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Ladd v. Real Estate Commission of Commonwealth of Pennsylvania

Commonwealth Court of Pennsylvania

June 4, 2018

Sara Ladd, Samantha Harris, and Pocono Mountain Vacation Properties, LLC, Petitioners
Real Estate Commission of the Commonwealth of Pennsylvania and Department of State (Bureau of Professional and Occupational Affairs) of the Commonwealth of Pennsylvania, Respondents

          Argued: April 12, 2018



          P. KEVIN BROBSON, Judge

         Before this Court in our original jurisdiction are the preliminary objections filed by the Pennsylvania Real Estate Commission (Commission) and the Pennsylvania Department of State, Bureau of Professional and Occupational Affairs (Bureau) (collectively, Commonwealth Respondents) to a petition for review filed by Sara Ladd (Ladd), Samantha Harris (Harris), and Pocono Mountain Vacation Properties, LLC, (collectively, Petitioners). For the reasons set forth below, we sustain, in part, and overrule, in part, Commonwealth Respondents' preliminary objections.

         In ruling on preliminary objections, we accept as true all well-pleaded material allegations in the petition for review and any reasonable inferences that we may draw from the averments. Meier v. Maleski, 648 A.2d 595, 600 (Pa. Cmwlth. 1994). The Court, however, is not bound by legal conclusions, unwarranted inferences from facts, argumentative allegations, or expressions of opinion encompassed in the petition for review. Id. We may sustain preliminary objections only when the law makes clear that the petitioner cannot succeed on the claim, and we must resolve any doubt in favor of the petitioner. Id. "We review preliminary objections in the nature of a demurrer under the above guidelines and may sustain a demurrer only when a petitioner has failed to state a claim for which relief may be granted." Armstrong Cty. Mem'l Hosp. v. Dep't of Pub. Welfare, 67 A.3d 160, 170 (Pa. Cmwlth. 2013).

         With the above standard in mind, we accept as true the following allegations from the Petition for Review (Petition). Petitioner Ladd, a New Jersey resident, worked as a "short-term vacation property manager, " providing services in the Pocono Mountains area of Pennsylvania. (Pet. at ¶ 1.) In 2009, Ladd began renting two "cottages" that she owns in Arrowhead Lake, Monroe County, Pennsylvania. (Pet. at ¶¶ 15-19.) Using prior experience with digital marketing and website maintenance, Ladd "developed an online system that kept the cottages consistently booked whenever she was away." (Pet. at ¶ 20.) After a few years successfully managing and renting her own properties, Ladd accepted the requests of other Arrowhead Lake property owners to assist with renting their properties. (Pet. at ¶ 21.) Petitioner Harris is one of the property owners who utilized Ladd's services to rent and manage her property. (Pet. at ¶ 7.)

         In 2013, Ladd formed Pocono Mountain Vacation Properties, LLC (PMVP), a New Jersey limited liability company, to provide her services for properties in the Poconos. (Pet. at ¶ 22.) In 2016, Ladd launched the website for PMVP. (Pet. at ¶ 23.) Ladd sought 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." (Pet. at ¶ 25.) That included marketing the properties on the Internet, responding to inquiries, arranging cleaning services, managing the billing, and informing property owners of their tax burdens (i.e., Pennsylvania's "hotel tax"). (Pet. at ¶¶ 27, 34.) Ladd mainly operated PMVP by laptop from her house in Hampton, New Jersey. (Pet. at ¶¶ 24, 40.)

         Ladd credits her success to the distinction between her business model and that of a typical real estate broker. Whereas most real estate brokers need to coordinate numerous complex transactions simultaneously, Ladd is able to keep her clients' properties consistently booked and competently managed due to the small number of PMVP clients and PMVP's low operating costs. (Pet. at ¶¶ 36-40.) Ladd would be unable to provide such niche services if she were required to pay for a physical office space and salaried employees. (Pet. at ¶ 40.)

         In January 2017, the Bureau contacted Ladd and informed her that she had been reported for the unlicensed practice of real estate in violation of the Real Estate Licensing and Registration Act (RELRA).[1] (Pet. at ¶ 60.) Upon review of RELRA, Ladd discovered that her property management services did, in fact, constitute the practice of real estate and that she needed a real estate broker's license to continue operating PMVP as she did before the Bureau contacted her. (Pet. at ¶¶ 61-62.) RELRA required Ladd to spend three years working for an established real estate broker, pass two exams, and set up a physical office in Pennsylvania in order to obtain a real estate broker's license. (Pet. at ¶ 62.) In order to avoid the civil and criminal repercussions for violating RELRA, Ladd shut down her business. (Pet. at ¶¶ 67-68.)

         Ladd alleges that RELRA's overly burdensome requirements have effectively precluded her from providing short-term rental management services in Pennsylvania. (Pet. at ¶ 72.) Because she had to shut down PMVP, Ladd "has been deprived of the stable, supplemental, home-based income that working as a property manager through PMVP provided and would have continued to provide into her retirement years." (Pet. at ¶ 74.) Petitioner Harris, upon hearing that Ladd could no longer manage her property, was forced to hire a licensed real estate broker. (Pet. at ¶ 71.) On her part, Harris alleges that she is aggrieved because her property has been rented out less consistently since Ladd shut down PMVP and that she prefers Ladd's services. (Pet. at ¶¶ 70, 71.) But for the RELRA licensing requirements, Harris would continue to benefit from Ladd's services and the "peace of mind that comes with continuing to work with somebody she knows and trusts." (Pet. at ¶ 79.)

         Petitioners seek a declaration from this Court under the Declaratory Judgments Act[2] that RELRA, its implementing rules and regulations, and the practices and policies of the Bureau impose unconstitutional burdens on Ladd's ability to work as a short-term property manager. Petitioners allege that these burdens violate Ladd's right to pursue her chosen occupation under Article I, Section 1 of the Pennsylvania Constitution.[3] Petitioners also allege that precluding Harris from availing herself of Ladd's services also violates Article I, Section 1. Petitioners further request that this Court permanently enjoin Commonwealth Respondents from enforcing RELRA against Ladd and other similarly situated individuals.

         On August 17, 2017, Commonwealth Respondents filed preliminary objections. Commonwealth Respondents first object on the ground that Petitioners failed to plead an actual controversy. Commonwealth Respondents argue that Petitioners are not entitled to a declaratory judgment because the Commonwealth has taken no action against Ladd; thus, her concerns about future enforcement under RELRA are mere speculation. Second, Commonwealth Respondents object to Petitioners seeking declaratory judgment before exhausting their statutory remedies. Commonwealth Respondents argue that Petitioners cannot pursue their Petition without first procuring a final determination by the Commission. Commonwealth Respondents argue that Petitioners are required to exhaust administrative remedies even though they raise a constitutional challenge, because Petitioners are not challenging the constitutionality of RELRA as a whole. Commonwealth Respondents' third objection is in the nature of a demurrer, alleging that the Petition is legally insufficient. Commonwealth Respondents argue that RELRA does not violate Article I, Section 1 of the Pennsylvania Constitution, because it constitutes a valid exercise of the Commonwealth's police power and satisfies rational basis review. Finally, Commonwealth Respondents object to Petitioner Harris's involvement in the case. Commonwealth Respondents argue that Harris does not have standing to challenge the RELRA requirements as they pertain to Ladd merely because she is unable to use Ladd as a real estate broker.

         In response, Petitioners argue that there is a controversy ripe for judicial review, because the Petition challenges the constitutionality of applying RELRA to Ladd and because denying review would impose substantial hardships on Petitioners. Relatedly, in response to the argument that they must exhaust their administrative remedies, Petitioners cite to cases such as Bayada Nurses, Inc. v. Department of Labor & Industry, 8 A.3d 866 (Pa. 2010) and Pennsylvania Independent Oil & Gas Association v. Department of Environmental Protection, 135 A.3d 1118 (Pa. Cmwlth. 2015), aff'd, 161 A.3d 949 (Pa. 2017) (PIOGA I), where the courts have applied an exception to the exhaustion requirement. Regarding the Commonwealth Respondents' demurrer, which posits that the application of RELRA is constitutional, Petitioners first argue that they are not required to prove the merits of their constitutional claims at this stage in the litigation. Petitioners further argue that the application of RELRA to Ladd does not satisfy rational basis review. Specifically, Petitioners argue that RELRA is unconstitutional under the rational basis review that the Pennsylvania Supreme Court employed in Nixon v. Commonwealth, 839 A.2d 277 (Pa. 2003). Finally, Petitioners argue that Petitioner Harris has standing, because she had a pre-existing relationship with Ladd, thus differentiating her from anyone else who cannot utilize Ladd's services.

         Commonwealth Respondents' first two objections-ripeness and failure to exhaust administrative remedies-are frequently invoked simultaneously in cases such as this one, where a party facing the prospect of enforcement by a Commonwealth agency seeks pre-enforcement review in this Court's original jurisdiction. Though these two doctrines overlap, they are also distinct. "While ripeness arises from a concern not to become involved in abstract disputes, exhaustion is concerned with agency autonomy, and the desire that parties resort to the administrative process so as to ensure that agency decision making is not unduly disrupted." Bayada, 8 A.3d at 875. Despite their distinction, both doctrines involve the overarching issue of the propriety of this Court's pre-enforcement review of ...

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