The Kansas Supreme Court has agreed to consider a case brought by a company that advances payment to real estate agents based on anticipated sales commissions.
The company, Commission Express of Kansas City, appealed to the state Supreme Court after a district court in October 2005 ruled that the company’s real estate commission agreements are invalid under state code and violate state limitations on garnishments.
The parent Commission Express company, which has 71 franchise offices in 40 states, has advanced about $290 million in commissions to real estate agents, according to a company announcement. The company and its franchises have participated in similar litigation in other states over brokerage companies’ distribution of real estate commissions. In June 2005 Inman News reported that Commission Express lost a legal battle against NRT Inc. and Coldwell Banker New Jersey.
John Effrein, president of Commission Express of Kansas City, said today that there is a lack of case law that relates to the rights of an independent contractor to sell a business asset — most real estate agents in the country are independent contractors rather than employees.
Effrein’s company had filed a lawsuit against Reece & Nichols Realtors Inc. after the company refused to honor agreements with two real estate agents and instead paid the commissions directly to the agents. The agreement called for the brokerage company to pay the agents’ share of the commissions directly to Commission Express.
“This one real estate company … refused to respect our paperwork and they paid the agents directly. And in doing so, two of those agents cashed the second check. They did not endorse it over to Commission Express,” Effrein said. He also said the brokerage company “chose to ignore” the agreement between the agents and Commission Express.
Effrein said his company works with agents at 29 other real estate companies operating in the Kansas and Kansas City metro market and has advanced about $2.5 million since the company opened its doors in April 2004.
In a court filing, Reece & Nichols charged that Commission Express “is a master of disguise” and “a predatory lender” that “preys on a small group of real estate agents who are desperate for immediate cash from transactions scheduled to close weeks or months in the future.” Reece & Nichols is a part of HomeServices of America, a Berkshire Hathaway company.
Steve Clark, executive vice president and chief financial officer for Reece & Nichols, said today that the company maintains that “under existing law it is not appropriate to assign wages” as Commission Express had sought through its agreements with agents.
“The lower court has held that that is not an acceptable practice,” Clark said, adding that his company should not be forced “to become an intermediary in this process.”
The Kansas Association of Realtors has supported the company by filing a legal brief with the Kansas Supreme Court.
Vernon L. Jarboe, a partner with the law firm Sloan Eisenbarth Glassman McEntire & Jarboe LLC, said he filed the brief on behalf of the Kansas Association of Realtors. “From a broker’s perspective, you cannot successfully supervise salespeople if you don’t know when or how much they are getting paid. Assigning an as-yet-unearned commission interferes with the broker’s supervisory role,” he said, adding that a broker can’t properly supervise a salesperson if the agent “is getting paid in ways (the broker) can’t know or understand.”
Real estate license law forbids brokers from paying a commission to anyone other than a real estate licensee affiliated with the broker or to another broker, he also said. But the district court found that the real estate law relating to the assignment of real estate commissions was “inapplicable to the case at hand.” The “clear intent” of that real estate law, according to the court, “was not to prohibit assignment of commissions: it was to prohibit brokers from paying someone who is not licensed as a real estate agent for selling real estate.”
Also, agents who are cash-strapped could pose a greater risk for the broker, Jarboe added, as they may be more willing to do “something they shouldn’t,” and brokers should be informed if agents are financially strapped and seeking to borrow against future earnings.
The International Factoring Association filed a brief with the court in support of Commission Express. The association stated in its brief that two state codes relevant to the litigation are “diametrically opposed to each other.” One code prohibits the assignment of wages while another prohibits restrictions against the assignment of accounts. “In this instance, the commissions for the real estate agents are accounts” under one of the state’s codes, the association stated.
The Kansas Supreme Court will hold a hearing Sept. 7 to hear arguments in the case by Commission Express and Reese & Nichols representatives.
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