The following brief updates are meant to highlight any significant activity of the NAR Legal Action Committee and Amicus Brief Advisory Board.
Legal Action Program News
In the News
Court Grants Fair Use Judgment to Brokers in Floorplan Copyright Infringement Litigation
Brokers’ use of floorplans in marketing materials deemed fair use of copyrighted architectural works.
September 28, 2023
A Missouri federal court granted summary judgment in favor of two defendant brokerages sued for copyright infringement by an architect over the brokers’ use of house floorplans in marketing materials. The architect alleged in two parallel lawsuits that the floorplans infringed the copyright in the home’s original design. The court found the independently created floorplans constituted fair use of the copyrighted architectural design and therefore the brokerages did not infringe the copyright.
The fair use doctrine is an affirmative defense to claims of copyright infringement which permits the use of copyrighted material in a reasonable manner without the owner’s consent. The applicability of the fair use doctrine hinges on the balancing of four factors: (1) the character of use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used; and (4) the effect on the potential market value of the copyrighted work.
The court found all four factors supported a finding of fair use. The floorplans were used to provide information to potential homebuyers as opposed to reducing the architectural design’s marketability. The design of residential structures included many common structural elements, therefore the design’s nature outweighed any broader protections granted for artistic expression, favoring a finding of fair use. Further, the floorplan’s creation arose solely from accessing the structure’s interior, therefore the copying was minimal and insubstantial when compared with the scope of the design’s architectural plans. The court also highlighted the policy benefits associated with transparency in real estate transactions and how the floorplans do not replace the architectural expertise required to replicate the design.
These cases were originally dismissed pursuant to Section 120(a) of the Copyright Act’s exemption to copyright protection for “pictures, paintings, photographs or other pictorial representations” of architectural structures. The dismissal was reversed and remanded by the Eighth Circuit Court of Appeals which reasoned that floorplans did not apply to Section 120(a)’s exemption based on their technical nature and that they cannot be reconstructed by publicly viewing the structure. On remand, the district court determined the published floorplans were fair use. On October 27, 2023, Plaintiff filed notice of their intent to appeal the fair use ruling to the Eight Circuit. NAR’s Legal Action Program has provided direct funding and amicus support to the brokerages since 2018.
Cites: Designworks Homes, Inc. v. Columbia H. of Brokers Realty, Inc., No. 2:18-CV-04090-BCW, 2023 WL 7278744 (W.D. Mo. Sept. 29, 2023); and Designworks Homes, Inc. v. Horak, et al., No. 2:18-CV-04093-BCW (W.D. Mo. Sept. 28, 2023).
Oral Arguments in Tennessee Property Surveillance Case Supported by NAR
Large tract owners were subject to illegal entries by wildlife enforcement agency
June 20, 2023
Oral arguments were held at the Tennessee Court of Appeals in Rainwaters v. Tennessee Wildlife Resource Agency, a case challenging the constitutionality of a Tennessee statute authorizing the Tennessee Wildlife Resource Agency (TWRA) to enter any property without a warrant or probable cause to search for potential hunting and fishing violations.
Plaintiffs, large tract landowners who were subject to warrantless entries, filed suit against TWRA alleging the intrusions violated Article I, Section 7 of Tennessee’s Constitution. TWRA officers entered Plaintiffs’ land on several occasions, and one Plaintiff found a camera affixed to a tree capturing images of the property, including the exterior of a tenant’s home. The Circuit Court ruled in favor of Plaintiffs and declared the statute facially unconstitutional, unlawful, and unenforceable. Defendant TWRA appealed, arguing that large open tracts of property are not constitutionally protected and that the TWRA’s entries were reasonable.
Article I, Section 7 of Tennessee’s Constitution provides that people shall be secure in their persons, houses, papers, and possessions from unreasonable searches and seizures. In partnership with the Tennessee Association of REALTORS® and the REALTORS® Land Institute, NAR filed an amicus brief in support of Plaintiffs advocating for the preservation of property rights, and focused on precedent case law supporting Article I, Section 7’s protection of “possessions” as encompassing all of a person’s real property, including large open tracts of land. Such language included in several state constitutions is thought to offer more protection than the federal open fields doctrine’s protection of only the home and curtilage under the 4th Amendment.
NAR Files Brief in Support of Challenge to New York’s Rent Control Amendments
Property owners allege New York’s Rent Stabilization Law an Unconstitutional Taking
June 9, 2023
NAR filed amicus briefs with the Supreme Court of the United States in support of Plaintiffs in the cases, Community Housing Improvement Program (CHIP) v. New York, et al. and Pinehurst LLC v. New York. The cases claim that the recent amendments to New York City’s Rent Stabilization Laws effected physical and regulatory takings in violation of the Fifth Amendment's Takings Clause.
New York’s rent stabilization regime, recently amended in 2019, imposes regulations such as limitations on rent increases, requires renewal offers in some cases, and limits the ability to evict tenants.
The cases are both petitioning the US Supreme Court for writ of certiorari on appeal from the Second Circuit Court of Appeals, which held that the rent stabilization amendments did not constitute a physical taking because landlords invite tenants onto the property and should expect regulation in property rentals. In reasoning that the rent stabilization regime did not constitute a regulatory taking, the Second Circuit applied the Penn Central factors test and found that not every owner suffered an adverse economic impact; the owners’ investment expectations in their properties were not interfered by the amendments, and the laws serve important public interests.
Joined by the National Apartment Association, National Association of Home Builders and Mortgage Bankers Association, NAR’s brief argues the cases deserve review because of recent nationwide trends of municipalities conscripting property owners to provide public relief through rent control measures without compensation, and that rent control measures undermine housing affordability by negatively impacting the quality and quantity of affordable housing.
The National Association of REALTORS® Legal Action Committee has supported Plaintiff CHIP since 2019 with both funding and amicus participation. NAR’s Amicus Brief Advisory Board also approved NAR’s amicus participation in support of the plaintiffs in 74 Pinehurst LLC v. State of New York, a parallel case with identical issues.
U.S. Supreme Court rules in favor of Plaintiff in ‘Home Equity Theft’ Case
May 25, 2023
Court holds the Plaintiff asserted a “classic takings” Under Fifth Amendment and is entitled to just compensation.
The U.S. Supreme Court reversed the dismissal of a Minnesota homeowner’s constitutional challenge of a state statutory scheme that allows municipalities to seize a tax debtor’s property and retain the surplus from the sale as a windfall in excess of the debt owed. The National Association of REALTORS® filed an amicus brief in support of plaintiff Geraldine Tyler, a 94-year old Minnesota homeowner, who incurred a $15,000 tax debt after moving into an assisted living facility. Proceeding under Minnesota’s forfeiture procedures, Hennepin County took absolute title to Ms. Tyler’s condo, sold the property for $40,000 and retained the full net proceeds for government disbursement.
Ms. Tyler asserts Hennepin County unconstitutionally retained the excess value of her home above her tax debt in violation of the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause. The District Court dismissed the case, and the Eighth Circuit affirmed, holding that no illegal taking occurred because Ms. Tyler did not own a valid property interest in the subject property at the time of the sale. In a unanimous decision, the Supreme Court reversed the Eighth Circuit’s ruling and declared that using a tax debt to confiscate more property than was due effectuated a “classic taking”, and thus Ms. Tyler is entitled to just compensation.
NAR’s Legal Action Program supported the Plaintiff in this case through the filing of an amicus brief with the Supreme Court, which was joined by the Minnesota of REALTORS® and the American Property Alliance, and argued that the Court’s analysis should focus on how the statutory scheme permitted the government to take absolute title and retain the full proceeds, instead of the property’s ownership status at the time of the sale in determining a violation of the US Constitution.
NAR Advocates for Market Stability and Consumer Access in CFPB Case
May 15, 2023
NAR calls on Court to conduct severability analysis in determining constitutionality of CFPB funding mechanism and urges the Court to allow the remainder of the Consumer Financial Protection Act to remain intact to protect consumers access and protections in housing financing.
NAR filed an amicus brief with the United States Supreme Court in Consumer Financial Services Association of America et al. v. Consumer Financial Protection Bureau, Limited, et al., a case in which plaintiff Consumer Financial Services Association of America (“CFSA”) challenges both the validity of the Payday Lending Rule’s promulgation and the Consumer Financial Protection Bureau’s (“CFPB”) funding mechanism. The district court rejected CFSA’s claims, but on appeal, the Fifth Circuit struck down the Payday Lending Rule, holding that the CFPB’s funding mechanism violates the appropriations clause of the Constitution. A decision from the Supreme Court upholding the Fifth Circuit’s decision could potentially invalidate all CFPB regulations since the CFPB’s inception.
NAR’s brief, filed jointly with the Mortgage Bankers Association and the National Association of Homebuilders, did not address the constitutionality of the CFPB’s funding mechanism. Instead, the brief argued that if the Court finds the CFPB’s funding mechanism to be unconstitutional, the Court should sever the problematic provisions of the Consumer Financial Protection Act in order to maintain stability and certainty for the real estate industry and consumers. Severability will preserve the CFPB’s pro-consumer rules, which serve critical purposes such as ensuring consumers are informed of inherently complicated contractual information. The brief also argued the CFPB’s past rulemaking activities should remain valid until Congress can determine a valid funding mechanism. Providing “de facto validity” would ensure the CFPB’s past acts are not litigated under the unconstitutional provisions and allow Congress the opportunity to mend the funding mechanism, protecting the regulatory structure and consumer protections of the current housing financing system.
Cite: Cmty. Fin. Servs. Ass'n of Am., Ltd. v. Consumer Fin. Prot. Bureau, 51 F.4th 616 (5th Cir. 2022), cert. granted, 143 S. Ct. 978 (2023).
Legal Action Committee Recommends Three Cases for Support at RLM
May 8, 2023
Supported cases involve issues of commercial landlord duties, exclusive buyer agency, and rent control.
The Legal Action Committee voted to recommend, and the NAR Board of Directors approved, Legal Action Program support in three cases at the 2023 REALTORS® Legislative Meetings in Washington, D.C.
The first case involves the support of the Massachusetts Association of REALTORS® (MAR) amicus brief filing in Hill-Junious v. UTP Realty LLC, which is currently pending before the Massachusetts Supreme Judicial Court. In its brief, MAR argues a commercial landlord’s duty to prevent reasonably foreseeable criminal acts should not be extended to include a duty to learn of criminal acts that occurred prior to the landlord’s purchase of the property.
The Legal Action Program will also provide MAR support in connection with its amicus brief filing in support of the plaintiff broker in Huang v. Ma. Here, MAR argued against the adoption of a “clear statement” rule that would require a provision addressing damages in the event of a contractual breach and to protect brokers’ rights and ability to enforce exclusivity provisions in buyer agency agreements. The Massachusetts Supreme Judicial Court agreed with MAR’s position and declined to adopt such a clear statement rule.
Last, the program will provide support for the Hudson Valley Property Owners Association (HVPOA) and its pending New York state court proceeding against the City of Kingston that challenges the City’s enactment of rent control measures in response to its declaration of a housing emergency (Hudson Valley Property Owners Association v. City of Kingston et al). Here, HVPOA challenges the existence of a housing emergency and resulting imposition of rent control measures pursuant to New York’s Housing Stability and Tenant Protection Act. The Ulster County Supreme Court ruled that the methodology behind the emergency declaration was valid, but found the City lacked statutory authority to declare rent adjustments on fixed percentages and apply such adjustments retroactively. The parties are appealing the ruling. NAR’s support of this case furthers NAR policy and past legal advocacy opposing the adoption of rent control and stabilization laws due to their negative effect on housing inventory and property values.