IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Sara Ladd, Samantha Harris, :
and Pocono Mountain Vacation :
Properties, LLC, :
Petitioners :
:
v. : No. 321 M.D. 2017
: Argued: April 12, 2018
Real Estate Commission of the :
Commonwealth of Pennsylvania :
and Department of State (Bureau of :
Professional and Occupational Affairs) :
of the Commonwealth of Pennsylvania, :
Respondents :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE P. KEVIN BROBSON, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
OPINION BY JUDGE BROBSON FILED: June 4, 2018
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
2
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
1
Act of February 19, 1980, P.L. 15, as amended, 63 P.S. §§ 455.101-.902.
3
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 Act2 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
2
42 Pa. C.S. §§ 7531-7541.
3
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
4
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
liberty, of acquiring, possessing and protecting property and reputation, and of
pursuing their own happiness.
Pa. Const. art. I, § 1.
5
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
6
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
Petitioners’ challenge to the application of RELRA to Ladd. Thus, Commonwealth
Respondents’ first two objections require us to determine the applicability of the
so-called Arsenal Coal exception.
In Arsenal Coal Company v. Department of Environmental Resources,
477 A.2d 1333 (Pa. 1984), several coal mine operators sought an injunction from
this Court in our original jurisdiction to prevent the Department of Environmental
Resources from enforcing allegedly unlawful regulations adopted by the
Environmental Quality Board. This Court determined that the coal mine operators
failed to exhaust their administrative remedies and, as a result, this Court lacked
jurisdiction to review the matter. On appeal, however, the Pennsylvania Supreme
Court reversed. The Supreme Court determined that the impact of the regulations
was “sufficiently direct and immediate” to warrant pre-enforcement judicial review.
Arsenal Coal, 477 A.2d at 1340. The Supreme Court explained that, accepting as
true the allegations in the petition for review, the coal mine operators faced
substantial sanctions for noncompliance with the regulations, or a costly and
inefficient procedure if they chose to comply with the regulations. The Supreme
Court also explained that the alternative proposed by the Department of
Environmental Resources—challenging the regulations after enforcement through a
lengthy administrative challenge—would leave the mine operators with “ongoing
7
uncertainty in the day[-]to[-]day business operations of an industry which the
General Assembly clearly intended to protect from unnecessary upheaval.” Id. The
Supreme Court thus determined that this Court erred in declining jurisdiction for the
coal mine operators’ challenge to the regulatory scheme. Following Arsenal Coal,
“[w]here the effect of the challenged regulations upon the industry regulated is direct
and immediate, the hardship thus presented suffices to establish the justiciability of
the challenge in advance of enforcement.” Id. at 1339.
In support of their pre-enforcement challenge, Petitioners cite to
Bayada Nurses and PIOGA I, where the Supreme Court and this Court, respectively,
applied the Arsenal Coal exception. In Bayada Nurses, the Pennsylvania Supreme
Court held that an at-home health services company could challenge the Department
of Labor and Industry’s interpretation of an exemption under The Minimum Wage
Act of 19864 prior to enforcement by the Commonwealth under that statute. Bayada
Nurses, 8 A.3d at 876.5 Likewise, in PIOGA I, this Court held that the members of
a trade association were not required to exhaust their administrative remedies and
that the association could seek pre-enforcement declaratory judgment and injunctive
relief under the Declaratory Judgments Act in its challenge to a permit application
process. PIOGA I, 135 A.3d at 1129-30.
We agree with Petitioners that there is a justiciable controversy in the
instant matter under the Arsenal Coal exception. Like in Arsenal Coal and its
4
Act of January 17, 1968, P.L. 11, as amended, 43 P.S. §§ 333.101-.115.
5
The Supreme Court also emphasized the broad right to relief under the Declaratory
Judgments Act. Bayada Nurses, 8 A.3d at 876. The purpose of the Declaratory Judgments Act is
to “settle and to afford relief from uncertainty and insecurity with respect to rights, status, and
other legal relations, and [the Declaratory Judgments Act] is to be liberally construed and
administered.” 42 Pa. C.S. § 7541(a). In Bayada Nurses, the Supreme Court explained that the
Declaratory Judgments Act “certainly embraces the type of dispute[s]” that fall within the ambit
of Arsenal Coal. Bayada Nurses, 8 A.3d at 876.
8
progeny, Ladd faces sanctions for noncompliance with RELRA or the substantial
cost and lengthy administrative process if she acquiesces to RELRA’s requirements.
The effect of the licensing requirements on Ladd under RELRA, therefore, is
sufficiently “direct and immediate” to warrant justiciability in advance of
enforcement. See Arsenal Coal, 477 A.2d at 1339. Pre-enforcement review of the
application of RELRA’s licensing requirements to Ladd in this Court’s original
jurisdiction is proper.
Moreover, Commonwealth Respondents make no attempt to
distinguish the instant dispute from Arsenal Coal or its progeny. Instead,
Commonwealth Respondents liken this case to Morrison v. State Board of Medicine,
618 A.2d 1098 (Pa. Cmwlth. 1992), and Linesville PA VFW Post 7842 v.
Commonwealth (Pa. Cmwlth., No. 337 M.D. 2015, filed February 5, 2016)
(Colins, J.).6 In Morrison, a physician sought a declaration that she is approved to
use a prayer and spiritual treatment program in the course of her medical practice.
Morrison, 618 A.2d at 1098. We held that there was no justiciable case or
controversy because there was no threat to the physician’s ability to practice
medicine or indication that her license was in jeopardy. Id. at 1101. In Linesville,
aspiring gaming organizations sought a declaration from this Court that their plans
to use certain gaming equipment to conduct raffles complied with state law.
Linesville, slip op. at 5-6. Like in Morrison, Senior Judge Colins determined that
the potential injury was not sufficiently direct or immediate because the aspiring
gaming organizations had taken no concrete steps to conduct raffles and instead only
alleged a desire to purchase such equipment. Id., slip op. at 9. Moreover, Senior
6
Section 414(b) of the Commonwealth Court Internal Operating Procedures provides: “A
single-judge opinion of this court, even if reported, shall be cited only for its persuasive value, not
as a binding precedent.” 210 Pa. Code § 69.414(b).
9
Judge Colins differentiated the dispute in Linesville from Arsenal Coal in that there
was no indication that any Commonwealth party took a position regarding the
equipment for electronic raffles that could adversely affect the aspiring gaming
organizations, even if they did purchase such equipment. Id., slip op. at 12. Here,
Ladd faces the direct and immediate price of compliance with RELRA or sanctions
for noncompliance. The harm is more direct and immediate than that in Morrison
or Linesville.
Commonwealth Respondents next object on the ground that even
accepting the allegations in the Petition as true, Petitioners cannot prevail on their
constitutional challenge because RELRA and its application to Ladd are
constitutional. Regarding this preliminary objection in the nature of a demurrer,
Commonwealth Respondents argue that the application of RELRA to Ladd is subject
to rational basis review. Commonwealth Respondents contend that RELRA is
merely a professional licensing scheme, one within the Commonwealth’s general
police powers. The Pennsylvania Supreme Court has explained that Article I,
Section 1 protects both fundamental rights—like the right to marry and procreate—
which warrant the protection of strict scrutiny review, as well as other
rights, which are “undeniably important” but not fundamental. Nixon,
839 A.2d at 287. The right to pursue a lawful occupation is one of the
non-fundamental rights guaranteed under Article 1, Section 1. Id. at 288. A law
that restricts the right to pursue a lawful occupation is subject to rational basis
review. Id.
While Commonwealth Respondents contend that RELRA’s licensing
requirements satisfy rational basis, Petitioners argue in response that RELRA is
unconstitutional under the version of rational basis that the Pennsylvania Supreme
10
Court utilized in Nixon. Initially, we agree that Nixon requires a somewhat
heightened rational basis review, which the Supreme Court has termed the
“Gambone rational basis test.” Id. at 289. Under the Gambone rational basis test, a
law that restricts 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.” Id. at 287 (quoting Gambone v. Cmwlth., 101 A.2d 634, 637
(Pa. 1954)).
Despite the heightened nature of the Gambone rational basis test, we
agree with Commonwealth Respondents that the licensing scheme under RELRA is
constitutional. The primary purpose of RELRA’s licensing requirements 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 v. State Real
Estate Comm’n, 500 A.2d 200, 203 (Pa. Cmwlth. 1985).7 Prerequisites to practicing
a certain profession, such as a professional license, can be seen across many career
fields. 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. Were this Court
to accept Petitioners’ argument, we would effectively upend the legitimacy of any
requirement by the Commonwealth for a professional license. State-mandated
licensing requirements serve to ensure competence of professionals in given fields.
7
While the General Assembly has modified RELRA since our decision in Kalins, we agree
with the Superior Court’s assessment that “none of these modifications in any way altered the
underlying purpose of [RELRA] which is to protect the public from abuse by those who are
engaged in the business of trading real estate.” Meyer v. Gwynedd Dev. Grp., Inc.,
756 A.2d 67, 69 n.2 (Pa. Super. 2000).
11
Petitioners do not cite to any case, nor is this Court aware of any, in which a
Pennsylvania court has determined that a license requirement becomes unreasonable
or oppressive for individuals who provide professional services, like the services
Petitioners admit Ladd provided, but in a limited fashion. Moreover, 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. The
application of RELRA’s licensing requirements to Ladd, therefore, satisfies the
Gambone rational basis test.
We understand that Ladd believes RELRA’s licensing requirements to
be unduly burdensome given the small volume of real estate practice she conducted.
We agree that, were Ladd to elect to comply with RELRA’s requirements, she would
face greater burdens in proportion to her real estate practice than those faced by a
typical real estate broker who, for example, exclusively sells houses and does so
year-round. The Pennsylvania Constitution, however, 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. Ladd likely shares her
frustration with any other person who aspires to work minimally in a given field but
feels the prerequisites for that field are too onerous. Despite the reasonableness of
her frustration, we are still compelled to uphold the will of the General Assembly in
policing professionals, so long as the regulatory scheme satisfies the Gambone
rational basis test. Here, it does.
The Pennsylvania Supreme Court’s decision in Nixon and its progeny
do not require a different result. In Nixon, the Supreme Court reviewed the
constitutional challenge to amendments to the Older Adults Protective Services Act,8
8
Act of November 6, 1987, P.L. 381, as amended, 35 P.S. §§ 10225.101-.5102.
12
which became effective in June 1998. The result of the amendments was to “prohibit
the employment of convicted criminals who were not then working in a covered
facility or who had obtained a new job in a covered facility less than a year before
the effective date” of the amendments (i.e., June 1997). Nixon, 839 A.2d at 288.
The amendments did not apply, however, to formerly convicted individuals who
held their position for more than a year before the effective date of the amendments.
The Supreme Court explained that, if the state interest was to protect the elderly,
disabled, and infirm, the distinction between formerly convicted caretakers that held
their job before June 1997 and those that did not lacked a “real and substantial
relationship” with that interest. Id. at 289. The Supreme Court thus held that the
amendments failed the Gambone rational basis test.
In the aftermath of Nixon, this Court has held that blanket bans on
formerly convicted individuals—particularly where some, but not all former
criminals face such a consequence—do not satisfy the Gambone rational basis test.
See Peake v. Cmwlth., 132 A.3d 506 (Pa. Cmwlth. 2015) (holding lifetime ban for
individuals convicted of certain offenses from working in elder care violated due
process); see also Warren Cty. Human Servs. v. State Civil Serv. Comm’n (Roberts),
844 A.2d 70 (Pa. Cmwlth.), appeal denied, 863 A.2d 1152 (Pa. 2004) (holding
lifetime ban for individuals convicted of certain offenses from working in child care
violated due process).
Petitioners’ attempts to analogize the matter now before this Court to
Nixon and its progeny are unpersuasive. 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. See Reisinger v. State
Bd. of Med. Educ. & Licensure, 399 A.2d 1160, 1165 (Pa. Cmwlth. 1979) (noting
13
that, in denying petitioner license, the State Board of Medical Education and
Licensure “[was] not prohibiting the practice of Naturopathy but merely assuring
that those who practice it [were] medically competent to do so”). Nixon, therefore,
is inapposite. Because RELRA merely establishes the prerequisites to engaging in
the practice of real estate, Nixon does not compel a determination that RELRA
violates due process.
Accordingly, we sustain, in part, and overrule, in part, Commonwealth
Respondents’ preliminary objections and dismiss with prejudice Petitioners’
Petition.9
P. KEVIN BROBSON, Judge
9
Because Petitioners are unable to succeed on the constitutional challenge of the
application of RELRA’s licensing requirements to Ladd, we need not reach a determination on
Commonwealth Respondents’ final preliminary objection, pertaining to Harris’s standing in this
matter.
14
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Sara Ladd, Samantha Harris, :
and Pocono Mountain Vacation :
Properties, LLC, :
Petitioners :
:
v. : No. 321 M.D. 2017
:
Real Estate Commission of the :
Commonwealth of Pennsylvania :
and Department of State (Bureau of :
Professional and Occupational Affairs) :
of the Commonwealth of Pennsylvania, :
Respondents :
ORDER
AND NOW, this 4th day of June, 2018, the preliminary objections by
the Pennsylvania Real Estate Commission and the Pennsylvania Department of
State, Bureau of Professional and Occupational Affairs to the petition for review
filed by Sara Ladd, Samantha Harris, and Pocono Mountain Vacation Properties,
LLC, are OVERRULED, in part, and SUSTAINED, in part. The preliminary
objections based on failure to plead an actual controversy and failure to exhaust
administrative remedies are OVERRULED. The preliminary objection based on
demurrer is SUSTAINED, and the petition for review is DISMISSED with
prejudice.
P. KEVIN BROBSON, Judge