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Licensee cannot “contract out” of duties required by state licensing law, court rules

An appellate court in Colorado held, in a March 7 decision, that licensed real estate brokers cannot enter into contracts that waive duties delineated by the state's professional broker laws.

(Colorado Real Estate Commission v. Vizzi).

In 2013 and 2014, John Vizzi, a real estate broker licensed in Colorado, entered into brokerage contracts with three clients that limited his responsibilities for their properties to a level below what is usually required for brokers in his position under state regulation.

After the receipt of an anonymous complaint against Vizzi, the state’s Real Estate Commission charged him with entering into contracts that improperly waived his responsibility to fulfill the statutory duties that accompany his license. After the disciplinary process concluded, the Commission publicly censured Vizzi, required him to take additional continuing education requirements, and assessed him a $2,000 fine.

Vizzi appealed, arguing that Colorado law permitted him to contractually limit his statutory duties and that the Commission’s disciplinary action against him violated federal antitrust law.

Under Colorado law, licensed real estate brokers must act either as a single agent—representing one party—or as what’s known as a transaction-broker, who assists with a real estate transaction but is not the agent for either the buyer or the seller. The state defines such a transaction-broker as one “who assists one or more parties throughout a contemplated real estate transaction . . . and the closing of such real estate action without being an agent or advocate for the interests of any party to such transaction.”

The statutes and their accompanying regulations go on to define the responsibilities of these brokers, and it was these duties that Vizzi argued he could permissibly contract away.

However, the specific statutory language quoted above caused Vizzi’s argument to fail. Judge Diana Terry, writing the court’s opinion, stated that use of the words “throughout” and “and” in the statute indicated that the legislature intended a transaction broker to assist throughout an entire transaction, including all the numerous and mandatory duties for such brokers listed elsewhere in the statute. Thus, the sort of unbundled services that Vizzi contracted for, Judge Terry wrote, are impermissible under this statutory law.

Although Vizzi argued that the statutorily-listed duties were merely defaults and thus subject to contractual limitation, the court again disagreed. “If the transaction-broker duties . . . were mere defaults, a transaction-broker . . would be able to contract out of the required statutory duties and, in essence, cease acting as a transaction-broker or single agent as defined by statute,” wrote Judge Terry.

“Allowing Vizzi to disclaim the role of transaction-broker would contravene the statutory scheme . . . The relevant statutes were drafted to create the role of transaction-broker and distinguish it from the role of single agent, and not to enable licensed real estate professionals to avoid the statutorily required duties of a transaction-broker.”

The court also rejected Vizzi’s antitrust claims. Although the actions of the Commission may be anticompetitive, Judge Terry wrote, those actions fall within an exception to otherwise impermissible anticompetitive actions carried out by sovereign state actors under a clearly articulated policy and actively supervised by the state.

That active supervision requirement was satisfied by the statutory provisions which authorize the Commission to discipline brokers who violate state license laws.

The court differentiated the current case from the 2015 U.S. Supreme Court case dealing with anticompetitive board actions, North Carolina State Board of Dental Examiners vs. Federal Trade Commission (in which the high court found that board engaged in impermissible anticompetitive behavior by improperly regulating teeth-whitening services).

The earlier case, said Judge Terry, hinged on the lack of proof indicating that the North Carolina legislature intended its dental board to regulate that service. Here, there was no doubt about the Colorado legislature’s intention.

The court affirmed the board’s decision, ending the case.