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A Missouri appellate court has considered when a broker has engaged in the unauthorized practice of law.
David and Mary Ann Brooks ("Sellers") were the sole shareholders of KCI Rent-All, Inc. ("Business"). They retained a real estate broker, David Bray ("Broker"), to sell the Business and its assets (including a property lease), and executed a listing agreement. The Broker located a buyer, and the Business was sold to the buyer. The Sellers paid the Broker a commission based on the initial offer made by the buyer, which was less than the final sales price. The Broker filed a lawsuit alleging breach of contract, and the Sellers filed a counterclaim alleging that the Broker had engaged in the unauthorized practice of law and negligently prepared certain documents. While the trial court ruled in the Broker's favor and awarded him a full commission, the court also ruled that the Broker had negligently prepared documents and also had engaged in the unauthorized practice of law. The court awarded treble damages to the Sellers for the unauthorized practice of law claims, meaning that the damages were multiplied by three. The Broker appealed.
The Missouri Court of Appeals, Western District, reversed the trial court's rulings against the Broker and sent the case back to the trial court for further proceedings. The court first considered whether the Broker had engaged in the unauthorized practice of law. The Broker had drafted many documents during the course of the transaction, including the offer, counteroffer, a promissory note, a corporate resolution, and a covenant not to compete. The Broker stated that he told the Sellers that he was not an attorney and that he thought it was legal for him to do this, so long as he was not paid for providing this service. The Sellers argued that just because there was not a separate charge for the Broker's legal services does not mean that the Broker did not receive valuable consideration in return for his services.
The court reviewed Missouri law on this issue. Missouri has enacted a statute which prohibits any individual from engaging in the unauthorized practice of law and provides that anyone who is "wronged" by such actions can bring a lawsuit seeking treble damages. However, in Hulse v. Criger, 363 Mo. 26, 247 S.W.2d 855 (Mo. 1952), the Supreme Court of Missouri ruled that a real estate broker, while acting in the capacity of a broker, could prepare standardized forms for real estate transactions. In this case, the Broker did not contest that he had engaged in the unauthorized practice of law; rather, he argued that he was not paid for these services. The court ruled that even though the Broker had not specifically charged for his legal services, these services were part of the package of services for which he was paid a commission and therefore, affirmed the trial court. The court found that any other ruling would undermine the consumer protections intended by prohibiting the unauthorized practice of law.
Next, the court considered whether the Broker was liable for treble damages. It ruled that the trial court had improperly used the whole commission as the measure of damages; instead, a proper determination would be what part of the commission was for legal services. Since there was no evidence on this point, there was no basis for a treble damage award and so it reversed the trial court award.
Finally, the court considered the negligence allegations. The trial court had ruled that the Broker had negligently prepared the sale documents, even though the Sellers had yet to suffer any damage from this. The appeals court reversed this ruling, since demonstrating damages is a required element of a negligence case.
Bray v. Brooks, 41 S.W.3d 7 (Mo. Ct. App. 2001).