In Ladd v. Real Estate Commission,[1] the plaintiff Sarah Ladd was an entrepreneur who used ingenuity and the burgeoning short term rental industry to her advantage. She built a business handling marketing and other logistics for short term rentals, including responding to inquiries, coordinating bookings, managing billing, and ensuring that the properties were cleaned between uses. The homeowners were separately responsible for entering into contracts with the renters and making sure that the relevant fees and taxes were paid and regulations followed. The Commonwealth of Pennsylvania, however, defined Ladd’s business as a “real estate brokerage” and required her to secure a license.  Completing the licensure requirements would have forced her to complete years of training, pass two exams, work as an apprentice, and obtain a physical office. In total, Ladd would have had to complete 165 hours of coursework geared toward large scale real estate transactions and forego income for three years while she pursued licensure.

Rather than pursuing a license, Ladd sought a judicial declaration that the real estate licensing law deprived her of her right to pursue her chosen occupation under the state constitution. The government moved to dismiss based on ripeness, failure to exhaust, and failure to state a claim. It also sought to dismiss one of the plaintiffs ⸺ a former client of Ladd’s who argued that she was injured because she was no longer able to use Ladd to book clients for her short term rental.

The trial court dismissed.  It first rejected the government’s ripeness and exhaustion claims, finding that Ladd was suffering a sufficiently direct and immediate harm to warrant pre-enforcement review.[2] Because she was forced to suffer the costs of complying or possible sanctions for non-compliance, Ladd could seek a judgment in court rather than pursuing administrative remedies.

The court then dismissed the case on the basis that Ladd could not possibly prove her claim. It reasoned that it’s rational to have prerequisites for a career, and those prerequisites do not become any less rational merely because a person practices “in a limited fashion.”[3] The government had warned that Ladd’s reasoning would permit people to “practice medicine without attending medical school” so long as they do not “perform major surgery,” or allow architects to “design small houses,” or enable pharmacists to work unlicensed so long as they “only work weekends and do not prescribe narcotics.”[4] The lower court agreed, ruling that to hold otherwise would “effectively upend the legitimacy of any requirement by the Commonwealth for a professional license.”[5]

The Pennsylvania Supreme Court reversed. Citing its earlier opinion in Gambone v. Commonwealth of Pennsylvania,[6] the Court affirmed that even under the rational basis standard, any exercise of the police power should not be “unreasonable, unduly oppressive, or patently beyond the necessities of the case.”[7] Moreover, laws must bear a “real and substantial relation” to a legitimate policy objective and the government’s stated justification must be supported by the record.[8] Given that standard, Ladd had made a colorable claim that the real estate licensure requirement, as applied to her, violated due process.

For instance, Ladd alleged that forcing her to engage in an apprenticeship, complete coursework and exams, and arrange physical office space in order to continue her business did not bear a “real and substantial” relationship to protecting the buyers and sellers of homes because Ladd did not buy or sell property, facilitate leases, or handle large sums of money.[9] “Taking courses on how to perform those functions” was therefore “irrelevant to her competent performance of a wholly different service,” which entailed managing rentals “that last only a few days and cost only a few hundred dollars.”[10] In other words, Ladd had not just alleged that she sought to practice “limited” brokerage services, but instead that she sought to practice what was essentially an entirely different profession altogether.[11] Moreover, the law’s exemptions for other related professions and blanket prohibition on “[u]nfair methods of competition and unfair or deceptive acts” meant that there were less restrictive ways to protect the public than licensure of Ladd’s services.[12]

In dissent, Justice David Wecht disagreed with the “deeply flawed ‘heightened rational basis’ test’” established in Gambone.[13] Justice Wecht viewed that test as permitting courts, “under the facade of substantive due process—to second-guess the wisdom, need, or appropriateness of otherwise valid legislation,” and to effectively act as legislators themselves. Referencing the United States Supreme Court’s infamous decision in Lochner v. New York,[14] Justice Wecht argued that decisions protecting economic liberty, like the right to freedom of contract or the right to earn a living, merely lock in judges’ policy preferences.[15] Gambone, Justice Wecht said, embodies Lochner even though the Supreme Court itself has abandoned that test.[16] Indeed, in his view Gambone goes beyond Lochner, because rather than purporting to protect unenumerated rights, it explicitly allows courts to declare laws unconstitutional based on whether they are “reasonable.”[17] In Justice Wecht’s view, “the only constitutionally relevant question is whether the RELRA’s broker licensing requirements are rationally related to a legitimate government interest.”[18] In response to that question, the justice answered, “I have little doubt that they are.”[19]

Even arguing on the majority’s terms, Justice Wecht found the majority’s opinion problematic because it would create a constitutional right to “a custom-made licensing statute” that would mean that “requirements for dentists are unconstitutional as applied to practitioners who only intend to extract teeth.”[20] To this, the majority responded that the relevant fact was not merely that Ladd’s services were limited, but that they were so limited so as to constitute an entirely different profession. It analogized to the distinction between a dental hygienist and dentist, rather than between a dentist and a part-time dentist.[21]

In a much shorter dissent, Justice Sallie Updyke Mundy briefly noted that she too believed that the real estate law was rational regardless of whether Ladd limited the scope of her business.[22]

On remand, Ladd will now have the opportunity to proceed to discovery and to make her argument on the merits that the law goes too far.

 

Note from the Editor:

The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We do invite responses from our readers. To join the debate, please email us at info@fedsoc.org.


[1] Ladd v. Real Estate Commission, 2020 WL 2532285, at *1 (Pa. 2020).

[2] Ladd v. Real Estate Commission of Commonwealth, 187 A.3d 1070, 1076 (Pa.Cmwlth. 2018).

[3] Id. at 1078. 

[4] 2020 WL 2532285 at *8.

[5] Id.

[6] Gambone v. Commonwealth of Pennsylvania, 375 Pa. 547 (Pa. 1954).

[7] Id.

[8] Ladd, 2020 WL 2532285 at *6.

[9] Id. at *7.

[10] Id.

[11] Id. at *12.

[12] Id. at *15.

[13] Id.

[14] 198 U.S. 45 (1905).

[15] Id. at *16.

[16] Id. at *17.

[17] Id. at *18.

[18] Id. at *20.

[19] Id.

[20] Id.

[21] Id. at *14 n.19.

[22] Id. at *21.