After 20 years, it appears as though the timeshare resale litigation between Stroman Realty and the California Department of Real Estate may finally conclude. On April 4, the California Real Estate Commissioner asked the U.S. District Court for the Eastern District of California to approve a settlement agreement executed by the Commissioner and Wayne Stroman. In one of our first posts at the Hospitality Lawg, we reported that the parties had formally agreed to mediate their dispute as to whether Stroman had to hold a real estate license to provide its timeshare resale services in California. An abbreviated history of Stroman’s battles with California (as well as Florida, Arizona and Illinois) can be found in this Developments article from last November.

The Proposed Settlement Terms

In addition to broad mutual releases, the parties agreed as follows:

  1. Stroman will pay California $100,000 in sixty monthly installments, without any interest accruing.
  2. Stroman will offer its brokerage and advertising services to California residents on a segregated basis. With respect to brokerage, Stroman will “involve a an associated or cooperating licensed California real estate broker.” With respect to advertising services, Stroman will disclose that the advertising fees are non-refundable.
  3. Stroman will use the form of advertising agreement attached to the settlement agreement. Included just above the consumer’s signature line is a 7 line disclosure, with the third sentence stating as follows:

"Owner(s) understand they have paid the above non-refundable fee to advertise the property by registering with the Resort Property Multi-Link System, RPMLS, Computer Matching System for advertising exposure on the Internet through various websites for up to three years

Who Won?

While Stroman has to come out of pocket, the amount and terms of payment appear to be favorable. More importantly, Stroman can provide timeshare advertising services without being licensed in California. This second point is significant because Section 10131.2 of the California Business and Professions Code states that a person will be deemed to be engaged in brokerage activity if he/she accepts an advance fee to promote the sale of real property by advance fee listing, advertisement or other offering to sell or exchange property.

Why would California agree that Stroman does not have to be licensed even though it charges advance fees for advertising timeshare resales? While this is nothing more than speculation, we believe it may have something to do with two California decisions testing the limits of the California Real Estate Broker Law:

  • v. Zinnemann: The federal court held that the California Real Estate Broker Law, as applied, constituted an “unconstitutional content and media-based regulation because: (a) the law exempted newspapers from licensure, even though they carried the same basic content as the website in question and charged fees in advance; and (b) the California regulators could not present any evidence that the newspaper exemption either served a compelling state interest or was narrowly drawn. In so holding, the court stated:

"Even if a distinction was warranted in 1959, when the statute was amended to include the newspaper exemption, that does not mean that the same rationale for exempting newspapers remains viable in 2004, given the vast advances in technology that have occurred in the meantime.

Anderson v. Dept. of Real Estate (93 Cal.App.3d 696): The court held the regulation of “advance fee rental agents” to be unconstitutional “in light of First Amendment protection of commercial speech.” The court was persuaded that the law was overly broad because, in part, the “statutory purpose of fiduciary accountability” was “not germane to those who did no more than publish, promote and sell lists of available rental units.”