By Charles Van Horn

A recent Georgia appellate court decision in a case handled by Berman Fink Van Horn may foreshadow the beginning of a new era for rules and regulations issued by governmental agencies. Under Georgia statutory law, the Georgia Real Estate Commission (the “Commission”) has authority to make rules that regulate real estate professionals. Failure to comply with the Commission’s rules can still result in the loss of one’s license or other sanctions. However, in the litigation arena, the rules seem to be losing their importance.

In the late 1980s, the Georgia Court of Appeals delineated the limited power of the Commission’s rules in Johnson Realty, Inc. v. Hand. In this case, a landowner alleged that his real estate agent breached the duty of loyalty, citing a rule promulgated by the Commission. The court found that the Commission’s rules are “regulatory in nature” and “limited to action by [the Commission] in the exercise of its licensing powers.” Accordingly, the court held that the Commission’s rules do not have the same force or effect as a statute and that a violation of those rules is irrelevant to a court’s determination of civil liability.

Fast forward to 2006, when the Court of Appeals decided a similar case, Walker v. Johnson, in which I represented the real estate broker. The buyers alleged that their real estate broker had violated the Commission’s rules by fraudulently inducing the buyers to enter into a contract for the purchase of real estate. Again, the court stated that while the Commission’s rules regulate the licensing of persons involved in real estate those rules are only regulatory in nature. A violation of such rules cannot serve as a basis for civil liability.

From these cases, it seemed clear that no party could successfully use a violation of the Commission’s rules to establish civil liability. In other words, a violation of regulations cannot be used as a sword and any such violation would be deemed “irrelevant.” However, the Georgia courts recently progressed this principle even further.

In June 2012, the Georgia Court of Appeals held that the Commission’s rules are also ineffective as a shield from civil liability. At this time, I represented the commercial broker before the trial court and on appeal. In Silver Pigeon Properties, LLC v. Fickling & Co., Inc., a building owner and real estate broker entered into a management agreement, which fall under the Commission’s regulations. The management agreement required the owner to pay a specified fee to the broker to manage an office building. The broker eventually sued the owner for payment of the agreed-upon fee. In an attempt to escape liability under the terms of the agreement, the owner argued that the agreement lacked a term required by the Commission’s regulations and, thus, was unenforceable as a matter of public policy. Citing its earlier Johnson Realty decision, the trial court and then the Court of Appeals stated that even if the management agreement violated one of the Commission’s provisions, such a violation did not render the agreement unenforceable.

With this decision, the Court of Appeals upheld the principle that the Commission’s rules cannot be used to establish liability, and expanded it to state that regulations also cannot be used to escape liability. If, then, the rules are neither a shield nor a sword outside the licensing arena, their utility beyond regulating real estate professionals is apparently diminished. Also unclear is whether other regulated fields, such as environmental and revenue departments, will experience similar limits on their rules and regulations. If this case indicates the beginning of a new pattern for all decisions concerning such regulations, much of Georgia’s legal landscape is subject to change.