In an important victory for the real estate industry, the U.S. Court of Appeals for the Seventh Circuit upheld the ruling of the U.S. District Court for the Northern District of Illinois that the Illinois anti-solicitation statute (the “Statute”) is unconstitutional. To read an earlier summary of the case posted in The Letter of the Law and a more thorough discussion of the facts, click here.
The Statute applies only to real estate solicitations. It prohibits the solicitation of a homeowner to list or sell his property if the homeowner has given notice that he does not want to be solicited for these purposes. Under this law, solicitation of a homeowner by one who has notice of that person’s desire not to be contacted is a criminal offense. In addition to possible imprisonment and fines if convicted, a violator’s real estate license may be revoked.
The Pearson case arose from solicitation activities by a broker affiliated with the real estate firm owned by Alvin Pearson, whose business serves parts of the Chicago area. A community group had compiled a list of homeowners who did not want to be solicited and had distributed the list to the offices of local real estate brokers, including Pearson’s firm. Subsequently, the broker cold-called some homeowners whose names were on the list. Pearson and others were prosecuted for violating the Statute. The criminal complaints were dismissed, but the licensees were fined and placed under court supervision. Pearson filed this lawsuit claiming that the Statute was unconstitutional in violation of his rights to freedom of speech, due process and equal protection.
To determine the constitutionality of the Statute's restriction on real estate solicitations, the district court applied the test developed by the U.S. Supreme Court in its decision in a 1980 case, Central Hudson Gas & Electric v. Public Service Comm’n of New York. Under this test, the court must consider four factors: (1) Whether the commercial speech regulated concerns lawful activity and is not misleading. If so, the court must go on to consider the remaining factors, and the restriction is constitutional only if it (2) is intended to support an interest claimed by the government that is ‘substantial’; (3) directly advances the claimed governmental interest; and (4) is not more extensive than necessary to serve the interest claimed by the government.
In Pearson, the State of Illinois claimed two justifications for the Statute - the prevention of blockbusting/panic peddling and the protection of residential privacy. With respect to the first of those justifications, the district court found no evidence that “standard real estate marketing materials cause rapid racial change or contribute to panic selling.” It also found that while blockbusting and panic peddling had occurred in Chicago in the 1960s and early 1970s, they rarely occur in Illinois today. There also was no evidence that real estate solicitation activities threaten residential privacy. The district court, therefore, ruled in favor of Pearson, finding the Statute unconstitutional because it failed the third and fourth factors of the Central Hudson test. On appeal, the U.S. Court of Appeals for the Seventh Circuit agreed with the lower court's conclusion, holding that "Without evidence that blockbusting is a problem in Illinois...the state (cannot) show that 'the harms it recites are real and that its restriction will in fact alleviate them to a material degree.' "
With respect to the state's claimed interest in protecting residential privacy, the court of appeals agreed with the lower court's holding that the Statute is unconstitutional because it “does not reasonably fit the asserted state interests and cannot pass the Central Hudson test for restrictions on commercial speech.” The court specifically pointed out that the Statute only permitted a ban on real estate solicitation, not on all forms of solicitation, and for that reason largely would be ineffective in protecting residential privacy. “Here, the state, not the homeowner, has made the distinction between real estate solicitations and other solicitations without a logical privacy-based reason. We can no longer...place the interest in residential privacy above the interest in logical distinctions in speech restrictions absent some showing that the restriction reasonably fits the justification.”
While the Pearson decision only is binding legal precedent in the Seventh Circuit (which includes federal courts in Illinois, Indiana and Wisconsin), this important case may be of value to those challenging governmental solicitation restrictions in other jurisdictions. If there are no controlling cases on point in a particular jurisdiction, courts often look to decisions from sister jurisdictions to help guide their decision.
The Pearson case was supported financially by NAR, the Illinois Association of REALTORS®, and several Chicago area REALTOR® associations. NAR filed an amicus curiae brief (friend of the court brief) in this case urging that the Statute be struck down.
Pearson v. Edgar, 153 F.3d 397 (7th Cir.1998).
UPDATE on Pearson v. Edgar (IL)
NAR recently received a check from the State of Illinois for approximately $323,000.00, as reimbursement to NAR for its share of the attorney fees incurred in the successful constitutional challenge to Illinois’ antisolicitation statute. In 1998, after nearly 13 years of litigation, the Seventh Circuit Federal Court of Appeals affirmed the lower court’s determination that the statute’s restrictions on solicitations violated the First Amendment rights of real estate practitioners. Throughout the long history of the case NAR, the Illinois Association of Realtors® and several local associations in Illinois financially supported that case, and NAR also filed an amicus curiae brief with the Seventh Circuit in this case. IAR and the local associations also received reimbursement of their expenditures in support of the case. To read a summary of this case, click here.