Regions Southeast
Sept 14, 2007
By: Gail Kalinoski, Contributing Editor
A federal judge’s ruling that Kentucky’s ‘turf state’ laws are unconstitutional could impact similar practices in seven other states that prohibit cooperation between real estate brokers and out-of-state brokers, said the head of a national commercial real estate firm involved in the lawsuit filed in U.S. District Court for the Western District of Kentucky.
“The court’s ruling has important implications for other ‘turf states’ and vindicates the rights of commercial real estate investors who should not be forced to choose between seeking fair market value for their property or violating state laws,” Harvey Green (pictured), chairman & CEO of Marcus & Millichap Real Estate Investment Services, said in a release about the judge’s decision. "This opens up the opportunity for clients to make choices about their representation," Green told CPN today. "This wasn't just a Marcus & Millichap win." In addition to Kentucky, Nebraska, New Jersey, Oklahoma, Pennsylvania, Missouri and Utah also have ‘turf state’ laws for real estate transactions.
The lawsuit was filed last year against the Kentucky Real Estate Commission by Marcus & Millichap. Joining the national firm in the lawsuit were two of its clients, River Oaks Management Co. of Chicago and 8177 Mall Road Investors of Atlanta, according to a report this week by Jim Jordan in the Lexington Herald-Leader. Both companies own commercial real estate in Kentucky, the paper noted.
The plaintiffs alleged that Kentucky’s ‘turf state’ laws harmed consumers because they blocked access to the national market and depressed real estate prices. Paul Ogden, a broker with Prudential Parks & Weisberg in Kentucky, who filed a supporting brief in the case, told Jere Downs of The Courier-Journal that if he advertised a property on the internet and received a call from an out-of-state broker he would be violating the state law if he sent that broker information.
In his recent ruling, federal judge Charles Simpson III wrote, “These prohibitions constrain interstate commerce in the purchase and sale of Kentucky real estate, isolating Kentucky from the national brokerage market, a result made unconstitutional by the Commerce Clause.”
The judge further noted, “A consumer who maintains a trusted relationship with a broker should not be compelled to accept the services of a stranger in order to make that transaction.”
Simpson rejected the state’s defense of the laws on consumer protection grounds, saying that the ‘turf state’ laws may actually make the buyer more vulnerable to fraud.
“While licensure protects the public from the unscrupulous and incompetent brokers, the court cannot discern how prohibiting cooperation between an out-of-state broker and a Kentucky-licensed broker reinforces this protection,” the judge wrote. “It appears that the prohibition’s main purpose is to ensure that virtually all commissions are kept in Kentucky. This is achieved, however, at an unconstitutional cost to interstate consumers.”
Marcus & Millichap’s Green, who led the lawsuit, said the ruling was a victory for consumers.
“This action was about open markets and fairness, not just for Kentucky property owners, but for taxpayers and those who purchase property in all turf states, regardless of where they reside,” Green noted in a release.
The Kentucky Real Estate Commission has not decided whether to appeal the ruling, executive director Norman Brown told the Herald-Leader on Wednesday. Brown could not be reached today by CPN.
The judge did uphold the state law that requires brokers to be licensed in Kentucky to operate in the state. Simpson suggested in his ruling that out-of-state brokers partner with Kentucky-licensed brokers. He said that would ensure Kentucky’s laws are followed “while still permitting the free flow of interstate commerce.” The Kentucky Association of Realtors, which had filed a brief in support of the KREC's motion for summary judgment, said in a release that it was pleased the judge upheld the law requiring all brokers operating in the state to be licensed by Kentucky.
"We feel a favorable decision was reached for all parties involved," said Carl Tackett, association president. "The U.S. District Court in Louisville has handed down a ruling that will benefit property owners and will hopefully drive more business opportunities to the state."
Both Tackett and Doug Martin, legal counsel for the Kentucky Association of Realtors, said the group would continue to review the implications of the ruling.
"We are in the process of reviewing how other states regulate the interaction between out-of-state licensees and in-state licensees within their own borders," Martin told CPN today.
By: Gail Kalinoski, Contributing Editor
A federal judge’s ruling that Kentucky’s ‘turf state’ laws are unconstitutional could impact similar practices in seven other states that prohibit cooperation between real estate brokers and out-of-state brokers, said the head of a national commercial real estate firm involved in the lawsuit filed in U.S. District Court for the Western District of Kentucky.“The court’s ruling has important implications for other ‘turf states’ and vindicates the rights of commercial real estate investors who should not be forced to choose between seeking fair market value for their property or violating state laws,” Harvey Green (pictured), chairman & CEO of Marcus & Millichap Real Estate Investment Services, said in a release about the judge’s decision. "This opens up the opportunity for clients to make choices about their representation," Green told CPN today. "This wasn't just a Marcus & Millichap win." In addition to Kentucky, Nebraska, New Jersey, Oklahoma, Pennsylvania, Missouri and Utah also have ‘turf state’ laws for real estate transactions.
The lawsuit was filed last year against the Kentucky Real Estate Commission by Marcus & Millichap. Joining the national firm in the lawsuit were two of its clients, River Oaks Management Co. of Chicago and 8177 Mall Road Investors of Atlanta, according to a report this week by Jim Jordan in the Lexington Herald-Leader. Both companies own commercial real estate in Kentucky, the paper noted.
The plaintiffs alleged that Kentucky’s ‘turf state’ laws harmed consumers because they blocked access to the national market and depressed real estate prices. Paul Ogden, a broker with Prudential Parks & Weisberg in Kentucky, who filed a supporting brief in the case, told Jere Downs of The Courier-Journal that if he advertised a property on the internet and received a call from an out-of-state broker he would be violating the state law if he sent that broker information.
In his recent ruling, federal judge Charles Simpson III wrote, “These prohibitions constrain interstate commerce in the purchase and sale of Kentucky real estate, isolating Kentucky from the national brokerage market, a result made unconstitutional by the Commerce Clause.”
The judge further noted, “A consumer who maintains a trusted relationship with a broker should not be compelled to accept the services of a stranger in order to make that transaction.”
Simpson rejected the state’s defense of the laws on consumer protection grounds, saying that the ‘turf state’ laws may actually make the buyer more vulnerable to fraud.
“While licensure protects the public from the unscrupulous and incompetent brokers, the court cannot discern how prohibiting cooperation between an out-of-state broker and a Kentucky-licensed broker reinforces this protection,” the judge wrote. “It appears that the prohibition’s main purpose is to ensure that virtually all commissions are kept in Kentucky. This is achieved, however, at an unconstitutional cost to interstate consumers.”
Marcus & Millichap’s Green, who led the lawsuit, said the ruling was a victory for consumers.
“This action was about open markets and fairness, not just for Kentucky property owners, but for taxpayers and those who purchase property in all turf states, regardless of where they reside,” Green noted in a release.
The Kentucky Real Estate Commission has not decided whether to appeal the ruling, executive director Norman Brown told the Herald-Leader on Wednesday. Brown could not be reached today by CPN.
The judge did uphold the state law that requires brokers to be licensed in Kentucky to operate in the state. Simpson suggested in his ruling that out-of-state brokers partner with Kentucky-licensed brokers. He said that would ensure Kentucky’s laws are followed “while still permitting the free flow of interstate commerce.” The Kentucky Association of Realtors, which had filed a brief in support of the KREC's motion for summary judgment, said in a release that it was pleased the judge upheld the law requiring all brokers operating in the state to be licensed by Kentucky.
"We feel a favorable decision was reached for all parties involved," said Carl Tackett, association president. "The U.S. District Court in Louisville has handed down a ruling that will benefit property owners and will hopefully drive more business opportunities to the state."
Both Tackett and Doug Martin, legal counsel for the Kentucky Association of Realtors, said the group would continue to review the implications of the ruling.
"We are in the process of reviewing how other states regulate the interaction between out-of-state licensees and in-state licensees within their own borders," Martin told CPN today.
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