Checks and Balances: Further Reflection on Governor Bevin’s Executive Order and the Kentucky Real Estate Authority

Governor Bevin’s Executive Order No. 2016-859 has created a glaring conflict between Kentucky’s legislative and executive branches of government. The new makeup of the four real estate boards affected are in direct violation of the Kentucky statutes that formed the boards. A quick refresher on our system of checks and balances: generally, a legislative statute takes precedence over an executive order. Whether Kentucky’s new Republican controlled senate and house changes the statutes to protect Governor Bevin’s Executive Order remains to be seen. Furthermore, the Executive Order may miss the entire point of the Supreme Court opinion on which it relies.

KRS 324.281 mandates that the Kentucky Real Estate Commission (KREC) shall have five board members consisting of four licensed real estate agents and one citizen who is unassociated with the industry. Governor Bevin’s new “Board of Realtors” consists of three board members. All three new board members are licensed real estate agents. This means there are no citizens unassociated with the industry on the board.

KRS 324A.015 mandates that the Kentucky Real Estate Appraisers Board (KREAB) shall have five board members consisting of two licensed appraisers, one citizen unassociated with the industry, and two members associated with the lending industry. Governor Bevin’s new “Board of Appraisers” consists of three board members. Two of the new board members are licensed appraisers and the third member is involved in the lending industry. This means there are no citizens unassociated with the industry on the board.

KRS 330.050 mandates that the Kentucky Board of Auctioneers (KBA) shall have five board members consisting of four auctioneers and one citizen unassociated and without a financial interest in the industry. Governor Bevin’s new “Board of Auctioneers” consists of three board members. All three new board members are auctioneers. This means there are no citizens unassociated with the industry on the board.

KRS 198B.704 mandates that the Kentucky Board of Home Inspectors (KBHI) shall have nine board members consisting of five active licensed home inspectors, one home builder, one licensed real estate agent or broker, one licensed manufactured home retailer or installer, and one citizen unassociated with the industry. Governor Bevin’s new “Board of Home Inspectors” consists of three board members. Two of the new board members are licensed home inspectors and the third member is a home builder representative. This means there are no citizens unassociated with the industry on the board.

The newly created Kentucky Real Estate Authority (KREA), not created pursuant to a real estate industry statute, is to consist of five members. The Commissioner of the Department of Professional Licensing is to appoint the executive director of the KREA with written approval from the governor. The KREA’s board is to consist of the Executive Director of the KREA (Chair), the Chair of the Board of Realtors (currently a licensed realtor), the Chair of the Board of Appraisers (currently from the lending industry), the Chair of the Board of Auctioneers (currently a licensed auctioneer), and the Chair of the Board of Home Inspectors (currently a licensed home inspector). Because the Executive Director of the KREA has yet to be appointed, the KREA currently lacks even one citizen unassociated with the industry (or non-market participant).

Aside from the Executive Order’s conflict with Kentucky’s legislative branch, the Order misses the issues presented in the United States Supreme Court opinion on which it relies, North Carolina State Board of Dental Examiners v. Federal Trade Commission, 135 S. Ct. 1101 (2015). In State Board of Dental Examiners, anti-trust immunity was not given to board members because the Board, made up almost entirely of market-participants (dentists), were not subject to state oversight as they actively sought to discourage their competitors from competitive activity under the guise of state supervision. The issue was individuals whitening teeth who were not dentists. Under North Carolina law whitening teeth is not practicing dentistry and thus the dentists were exceeding the scope of their statutory limits. Furthermore, the Board, rather than use the rulemaking process, sent cease and desist letters that were not reliant on statute or rule. If the Board had instituted the rule-making process or filed suit rather than sent letters that would not be subject to independent state supervision then the case may have ended with a different result.

Since Governor Bevin’s Executive Order completely tramples the statutory limits of Kentucky’s real estate boards, it is in direct conflict with the underlying premise stated in the State Board of Dental Examiners opinion. Stripping all four boards of their statutorily required unassociated citizens at large (non-market participants) adds a layer of industry bias to the regulatory process as well as exceeding Governor Bevin’s statutory authority. Although Kentucky’s real estate boards will now have state oversight through the Department of Professional Licensing, they will not have a single non-market participant involved in the process. More importantly, Kentucky’s boards will still make the initial decision regarding licensing issues and discipline. The boards could still send out unsupervised cease and desist letters that were the very issue in the State Board of Dental Examiners. State Board of Dental Examiners was as much about statutory bounds and following the statutory rule making process as it was about state supervision of boards made up of market participants. In State Board of Dental Examiners, the Board could have filed suit rather than send individual letters or it could have initiated the rule making process. Governor Bevin’s Executive Order has not added the necessary state supervision at issue in State Board of Dental Examiners and has not addressed the statutory limits issue presented in the opinion. By adding another layer of bureaucracy and completely removing all citizens from the decision-making process Governor Bevin has traded one problem for another. Is the newly minted Department of Professional Licensing enough state supervision to promulgate regulations based solely on recommendations of market participants; oversee the independent actions of Kentucky’s real estate boards; and meet the spirit and intent of North Carolina State Board of Dental Examiners? I guess we will find out soon enough.