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Some blockbusting regs deemed unconstitutional.

In New York State Association of Realtors v. Shaffer, the Federal Second Circuit decided in June of this year that certain regulations enacted to prevent realtors from blockbusting neighborhoods were unconstitutional because the regulations arbitrarily curtailed commercial speech.

Since the Civil Rights Movement, some real estate agents have engaged in the practice blockbusting to increase residential sales. The Second Circuit defined blockbusting as "the unethical practice of realtors, whereby home owners of a particular neighborhood are solicited and warned of declining property values and encouraged to sell their homes, thus generating or `churning' realty commissions. Racial, ethnic or religious diversity in the neighborhood is generally suggested or implied as the cause of the expected decline in property values."

In 1989, New York Real Property Law [section]442-h was enacted to combat blockbusting by establishing and enforcing non-solicitation zones to be determined by the Secretary of State (the "Secretary"). In 1990, the Secretary, pursuant to [section]442-h, promulgated 19 N.Y.C.R.R. [section]175.17(b), (c)which barred realtors from soliciting home owners in certain "cease and desist zones" perceived to be the target of blockbusting activity. The regulations prohibits solicitation of home owners who have given written notice to realtors or the Secretary that they do not wish to be solicited.

In this case the plaintiffs, an organization composed of licensed real estate brokers and local boards of realtors, brought an action under the U.S. Constitution and other federal statutes challenging the constitutionality of the "cease and desist" regulations. The plaintiffs alleged that the regulations violated a host of constitutional rights, including free speech, equal protection and due process.

The U.S. District Court granted the Secretary summary judgement dismissing the action on the basis that the statute and regulations where valid governmental restrictions on commercial speech. The realtors appealed and the Second Circuit affirmed in part and reversed in part.

The Second Circuit Court of Appeals "confined the First Amendment inquiry to the narrow issue of whether the challenged regulation premeditated by the Secretary pursuant to statutory authority, particularly the non-solicitation regulation, are valid governmental restrictions on speech." The Court applied a fourprong test set forth by the U.S. Supreme Court which requires the court to determine (1) "that, at a minimum, the commercial speech at issue concerns lawfully activity and is not misleading;" (2) "whether the asserted governmental interest is substantial;" (3) "whether the regulation directly advances the governmental interest asserted;" and (4) "whether the regulation is not more extensive than is necessary to serve that interest."

The Court agreed with the lower court and found that the first three prongs of the test were satisfied. The Secretary did not dispute that the ability of the realty brokers to solicit home owners constitutes lawful activity and that housing solicitation are not per se misleading, and the realtors conceded that the government has a substantial interest in combatting blockbusting, if and when it occurs.

However, the Court found it "particularly troubling" that the Secretary had "failed to determine empirically whether less restrictive measures, such as the implementation of cease and desist orders, would provide an alternative means for effectively combatting the level of blockbusting evidenced by the record in this case." The Court concluded that because there was "no evidence of any kind that this type of narrower, resident-activated measure, a measure that was in effect before the issuance of incidents of blockbusting alleged by residents at the public hearings" and that "in the absence of such evidence, we [the court] find it difficult to accept the Secretary's position that a community-wide comprehensive ban on all real estate solicitations, regardless of the otherwise proper content of those solicitations, as opposed to the issuance and enforcement of the cease and desist orders on an individualized basis, is a reasonably tailored means for eliminating the harm of blockbusting as portrayed by this record."

However, the court did hold that it's decision was narrowly tailored, limited solely to the record before the court and emphasized that "we do not reach the question of whether under certain facts and circumstances and under a different record, the Secretary might be able to justify some type of non-solicitation regulation pursuant to section 442-h." Thus, the Court left ample room for the State in the next case to stop blockbusting.
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Title Annotation:New York State Association of Realtors v. Shaffer in case before the Federal Second Circuit
Author:Goetz, Peter
Publication:Real Estate Weekly
Date:Nov 16, 1994
Previous Article:Look before you leap: are LLCs right for you?
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