The Kansas Supreme Court has ruled that a real estate brokerage company is not obligated to compensate an advance payment company for money that two of the brokerage’s agents received as an advance for anticipated commission income.

The two agents “assigned their earnings in violation” of state code, according to the Kansas Supreme Court ruling, and Commission Express, the company that offered advance payment to the agents, “cannot enforce the assignment against Reece & Nichols, the brokerage company affiliated with the agents.

State code provides that a creditor in Kansas “may not take an assignment of earnings of the consumer for payment or as security for payment of a debt arising out of a consumer credit transaction. An assignment of earnings in violation of this section is unenforceable by the assignee of the earnings and revocable by the consumer.”

Vicky Ashby, an agent with Reece & Nichols, received one cash advance from Commission Express of Kansas City, according to court documents. Troy Beeman, also an agent at Reece & Nichols, received cash advanced “based on the anticipated commissions for five different real estate transactions,” according to court documents. The agents defaulted on their agreements with Commission Express by failing to pay commissions to that company, and Commission Express sued Reece & Nichols for payment, court documents state.

After a district court ruled in October 2005 that the company’s real estate commission agreements are invalid under state code and violate state limitations on garnishments, Commission Express of Kansas City — also known as Decision Point Inc. — appealed to the state Supreme Court.

The parent Commission Express company and its franchises have participated in similar litigation in other states over brokerage companies’ distribution of real estate commissions, and the company lost a legal battle against NRT Inc. and Coldwell Banker New Jersey in June 2005. The company has 71 franchise offices in 40 states.

A lawyer acting on behalf of the Kansas Association of Realtors had filed a brief with the Kansas Supreme Court in support of Reece & Nichols. “From a broker’s perspective, you cannot successfully supervise salespeople if you don’t know when or how much they are getting paid. Assigning an as-yet-unearned commission interferes with the broker’s supervisory role,” he told Inman News.

Meanwhile, John Effrein, president of Commission Express of Kansas City, had said that there is a lack of case law relating to the rights of an independent contractor to sell a business asset — in this case an anticipated real estate commission. Effrein has said that his Kansas City franchise has advanced about $2.5 million since the company opened in April 2004 and has worked with 29 other real estate companies operating in Kansas and the Kansas City metro market.

A key in deciding the lawsuit, according to the Kansas Supreme Court, was in determining which state code applied to the case — the state’s Uniform Consumer Credit Code or the Uniform Commercial Code. Commission Express contended that the Uniform Commercial Code applied because real estate transactions “are not consumer transactions,” according to court documents.

Meanwhile, Reece & Nichols contended that the consumer code applies because the cash advances were “consumer loans used for personal, family or household purposes” and also maintained that the state’s commercial code did not apply because the commissions are earnings, court documents state.

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