property." In addition, candidates for a broker's license are required to achieve credits from a "Commission-developed or approved real estate office management course;" and a "Commission developed or approved law course." 49 Pa. Code § 35.271(b)(2)(i)-(ix).
Any person employed by a licensed real estate broker to perform comparative market analyses or to list for sale, sell or offer for sale, to buy or offer to buy or to negotiate the purchase or sale or exchange of real estate or to negotiate a loan on real estate or to lease or rent or offer to lease, rent or place for rent any real estate or collect or offer or attempt to collect rent for the use of real estate for or in [sic] behalf of such real estate broker.
63 P.S. § 455.201. In addition, before becoming a real estate "salesperson" one must sit for an examination after satisfying these additional requirements: (1) be at least 18 years-old; (2) "complete[ ] 75 hours in real estate instruction in areas of study prescribed by the rules of the commission, which [ ] shall require instruction in the areas of fair housing and professional ethics[;]" and (3) have a high school degree or its equivalent. 63 P.S. § 455.521(1) - (3). After passing the salesperson examination an individual must apply to the Real Estate Commission (Commission) for a license and "submit a sworn statement by the broker with whom [the salesperson] desires to be affiliated certifying that the broker will actively supervise and train the applicant." 63 P.S. § 455.522(a) - (b).
The topics offered include: "Real Estate Fundamentals," "Real Estate Practice" and all acceptable basic real estate courses offered by accredited institutions. 49 Pa. Code § 35.272(b)(2).
Only upon completion of the requisite three years as a real estate salesperson, and assuming the other three criteria in Section 455.511 are satisfied, may an individual sit for the broker's license examination. See 63 P.S. § 455.511(1) - (4). Upon passing the examination, the individual must submit an application to the Commission indicating his or her place of business, 63 P.S. § 455.512(a) - (b), and the newly licensed broker must thereafter "maintain a fixed office within this Commonwealth." 63 P.S. § 455.601(a). Failure to comply with these licensing requirements before performing the services of a "broker" results in a summary offense and upon conviction a "fine not exceeding $500 or [ ] imprisonment, not exceeding three months, or both[.]" 63 P.S. § 455.303. Moreover, a person who commits any "subsequent offense shall be guilty of a felony of the third degree and upon conviction [ ], shall be sentenced to pay a fine of not less than $2,000 but not more than $5,000 or to imprisonment for not less than one year but not more than two years, or both." Id . Finally, the Commission is authorized to "levy a civil penalty [ ] up to $1,000" for practicing real estate without a license. 63 P.S. § 455.305.
We now turn to the facts of the present case. Appellant Sara Ladd, a New Jersey resident, owns two vacation properties on Arrowhead Lake in Monroe County, Pennsylvania, an area commonly known as the Pocono Mountains. Petition for Review in the Nature of a Complaint for Declaratory and Injunctive Relief, 7/18/2017 at ¶¶15-18. Ladd started renting one of these properties in 2009 and the other in 2013 to supplement her income after being laid off from her job as a digital marketer. Id . at ¶¶17, 19. She used her digital marketing experience to establish an online system for booking the rentals. Id . at ¶20. Eventually, some of her Arrowhead Lake neighbors learned of her success and asked her to manage rental of their own properties. Id . at ¶21. By late 2013, Ladd formed a New Jersey limited liability company, Pocono Mountain Vacation Properties, LLC (PMVP), and in 2016, launched a corresponding website. Id . at ¶¶22-23. Her objective was to "take the hassle out of short-term vacation rentals by handling all of the marketing and logistics that property owners would otherwise have to coordinate themselves[.]" Id . at ¶25. Ladd considered "short-term" vacation rentals to be rentals for fewer than thirty days, and limited her services to such transactions only. Id . at ¶2 n.1.
Ladd acted as an "independent contractor" for her "clients" and entered into written agreements with them related to her services. Id . at ¶¶26-27. In these contracts, Ladd agreed to market her clients' properties on the internet; respond to inquiries and coordinate bookings according to a list of pre-approved dates; manage all billing including accepting rental payments and security deposits, subtracting her own commission, and remitting payments to her clients; and ensure the properties were cleaned between renters. Id . at ¶27. Her clients agreed to: execute a contract between themselves and the tenant; provide a list of available dates; work with Ladd to establish a rental rate; certify the property complied with all applicable laws; pay all applicable taxes; maintain short-term rental liability insurance; provide a list of household rules and instructions; and ensure the property was stocked with necessary supplies and items in accordance with the website listing. Id . at ¶28. However, Ladd herself was never a party to the contracts between her clients and their renters. Cf . id . at ¶27.
In addition to marketing properties on her own PMVP website, Ladd also listed her clients' properties on Airbnb, HomeAway, Flip, Key, and VRBO. Id . at ¶27(b).
Beginning in 2015, Ladd advised her clients they were required to comply with the Commonwealth's "hotel tax." Id . at ¶34, citing 72 P.S. § 7210(a) ("an excise tax of six per cent of the rent upon every occupancy of a room or rooms in a hotel in this Commonwealth, which tax shall be collected by the operator from the occupant") and 61 Pa. Code § 38.3 (defining "hotel" as any form of lodging "available to the public for periods of time less than 30 days").
Ladd managed PMVP alone and operated a majority of its business from her home in New Jersey. Id . at ¶40. According to Ladd, this limited overhead allowed her to provide low-cost services to her clients. Id . Her services involved rentals lasting only a few days at a time for just a few hundred dollars. Id . at ¶¶31-32. She never managed more than five clients' properties at one time and never managed a property outside of the Pocono Mountains. Id . at ¶33. She distinguishes her services from those of traditional real estate brokers who engage in "complex, months- or year-long transactions involving the transfer of permanent or long-term interests in real property" and generally "buy and sell houses worth tens or hundreds of thousands of dollars." Id . at ¶¶36-37. Ladd's services did not include buying or selling real property on behalf of her clients. Id . at ¶30.
In January 2017, the Commonwealth's Bureau of Occupational and Professional Affairs (the Bureau), charged with overseeing the Commission's enforcement of RELRA, called Ladd to inform her she had been reported for the "unlicensed practice of real estate." Id . at ¶60. Ladd reviewed RELRA and concluded her short-term vacation property management services were covered by the statute, and she would have to obtain a real estate broker license to continue operating PMVP. Id . at ¶¶61-62. As Ladd was sixty-one years old and unwilling to meet RELRA's licensing requirements, she shuttered PMVP to avoid the civil and criminal sanctions described in the statute. Id . at ¶67; see also 63 P.S. §§ 455.303, 455.305.
Ladd filed a complaint in the Commonwealth Court's original jurisdiction, seeking declaratory judgment and a permanent injunction. Specifically, Ladd alleged RELRA's broker requirements and the Bureau's practices violate her substantive due process rights pursuant to Article I, Section 1 of the Pennsylvania Constitution because they impose unlawful burdens on her right to pursue her chosen occupation. Ladd v. Real Estate Comm'n of Commonwealth , 187 A.3d 1070, 1074 (Pa. Cmwlth. 2018). The Commonwealth filed preliminary objections in the nature of a demurrer, challenging the legal sufficiency of Ladd's Article I, Section 1 claim, arguing the matter was not yet ripe and that Ladd had failed to exhaust statutory remedies. Id . In response, Ladd argued the matter was ripe for judicial review because if relief were denied she would be subject to substantial hardships. Id . at 1075. She also argued she was not required to exhaust her administrative remedies because she was subject to "direct and immediate" effects of Bureau enforcement. Id ., citing Bayada Nurses, Inc. v. Dep't. of Labor & Industry , 607 Pa. 527, 8 A.3d 866, 875-76 (2010) (applying the exception announced in Arsenal Coal Co. v. Dep't. of Envtl. Res. , 505 Pa. 198, 477 A.2d 1333, 1339 (1984) permitting pre-enforcement review when the effects of enforcement are sufficiently "direct and immediate") and Pennsylvania Independent Oil & Gas Ass'n. v. Dep't. of Envtl. Protection , 135 A.3d 1118, 1125-26 (Pa. Cmwlth. 2015) (same). Ladd further argued demurrer should be overruled because she was not required to prove the merits of her substantive due process claim at the pleadings stage and because RELRA, as applied to her, was unconstitutional pursuant to the heightened rational basis test applied in Nixon v. Commonwealth , 576 Pa. 385, 839 A.2d 277 (2003) (applying heightened rational basis test announced in Gambone , as discussed infra ). Id . at 1075-77.
Samantha Harris, one of Ladd's rental clients, and PMVP were also named plaintiffs in the lawsuit. Named defendants were the Commission and the Bureau (the Commonwealth).
The Commonwealth defendants raised an additional preliminary objection claiming plaintiff Harris lacked standing. This objection was not decided by the Commonwealth Court and is not before us in this appeal.
See, e.g. , Arsenal Coal Co. v. Dep't. of Envtl. Res. , 505 Pa. 198, 477 A.2d 1333, 1338 (1984) (plaintiff challenging agency's enforcement of regulation is generally required to exhaust statutorily defined administrative remedies before seeking equitable relief in court).
The Commonwealth Court first considered whether the matter was ripe for judicial review, or whether Ladd was first required to exhaust administrative remedies, noting that the principles behind both defense objections are distinct but they are often considered together when a party seeks pre-enforcement judicial review. Id . at 1076. The court then determined both doctrines were satisfied and pre-enforcement review was warranted because the effect off RELRA's licensing requirements on Ladd were sufficiently "direct and immediate" as she faced substantial criminal and civil sanctions for noncompliance pursuant to Sections 455.303 and 455.305 and a lengthy administrative process if she continued her business operations. Id ., citing Arsenal Coal , 477 A.2d at 1339. However, the court ultimately sustained the Commonwealth's demurrer and dismissed the complaint, holding RELRA's broker requirements are constitutional as applied to Ladd. Id . at 1078. In doing so, the panel applied the heightened rational basis test announced in Gambone .
The Gambone Court held a law restricting social and economic rights, like the right to pursue a lawful occupation, "must not be unreasonable, unduly oppressive or patently beyond the necessities of the case, and the means which it employs must have a real and substantial relation to the objects sought to be attained." 101 A.2d at 637. Applying Gambone's heightened rational basis test to the present factual scenario, the panel below concluded RELRA's licensing scheme as applied to Ladd was not unconstitutional. Ladd , 187 A.3d at 1077. The panel determined the purpose of RELRA's licensing requirement is " ‘to protect buyers and sellers of real estate, the most expensive item many persons ever buy or sell, from abuse by persons engaged in the business.’ " Id . at 1077-78, quoting Kalins v. State Real Estate Comm'n , 92 Pa.Cmwlth. 569, 500 A.2d 200, 203 (1985). Next, the panel observed professional licensing schemes are generally accepted across many professions to ensure competency, regardless of the number of hours worked or the number of clients. Id . at 1078 ("We would no sooner obviate the requirement for a professional engaging in the practice of real estate to hold a license than we would obviate the licensure requirement for an attorney, physical therapist, or any other professional, merely because they have limited clients or only practice part of the year."). The panel rejected the premise that "a license requirement becomes unreasonable or oppressive" for individuals who provide professional services "in a limited fashion," because it would "effectively upend the legitimacy of any requirement by the Commonwealth for a professional license." Id . The panel thus concluded "RELRA bears a real and substantial relationship to the interest in protecting from abuse buyers and sellers of real estate and is similar to licensing requirements in other fields." Id . The panel recognized RELRA's requirements would likely be "unduly burdensome" to Ladd due to the "small volume of real estate practice she conducted[,]" but "[t]he Pennsylvania Constitution ... does not require the General Assembly to establish a tiered system for every profession that it regulates" to account for such disparities. Id .
The panel also distinguished Nixon , supra , where this Court struck down as unconstitutional a statute prohibiting the employment of certain formerly convicted individuals in elderly care facilities because the prohibition was based on length of employment rather than individual rehabilitation efforts and thus lacked a real and substantial relation to the stated purpose of protecting facility residents. Id . at 1078-79, citing Nixon , 839 A.2d at 289-90. The panel determined RELRA did not impose a Nixon -like blanket ban excluding certain individuals from working in real estate, but simply "requires a real estate broker's license prior to engaging in the practice of real estate." Id. at 1079.
Ladd filed a direct appeal to this Court and we granted oral argument to determine:
[Whether] the Commonwealth Court fail[ed] to correctly apply the Pennsylvania rational-basis test, as set forth by this Court in Gambone v. Commonwealth , 375 Pa. 547, 101 A.2d 634, 636-37 (1954), and its progeny, by[:]
1. Failing to hold an occupational-licensing scheme to the same "means-ends" review under Article I, Section 1 of the Pennsylvania Constitution that this Court has uniformly applied to all other restrictions on the right to pursue a chosen occupation?
2. Sustaining [the Commonwealth's] demurrer on the ground that, as applied to Appellant Ladd's vacation property management services, RELRA bore a "real and substantial relationship to the interest in protecting from abuse buyers and sellers of real estate," even though Appellant Ladd – who does not buy or sell real estate – credibly alleged that her services posed no such risk?
3. Sustaining [the Commonwealth's] demurrer without considering whether applying RELRA to Appellant Ladd's vacation property management services imposed burdens that were "unduly oppressive or patently beyond the necessities of the case[?]"
Appellant's Brief at 4. Our standard of review in this appeal from the Commonwealth Court's decision to sustain preliminary objections in the nature of a demurrer is de novo , and our scope of review is plenary. Mazur v. Trinity Area Sch. Dist. , 599 Pa. 232, 961 A.2d 96, 101 (2008), citing Luke v. Cataldi , 593 Pa. 461, 932 A.2d 45, 49 n.3 (2007). We recognize a demurrer is a preliminary objection to the legal sufficiency of a pleading and raises questions of law; we must therefore "accept as true all well-pleaded, material, and relevant facts alleged in the complaint and every inference that is fairly deducible from those facts." Id. ; see also Yocum v. Commonwealth, Pa. Gaming Control Bd ., 639 Pa. 521, 161 A.3d 228, 234 (2017). A preliminary objection in the nature of a demurrer "should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted." Id .
II. Arguments
Ladd begins by observing occupational restrictions must satisfy the Gambone heightened rational basis test — rather than the less stringent federal test discussed in Shoul v. Commonwealth, Dep't of Transportation, Bureau of Driver Licensing , 643 Pa. 302, 173 A.3d 669 (2017) — because Article I, Section 1 of the Pennsylvania Constitution provides greater protections for occupational freedom than the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Appellant's Brief at 21-22, citing Shoul , 173 A.3d at 677 (recognizing Pennsylvania Constitution scrutinizes an exercise of police power more closely than its federal counterpart). Ladd admits the Commonwealth may exercise its police power by imposing restrictions on the right to pursue an honest trade to "protect the public health, safety, and welfare[,]" see id . at 26, citing Nixon , 839 A.2d at 286, but argues the power is not unrestricted and must satisfy both prongs of the Gambone test. Id . at 28,, citing Nixon , 839 A.2d at 289. According to Ladd, the most important difference between the Gambone test and the federal rational basis test is " ‘the degree of deference [each] affords to legislative judgment.’ " Id . at 28-29, quoting Shoul , 173 A.3d at 677. Under the federal test, a statute restricting an economic liberty, like the right to earn a living, is presumed constitutional and a plaintiff is required to rebut every conceivable basis, whether or not it is in the record, to support the law. Id . at 29. However, when this Court applies the Gambone test, the Commonwealth's stated reason for enacting a given statute must be supported in the record or an objecting plaintiff may provide evidence to rebut that alleged reason. Id . at 29-30, citing Warren v. City of Phila. , 387 Pa. 362, 127 A.2d 703, 705 (1956) (plaintiff can rebut presumption of constitutionality by producing sufficient evidence) and Commonwealth ex rel. Woodside v. Sun Ray Drug Co. , 383 Pa. 1, 116 A.2d 833 (1955) (statute intended to protect public from mere "possibility" of being deceived is not sufficient to overcome challenge to statute as being unconstitutional and invalid exercise of police power).
Ladd argues the Commonwealth Court did not apply Gambone in a meaningful way in her case because it generally concluded, without consideration of her services, that application of RELRA's broker requirements bear a real and substantial relationship to the purpose of "protect[ing] buyers and sellers of real estate, the most expensive item many persons ever buy, or sell, from abuse," and because the panel never discussed whether the burdens imposed on her were "unduly burdensome or patently beyond the necessities of the case." Id . at 31-32, citing Ladd , 187 A.3d at 1077-78 (case involves a " ‘mere’ licensing requirement[ ] [and those] are common ‘across many career fields’ " and that to distinguish her services " ‘would effectively upend the legitimacy of any requirement by the Commonwealth ... for a professional license’ "). Further, Ladd faults the panel for failing to understand that her services are unique and wholly different from a traditional real estate broker. Id . at 33 & n.24, citing Ladd , 187 A.3d at 1078 (licensing requirement not unreasonable or oppressive for individuals who provide regulated services in a "limited fashion"); id . at 13-16 (arguing definition of "broker" is rooted in practice of real estate at time RELRA was enacted, which involved buying, selling, and leasing properties in large and often more permanent transactions). Although this Court never applied Gambone to a case exactly like Ladd's, she argues it is possible for her challenge to an occupational licensing law to succeed because other jurisdictions have applied similar tests to deem such laws unconstitutional. Id . at 34-35 n.25, 36-37 n.27 & n.28 (collecting cases). She emphasizes she alleged sufficient facts to show RELRA failed both prongs of the Gambone test or, at the very least, to survive a demurrer because it is not " ‘free and clear from doubt’ " that RELRA, as applied, satisfies both prongs. Id . at 38-39, quoting Mazur , 961 A.2d at 101.
Regarding Gambone's mandate the law bear a " ‘real and substantial relation’ " to a legitimate policy objective, Ladd alleges the government's stated interest is to protect buyers and sellers of homes. Id . at 39, quoting Gambone , 101 A.2d at 637. Ladd specifically argues none of RELRA's three broker requirements — the apprenticeship, instructional hours, or physical office space — bear a real and substantial relation to her services as a short-term vacation property manager because she does not assist individuals in buying or selling homes.
Ladd argues the apprenticeship requirement contains no objective measure of progress toward competency in short-term vacation property management, but instead would require her to work in an industry that provides totally different services; Ladd notes other jurisdictions have struck down apprenticeship requirements on similar grounds. Id . at 42-43 & n.30 (collecting cases). Ladd further argues the instructional requirements mandating hundreds of hours of coursework and passing two exams on real-estate practice do not bear a real and substantial relation to her ability to provide safe and quality short-term vacation property management services. She avers the courses required by RELRA are broadly stated real-estate topics with no clear relation to her unique services. Id . at 48; see also id . at 47 (arguing even federal case law applying less restrictive rational basis test, e.g. , Cornwell v Hamilton , 80 F.Supp.2d 1101 (S.D. Cal. 1999), determined laws were unconstitutional on this basis). Finally, Ladd argues the brick and mortar office requirement is an archaic concept that bears no relation to her online, home-based business. Ladd asserts requiring her to maintain physical office space in Pennsylvania would not enhance the Commonwealth's ability to regulate, see id . at 50-51 (noting other real estate professionals regulated by RELRA are not subject to the brick and mortar requirement), nor does it have any impact on the competency of the services she provided.
Regarding Gambone 's directive that a reviewing court determine whether a statutory requirement is " ‘unreasonable, unduly oppressive or patently beyond the necessities of the case,’ " Ladd argues the Commonwealth Court failed even to consider whether RELRA's broker requirements outweighed the government's purported policy objective when applied to her services. Id . at 52-53, quoting Gambone , 101 A.2d at 637. Ladd claims that, assuming arguendo RELRA's broker requirements have a "real and substantial relation" to the legislative goal, they are nevertheless unreasonable and unduly oppressive because those requirements still disproportionally burden her ability to earn a living and there are less drastic means of regulation available. Id . at 53, citing Mahony v. Twp. of Hampton , 539 Pa. 193, 651 A.2d 525, 528 (1994) (applying Gambone to condemn economic regulation where "less drastic and intrusive alternative[s]" are available). Ladd argues the apprenticeship requirement is unduly oppressive because it places her ability to work at the discretion of licensed brokers and forces her to be financially subordinate to them for three years while forgoing her own business, when there are other less restrictive alternatives available. Ladd emphasizes less restrictive alternatives already exist within RELRA for builder-owner salespersons, 63 P.S. § 455.551, rental listing referral agents, 63 P.S. § 455.561, and timeshare salespersons, 63 P.S. § 455.591, and those jobs are more closely analogous to her vacation property management services than a real estate broker's services. Id. at 56. Next, Ladd asserts RELRA's instructional requirements are unnecessary — requiring that she spend hundreds of hours learning irrelevant material — and oppressive — requiring her to forgo three years of income to complete. Ladd insists she does not help clients buy or sell property, facilitate leases, or handle large sums of money and taking courses on how to perform those functions is irrelevant to her competent performance of a wholly different service. Id. at 61-63, citing United Interchange, Inc. v. Spellacy , 144 Conn. 647, 136 A.2d 801, 805-06 (1957) (unnecessarily burdensome to subject individuals, who merely solicited homeowners to advertise their properties for sale in periodical, to Connecticut's most onerous real estate broker requirements despite falling within statute's definition of real estate broker) and Patel v. Texas Dep't of Licensing & Regulation , 469 S.W.3d 69, 90 (Tex. 2015) (striking down educational requirements for eyebrow threaders because requiring completion of 750 hours of study to obtain a cosmetology license, where only 430 hours or 52% of the coursework was relevant to their profession, was "not just unreasonable or harsh, but [ ] so oppressive" that it violated the Texas Constitution). Here too, Ladd argues, it would be oppressive to require her to spend three years, study hundreds of hours of unrelated materials, and forgo income to operate her limited business. Finally, Ladd argues the brick and mortar office requirement is unduly oppressive because it is analogous to imposing an excessive fee on her right to work, id . at 63-64, citing Olan Mills, Inc. v. City of Sharon , 371 Pa. 609, 92 A.2d 222, 224 (1952) (transient business license fee was unusual and unjustifiable extra expense imposed by the city), and the UTPCPL is available as a less restrictive alternative.
Ladd argues RELRA's severity is highlighted by the fact that hotel and apartment complex managers and travel agents, who provide services very similar to her own, are not subject to any form of licensure, see 63 P.S. § 455.304(10), and are subject only to the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL). Appellant's Brief at 58-60, citing 73 P.S. § 201-3.
Edward Joseph Timmons, Ph.D, who submitted an amicus brief in support of Ladd, suggests that, instead of licensing, short-term vacation property managers should be subject to a registration requirement, which is a less restrictive method of regulation. Timmons' Brief at 24. Timmons opines subjecting short-term vacation property management services to RELRA's onerous broker licensing regime will have negative implications for consumers because operating costs will increase and be passed on to them. Id . at 9, 14-16. Timmons further explains this is especially true when licensing requirements are not carefully crafted to fit the specific service they purport to regulate. Id . at 12-13.
Ashish Patel, the plaintiff in the Texas case, submitted an amicus brief on behalf of Ladd. Patel analogizes this case to his own and argues RELRA's broker requirements, as applied to Ladd, fail the Gambone test because the sheer number of hours and costs imposed on Ladd to obtain a broker's license are unreasonable and unduly oppressive. Patel Brief at 16-18.
The Commonwealth responds that RELRA is constitutional as applied to Ladd because the General Assembly's intent was to protect the public when they buy or sell real estate regardless of the volume of work engaged in by a broker. Appellee's Brief at 12. The Commonwealth emphasizes the right to pursue a chosen occupation is not a fundamental right. Id . at 13-14. The Commonwealth agrees the Gambone test is applicable here, but stresses the General Assembly's laws are presumed constitutional and it need not present evidence to sustain the law's constitutionality. Id . at 14-15, citing Nixon , 839 A.2d at 287 n.15.
The Commonwealth notes RELRA is designed to " ‘protect the public from abuse by those who are engaged in the business of trading real estate.’ " Id . at 15, quoting Meyer v. Gwynedd Development Group, Inc. , 756 A.2d 67, 69 n.2 (Pa. Super. 2000). To that end, argues the Commonwealth, RELRA includes educational and apprenticeship requirements to ensure brokers are adequately trained to provide quality services. Id ., citing 63 P.S. §§ 455.511, 455.521. The Commonwealth claims Ladd's personal burdens are irrelevant because these statutory requirements ensure the General Assembly's purpose of protecting the public is achieved regardless of the workload, age, or other unique burdens of a particular broker. Id . at 15-16. The Commonwealth asserts the lower court was correct when it concluded RELRA's broker requirements satisfied the Gambone test because accepting Ladd's argument that a licensing scheme becomes unreasonable or oppressive as applied to individuals who provide professional services in a limited fashion would effectively undermine the legitimacy of any professional licensing requirement. Id . at 16-17, citing Ladd , 187 A.3d at 1077-78.
The Commonwealth further argues the statutes involved in Gambone and Nixon were internally inconsistent and failed to further the General Assembly's respective purposes, in addition to creating an absolute prohibition on an individual's ability to engage in certain activities, whereas RELRA merely provides requirements for participation. Id . at 17-18, 20 n.11; see, e.g ., Gambone , 101 A.2d at 637 (limiting the size of signs showing the price of gas would not prevent fraud and larger, more visible signs might actually better prevent fraud and deception); Nixon , 839 A.2d at 281-82, 289-90 (statute arbitrarily and improperly distinguished between convicted individuals who worked at a covered facility for more or less than one year). Here, the Commonwealth asserts if an exception is created for Ladd's services then RELRA will be subject to the same internal inconsistencies that plagued the invalid statutes in Gambone and Nixon because the public will be protected when purchasing, selling or renting some real estate, but not when renting vacation properties. Id . at 18-19.
The Commonwealth warns that if the General Assembly is not permitted to set the minimum standards for real estate brokers it will likewise not be able to protect the public from incompetent professionals in other fields. Id . at 19. It argues an exception for Ladd will create new due process rights for individuals who practice medicine without attending medical school, but intend not to perform major surgery, or architects who only design small houses, or pharmacists who only work weekends and do not prescribe narcotics. Id . The Commonwealth urges affirmance of the panel's decision because Ladd has not shown her due process rights were violated and the licensing requirements of RELRA are rationally related to the General Assembly's purpose of protecting the public. Id .
In a reply brief, Ladd argues the Commonwealth misconstrues the Gambone test as requiring only that a statute be internally consistent, when neither Gambone nor Nixon discussed consistency. Appellant's Reply Brief at 8. Ladd nevertheless asserts RELRA is internally inconsistent because certain individuals are totally exempt from its requirements, see id ., citing 63 P.S. § 455.304(10) (multi-family dwelling manager), while others are eligible for licensure without completing the full panoply of RELRA's most onerous requirements. Id. , citing 63 P.S. §§ 455.551 (builder-owner salesperson), 455.561 (rental listing referral agent), 455.591 (time-share salesperson). Next, Ladd rejects the idea that application of the Gambone test here will diminish the legislature's ability to enact future regulations on other professions. Id . at 9. Ladd suggests the Commonwealth's position is based on the flawed premise that the right to earn a living is in direct conflict with the preservation of the Commonwealth's police power, but she notes the right to earn a living does not include the freedom to injure or defraud others, and that is when the police power should be exercised. Id . at 11, citing Nixon , 839 A.2d at 286. Ladd also stresses subjecting a licensing requirement to Gambone is not a guarantee that it will fail; to the contrary, she observes most existing licensing laws would satisfy the Gambone test, as they are properly related to public health, safety or welfare, unlike RELRA's requirements in this case. Id . at 11-13. Finally, Ladd emphasizes the Commonwealth Court erroneously required her to prove her entire case at the pleadings stage, when Nixon and Sun Ray Drug Co. support further fact-finding related to the Gambone test. Id . at 23-24.
The Goldwater Institute, a nonpartisan public policy foundation, submitted an amicus brief on behalf of Ladd, taking the position Gambone applies and the Commonwealth Court erred because it effectively required Ladd to prove her constitutional claim on the merits at the pleadings stage. Goldwater Brief at 5-12.
III. Analysis
Article I, Section 1 of the Pennsylvania Constitution provides "[a]ll men are born equally free and independent, and have certain inherent and indefeasible rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness." PA. CONST. art. I, § 1. Our case law explains that, included within the right to possess property and pursue happiness, is the right to pursue a chosen occupation. See Nixon , 839 A.2d at 288, citing Adler v. Montefiore Hosp. Ass'n of Western Pa. , 453 Pa. 60, 311 A.2d 634, 640-41 (1973) and Gambone , 101 A.2d at 636-37. However, unlike the rights to privacy, marry, or procreate, the right to choose a particular occupation, although "undeniably important," is not fundamental. Nixon , 839 A.2d at 287. The right is not absolute and its exercise remains subject to the General Assembly's police powers, which it may exercise to preserve the public health, safety, and welfare. Gambone , 101 A.2d at 636. But, the General Assembly's police powers are also limited and subject to judicial review. Id.
The Commonwealth argues because Ladd never had a real estate broker license it is not clear she ever had a property interest to support her present claim. Appellee's Brief at 13-14 n.9, citing Khan v. State Bd. of Auctioneer Exam'rs , 577 Pa. 166, 842 A.2d 936, 946 (2004) ("after a license to practice a particular profession has been acquired, the licensed professional has a protected property right in the practice of that profession") (citation omitted). However, this Court has long recognized a right to pursue a lawful occupation and never held that right was dependent on licensure. See Nixon , 839 A.2d at 288, citing Adler , 311 A.2d at 640-41 and Gambone , 101 A.2d at 636-37.
A claim, like Ladd's, that a Pennsylvania statute violates substantive due process is subject to a "means-end review" where the court "weigh[s] the rights infringed upon by the law against the interest sought to be achieved by it, and also scrutinize[s] the relationship between the law (the means) and that interest (the end)." Nixon , 839 A.2d at 286-87, citing Adler , 311 A.2d at 640-41. The level of scrutiny we apply to that means-end review is dependent upon the nature of the right allegedly infringed. When that right is fundamental, we apply strict scrutiny and will uphold the law only if it is narrowly tailored to achieve a compelling state interest. Id . at 287. A right that is not fundamental, however, is subject to rational basis review. Id . The rational basis test under Pennsylvania law is less deferential to the legislature than its federal counterpart. Shoul , 173 A.3d at 677. Pennsylvania's less deferential, "more restrictive" test, provides:
The United States Supreme Court has explained the deferential nature of the federal rational basis test in the context of a challenge based on the Fourteenth Amendment's Equal Protection Clause:
We many times have said ... that rational-basis review in equal protection analysis is not a license for courts to judge the wisdom, fairness, or logic of legislative choices ... [A] classification neither involving fundamental rights nor proceeding along suspect lines is accorded a strong presumption of validity. Such a classification cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose. Further, a legislature that creates these categories need not actually articulate at any time the purpose or rationale supporting its classification. Instead, a classification must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification. A State, moreover, has no obligation to produce evidence to sustain the rationality of a statutory classification. A legislative choice is not subject to courtroom factfinding and may be based on rational speculation unsupported by evidence or empirical data. A statute is presumed constitutional, and the burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it, whether or not the basis has a foundation in the record. Finally, courts are compelled under rational-basis review to accept a legislature's generalizations even when there is an imperfect fit between means and ends. A classification does not fail rational-basis review because it is not made with mathematical nicety or because in practice it results in some inequality. The problems of government are practical ones and may justify, if they do not require, rough accommodations—illogical, it may be, and unscientific.
Shoul , 173 A.3d at 677, quoting Heller v. Doe , 509 U.S. 312, 319-21, 113 S.Ct. 2637, 125 L.Ed.2d 257 (1993) (citations and quotations omitted).
Notwithstanding Justice Wecht's dissenting position that Gambone is not good law and should be overruled, see Dissenting Opinion, Wecht, J., op. at 1116-20, both parties to this appeal agree the rational basis test articulated in Gambone and applied in Nixon and Shoul is the proper test in a substantive due process challenge to a statute that purportedly infringes on a non-fundamental right.
[A] law which purports to be an exercise of the police power must not be unreasonable, unduly oppressive or patently beyond the necessities of the case, and the means which it employs must have a real and substantial relation to the objects sought to be attained. Under the guise of protecting the public interests the legislature may not arbitrarily interfere with private business or impose unusual and unnecessary restrictions upon lawful occupations. The question whether any particular statutory provision is so related to the public good and so reasonable in the means it prescribes as to justify the exercise of the police power, is one for the judgment, in the first instance, of the law-making branch of the government, but its final determination is for the courts.
Id ., quoting Gambone , 101 A.2d at 636-37 (citation and footnotes omitted) and citing Nixon , 839 A.2d at 287 n.15 (recognizing "more restrictive" test). At this stage, we review the record to determine whether, accepting all well-plead facts as true, Ladd "clearly and without a doubt fail[ed] to state a claim for which relief may be granted." Yocum , 161 A.3d at 234. We accept as true Ladd's allegation that she is a short-term property manager where "short-term" is defined as a period less than thirty days. See Complaint at ¶2 n.1. Those services, as she defines them, see id. at ¶¶10-11, clearly fall within RELRA's definition of real estate broker. See 63 P.S. § 455.201 (defining a broker as any person who "manages any real estate" and any person who "undertakes to promote ... rental of real estate").
Accordingly, we must determine: (1) whether RELRA's real estate broker licensing requirements — apprenticeship, instructional coursework and examinations, and brick and mortar location — are " ‘unreasonable, unduly oppressive, or patently beyond the necessities of the case[;]’ " and (2) whether those requirements bear a " ‘real and substantial relation’ " to the public interest they seek to advance when applied to Ladd under the circumstances alleged in her complaint. Nixon , 839 A.2d at 287, quoting Gambone , 101 A.2d at 637. We also recognize there is a strong presumption the statutory scheme is constitutional; the presumption may be rebutted only by proof the law clearly, palpably, and plainly violates the constitution. Shoul , 173 A.3d at 678, citing Nixon , 839 A.2d at 285-86. Our review reveals Ladd's complaint was sufficient to survive a demurrer and she alleged sufficient undisputed facts to raise a colorable claim that RELRA's broker licensing requirements are unconstitutional as applied to her.
Preliminarily, we reject the attempt by the panel below to limit Gambone and Nixon to legislation that acts as a "blanket ban" or "an absolute bar" on conduct; the panel erroneously distinguished the present case from those earlier decisions on the grounds RELRA does not completely prohibit certain conduct. See Ladd , 187 A.3d at 1079 ("Rather than a blanket ban on certain individuals from working as real estate brokers, RELRA merely requires a real estate broker's license prior to engaging in the practice of real estate."). It is true these earlier cases involved statutory prohibitions. See Gambone , 101 A.2d at 636 ("No sign or placard showing the price of liquid fuels sold or offered for sale or relating to price or prices, other than the signs or placards thus provided for, shall be posted or displayed on the premises ... unless the signs ... [are] similar ... to the sign ... posted on the pump."); Nixon , 839 A.2d at 281 (prohibiting all individuals convicted of enumerated crimes from working at a covered facility if they did not work at that facility for one year prior). However, this particular factual detail is not dispositive as Gambone and its progeny nevertheless stand for the proposition that the General Assembly, when exercising its police powers to curtail a non-fundamental right, will be subject to a heightened rational basis review. See Nixon , 839 A.2d at 287-88 (recognizing the Gambone test is the appropriate test when a law restricts "undeniably important" rights); Shoul , 173 A.3d at 676-77 (same).
Applying Gambone here, we first consider the purpose behind RELRA's broker licensing requirements. The Commonwealth Court has held and Ladd argues the purpose of RELRA is "to protect buyers and sellers of real estate, the most expensive item many persons ever buy or sell, from abuse by persons engaged in the business." Kalins , 500 A.2d at 203. However, the Commonwealth argues the statute is more broadly intended to protect the public from fraudulent practices by those " ‘engaged in the business of trading real estate.’ " Appellee's Brief at 15, quoting Meyer , 756 A.2d at 69 n.2. The General Assembly did not articulate a specific purpose for RELRA within its provisions; accordingly, we consider the origins of Pennsylvania law mandating licensure of real estate brokers to glean some insight. We conclude the Commonwealth correctly asserts RELRA was enacted to protect the public from fraud by those "engaged in the business of trading real estate." Meyer , 756 A.2d at 69 n.2.
We begin by observing RELRA's predecessor, The Real Estate Brokers' License Act of 1929, "comprehensive[ly] regulat[ed] [ ] the business of selling real estate for others" and defined "real estate broker" as including "all persons who, for another and for a fee. . . rent, or ... negotiate the...rental" of real estate. Verona v. Schenley Farms Co. , 312 Pa. 57, 167 A. 317, 318-19 (1933). The Verona Court determined the "obvious purpose of the Act of 1929 [was] to prevent fraud and public wrong by correcting well recognized mischief" that existed at the time, including: "[c]ollecting rents without accounting for them; embezzling of down money; deceiving principal as to the identity of [the] buyer; acting as agent for both buyer and seller; [and] misrepresentation by salesm[e]n as to [the] rental of property[.]" Id . at 319-20 & n.1. It is thus clear the Act of 1929 was intended to regulate the practice of real estate as it existed during that time which consisted of both leasing and sales. RELRA built on that foundation and also expressly requires that individuals engaged in sales or rentals be licensed brokers. See 63 P.S. § 455.201 (1), (2), (5) (including individuals engaged in leasing within the definition of "real estate broker"). The plain language of Section 455.201 (defining real estate broker) indicates the General Assembly intended RELRA to apply broadly, not just to buying and selling, but to all real estate transactions as they existed at the time of enactment. See generally Allstate Life Ins. Co. v. Commonwealth , 617 Pa. 1, 52 A.3d 1077, 1080 (2012) (best indication of legislative intent is plain language of statute). And, as we have noted, Ladd herself concedes that her business operations fell within the RELRA definition of real estate broker. See Appellant's Brief at 9 ("Ms. Ladd was shocked that RELRA swept her novel services into the same category as traditional real-estate practice."). Thus, we conduct our Gambone analysis in light of the apparent legislative goal of protecting the public from the fraudulent conduct of those "engaged in the business of trading real estate." Meyer , 756 A.2d at 69 n.2.
As a preliminary matter, we recognize the government's legitimate interest in protecting consumers from fraudulent conduct by those "engaged in the business of trading real estate." Id . Whether the legislative goal is licensing individuals who assist with buying, selling or leasing properties, the Commonwealth clearly has a "strong interest" in regulating professions within its borders and the legislature has "broad power[s]" to establish the standards that will achieve that end. Khan v. State Bd. of Auctioneer Exam'rs , 577 Pa. 166, 842 A.2d 936, 947 (2004). Here, the General Assembly identified a bundle of services to describe the activities of a "broker" and imposed a series of requirements — apprenticeship, instructional coursework and examinations, and brick and mortar location — ostensibly designed to ensure individuals providing those services would not defraud the public. See id . at 948 ("[a] state may impose those professional requirements that it believes necessary to protect its citizenry"). The present appeal implicates Ladd's as-applied challenge rather than the proposition that the RELRA licensing scheme is properly aimed at a legitimate government purpose. See Ladd , 187 A.3d at 1078 (recognizing RELRA's requirements generally bear a real and substantial relation to the government's objective and are similar to requirements in other fields).
Accordingly, even if RELRA's broker licensing requirements generally bear a real and substantial relationship to protecting the public from the fraudulent practices of those "engaged in the business of trading of real estate," Meyer , 756 A.2d at 69 n.2, we must now proceed to consider their specific application to Ladd's actual business model: short-term vacation property management services. As we explain below, we conclude the Commonwealth Court erred when it sustained the Commonwealth's demurrer; Ladd's complaint raises a colorable claim that RELRA's requirements are unconstitutional as applied to her because they are, in that context, unreasonable, unduly oppressive and patently beyond the necessities of the case, Gambone , 101 A.2d at 637, thus outweighing the government's legitimate policy objective.
The issue is one of first impression for this Court, but decisions from other jurisdictions that have conducted a Gambone -like analysis in the context of occupational licensing requirements are instructive. In Patel, supra , the Texas Supreme Court struck down a statute that required eyebrow threaders to obtain a cosmetology license because it violated the Due Course of Law provision of the Texas Constitution. 469 S.W.3d at 90. The court applied a rational basis test similar to that set forth in Gambone to determine the regulation was unconstitutional as applied to these individuals, who perform a very specific, limited cosmetology service. Id . at 87 (requiring the court to determine "whether the statute's effect as a whole is so unreasonably burdensome that it becomes oppressive in relation to the underlying government interest"). In doing so, the court considered how much of the total 750 hours of coursework, including practical training, required for cosmetology licensure was completely unrelated to the specific service of eyebrow threading and determined the licensing requirement imposed a significant cost that was an unduly burdensome means to achieve the government's health and sanitation end. Id . at 89-90.
See Tex. Const. art I, § 19 ("No citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.").
The parties in Patel agreed that at least 320 hours or 42% of the coursework was unrelated to threading, and the court's analysis focused on the "quantitative aspect of the [instruction] hours represented by the percentage and the costs associated with them[.]" Id . at 89-90. The court determined the number of unrelated hours, though less than fifty percent of the total coursework required, was "highly relevant" to its analysis because of the significant quantity of time and cost associated with completing them. Id . at 90. Specifically, the court held the statute was "not just unreasonable or harsh, but it [was] so oppressive," and thus unconstitutional, because so much study time was not relevant while requiring expenditures of money as well as forgone employment. Id . ; see also Cornwell, 80 F.Supp.2d at 1110-1111, 1113 (applying less restrictive federal rational basis test to conclude cosmetology statute was not rationally related to government's health and sanitation ends as applied to hair braider where "well below ten percent" of training hours were related to hair braiding).
Ladd is similarly faced with 315 hours of coursework (75 hours for her salesperson license and 240 for her broker license) in various topical areas that pertain to the work of traditional real estate brokers, but not to the services contemplated by her unique business model. See supra at nn.2-3. The only topics listed that are arguably related to her services are the general two-credit "Commission-developed or approved law course" and maximum four-credit "Real Estate Law" and "Residential Property Management" courses which satisfy at most 150 hours of the 315 hour requirement. See 49 Pa. Code §§ 35.271(2)(i), (iv), (4) (listing course topics and setting maximum of 4 credits per course); 35.201 (defining one "credit" as 15 hours of instruction). In other words, RELRA requires Ladd to complete 165 hours of coursework geared toward educating individuals about large scale transactions including buying, selling, and leasing residential and commercial real estate. Further, because the broker coursework cannot be completed until the salesperson coursework and apprenticeship are satisfied, Ladd's burden is substantially increased because she would have to forego her own PMVP profits for three years while she completes the licensure requirements. Applying this metric to the allegations of Ladd's complaint, taken as true, we conclude she has asserted a colorable claim that RELRA's instructional requirements, as applied to her, are an unreasonable and unduly oppressive means to achieve the statutory objective of protecting consumers from the fraudulent practices of those "engaged in the business of trading real estate." Meyer , 756 A.2d at 69 n.2.
Notably, the Patel court had before it coursework alone when it determined the statutory licensure requirements were unduly oppressive. See also Cornwell , 80 F.Supp. 2d at 1111 (statute irrational and unreasonable because so much of cosmetology curriculum was not relevant to hair braiders). Here, RELRA imposes an apprenticeship and a brick and mortar office requirement in addition to an instructional coursework requirement, which obviously increases the economic burden. Considering both the quantity of non-relevant hours and the cost of completing those hours, see, e.g. , Patel, 469 S.W.3d at 89, the three-year apprenticeship requirement would impose a substantial cost on Ladd; during that time she would ostensibly learn the traditional real estate trade, e.g ., completing transactions involving thousands, if not hundreds of thousands of dollars to buy, sell, or lease properties. But, this practical knowledge would be neither relevant nor directly applicable to a short-term vacation property management business involving rentals that last only a few days and cost only a few hundred dollars. See Complaint at ¶¶ 31-32. Adding to the equation the lost opportunity cost of shuttering PMVP during the apprenticeship, we conclude Ladd has stated a claim that the broker license requirements are unreasonable, unduly oppressive and patently beyond the necessities of the case. Gambone , 101 A.2d at 637.
Although the coursework requirements in Patel and Cornwell included both educational and practical components, while RELRA separates educational training, designated as instructional hours — from practical training — designated as an apprenticeship — the distinction makes no difference because the apprenticeship serves to teach the practical techniques of the trade.
Similarly, we conclude the brick and mortar office requirement, as applied to Ladd's self-described business model, appears to be disproportionate to the government's interest in safeguarding the public from fraudulent practices by those who "trad[e] in real estate." Meyer , 756 A.2d at 69 n.2. According to Ladd, she performed her professional services solely online from her home in New Jersey, see Complaint at ¶24, and a requirement that she obtain physical office space in Pennsylvania is tantamount to an excessive fee for entry into a profession. See, e.g. , Olan Mills, 92 A.2d at 223-24 ($200 license fee for transient businesses was "out of all reason too high" and unnecessary to protect the city from "unreliable fly-by-night operators"). The allegations of Ladd's complaint — taken as true — indicate her business model is sustainable only because she can provide quality services with limited overhead, see Complaint at ¶40, and requiring additional overhead, including rental or mortgage, taxes, insurance, and maintenance of a property does not further the statutory objectives of RELRA. We find Spellacy , supra , to be persuasive. The Connecticut Supreme Court there considered the constitutionality of a statute regulating real estate brokers similar to RELRA. 136 A.2d at 803. The statute defined a "broker" as a person who "engag[es] in the real estate business," including listing for a fee the "sale, selling, exchanging, buying or renting [of] ... real estate." Id . at 803. As a result, the Spellacy defendants, who did not engage in buying, selling, or leasing property, but simply solicited property owners to advertise in their periodical, were considered "brokers" operating without a license. Id . at 802. The court concluded the statutory requirements for broker licensure — a written examination, furnishing a corporate surety bond, and payment of substantial fees — were unconstitutionally burdensome as applied to the advertisers. Id . at 806. Obviously, Spellacy is not directly on point here because the advertiser defendants did not earn their fees by managing properties like Ladd. Nonetheless, the court's rationale that a real estate broker licensing scheme's most onerous requirements are unconstitutional when applied to individuals who do not provide traditional broker services is useful and relevant to our analysis.
As the parties have not challenged the viability of the heightened rational basis test, Justice Wecht focuses on advocating for its application in an essentially toothless manner. See Dissenting Opinion, Wecht, J., op. at 1122–23 (dismissing the importance of considering Ladd's self-described business model and the potential costs imposed on her when applying Gambone ). However, in this as applied constitutional challenge, which is still at the preliminary objection stage, we must accept well-pleaded facts as true – specifically, we accept Ladd's description of how she conducts her business as a short-term vacation property manager. See, e.g. , Complaint at ¶40 (alleging her business is sustainable only due to her limited overhead). The issue before us is whether the General Assembly exercised its police powers in an unconstitutional manner. See Gambone , 101 A.2d at 637 ("The question whether any particular statutory provision is so related to the public good and so reasonable in the means it prescribes as to justify the exercise of the police power, is one for the judgment, in the first instance, of the law-making branch of the government, but its final determination is for the courts .") (emphasis added). Our analysis of this question would be incomplete without consideration of the opportunity and financial costs imposed on short-term vacation property managers by RELRA's coursework, apprenticeship, and brick and mortar requirements. See, e.g. , Cornwell , 80 F.Supp.2d at 1106 n.16 (applying the federal rational basis test; considering the economic and opportunity costs imposed on natural hair braiders by requiring them to obtain a cosmetology license and stating "if would-be braiders spend scarce money and time to get a cosmetology license, that individual may have few or no resources remaining to devote to the pursuit of his or her own craft"); Patel , 469 S.W.3d at 89-90 (applying Gambone -like test and considering costs imposed by excessive, unrelated coursework). Here, Ladd raises a colorable claim that the costs imposed on her when her short-term vacation property management services are swept into the definition of a traditional real estate broker render RELRA unconstitutional because those costs outweigh the Commonwealth's articulated anti-fraud objective. See Nixon , 839 A.2d at 286-87 (substantive due process challenge is subject to "means-end review" where the court "weigh[s] the rights infringed upon by the law against the interest sought to be achieved by it, and also scrutinize[s] the relationship between the law (the means) and that interest (the end)"); see also Gambone , 101 A.2d at 637 ("Under the guise of protecting the public interests the legislature may not arbitrarily interfere with private business or impose unusual and unnecessary restrictions upon lawful occupations.").
We are further persuaded that it appears application of RELRA to Ladd is unconstitutional when we consider the fact that individuals who manage and facilitate rentals of lodging in apartment complexes and duplexes on behalf of their owners are completely exempt from the statute's broker licensing requirements, see 63 P.S. § 455.304(10) (exempting "[a]ny person employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property"), and those who manage and facilitate rentals in hotels do not fall under the terms of RELRA at all. It is clear Ladd's business model — as described in her complaint — is more closely analogous to the services provided by these exempt individuals than to those of a broker, despite the fact that the statutory definition of "broker" technically catches Ladd in its net. Notably, Ladd routinely advised her clients they must comply with the Commonwealth's "hotel tax," 72 P.S. § 7210(a) ("an excise tax of six per cent of the rent upon every occupancy of a room or rooms in a hotel"), where "hotel" is defined as any form of lodging "available to the public for periods of time less than 30 days." 61 Pa. Code § 38.3. Ladd's "short-term vacation rental" clients were subject to the hotel tax because their contracts involved "transient" uses of property only. See Slice of Life, LLC v. Hamilton Twnshp. Zoning Hearing Board , ––– Pa. ––––. 207 A.3d 886, 903 (2019) (property made available for rent via home-sharing websites like Airbnb, "for a minimum of two nights and up to one week at a time" was used for "purely transient" purposes). Under the circumstances, Ladd asserts a colorable argument that it is unreasonable, unduly oppressive and patently beyond the necessities of the case, Gambone , 101 A.2d at 637, to exempt professions so closely analogous to her own while mandating her compliance with RELRA's onerous broker license requirements.
Indeed, it is these exemptions that remove from Ladd's challenge the specter raised by the Commonwealth, that is, a ruling in Ladd's favor will undermine all professional licensing schemes and subject them to challenges from individuals seeking tiered licensing regimes to practice their trade part-time or in limited subject areas. See supra at 1107. In contrast to those hypothetical challenges, Ladd raises a colorable claim that RELRA's most onerous requirements are unreasonable, unduly oppressive, and patently beyond the necessities of her case, Gambone , 101 A.2d at 637, because there are clearly "less drastic and intrusive alternative[s]" already built into the licensing scheme. Mahony , 651 A.2d at 528.
Justice Wecht believes we are creating a constitutional right to "a custom-made licensing statute" and proposes our holding is analogous to concluding "requirements for dentists are unconstitutional as applied to practitioners who only intend to extract teeth." Dissenting Opinion, Wecht, J., op. at 1122. Respectfully, this tortured analogy misses the mark for two reasons. First, we do not hold an individual who engages in a profession, albeit in a limited fashion, cannot be subject to the broader regulatory scheme governing that profession. Instead, we conclude Ladd presents a colorable claim that as a short-term vacation property manager she is not engaged in the business of a real-estate broker because she provides different services – something like the distinction between a dental hygienist and dentist. And, contrary to Justice Mundy's reading, we do not view Ladd as a "limited fashion" real estate broker with a "smaller-scale business." Dissenting Opinion, Mundy, J., op. at 1123–24. Second, and importantly, RELRA already excludes other "limited" broker-like professions – similar to Ladd's business model – from its onerous broker requirements, and thus, she asserts a colorable claim that pursuant to Gambone it is unreasonable to include her within them.
Moreover, it is clear Ladd's business, as described in her complaint, would not operate without regulation and oversight in the absence of a broker license. See e.g. , Spellacy , 136 A.2d at 806 ("This is not to imply that [real-estate] activities such as the plaintiffs carry on cannot, consistently with constitutional limitations, be regulated."). Indeed, it appears her services would clearly fall under Pennsylvania's UTPCPL, as do the services of the RELRA-exempt hotel and apartment complex managers. See 73 P.S. § 201-3 (prohibiting "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce"). There is, therefore, a less drastic alternative to RELRA broker licensing that is not "unreasonable, unduly oppressive, or patently beyond the necessities of the case." Gambone , 101 A.2d at 637 ; see also Mahony , 651 A.2d at 527-28 (concluding a zoning ordinance failed the Gambone test because "less drastic and intrusive alternatives" existed); cf. Timmons Brief at 12-13 (suggesting short-term vacation property managers should be subject to less restrictive registration requirement).
The UTPCPL is an existing mechanism that regulates those who facilitate rentals in apartment complexes, duplexes, and hotels – services analogous to Ladd's short-term vacation property management services. When viewed in that light, at this stage of the proceedings, Ladd's claim that it is an unconstitutional exercise of the Commonwealth's police powers to subject her to RELRA's most onerous broker requirements while subjecting these other services to less intrusive alternatives has considerable force.
Finally, we reiterate that the Commonwealth's police power must be exercised in a constitutional manner, one that is not unreasonable, unduly oppressive, or patently beyond the necessities of the case, and bears a real and substantial relation to the purported policy objective. Gambone , 101 A.2d at 637. We conclude Ladd's allegations present a colorable claim that RELRA's requirements, as applied to her self-described services, are unreasonable, unduly oppressive and patently beyond the necessities of the case, and it is not clear and "without a doubt" those requirements bear a real and substantial relation to the statutory goal of protecting the public from fraud. See Yocum , 161 A.3d at 234 (demurrer "should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted"). Accordingly, we reverse the Commonwealth Court's order dismissing Ladd's complaint and remand for further proceedings consistent with this opinion.
Chief Justice Saylor, and Justice Baer, Todd and Donohue join the opinion.
Justice Wecht files a dissenting opinion.
Justice Mundy files a dissenting opinion.
JUSTICE WECHT, dissenting
The General Assembly did not violate Article I, Section 1 of the Pennsylvania Constitution when it classified short-term vacation-property managers like Appellant Ladd as real estate brokers for purposes of the Real Estate Licensing and Registration Act. In concluding otherwise, the learned Majority further entrenches the deeply flawed "heightened rational basis" test that this Court manufactured in Gambone v. Commonwealth , 375 Pa. 547, 101 A.2d 634, 637 (1954). Because I cannot endorse a constitutional standard that encourages courts—under the facade of substantive due process—to second-guess the wisdom, need, or appropriateness of otherwise valid legislation, I respectfully dissent.
PA. CONST. art. I, § 1 ("All men are born equally free and independent, and have certain inherent and indefeasible rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness.").
63 P.S. §§ 4455.101-455.902.
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As I have explained in the past, this Court's substantive due process jurisprudence is an historical relic of an era when the United States Supreme Court insisted that the Constitution forbids lawmakers from interfering with "economic liberty" and the "freedom of contract." See Shoul v. Pa. Dep't of Transp., Bureau of Driver Licensing , 643 Pa. 302, 173 A.3d 669, 689 (2017) (Wecht, J., concurring) (explaining that early twentieth century due process decisions arose "in an era during which the Supreme Court of the United States, under the guise of protecting economic rights, actively struck down state laws because it disagreed with the economic theory or opinion of the legislatures that passed those statutes"). To understand Gambone 's shortcomings, one first must understand the United States Supreme Court's now-infamous decision in Lochner v. New York , 198 U.S. 45, 25 S.Ct. 539, 49 L.Ed. 937 (1905), where the Court struck down a New York law prohibiting bakery employees from working more than ten hours per day or sixty hours per week. Those restrictions, the Court held, violated the Fourteenth Amendment's due process clause because they were an "unreasonable, unnecessary and arbitrary interference with the right of the individual" to contract freely. Id. at 56, 25 S.Ct. 539.
See U.S. Const. amend. XIV ("No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.").
Lochner jumpstarted an era of judicial overreach. For many years, and under the pretext of protecting "economic liberty" and "freedom of contract," the Supreme Court routinely struck down laws that a majority of the Court deemed unwise or improvident. See , e.g ., Adkins v. Children's Hosp. , 261 U.S. 525, 43 S.Ct. 394, 67 L.Ed. 785 (1923) (striking down minimum wage legislation) (overruled by W. Coast Hotel Co. v. Parrish , 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937) ); Coppage v. Kansas , 241, 236 U.S. 1, 35 S.Ct. 240, 59 L.Ed. 441 (1915) (striking down a law that prohibited "yellow dog" contracts, in which employees agreed not to join a labor union) (overruled by Phelps Dodge Corp. v. N.L.R.B ., 313 U.S. 177, 61 S.Ct. 845, 85 L.Ed. 1271 (1941) ). Most now recognize that those decisions had nothing to do with the text or history of the Constitution; they were based upon nothing more than the policy preferences of the justices who signed on to them. See Sorrell v. IMS Health Inc ., 564 U.S. 552, 591-92, 131 S.Ct. 2653, 180 L.Ed.2d 544 (2011) (Breyer, J., dissenting) ("[In the Lochner] era ... judges scrutinized legislation for its interference with economic liberty. History shows that the power was much abused and resulted in the constitutionalization of economic theories preferred by individual jurists."); accord Confirmation Hearing on the Nomination of John G. Roberts, Jr. to be Chief Justice of the United States, U.S. GOVERNMENT PRINTING OFFICE , at 162, available at https://www.govinfo.gov/content/pkg/gpo-chrg-roberts/pdf/gpo-chrg-roberts.pdf ("You go to a case like the Lochner case. You can read that opinion today and it's quite clear that they're not interpreting the law, they're making the law. ... You can look at that and see that they are substituting their judgment on a policy matter for what the legislature had said.").
Even in the moment, many strongly objected to the Supreme Court's judicial intrusion into the realm of legislative value judgments. Within the Court, Justices Holmes and Brandeis were the most vocal critics of this judicial policymaking. In Adkins , for example, Justice Holmes emphasized that "[t]he criterion of constitutionality is not whether we believe the law to be for the public good." Adkins , 261 U.S. at 570, 43 S.Ct. 394 (Holmes, J., dissenting). And when the Court struck down a New York law limiting the markup that theater-ticket resellers could charge, Justice Holmes stated:
I think the proper course is to recognize that a state Legislature can do whatever it sees fit to do unless it is restrained by some express prohibition in the Constitution of the United States or of the State, and that Courts should be careful not to extend such prohibitions beyond their obvious meaning by reading into them conceptions of public policy that the particular Court may happen to entertain.
Tyson & Bro.-United Theatre Ticket Offices v. Banton , 273 U.S. 418, 446, 47 S.Ct. 426, 71 L.Ed. 718 (1927) (Holmes, J., dissenting).
Eventually, Justice Holmes' view prevailed. Although the decision in West Coast Hotel Co. v. Parrish , 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937), where the Supreme Court upheld a state minimum wage law, is commonly cited as the end of the so-called Lochner era, it was not until 1955—the year after Gambone was decided—that the Supreme Court announced the death of Lochner . In Williamson v. Lee Optical of Oklahoma Inc. , 348 U.S. 483, 75 S.Ct. 461, 99 L.Ed. 563 (1955), the High Court explained that "[t]he day is gone when this Court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought." Id. at 488, 75 S.Ct. 461. The Court went on to clarify that "[a] law need not be in every respect logically consistent with its aims to be constitutional. It is enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it." Id. at 487-88, 75 S.Ct. 461.
In Pennsylvania, however, our own Lochner era was just beginning, even as the federal courts moved toward a more deferential "rational relationship" standard. Our decision in Gambone , for example, considered the constitutionality of a 1951 law that prohibited the display of gasoline price signs larger than twelve square inches. Gambone , 101 A.2d at 636. Citing a litany of now-overruled Supreme Court decisions, this Court asserted that:
Surprisingly, this Court was not alone in its failure to accept that the Lochner era had ended. Though most state courts (unlike this Court) eventually stopped subscribing to Lochner 's economic liberty rationale, many continued to do so "even after the Supreme Court made it crystal clear that this would constitute an incorrect application of the Due Process Clause of the Fourteenth Amendment." Anthony B. Sanders, The "New Judicial Federalism" Before Its Time: A Comprehensive Review of Economic Substantive Due Process Under State Constitutional Law Since 1940 and the Reasons for Its Recent Decline , 55 Am. U. L. Rev. 457, 475 (2005) ; see id. at 478 (explaining that "in the 1940s, 1950s, and 1960s the highest courts of appeal in almost every state struck down state statutes and local ordinances on economic substantive due process grounds").
a law which purports to be an exercise of the police power must not be unreasonable, unduly oppressive or patently beyond the necessities of the case, and the means which it employs must have a real and substantial relation to the objects sought to be attained. Under the guise of protecting the public interests the legislature may not arbitrarily interfere with private business or impose unusual and unnecessary restrictions upon lawful occupations. The question whether any particular statutory provision is so related to the public good and so reasonable in the means it prescribes as to justify the exercise of the police power, is one for the judgment, in the first instance, of the law-making branch of the government, but its final determination is for the courts.
Id. at 637 (footnote omitted).
Applying this test, the Court flatly declared that prohibiting gasoline dealers from posting "price signs in excess of a certain prescribed size is wholly unreasonable and arbitrary and bears no rational relation to public health, safety, morals, or welfare." Id. Yet there can be no serious doubt that the Gambone Court was mistaken about the proper due process inquiry. Indeed, the Court concluded—after announcing that "unreasonable" and "unduly oppressive" laws are unconstitutional—that the statute in question violated both Article I of the Pennsylvania Constitution and the Fourteenth Amendment to the United States Constitution. In other words, the Court in Gambone failed to recognize that federal due process jurisprudence was undergoing a dramatic transformation. It believed, incorrectly, that cases decided during the peak of the Lochner era remained good law. See Gambone , 101 A.2d at 637 n.1 (citing the now-overruled decisions in Louis K. Liggett Co. v. Baldridge , 278 U.S. 105, 49 S.Ct. 57, 73 L.Ed. 204 (1928), Weaver v. Palmer Bros. Co ., 270 U.S. 402, 46 S.Ct. 320, 70 L.Ed. 654 (1926), and Jay Burns Baking Co. v. Bryan , 264 U.S. 504, 44 S.Ct. 412, 68 L.Ed. 813 (1924) ).
Gambone , 101 A.2d at 638 ("We hold that the provision of the statute forbidding price signs in excess of the size therein prescribed violates Article I, sections 1 and 9 of the Constitution of Pennsylvania, [ ] and also the 14th Amendment to the Constitution of the United States, and is therefore null and void.").
Despite its numerous failings, Gambone quickly embedded itself into our due process jurisprudence. Post- Gambone , this Court—much like the Supreme Court of the Lochner era—enthusiastically invoked its newfound power to shape public policy whenever the opportunity arose. To name just a few examples, we struck down a law prohibiting the sale of carbonated beverages made with a carcinogenic sweetener, Cott Beverage Corp. v. Horst , 380 Pa. 113, 110 A.2d 405 (1955), a law banning the sale of low butterfat milkshakes, Com. ex rel. Woodside v. Sun Ray Drug Co. , 383 Pa. 1, 116 A.2d 833 (1955), a local ordinance prohibiting the dumping of garbage collected from outside of the township, Lutz v. Armour , 395 Pa. 576, 151 A.2d 108 (1959), and a law that prohibited pharmacists from advertising the prices of dangerous narcotic drugs, Pa. State Bd. of Pharmacy v. Pastor , 441 Pa. 186, 272 A.2d 487 (1971). See also Simco Sales Serv. of Pa., Inc. v. Lower Merion Twp. Bd. of Comm'rs , 38 Pa.Cmwlth. 434, 394 A.2d 642 (1978) (striking down an ordinance banning ice cream trucks); Fantastic Plastic, Inc. v. City of Pittsburgh , 32 Pa.Cmwlth. 41, 377 A.2d 1051 (1977) (striking down a city ordinance prohibiting the operation of "bottle clubs" where patrons could bring their own alcohol to consume while on the premises).
Given the opinion's glaring legal errors and overall lack of depth (the decision spans only three pages in the official reporter), it is truly remarkable that Gambone went on to become what is now considered to be a foundational due process decision.
Those decisions, each of which relied upon Gambone , purported to apply the ordinary rational basis test. Yet the plain language of Gambone departs significantly from the teachings of modern due process cases. See Washington v. Glucksberg , 521 U.S. 702, 728, 117 S.Ct. 2258, 138 L.Ed.2d 772 (1997) (explaining that a law comports with substantive due process if it is "rationally related to legitimate government interests"). We finally confronted this discrepancy in Nixon v. Commonwealth , 576 Pa. 385, 839 A.2d 277 (2003), where we insisted that, "[a]lthough the due process guarantees provided by the Pennsylvania Constitution are substantially coextensive with those provided by the Fourteenth Amendment, a more restrictive rational basis test is applied under [the Pennsylvania] Constitution." Id.
But why? There is absolutely nothing in the text or history of our Constitution that sanctions this judicial second-guessing of legislation. Say what you will about the Lochner decision, but the Supreme Court at least claimed that it was protecting a constitutional right: an ill-defined "freedom of contract." Lochner , 198 U.S. at 60, 25 S.Ct. 539. Gambone and its progeny shed even that dubious pretense. Under our precedent, Pennsylvania courts are free to question the necessity and reasonableness of all laws—or any "exercise of the police power," as the Gambone Court put it—under the guise of substantive due process. Gambone , 101 A.2d at 636.
The closest that this Court has come to offering a justification for the heightened rational basis standard was in Pennsylvania State Board of Pharmacy , where—borrowing from a law review article—we stated that:
Th[e] difference between federal and state constitutional law represents a sound development, one which takes into account the fact that "state courts may be in a better position to review local economic legislation than the Supreme Court. State courts, since their precedents are not of national authority, may better adapt their decisions to local economic conditions and needs. ... And where an industry is of basic importance to the economy of a state or territory, extraordinary regulations may be necessary and proper."
Pa. State Bd. of Pharmacy , 272 A.2d at 490 (quoting John A.C. Hetherington, State Economic Regulation & Substantive Due Process of Law , 53 Nw. U. L. Rev . 226, 250 (1958-1959)). It is true enough, I suppose, that state courts are in a better position than the United States Supreme Court to weigh in on issues of local concern. But that alone does not explain why ordinary conceptions of due process empower any courts, state or federal, to enjoin laws that they deem "unreasonable."
Worse still, the Gambone standard—rooted in conceptions of reasonableness and necessity—is so nebulous that it cannot possibly be applied consistently throughout different cases and among different courts. See Adkins , 261 U.S. at 568, 43 S.Ct. 394 (Holmes, J., dissenting) (noting the "vague contours" of Lochner era due process). To state the obvious, reasonableness is very much in the eye of the beholder. Thus, as I have explained in the past, the Gambone standard:
validates and encourages judicial overstepping, allowing courts to usurp the legislative role and to strike down laws merely because they are imperfect, unwise, or under-inclusive. Surely, some very large proportion of legislative work could fall within one or more of these categories. But republican democracy is a messy business. It is time to cease adherence to the outdated and overbroad language of Gambone in applying the rational basis test in Pennsylvania.
Shoul , 173 A.3d at 692-93 (Wecht, J., concurring) ; see Ferguson v. Skrupa , 372 U.S. 726, 730, 83 S.Ct. 1028, 10 L.Ed.2d 93 (1963) ("The doctrine that prevailed in Lochner [era] cases—that due process authorizes courts to hold laws unconstitutional when they believe the legislature has acted unwisely—has long since been discarded. We have returned to the original constitutional proposition that courts do not substitute their social and economic beliefs for the judgment of legislative bodies, who are elected to pass laws.").
See also Jennifer Senior, In Conversation: Antonin Scalia , NEW YORK MAGAZINE (Oct. 4, 2013), http://nymag.com/news/features/antonin-scalia-2013-10 ("A lot of stuff that's stupid is not unconstitutional. I gave a talk once where I said they ought to pass out to all federal judges a stamp, and the stamp says—Whack! [Pounds his fist.]—STUPID BUT CONSTITUTIONAL. Whack! [Pounds again.] STUPID BUT CONSTITUTIONAL! Whack! STUPID BUT CONSTITUTIONAL. [Laughs.] And then somebody sent me one.").
There is simply no conceivable justification for Gambone 's "heightened rational basis" standard. In the due process arena, a law that does not infringe upon fundamental rights withstands constitutional scrutiny so long as it is rationally related to some legitimate government interest. Commonwealth v. Burnsworth , 543 Pa. 18, 669 A.2d 883, 889 (1995) ("To [perform the rational basis analysis], we have set forth a two[-]step approach. First, we must determine whether the challenged statute is designed to further a legitimate state interest or public value. If it is, we must then determine whether the statute is reasonably related to accomplishing the articulated state interest." (citations omitted)).
That brings us to this appeal. The Appellant here, Sara Ladd, is a New Jersey resident who owns two vacation properties on Arrowhead Lake in the Pocono Mountains. Since 2009, Ladd has used home sharing services like Airbnb to market her vacation properties to prospective renters. Ladd's friends and neighbors noticed that she was generating rental income using these services and they asked her to help them do the same. Ladd, who had been laid off from her job right around this time, agreed. She formed Pocono Mountain Vacation Properties, LLC to provide property management services to her friends and neighbors on a part time basis.
Ladd structured her business such that she would first sign an agreement with the property owners for her services as a vacation property manager. After determining the property owners' intended rental calendar, Ladd would then list the properties on the internet and handle all inquiries from prospective renters. To make a reservation, renters signed a rental agreement directly with the property owner. At the end of the process, Ladd handled all billing (including returning security deposits and remitting rents to her clients) and ensured that the property was cleaned between renters.
Ladd eventually learned that she was violating Pennsylvania law when, in 2017, an investigator from the Department of State's Bureau of Professional and Occupational Affairs (the "Bureau") informed her that that she was being investigated for practicing real estate without a license in violation of the Real Estate Licensing and Registration Act ("RELRA"). See 63 P.S. §§ 455.101, et seq . If she wanted to continue operating her property management business, Ladd would need to become a licensed real estate broker, meaning that she would have to complete hundreds of hours of coursework, pass an exam, work as a real estate salesperson, and maintain a brick-and-mortar office within the Commonwealth. See Majority Opinion at 3-4 (detailing the RELRA's extensive broker licensing conditions). Unwilling to meet those requirements, Ladd shut down her business and filed a declaratory judgment action in Commonwealth Court against the Bureau and the Pennsylvania Real Estate Commission seeking a declaration that the RELRA's broker licensing requirements, as applied to short-term vacation property managers, violate Article I, Section 1 of the Pennsylvania Constitution.
At issue here is the Act's definition of a "broker," which includes "[a]ny person who, for another and for a fee, commission or other valuable consideration ... undertakes to promote the sale, exchange, purchase or rental of real estate." 63 P.S. § 455.201(5).
In a unanimous decision, the Commonwealth Court dismissed Ladd's petition for review with prejudice, finding that she failed to present a claim upon which relief could be granted. Ladd v. Real Estate Comm'n of Pa ., 187 A.3d 1070, 1078 (Pa. Cmwlth. 2018). Specifically, the Commonwealth Court emphasized that the primary purpose of the RELRA is "to protect buyers and sellers of real estate ... from abuse by persons engaged in the business," which is especially important given that real estate is often "the most expensive item many persons ever buy or sell." Id . at 1077 (internal citations omitted). The court recognized that many professions require licenses "to ensure competence of professionals in given fields," and noted that Ladd's proposed Constitutional interpretation "would effectively upend the legitimacy of" occupational licensing requirements and expose the public to the risk of hiring unqualified professionals. Id. at 1078.
The Commonwealth Court acknowledged that the RELRA's licensing requirements appeared onerous as applied to Ladd given the small volume of her practice. Nevertheless, the court observed that no Pennsylvania court has found professional license requirements to be unconstitutional simply because some individuals would prefer to practice the profession in a more limited fashion. In this regard, the court explained that Article I, Section 1 "does not require the General Assembly to establish a tiered system for every profession that it regulates in order to account for different volumes of work performed." Id . at 1078. Thus, the court concluded that the RELRA "merely establishes the prerequisites to engaging in the practice of real estate" and therefore does not violate due process. Id. at 1079.
In my view, the Commonwealth Court correctly rejected Ladd's claim that the Constitution—somewhere within its secret repository of unenumerated rights—guarantees her the freedom to operate as an unlicensed real estate broker. As explained above, the only constitutionally relevant question is whether the RELRA's broker licensing requirements are rationally related to a legitimate government interest. I have little doubt that they are. As the Commonwealth Court noted, the RELRA's licensing scheme was designed to protect buyers, sellers, and renters of real estate from unqualified or unethical businesspeople. Ladd , 187 A.3d at 1077-78 (quoting Kalins v. State Real Estate Comm'n , 92 Pa.Cmwlth. 569, 500 A.2d 200, 203 (1985) ). One rational (i.e. , logical) way to protect the public is to ensure that all aspiring brokers complete specific courses, pass exams, and work under the tutelage of an experienced broker. Whether that is the best way to ensure competency in the real estate profession, or whether a less burdensome scheme would have sufficed, is not a question for this or any other court. See Am. Fed'n of Labor v. Am. Sash & Door Co ., 335 U.S. 538, 542, 69 S.Ct. 258, 93 L.Ed. 222 (1949) ("[T]he existence of evils against which the law should afford protection and the relative need of different groups for that protection ‘is a matter for the legislative judgment.’ " (quoting W. Coast Hotel Co. , 300 U.S. at 400, 57 S.Ct. 578 )).
This case really is that simple. Nonetheless, I feel compelled to point out the flaws in the Majority's heightened-rational-basis analysis, even though that standard should not apply. First, the Majority suggests that the RELRA's educational requirements are oppressive given that, under Ladd's "unique business model," much of the coursework that she would need to complete to obtain a broker's license is unrelated to the services that she seeks to provide her clients. Majority Opinion at 1113. So what? That is like saying licensing requirements for dentists are unconstitutional as applied to practitioners who only intend to extract teeth. Or that this Court's rules governing admission to the legal profession are unconstitutional as applied to those who seek to represent clients only in traffic court. The fact that Ladd does not intend to provide all, or even most, of the services that real estate brokers typically offer has nothing to do with the RELRA's licensing regime; it is the result of her own choice. Despite the Majority's suggestion to the contrary, no one has a constitutional right to a custom-made licensing statute that perfectly aligns with their own individual career ambitions.
To the extent that there is value, from a policy perspective, in allowing property managers like Ladd to act outside of the RELRA's traditional broker-salesperson framework, it is for the General Assembly, not this Court, to effectuate that change. It should come as no surprise to anyone that social and economic changes brought about by new technology, like home sharing, ride sharing, and telemedicine applications, often necessitate amendment of existing statutory and regulatory schemes.
Second, the Majority finds it significant that Ladd's "business model" would not be sustainable if she were forced to comply with the RELRA's licensing regime, since the costs of complying with the law would increase the prices that she charges her clients. Majority Opinion at 1114. That fact is not significant at all. The mistaken belief underlying the Majority's argument is that there must be a financially viable path for semi-retired individuals to enter the real estate profession part-time while providing only limited services. Maybe there isn't. It is entirely possible—likely, even—that the side business Ladd envisions would not be economically practicable given Pennsylvania's broker licensing requirements, just as it likely would not be profitable for a sixty-five-year-old to attend law school and pass the bar exam in order to draft wills for friends and neighbors on a part-time basis. See Nebbia v. People of New York , 291 U.S. 502, 527-28, 54 S.Ct. 505, 78 L.Ed. 940 (1934) ("The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct it as one pleases. Certain kinds of business may be prohibited; and the right to conduct a business, or to pursue a calling, may be conditioned.").
Finally, the Majority contends that there is a less restrictive alternative to regulating vacation-property managers under the RELRA, since Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL") would still prevent those workers from engaging in "unfair methods of competition" and "unfair or deceptive acts or practices." Majority Opinion at 1114–15; see 73 P.S. § 201-2(4) (prohibiting certain kinds of fraudulent and deceptive conduct that creates a likelihood of consumer confusion or of misunderstanding). There are three main problems with this reasoning. First, the same argument could be made for any professional licensing statute, since the UTPCPL is not limited in its application to any one field. Id. § 201-2(4). Second, the General Assembly (even under the misguided "heightened rational basis" test) need not select the least restrictive alternative to accomplish its legislative goals. Finally, it would be perfectly sensible for the legislature to favor licensing requirements that could prevent consumers from being ripped off by unsavory real-estate practitioners in the first place, rather than simply giving them a private right of action (against potentially judgment proof defendants) after some harm arises.
See Khan v. State Bd. of Auctioneer Exam'rs , 577 Pa. 166, 842 A.2d 936, 947 (2004) ("Whether a statute is wise or whether it is the best means to achieve the desired result are matters left to the legislature, and not the courts. Moreover, the General Assembly is presumed to have investigated the question and ascertained what is best for the good of the profession and the good of the people."); accord Ullom v. Boehm , 392 Pa. 643, 142 A.2d 19, 21 (1958) (upholding a law prohibiting opticians from advertising the prices of their products).
Put simply, the Majority opinion resembles a public policy white paper more than a judicial decision; it weighs the pros and cons of regulating vacation-property managers in the same manner as real estate brokers, see Majority Opinion at 1113–16, and balances the need to protect the public with a desire to limit "oppressive" barriers to entering the profession, id. at 1115–16. In other words, the Majority is legislating.
Though nothing in the Constitution envisions a system of government by judges, that is exactly what this Court's due process jurisprudence gives us. Gambone empowers jurists to sit as junior-varsity legislators, questioning the wisdom of laws regulating everything from ice-cream trucks to vacation rentals to gas-pump signage. The longer we wait to overrule Gambone , the more we deprive the citizens of this Commonwealth of the right to govern themselves. Because I cannot, in good conscience, join a decision applying Gambone 's "heightened rational basis" test, I must respectfully dissent.
JUSTICE MUNDY, dissenting
Appellant Sara Ladd contends that the licensing requirements enacted by the legislature through the Real Estate Licensing and Registration Act (RELRA)1 are unconstitutional because she wishes only to practice real estate in a limited fashion. I cannot agree with the Majority that, because Ladd operates a smaller-scale business, she has raised a colorable claim that the RELRA's requirements are so unreasonably oppressive as to violate the Pennsylvania Constitution. As noted by the Commonwealth Court in its decision in this matter, "[p]rerequisites to practicing a certain profession, such as a professional license, can be seen across many career fields. We would no sooner obviate the licensure requirement for an attorney, physical therapist, or any other professional, merely because they have limited clients or only practice part of the year." Ladd v. Real Estate Comm'n of Commonwealth , 187 A.3d 1070, 1078 (Pa. Cmwlth. 2018). As I find the Commonwealth Court's decision, authored by the Honorable P. Kevin Brobson, correctly concluded the RELRA's requirements are constitutional, I would affirm its decision in this case. Accordingly, I respectfully dissent.