Opinion ID: 2499315
Heading Depth: 1
Heading Rank: 3

Heading: fee-splitting prohibitions

Text: We begin our analysis with RAN's contention that K.S.A. 2011 Supp. 58-3062(a)(10) and (c)(1) absolutely prohibit it from paying a commission or fee of any kind to anyone not licensed under the KREBSLA. In 58-3062, the legislature describes activities that are prohibited under the KREBSLA, with subparagraphs (a)(10) and (c)(1) being the portions that specifically address payment of commissions. Under the first of these two provisions, K.S.A. 2011 Supp. 58-3062(a)(10), no licensee shall [p]ay a commission or compensation to any person, not licensed under the act, for performing any activity for which a license is required under this act. The second provision, K.S.A. 2011 Supp. 58-3062(c)(1), provides that no broker shall [p]ay a commission or compensation to any person for performing the services of an associate broker or salesperson unless such person is licensed under this act and employed by or associated with the broker. A separate statute, K.S.A. 58-3065(a), provides that a violator of any provisions of the KREBSLA faces statutory penalties of fines or imprisonment. In support of its argument that the KREBSLA absolutely prohibits fee splitting with a nonlicensee, RAN relies on Burchfield v. Markham, 156 Tex. 329, 294 S.W.2d 795 (1956). In Burchfield, the issue was whether the Texas Real Estate Dealers License Act, Article 6573a, as it existed in 1951, prohibited payment of a real estate commission to a Texas attorney who did not have a real estate license. Section 20 of the Texas Act provided that it is `unlawful for any real estate dealer or salesman to ... pay directly or indirectly any part or share of his commission or compensation arising or accruing from any real estate transaction to any person who is not a licensed dealer or salesman....' Burchfield, 156 Tex. at 332, 294 S.W.2d 795. The Texas court reasoned this wording was absolute, without exemptions or exceptions. Reconciling this provision with an attorney exemption similar to the provision in Kansas, the Texas court concluded the attorney exemption meant only that an attorney did not need to have a real estate license to perform the same duties as would a real estate licensee. Nevertheless, because the fee-splitting prohibition was absolute, a real estate dealer or salesman could not pay an attorney any portion of the commission unless the attorney had a real estate license. Burchfield, 156 Tex. at 333, 294 S.W.2d 795. RAN argues the same conclusion applies to the Kansas provisions, and the district court agreed. In making this argument, RAN ignores critical differences between the Texas and Kansas statutes. Specifically, in contrast to the Texas fee-splitting provision that applies to anyone who is not licensed under the act regardless of the type of activity the person performs, both of the Kansas fee-splitting provisions contain qualifying language that defines a limited group to whom the provisions apply. One of the Kansas provisions, K.S.A. 2011 Supp. 58-3062(c)(1), prohibits a broker from paying another for performing the services of an associate broker or salesperson unless such person is licensed under this act and employed by or associated with the broker. (Emphasis added.) The statutory definitions of associate broker and salesperson require the person to be employed by or associated with a broker and to have participate[d] in any activity described in subsection (f), which defines broker by, in part, listing activities a broker would perform. K.S.A. 2011 Supp. 58-3035(c), (f), (o). RAN focuses solely on the activity component of this provision, discussing the nature of the services provided by McGrath. According to the stipulated facts, these services included negotiating and contracting for the purchase and construction of Lausier's new home; as well as the rendition of professional services requiring the knowledge and application of legal principles and technique to serve the interest of Lausier at Lausier's request. Negotiating a contract is an activity listed in K.S.A. 2011 Supp. 58-3035(f)(3) as an activity a broker would perform. In other words, in order for K.S.A. 2011 Supp. 58-3062(c)(1) to be as broad as RAN argues, it would have to prohibit payment for any activity listed in subsection (f) of 58-3035 regardless of whether performed by a broker, associate broker, or a salesperson. Yet, the actual language of 58-3062(c)(1) limits application to the services of an associate broker or salesperson. Applying this provision to the facts of this case, nothing in the stipulated facts suggests McGrath was employed by or associated with anyone else who was acting as a broker; in other words, there is no suggestion that he functioned as an associate broker or a salesperson. Therefore, K.S.A. 2011 Supp. 58-3062(c)(1) does not apply in this case. The second provision on which RAN relies is broader in scope but still contains a critical limitation not found in the Texas statute considered in Burchfield. This Kansas provision, K.S.A. 2011 Supp. 58-3062(a)(10), limits the prohibition against paying a commission to any person not licensed under the act to persons who are being paid for performing any activity for which a license is required under this act. (Emphasis added.) The activities for which a license is required are defined by K.S.A. 58-3036, which begins with the phrase [u]nless exempt from this act under K.S.A. 58-3037. Consequently, in contrast to the Texas statute, 58-3062(a)(10) does not absolutely prohibit splitting a fee with any nonlicensee and potentially allows payment of a commission if the nonlicensee's activities are exempt from application of the KREBSLA. Because McGrath relies on an exemption under 58-3037(c), this brings us to his argument.