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Illinois Association of Realtors v. Martinez

February 27, 2007

ILLINOIS ASSOCIATION OF REALTORS, PLAINTIFF,
v.
DEAN MARTINEZ, SECRETARY, DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION, IN HIS OFFICIAL CAPACITY, DEFENDANT.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This matter comes before the Court on Defendant Dean Martinez's Combined Motion to Dismiss and Supporting Memorandum of Law (d/e 16) (Defendant's Motion) and Plaintiff's Objection to Magistrate Judge Order Denying Motion for Leave to Take Expedited Discovery (d/e 15) (Plaintiff's Objection). Plaintiff Illinois Association of Realtors (IAR), an Illinois not-for-profit corporation that represents approximately 60,000 of the 90,000 regulated real estate licensees in the State of Illinois, filed the instant Complaint for Declaratory and Injunctive Relief (d/e 1) on June 21, 2006. The IAR seeks a declaratory judgment that 68 Ill. Admin. Code § 1450.140(a)(4) infringes upon the IAR members' First Amendment rights and an injunction against the enforcement of the challenged rule. The Defendant has filed a Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and Fed. R. Civ. P. 12(b)(6). For the reasons set forth below, the Defendant's Motion is DENIED, and Plaintiff's Objection is DENIED as moot.

BACKGROUND

The IAR brings this lawsuit mounting a facial challenge to 68 Ill. Admin. Code § 1450.140(a)(4) as promulgated by the Illinois Department of Financial and Professional Regulation (DFPR) pursuant to its authority under the Real Estate License Act of 2000 (Act). 225 ILCS 454/25-13. The IAR alleges that § 1450.140(a)(4) unconstitutionally restricts commercial free speech in violation of the First Amendment to the United States Constitution. The facts as set forth in the Complaint are as follows. Established in 1916, the IAR is headquartered in Springfield, Illinois, and represents approximately 60,000 of the 90,000 regulated real estate licensees in the State of Illinois. The IAR members are licensed and regulated by the DFPR, Division of Professional Regulation, Bureau of Real Estate Professions. Pursuant to the Act and regulations adopted thereunder, the real estate licensees, including the members of the IAR, are required to pay fees to the State of Illinois. Appointed by the Governor of the State of Illinois, Defendant Martinez is the Secretary of the DFPR. The Defendant is sued in his official capacity.

According to the Complaint, § 1450.140(a)(4) is designed to prohibit deceptive and misleading advertising by real estate licensees when advertising real estate brokerage services and properties for sale in a single-family zoning district. The Complaint states that the challenged rule reads in relevant part:

a) Deceptive and misleading advertising includes, but is not limited to, the following:

4) advertising a property in a manner that creates a reasonable likelihood of confusion regarding the permitted use of the property. Advertising for a property zoned single family shall be deemed to be likely to confuse a buyer regarding the permitted use of the property where the advertising contains words or phrases suggesting multi-dwelling use, including but not limited to "apartment," "two units," "related living," "in-law arrangement" or "related apartment." (Emphasis added).

Complaint, ¶ 8 (quoting §1450.140(a)(4)). The Complaint states that any real estate licensee that violates §1450.140(a)(4) would be subject to the following penalties:

225 ILCS 454/20-20 [Defendant] may refuse to issue or renew a license, may place on probation, suspend, or revoke any license or may censure, reprimand or otherwise discipline or impose a civil fine not to exceed $25,000 upon any licensee hereunder or anyone or any combination of the following causes:

* * * (h) when the licensee in performing, attempting to perform or pretending to perform any act as a broker, salesperson, or leasing agent or when the licensee is handling his or her own property, whether held by deed, option, or otherwise, is found guilty of:

(4) any misleading or untruthful advertising or using any trade name or insignia of membership in any real estate organization of which the licensee is not a member. (Emphasis added).

Complaint, ¶ 13. The Complaint asserts that before § 1450.140(a)(4) went into effect, it was published pursuant to Illinois law as a proposed rule, for comments, in the Illinois Register dated November 4, 2005, 29 Ill. Reg. 17959. See Complaint, Exh. 1.*fn1

According to the Complaint, the IAR submitted a letter to Defendant raising concerns with the proposed rule's effect on its members' First Amendment rights. See Complaint, Exh. 2. On May 9, 2006, at the meeting of the Illinois Joint Committee on Administrative Rules, the Committee filed a Statement of Objection to Proposed Rulemaking by the DFPR, as set forth in 30 Ill. Reg. 9925 dated May 26, 2006. The Committee stated its objection as follows: " . . . Section 1450.140 lacks clarity in regard to what constitutes prohibited advertising for a property zoned single family." Complaint, ¶ 11.

The Complaint states that the Defendant filed a response to the IAR's comments concerning the proposed rule on January 19, 2006.*fn2

Despite the concerns raised by the IAR and the Committee, the proposed rule became effective on June 8, 2006.

The Complaint states that IAR members are under an imminent threat of prosecution because they are involved in the advertising of properties for sale and commonly employ the terms that are now deemed to be false and misleading under § 1450.140(a)(4) when advertising the sale or lease of a property located in a single-family zoning district.

The Complaint further states that § 1450.140(a)(4) infringes upon the First Amendment rights of IAR members by prohibiting the use of certain terms or phrases and deeming such terms to be false and misleading per se, even though, under certain circumstances, the prohibited terms and phrases would accurately and truthfully describe the characteristics of a particular property located in a single-family zoning district. The Complaint alleges that § 1450.140(a)(4) provides no exception to its general prohibition.

The Complaint alleges there are circumstances under which the prohibited terms or phrases, deemed misleading under § 1450.140(a)(4), could truthfully and accurately describe a particular property located in a single-family zoning district:

There currently are instances, and more instances shall arise, where the zoning for a particular area is single family, yet properties located in the single family zoning have physical characteristics commonly referred to as "related living," "related apartment," "in-law arrangement," "two units," or "apartment."

There are instances where the prohibited phrases are actually accurate descriptions of property located in a single family zoning district. For instance, there are areas that have been down-zoned from multi-family use to single family use. The multi-family uses that are existing at the time of the down- zoning then become legal non-conforming uses. A legal, non-conforming use includes a house with an attached apartment that could also be advertised as "apartment," "two units," "inlaw arrangement," or "related apartment." Such a legal, non-conforming use can be sold to a subsequent owner who is entitled to the same non-conforming use.

Complaint, ¶¶ 16-17. The Complaint states that there are instances where houses in single-family zoning districts will sometimes be built with a separate entrance, a separate kitchen, and separate bedrooms to accommodate extended family members that live there due to cultural, financial, or physical reasons.

The Complaint further asserts that there are also instances where cities and towns will have, within their zoning code use, variance procedures which may run with the land to subsequent owners, allowing a residence that is located in a single-family zoning district to add a related living apartment. The Complaint alleges that the effect of ยง 1450.140(a)(4) would prevent an individual who legally owns and operates an apartment situated in a ...


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