Arizona Court of Appeals, Division Two holds that LLC employees who negotiate real estate purchases must hold broker licenses.

Two LLCs that acquire distressed real estate sued an individual and several companies for tortious interference with contracts and business expectancy. A required element of tortious interference is “the existence of a valid contractual relationship or business expectancy.” The defendants asserted that the LLCs’ contractual relationships with its customers were invalid because the LLCs’ employees were not licensed real estate brokers under Arizona law.

The superior court granted partial summary judgment for the defendants, concluding that Arizona law required the LLCs’ employees to be licensed and therefore the underlying contracts were void. See A.R.S. § 32-2101(51).

On appeal, the LLCs argued that their employees were not subject to the licensing requirements because they were not real estate agents. Instead, they fell under the statutory licensing exemptions for LLCs and administrative support duties. See A.R.S. § 32-2121(A)(1), (9).

The Arizona Court of Appeals rejected the LLCs’ argument and affirmed the superior court’s decision. The appellate court found that the statutory exemption for LLCs applies only to principals, such as officers, partners, members or managers—not to employees. And the exemption for administrative support duties covers only clerical and administrative staff who do not perform acts requiring a license. Here, the LLCs’ employees’ activities—contacting homeowners, negotiating transactions, and completing deeds—in addition to their transaction-contingent bonuses exceeded that scope.

Because the LLCs’ employees were unlicensed, the Court affirmed that the customer contracts they negotiated and processed were void. It explained that Arizona law presumes contracts violating a statute are void unless the legislature intended otherwise. Although mere technical licensing violations generally do not void transactions, the LLCs’ systematic use of unlicensed employees to perform broker services that are integral to the real estate transaction is not merely a technical violation.  

Absent valid contracts, the LLCs’ tortious-interference claims failed.

The Court denied the defendants’ request for attorney fees, finding the appeal was not without substantial justification given limited Arizona guidance on these issues, but awarded them costs on appeal as the prevailing party.

Judge Eckerstrom authored the opinion of the Court, in which Judge Brearcliffe and Chief Judge Staring concurred.

Posted by: Payslie M. Bowman