A nonprofit "pubic interest" law firm called the Institute for Justice has filed a federal lawsuit in Sacramento on behalf of ForSaleByOwner.com. ForSaleByOwner.com v. Zinneman is a First Amendment challenge to a California law that states that Internet advertising companies must be licensed real estate brokers in order to list or advertise homes.
California defines “real estate broker” broadly, says the Institute, to include any person who, for a fee, “sells or offers to sell, buys or offers to buy, solicits prospective sellers or purchasers of, solicits or obtains listings of, or negotiates the purchase, sale or exchange of real property.”
The Institute feels their client Forsalebyowner "simply provides an advertising platform and information to homeowners for a flat fee, empowering individuals to sell and purchase homes on their own," and that Forsalebyowner should not be required to obtain a broker's license to show homes online. Newspapers show classified ads, points out the Institute, without becoming licensed by the state to advertise homes.
The Institute for Justice, according to a spokesperson, "litigates to defend constitutional rights such as free speech, economic liberty, and we believe that the licensing restriction in California unduly restricts free speech and economic liberty (the right to earn an honest living.)"
According to procedure, the lawsuit was filed against Paula Reddish Zinnemann, "in her official capacity as Commissioner of the California Department of Real Estate" and William Lockyear, "in his official capacity as Attorney General of the state of California." The suit is designed to get the federal government to overturn a state law which protects "an onerous licensing regime," says the Institute for Justice.
Steve Simpson, lead counsel for the plaintiffs, Forsalebyowner.com Corporation; and Jeffrey Chadbourne, d/b/a/ Forsalebyowner.com Magazine, says, "California says they are a broker, presumably because they are advertising homes. The law is written broadly to cover people who act as agents, or anyone who advertises or lists homes for a fee, but the law exempts newspapers. It isn't explained why in the law. Either they didn't believe there was a problem with newspapers, or they have strong lobbyists, but Forsalebyowner isn't acting as a real estate broker."
According to Exhibit A, a letter was sent to NetGain Development, Inc, Forsalebyowner's parent, on August 2, 2001, suggesting that no California licensing disclosures were present on the Website, and asking the company to contact the Department of Real Estate to identify the California license identification number under which Forsalebyowner is operating.
Simpson's fear, he says, is that "California is the only state that has interpreted real estate licensing laws" in this way, and that "all states have statutes, then every state could do the same thing, and it would shut down Websites like Forsalebyowner. Another implication is Internet regulation and licensing in general. The Internet operates by providing people with information, and it shouldn't be regulated as if it were doing more than that."
Why is this a free speech issue? "The First Amendment protects free exchange of commercial information as other types of information," explains Simpson.
How common is it for a Federal case to overturn a state law? "It's very common," replies Simpson. "There are federal cases all the time to overturn laws that violate the federal constitution. It goes back to the beginning of the republic. That was why the 14th amendment was created - to make sure that federal law supersedes state law. Most laws that regulate everyday behavior are state laws, most people just think of it as law."
What are the next steps? "The state responds to our complaint," says Simpson. "The DRE might file an answer of what they think of the case or a motion to dismiss, and their grounds might be that they feel it is invalid for procedural or substantive reasons. After that, if there is a motion to dismiss, the issue will be debriefed, which means they will argue before the court. The court decides whether it goes forward. There will be a fact-gathering process, and it could take six months to a year. My guess is this would be ready for final argument in six months."
"We are looking to clarify the constitutional rights at issue."
Spokespersons for the California Department of Real Estate could not be reached for comment.