Burk Baker v. Maclay Properties Company: Former Louisiana Statute Regarding Reciprocity and Broker Cooperation Agreements Unconstitutional

At issue in Burk Baker v. Maclay Properties Company, was the constitutionality of a former Louisiana statute requiring reciprocity for real estate licenses for out-of-state residents and a related regulation governing out-of-state broker cooperation. Louisiana law has changed since, but at the time, in order for a nonresident licensed in another state to obtain a Louisiana brokers' or salesperson's license, their state of residence had to have a reciprocity agreement with Louisiana. A regulation which also was in effect at the time allowed out-of-state brokers to transact business in Louisiana under cooperating brokerage agreements with Louisiana brokers, provided the Louisiana broker received at least 50% of the commissions or fees.

Maclay Properties, a real estate brokerage and property management firm located in Dallas, Texas wanted to transact business in Louisiana. Texas did not have reciprocity with Louisiana, so Maclay entered into a cooperating brokerage agreement with Burk Baker, a real estate broker licensed in Louisiana, whereby Baker would be the sponsoring broker for Maclay's salesperson in Louisiana. The agreement stated that Baker would receive a monthly fee of $300, and that the arrangement between the parties would be in accordance with the Louisiana regulation described above.

Maclay terminated the agreement with Baker, having paid him the monthly fees, but not having paid him any commissions or other fees. Baker believed that Maclay had managed and closed several transactions for which he should have received commissions or fees, and he filed suit to recover these amounts. Maclay denied that any transactions had taken place, and also filed a motion for summary judgment, claiming that the Louisiana laws were unconstitutional, and therefore that the fee-sharing clause of the cooperating brokerage agreement was null, precluding Baker's claims. Louisiana law at the time created two classes of nonresidents, those whose states had reciprocity with Louisiana, and those which did not. A duly licensed nonresident whose state had reciprocity with Louisiana could obtain a Louisiana license, while one from a state without reciprocity could not. In order to transact business in Louisiana, a broker in the later category had to enter into a cooperating agreement with a Louisiana broker providing for the mandatory fee-splitting arrangement.

The Louisiana Attorney General's office already had issued an opinion advising that the statute and the regulation were unconstitutional, because they violated the Privileges and Immunities Clause of the U.S. Constitution, and because the reciprocity requirement created two classes of nonresidents who were subject to different licensing requirements on an irrational basis. Louisiana since has changed its statute, eliminating the residency and reciprocity requirements, and the real estate commission has eliminated the mandatory 50% or more payment, providing instead that the amount of fees and commissions due a Louisiana broker from an out-of-state broker is negotiable between the parties. However, the new laws did not take effect until after the Maclay/Baker agreement terminated, so the prior laws applied.

Under the old laws, Maclay was prohibited from getting a Louisiana broker's license, and in order to transact business in the state, had to enter into a cooperating agreement containing the mandatory fee-splitting arrangement. The court observed that this alternative did not permit Maclay to transact business in Louisiana on the same terms as resident brokers. The court upheld the lower court's decision that the statute and the regulation were unconstitutional, and held that since the statute and regulation under which Maclay and Baker contracted was unconstitutional, the agreement between them was null and unenforceable. Since the court decided that Baker had no contractual rights to assert, on remand, his only possible remedy would be unjust enrichment damages.

Burk Baker v. Maclay Properties Company, 648 So. 2d 888 (La. 1995).

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