Total Real Estate Group, LLC v. Strode

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

TOTAL REAL ESTATE GROUP, LLC, an No. 3:21-cv-01677-HZ

Oregon limited liability company,

OPINION & ORDER

Plaintiff,

v.

STEVE STRODE, in his official capacity as

the Oregon Real Estate Commissioner; and

ELLEN ROSENBLUM, in her official

capacity as Attorney General for the State of

Oregon's Department of Justice,

Defendants.

Christina M. Martin

Pacific Legal Foundation

4440 PGA Blvd, Suite 307

Palm Beach Gardens, FL 33410

Daniel M. Ortner

Ethan Blevins

Pacific Legal Foundation

555 Capitol Mall, Suite 1290

Sacramento, CA 95814

Attorneys for Plaintiff

Brian Simmonds Marshall

Alexander Charles Jones

Oregon Department of Justice

100 SW Market Street

Portland, OR 97201

Attorneys for Defendants

HERNÁNDEZ, District Judge:

Plaintiff Total Real Estate Group, LLC (“TREG”), a real estate firm, seeks a preliminary

injunction enjoining Defendants Steve Strode, in his official capacity as Oregon Real Estate

Commissioner, and Ellen Rosenblum, in her official capacity as Attorney General for the State of

Oregon’s Department of Justice, from enforcing Oregon House Bill 2550. The Court held oral

argument on the Motion on February 9, 2022. For the reasons that follow, the Court grants the

Motion for a Preliminary Injunction.

BACKGROUND

The State of Oregon seeks to achieve a laudable goal: to stop discrimination in home

ownership based on protected class status including, race, color, religion, sex, sexual orientation,

national origin, marital status, or familial status. In order to do so, it passed a law that

unquestionably interferes with speech. The question before the Court is whether that law goes

too far.

I. Factual Background

This case concerns the regulation of “love letters” by the State of Oregon. The term “love

letters” refers to “notes, letters, and pictures that buyers may submit along with their offers to

purchase in order to create an emotional connection between sellers and buyers — especially

when significant competition exists on a given property.” Ortner Decl. Ex. 10 at 2, ECF 45-10;

Compl. ¶ 17, ECF 1.

A. HB 2550

In September 2021, Governor Kate Brown signed into law House Bill 2550 (“HB 2550”).

Compl. ¶ 15. HB 2550 amends Section 696.805 of the Oregon Revised Statutes, which

enumerates the duties and obligations owed by a seller’s agent in a real estate transaction. The

amendment states:

In order to help a seller avoid selecting a buyer based on the buyer's race, color,

religion, sex, sexual orientation, national origin, marital status or familial status as

prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller's agent shall

reject any communication other than customary documents in a real estate

transaction, including photographs, provided by a buyer.

Or. Rev. Stat. (“ORS”) § 696.805(7).

The statute does not define “customary documents.” In an article in the Oregon Real

Estate News Journal, Steve Strode Oregon’s Real Estate Commissioner offered the following

guidance: “the Agency interprets [customary documents] to mean disclosure forms, sales

agreements, counter offer(s), addenda, and reports. Love letters would not be considered

customary documents.” Ortner Decl. Ex. 10 at 2. He stated further that “[t]he intent of the bill

was clear during the legislative process, and the Agency does not envision additional rulemaking

at this time.” Id. The Oregon Real Estate Agency then issued “FAQs Regarding HB 2550 (The

“Love Letter” Law)” on its website. It states that “lender preapproval letters for financed

transactions” and “verification of funds for cash transactions” are considered “customary

documents” and that a seller’s agent may accept a “a cover letter written by a buyer's agent

explaining the prospective buyer's interest in the property.” Second Jones Decl. Ex. 1 at 1, ECF

47-1.

The parties agree that HB 2550 does not prohibit communications directly between a

buyer and a seller. Pl. Mem. at 23, ECF 4; Def. Resp. at 1, ECF 30.

B. Legislative History

Representative Mark Meek, a practicing real estate agent, introduced HB 2550. Ortner

Decl. Ex. 18 (“Def. Video 2”) at 3:05, ECF 45. At the hearing on the bill, he stated that in his

opinion the practice of providing love letters “perpetuates systemic issues of bias in real estate

transactions.” Id. at 3:05–3:16. He testified that through his work as the co-chair of the

Legislative Assembly’s Task Force on Addressing Racial Disparities in Home Ownership, he

concluded that the practice of using “love letters” could perpetuate “implicit biases that we’re not

even aware of.” Id. at 5:15–5:24. He also discussed and shared data on racial disparities in

homeownership in Oregon. Id. at 9:07–9:51. The Oregon House of Representative unanimously

approved the bill. Def. Resp. at 15.

The original house bill required the seller’s agent to redact information provided by

prospective buyers to help the seller avoid selection of a buyer based on a buyer’s “race, color,

religion, sex, sexual orientation, national origin, marital status, familial status, or source of

income.” Def. Video 2 at 2:04–25. In the Senate, members of the Committee on Housing

questioned this approach and raised concerns about the role a seller’s agent would have to play in

redacting the letters. Ortner Decl. Ex. 19 (“Def. Video 1”) at 28:19–30:18, 32:38–34:13, 35:00–

36:01, ECF 45.

C. This Litigation

Plaintiff TREG is a real estate firm with offices in Bend and Portland, Oregon. Compl. ¶

12. TREG’s principal broker supervises about twenty licensed real estate brokers (also called

agents) throughout Oregon. Id. On November 19, 2021, Plaintiff filed this case and moved for a

preliminary injunction. Compl., Mot. for Prelim. Inj., ECF 3. On December 2, 2021, Plaintiff

moved for expedited review. Mot. to Expedite, ECF 20. On December 10, 2021, the case was

reassigned to Judge Hernandez from Magistrate Judge Acosta and the Court denied the Motion

to Expedite. ECF 26, 27. The Case was taken under advisement when Defendants filed their

reply brief on January 20, 2022. Def. Reply, ECF 44.

II. Evidence Relevant to the Motion

In response to the Motion, Defendants submitted three types of evidence supporting HB

2550’s purpose of addressing discrimination in housing: (1) history and prevalence of housing

discrimination in Oregon; (2) prevalence of protected characteristics in love letters; and (3)

evidence that shows how personal information in love letters influences which offers sellers

select. Plaintiff offered evidence of HB 2550’s potential effect on its business.

A. Evidence in Support of HB 2250’s Stated Purpose

Oregon has a long and abhorrent history of racial discrimination in property ownership

and housing. For example, the 1857 Oregon Constitution prohibited Black Americans and

immigrants of Chinese descent from owning real property. First Jones Decl. Ex. 1 at 21, ECF 37-

1. During the same period, the Donation Land Claim Act and Homestead Act entitled white

settlers to property in Oregon Territory if they lived on it and cultivated it for four years. Id.

Later, the 1923 Alien Land Law banned Japanese nationals from owning or leasing land in

Oregon. Id.

While people of color were eventually permitted to own land in the State of Oregon, a

series of governmental policies, industry practices, and private arrangements enshrined housing

discrimination and racial segregation in Oregon’s communities through the 1900s and present

day. Id. at 22; Bates Decl. Ex. 1 at 5–8, ECF 31-1. These included racially restrictive covenants,

redlining, racial steering, and urban renewal that displaced Black and Japanese-American

households in particular. Id.

Considerable racial disparities persist in homeownership. Over a 21-percentage point

differential separates Black, Native Hawaiian, or Pacific Islander, and Hispanic households from

White households in Oregon. See Bates Decl. Ex. 1 at 8–9 (Homeownership Rates by

Ethnicity/Race (alone or in combination) statewide, Oregon, 2015-2019: American Indian or AK

Native (59%), Asian (68%), Black (41%), Native HI or Pacific Islander (43%), White (68%),

Hispanic (any race) (45%), Total Population (65%)).

Defendants’ expert, Justin Steil, Ph.D., Associate Professor of Law and Urban Planning

at the Massachusetts Institute of Technology, analyzed the love letters produced by Plaintiff in

this case. Steil Decl. Ex. 1, ECF 32-1. He found that the vast majority of the letters produced

(93%) disclosed the buyer’s race, color, religion, sex, sexual orientation, national origin, marital

status, familial status, or disability. Id. at 4. About half of the letters included photographs that

revealed some information about race, color, and sex or gender, among other characteristics. Id.

He gave the opinion that love letters enable intentional and unintentional discrimination in

housing by “providing information about characteristics on which discrimination is prohibited by

state and federal law.” Id. at 4. He based this conclusion on quantitative data showing the

existence of conscious explicit bias in housing transactions and the growing body of research

showing how implicit biases predict discriminatory behavior. Id. at 5–8.

Defendants’ expert, Lisa K. Bates, Ph.D., Associate Professor in the Toulan School of

Urban Studies at Portland State University, submitted a report that details the history of racial

discrimination and segregation in Oregon and the academic literature on the persistence of racial

discrimination in homebuying. See Bates Decl. Ex. 1. Ms. Bates gave the opinion that though the

practice of “buyer love letters” has not been studied in the academy, the practice is “likely to

create a number of discriminatory outcomes.” Id. at 17. She based this opinion on “the extensive

literature” that documents “how discrimination accumulates through multiple dimensions of the

real estate transaction.” Id. The second half of her report catalogs this body of research. Based on

that research, she described part of the potential discriminatory problem with love letters as

follows:

Sellers may consciously or unconsciously prefer buyers who describe a profile that

is most similar to their own in terms of demographics and family status. Those

decisions reinforce existing gaps in homeownership (predominantly white) and

existing neighborhood segregation as sellers are replaced with like buyers.

Id.

Evidence suggests love letters increase the likelihood an offer will be accepted by a

buyer. A study conducted by the real estate company Redfin reviewed 14,000 transactions. Bates

Decl. at 15 (citing Leigh Kamping-Carder, The Strangely Effective (and easy) Way to Win a

Bidding War, The Wall Street Journal, Jan 18, 2018). It found that 40% of offers included love

letters and that love letters increased the likelihood of having an offer accepted by 52%. Id.

Practicing real estate agents agree that love letters influence sellers’ decision making process.

Bonner Decl. ¶ 4, ECF 63; Mullane Decl. ¶ 4, ECF 35; Smith Decl.¶¶ 2–3, 5, ECF 6.

B. Evidence of Plaintiff’s Anticipated Harm

Plaintiff submitted the following evidence of potential harm from the enforcement of HB

2550. In her declaration, practicing real estate agent, Cheri Smith, stated that HB 2550 “will

likely lead to many angry and dissatisfied clients.” Smith Decl. ¶ 7 She also expressed concerns

that HB 2550 might lead clients to “accuse” her of not fulfilling her ethical and fiduciary duty to

“disclose material facts known by the seller’s agent.” Id. ¶ 9. Plaintiff’s general counsel, who is

also a broker, expressed this same concern. Ambrose Decl. ¶ 8, ECF 5. In Ms. Smith’s

experience, the practice of sending love letters has allowed herself and her clients to compete

with higher offers, including those submitted by investors. Smith Decl. ¶¶ 2–3, 5.

STANDARDS

A preliminary injunction is an “extraordinary remedy that may only be awarded upon a

clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc.,

555 U.S. 7, 22 (2008). A plaintiff seeking a preliminary injunction must show (1) that he or she

is likely to succeed on the merits; (2) he or she is likely to suffer irreparable harm in the absence

of preliminary relief; (3) the balance of the equities tips in his or her favor; and (4) an injunction

is in the public interest. Id. at 20.

In the Ninth Circuit, courts may apply an alternative “serious questions” test, which

allows for a preliminary injunction when a plaintiff shows that “serious questions going to the

merits” were raised and the balance of hardships tips sharply in plaintiff's favor, assuming the

other two elements of the Winter test are met. All. for the Wild Rockies v. Cottrell, 632 F.3d

1127, 1131–32 (9th Cir. 2011). This formulation applies a sliding scale approach where a

stronger showing of one element may offset a weaker showing in another element. Id. at 1131.

Nevertheless, the party requesting a preliminary injunction must carry its burden of persuasion

by a “clear showing” of the four elements set forth above. Lopez v. Brewer, 680 F.3d 1068, 1072

(9th Cir. 2012).

DISCUSSION

The Court begins by addressing the first Winter factor: whether Plaintiff can show it is

likely to succeed on the merits of its First Amendment claim. Assuming HB 2550 regulates

commercial speech, the Court holds Plaintiff is likely to succeed on the merits of its First

Amendment claim because the statute is overinclusive and cannot survive intermediate scrutiny.

The Court then turns to the remaining Winter factors and finds that they favor Plaintiff.

//

//

I. Likelihood of Success on the Merits

As a threshold matter, the Court considers Defendants’ standing arguments then proceeds

to the merits of the First Amendment commercial speech analysis.

A. Standing

Plaintiff raises two First Amendment theories in its motion for a preliminary injunction:

(1) that HB 2550 burdens the First Amendment rights of Plaintiff and its agents and (2) that HB

2550 burdens the First Amendment rights of its clients.1 On the first theory, Defendants contend

that Plaintiff lacks direct standing to bring a First Amendment challenge because HB 2550

regulates sellers’ agents’ conduct, not speech. On the next theory, Defendants argue Plaintiff

lacks standing to assert the First Amendment rights of its client.

Federal courts are courts of limited jurisdiction, and as a preliminary matter, a plaintiff

must satisfy the “case or controversy” requirement of Article III of the U.S. Constitution to

maintain a claim in this forum. City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983); Cetacean

Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004). If the court does not have an actual case or

controversy before it, it lacks authority to hear the matter in question. Lyons, 461 U.S. at 101.

“Standing is a core component of the Article III case or controversy requirement.” Barnum

1 The Parties agree that Plaintiff mounts a facial challenge. “An ordinance may be facially

unconstitutional in one of two ways: either it is unconstitutional in every conceivable application,

or it seeks to prohibit such a broad range of protected conduct that it is unconstitutionally

overbroad.” First Resort, Inc. v. Herrera, 860 F.3d 1263, 1271 (9th Cir. 2017) (citation and

internal quotation marks omitted). Although generally disfavored, facial challenges are given

greater leniency in the First Amendment context. “It has long been recognized that the First

Amendment needs breathing space and that statutes attempting to restrict or burden the exercise

of First Amendment rights must be narrowly drawn and represent a considered legislative

judgment that a particular mode of expression has to give way to other compelling needs of

society.” Broadrick v. Oklahoma, 413 U.S. 601, 612–13 (1973).

Timber Co. v. EPA, 633 F.3d 894, 897 (9th Cir. 2011) (citing Lujan v. Defenders of Wildlife, 504

U.S. 555, 560 (1992)). Standing pertains to the federal courts’ subject matter jurisdiction.

Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010); see also

Cetacean Cmty., 386 F.3d at 1174 (“A suit brought by a plaintiff without Article III standing is

not a ‘case or controversy,’ and an Article III federal court therefore lacks subject matter

jurisdiction over the suit.”).

The “irreducible constitutional minimum” of standing consists of three elements: the

plaintiff must have (1) suffered an injury in fact; (2) that is fairly traceable to the challenged

conduct of the defendant; and (3) that is likely to be redressed by a favorable judicial decision.

Spokeo, Inc. v. Robins, 578 U.S. 330, 339 (2016); Lujan, 504 U.S. at 560. To establish an injury

in fact, a plaintiff must show that “he or she suffered an invasion of a legally protected interest

that is concrete and particularized and actual or imminent, not conjectural or hypothetical.”

Spokeo, 578 U.S. at 339 (internal quotation omitted). A plaintiff “must demonstrate standing

separately for each form of relief sought.” Friends of the Earth, Inc. v. Laidlaw Env't Servs.

(TOC), Inc., 528 U.S. 167, 185 (2000). At this stage in the proceedings, a plaintiff need only

“show that the facts alleged, if proved, would confer standing.” Warren v. Fox Family

Worldwide, Inc., 328 F.3d 1136, 1140 (9th Cir. 2003).

i. Direct Standing

The question before the Court is not whether Plaintiff has standing to challenge the law at

all—it clearly regulates real estate agents—but whether Plaintiff has standing to challenge HB

2550 as an impermissible restriction on speech.

“[R]estrictions on protected expression are distinct from restrictions on economic activity

or, more generally, on nonexpressive conduct,” and “the First Amendment does not prevent

restrictions directed at commerce or conduct from imposing incidental burdens on

speech.” Sorrell v. IMS Health Inc., 564 U.S. 552, 567 (2011). In the Ninth Circuit the “threshold

question is whether conduct with a ‘significant expressive element’ drew the legal remedy or the

ordinance has the inevitable effect of ‘singling out those engaged in expressive activity.’” Int'l

Franchise Ass'n, Inc. v. City of Seattle, 803 F.3d 389, 408 (9th Cir. 2015) (quoting Arcara v.

Cloud Books, Inc., 478 U.S. 697, 706–07 (1986)).

Defendants argue HB 2550 does not violate Plaintiff’s First Amendment rights because it

restricts agents’ conduct, not speech. Plaintiff points to two ways HB 2550 directly burdens its

agents’ speech: (1) it argues love letters contain agents’ speech because agents sometimes help

draft love letters; and (2) HB 2550 prohibits agent cover letters, which are agent speech.

As an initial matter, the Court addresses whether HB 2550 prohibits a seller’s agent from

transmitting an agent authored cover letter. This issue is important because if HB 2550 bans

agent cover letters, it clearly burdens agents’ speech. Plaintiff argues HB 2550 prohibits cover

letters. Defendants argue it does not.

Buyer’s agents use cover letters when submitting an offer to convey information about

their clients and the strength of the offer. Pl. Mem. at 18. Oregon’s real estate commissioner

issued informal guidance that HB 2550 does not prohibit the use of agent cover letters. At oral

argument, however, the parties agreed that this informal guidance is not entitled to deference.

See Oregon Occupational Safety & Health Div. v. CBI Servs., Inc., 356 Or. 577, 585, 341 P.3d

701, 706 (2014). No other court has interpreted or applied HB 2550, so the Court cannot rely on

precedent to answer whether it prevents the transmission of agent cover letters. Accordingly, the

Court turns to the three-part statutory interpretation framework laid out by the Oregon Supreme

Court in State v. Gaines to determine the intent of the legislature in drafting HB 2550. 346 Or.

160, 165, 206 P.3d 1042, 1047 (2009)

First, the Court examines the text and the context of the statute. Id. at 171 (citing PGE v.

Bureau of Labor and Indus., 317 Or. 606, 610–11 (1993)). In construing the text and context, the

Court neither “insert[s] what has been omitted” nor “omit[s] what has been inserted.” ORS

174.010. Next, the parties are “free to proffer legislative history to the court, and the court will

consult it after examining the text and context, even if the court does not perceive an ambiguity

in the statute's text, where that legislative history appears useful to the court's analysis.” Id. at

172. Finally, “[i]f the legislature's intent remains unclear after examining text, context, and

legislative history, the court may resort to general maxims of statutory construction to aid in

resolving the remaining uncertainty.” Id.

As previously stated, HB 2550 provides:

In order to help a seller avoid selecting a buyer based on the buyer's race, color,

religion, sex, sexual orientation, national origin, marital status or familial status as

prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller's agent shall

reject any communication other than customary documents in a real estate

transaction, including photographs, provided by a buyer.

ORS 696.805(7).

The plain text and context of the statute do not indicate whether HB 2550 prohibits cover

letters. HB 2550 does not define “customary documents in a real estate transaction” and the plain

meaning of “customary” does not necessarily include or exclude cover letters. See Customary,

Webster's Third New Int'l Dictionary 559 (1971) (“commonly practiced, used, or observed:

familiar through long use or acquaintance ”). However, “when the legislature uses technical

terminology—so-called ‘terms of art’—drawn from a specialized trade or field” the court may

“look to the meaning and usage of those terms in the discipline from which the legislature

borrowed them.” Comcast Corp. v. Dep't of Revenue, 356 Or. 282, 296, 337 P.3d 768, 776

(2014). This is an exception to the ordinary meaning rule. Id.

Here, neither party offers an authoritative source for the definition of customary

documents or explains whether this term has a specialized meaning in the real estate industry.

See, e.g., Mueller v. PSRB, 325 Or. 332, 339, 937 P.2d 1028 (1997) (finding DSM-III the

“definitive source” when interpreting the “term of art” “personality disorder”); Dept. of Rev. v.

Croslin, 345 Or. 620, 628, 201 P.3d 900 (2009) (relying on Black's Law Dictionary for the

definition of “damages”). While “customary documents” does not appear to be a term of art in

the traditional sense, to have any meaning, it requires knowledge of common practice in the real

estate industry. Thus, the Commissioner’s informal interpretation may provide some relevant

context. For example, in State ex rel. Dep't of Transp. v. Stallcup, the Oregon Supreme Court

relied in part on a formal interpretation by the board that regulated appraisers to inform its

interpretation of the term “appraisal” in a condemnation statute. 341 Or. 93, 102, 138 P.3d 9, 14

(2006). The Court follows this approach and finds Commissioner Strode’s interpretation that HB

2550 does not prohibit the transmission of cover letters persuasive, but not dispositive.

The legislative history provided by the parties does not address the precise question

before the Court either. Plaintiff points the Court to general statements by Representative Meek

and Senator Jama concerning the purpose of the law. See Def. Video 2 at 19:59-20:15

(Representative Meek stated that the purpose of HB 2550 is to require a seller’s agent to

“withhold any information not customary in a real estate transaction.” He went on to say, “[t]he

goal of this bill is to ban love letters in a real estate transaction.”); id. at 43:30-50 (Senator Jama

stated he hoped the bill would ensure decisions were made based on the financial merits of the

offer). It argues these statements show that if HB 2550 excludes cover letters it would not

achieve the legislators’ stated purpose. But Plaintiff’s argument extrapolates too far—these are

general statements that if anything show that the legislature’s focus was love letters. Plaintiff

provides no evidence that the legislature contemplated documents beyond love letters or

intentionally used broad language in an effort to prohibit more types of documents. Cf. State v.

Walker, 356 Or. 4, 20–21, 333 P.3d 316, 326 (2014) (interpreting Oregon’s Racketeering

Influenced and Corrupt Organizations law and relying on legislative history that showed that

legislators were aware that the statue’s broad wording “did not preclude its use to reach ‘low

level’ crimes or smaller-scale coordinated activities”).

Defendants argue the legislature’s exclusive focus on love letters shows that it intended

to exclude cover letters from HB 2550’s prohibition. This argument is only marginally

persuasive. Silence on cover letters does not necessarily imply legislators intended to exclude

them, it only shows that they were not expressly considered. See Wyers v. Am. Med. Response

Nw., Inc., 360 Or. 211, 227, 377 P.3d 570, 579 (2016) (noting that “drawing conclusions from

silence in legislative history misapprehends the nature of legislative history itself, which often is

designed not to explain to future courts the intended meaning of a statute, but rather to persuade

legislative colleagues to vote in a particular way”).

With little to no guidance from the text in context and legislative history, the Court

“resort[s] to general maxims of statutory construction to aid in resolving the remaining

uncertainty.” Gaines, 346 Or. at 172. The maxim of statutory construction pertinent here is that

“in the face of competing constructions of an enactment, [courts] generally are required to

‘choose the interpretation which will avoid any serious constitutional difficulty.’” State v. Lanig,

154 Or. App. 665, 674, 963 P.2d 58, 63 (1998) (citations omitted). Plaintiff’s interpretation sets

HB 2550 “on a collision course” with the First Amendment because it sweeps in a second

significant category of speech. Id. Thus, for the purposes of the preliminary injunction only, the

Court assumes HB 2550 does not prohibit the transmission of cover letters.2

But, even without prohibiting agent cover letters, the Court finds Plaintiff has direct

standing to challenge HB 2550 under the First Amendment. Defendants argue Plaintiff’s agents

are merely conduits for communications from a buyer to a seller. The evidence presented so far

shows otherwise.

Plaintiff provided evidence that real estate agents exercise some amount of editorial

discretion in crafting client love letters. Plaintiff’s witness, a practicing real estate agent, testified

that on one occasion she directed a client to revise a love letter. Ortner Decl. Ex. 7 (“Smith

Dep.”) 35:9-36:9, ECF 45-2. Defendants’ expert witness testified that when she went to purchase

her own home, her agent provided a template love letter to use in her offer. Ortner Decl. Ex. 5

(“Bates Dep.”) 26:5-12, ECF 46-4. On the limited record before the Court at this stage in the

litigation, Plaintiff has shown that agents play more than a passive role in crafting letters, and

that at least in some cases love letters contain agent speech. Accordingly, HB 2550 places more

2 While not raised by Plaintiff in its Complaint or motion, the Court notes that the definitional

problem with the terms “customary documents in a real estate transaction” suggests HB 2550

may be void for vagueness. “It is a basic principle of due process that an enactment is void for

vagueness if its prohibitions are not clearly defined.” Grayned v. City of Rockford, 408 U.S. 104,

108 (1972). A statute may be void for vagueness when it either “(1) fails to give a ‘person of

ordinary intelligence a reasonable opportunity to know what is prohibited;’ (2) ‘impermissibly

delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and

subjective basis, with the attendant dangers of arbitrary and discriminatory application;’ or (3)

‘abut(s) upon sensitive areas of basic First Amendment freedoms, [ ] operat[ing] to inhibit the

exercise of (those) freedoms.’” Hunt v. City of Los Angeles, 638 F.3d 703, 712 (9th Cir. 2011)

(citation omitted). When the law “implicates First Amendment rights . . . a ‘more demanding’

standard of scrutiny applies.” Id. (citations omitted). HB 2550 implicates First Amendment rights

but fails to clearly define what speech is prohibited. This ambiguity has left experienced real

estate agents guessing at what content may or may not be passed along to their clients and

presents a potential vagueness problem.

than an incidental burden on their speech. Plaintiff may bring a First Amendment challenge to

HB 2550.

ii. Third Party Standing

Plaintiff argues in the alternative that it has third party standing to assert a claim on

behalf of its clients. Defendants argue Plaintiff cannot satisfy this exception to the ordinary

standing rules. Plaintiff responds that the nature of its agents’ relationships to their clients allows

it to assert these claims.

“Ordinarily, a party must assert [their] own legal rights and cannot rest [their] claim to

relief on the legal rights . . . of third parties.’” Sessions v. Morales-Santana, 137 S. Ct. 1678,

1689 (2017) (citation and internal quotation marks omitted). There is an exception to this

requirement when the parties have a “close relationship.” See Kowalski v. Tesmer, 543 U.S. 125,

130 (2004) (quoting Powers v. Ohio, 499 U.S. 400, 411(1991)).

Under this exception, a plaintiff may have third party standing if (1) “the party asserting

the right has a close relationship with the person who possesses the right” and (2) “there is a

hindrance to the possessor's ability to protect [their] own interests.” Kowalski, 543 U.S. at 130,

125. As a predicate to these inquiries, the court “must identify the ‘right’ that the [plaintiff is]

purportedly asserting on their clients' behalf.” East Bay Sanctuary Covenant v. Trump, 932 F.3d

742, 764 (9th Cir. 2018) (citation omitted). Here, Plaintiff asserts the First Amendment rights of

its clients to send and receive personalized information about the purchase of a home through a

real estate agent.

The Supreme Court has allowed attorneys to invoke the rights of existing clients. See

Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989); Department of Labor v.

Triplett, 494 U.S. 715 (1990). Though the Court has found the attorney-client relationship

insufficiently close when it involves the representation of a hypothetical client. See Kowalski,

543 U.S. at 131.

The real estate agent-client relationship and attorney-client relationship bear some

significant similarities. Like attorneys, real estate agents are in fiduciary relationships with their

clients and are “bound to protect [their] client's interests.” Starkweather v. Shaffer, 262 Or. 198,

203, 497 P.2d 358, 360 (1972). They also speak and act on behalf of their clients. Finally,

Plaintiff and its clients share a mutual financial interest in getting an offer accepted, and on the

seller side, selecting the best offer.

The Supreme Court has also allowed “standing to litigate the rights of third parties when

enforcement of the challenged restriction against the litigant would result indirectly in the

violation of third parties' rights.” Kowalski, 543 U.S. at 130, (quoting Warth, 422 U.S. at 510).

For example, in Craig v. Boren the Court allowed a commercial business (a liquor store) to assert

the rights of its clients. 429 U.S. 190, 195 (1976) (“[V]endors and those in like positions have

been uniformly permitted to resist the efforts at restricting their operations by acting as advocates

of the rights of third parties who seek access to their market or function.”). Enforcement of HB

2550 indirectly burdens the rights of real estate agents as third parties by restricting how they can

advocate on behalf of their clients.

Defendants argue Plaintiff’s interest in remaining at the center of the transaction cuts

against a finding of a close relationship with its clients. All professionals have some self-interest

in ensuring they maintain their business and clients. As fiduciaries, however, real estate agents

are required by law to put their clients’ interests before their own. This mandate is enough to

assume Plaintiff would not act to the detriment of its clients in bringing this lawsuit. Taken

together, the Court finds the similarities between real estate agents and attorneys, and the fact

that enforcement of HB 2550 impacts Plaintiff, support finding a “close relationship” for the

purposes of third party standing.

On the second factor, Defendants argue Plaintiff has not shown that its clients have any

impediment to bringing their own suit to challenge HB 2550. Plaintiff responds that the

impediment faced by its clients is time. They argue that their clients face a mootness problem

because any given real estate transaction would likely close before a hypothetical lawsuit ends.

Defendants agree that the swiftness of residential real estate transactions presents a problem for

clients seeking to vindicate their own rights. It argues instead that Plaintiff’s clients can rely on

the wrongs “capable of repetition, yet evading review” exception to mootness. See Roe v. Wade,

410 U.S. 113 (1973) (citations omitted). Whether this exception might apply to clients in a real

estate transaction is a separate legal question not before the Court. The Court will not assume it

applies for the purposes of this analysis. More importantly, courts relax the impediment

requirement in the First Amendment context. See Broadrick, 413 U.S. at 612 (“Litigants,

therefore, are permitted to challenge a statute not because their own rights of free expression are

violated, but because of a judicial prediction or assumption that the statute's very existence may

cause others not before the court to refrain from constitutionally protected speech or

expression.”). There is no question that HB 2550 prevents Plaintiff’s clients from speaking by

prohibiting the conventional use of love letters in residential real estate offers.

HB 2550 affects the rights of Plaintiff’s clients and Plaintiff has existing agent-client

relationships that this law has impacted. See Smith Dep. 63:15-64:5. Plaintiff has shown that its

clients will have some challenge protecting their own interests because of the quick nature of

most residential real estate transactions. The Court finds Plaintiff has a sufficiently close

relationship to warrant third party standing and may bring this claim on behalf of its clients.

B. Commercial Speech Analysis

The Court now turns to the merits of Plaintiff’s First Amendment claim. On the first

prong of the Winters analysis, the next threshold issue is whether HB 2550 regulates commercial

speech. On its motion for a preliminary injunction, Plaintiff assumes HB 2550 regulates

commercial speech but states that it “intends to preserve the argument that love letters are not

commercial speech.” Pl. Mem. at FN 12. In its Complaint, Plaintiff framed its claim as one based

on commercial speech alone. See Compl. ¶ 46-57 (“First Amendment protections extend to

speech connected to a commercial transaction.”). Accordingly, for the purposes of this motion,

the Court analyzes HB 2550 as though it regulates commercial speech.3

Assuming HB 2550 regulates commercial speech for the purpose of the preliminary

injunction, the Court now considers whether it survives the intermediate scrutiny standard set

forth in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557, 566 (1980).

Intermediate scrutiny applies to restrictions on commercial speech. CTIA - The Wireless Ass'n v.

City of Berkeley, California, 928 F.3d 832, 842 (9th Cir. 2019). The Ninth Circuit has repeatedly

found that in commercial speech cases Central Hudson’s four-factor test applies. See Retail

Digital Network, LLC v. Prieto, 861 F.3d 839, 846 (9th Cir. 2017) (“Sorrell did not mark a

fundamental departure from Central Hudson’s four-factor test, and Central Hudson continues to

3 The Court defers to Plaintiff’s framing of its case, though the Court questions whether HB 2550

regulates commercial speech. The Court notes that if HB 2550 does not regulate commercial

speech, it is likely unconstitutional. At oral argument Defendants conceded that this is a content

based regulation. As a result, it would be subject to strict scrutiny. Under the First Amendment,

strict scrutiny requires the government to show that the regulation is “narrowly tailored to

promote a compelling Government interest,” and that there are no less restrictive alternatives that

would further the government’s interest. United States v. Playboy Ent. Grp., Inc., 529 U.S. 803,

813 (2000). As explained below, Plaintiff has identified several less restrictive alternatives.

apply.”); but see CTIA - The Wireless Ass'n, 928 F.3d at 842 (distinguishing compelled

commercial speech).

In Central Hudson, the Supreme Court announced a four-part test for assessing the

constitutionality of a restriction on commercial speech: (1) if ‘the communication

is neither misleading nor related to unlawful activity,’ then it merits First

Amendment scrutiny as a threshold matter; in order for the restriction to withstand

such scrutiny, (2) ‘[t]he State must assert a substantial interest to be achieved by

restrictions on commercial speech;’ (3) ‘the restriction must directly advance the

state interest involved;’ and (4) it must not be ‘more extensive than is necessary to

serve that interest.’”

Metro Lights, L.L.C. v. City of Los Angeles, 551 F.3d 898, 903 (9th Cir. 2009) (quoting Cent.

Hudson, 447 U.S. at 564–66).

i. Related to a Misleading or Unlawful Activity

The parties do not dispute that the speech here merits First Amendment protection

because it is neither misleading nor related to an unlawful activity. The Court agrees. The speech

itself does not propose an illegal transaction. It does not, for example, countenance

discrimination. Cf. Pittsburgh Press Co. v. Pittsburgh Comm'n on Hum. Rels., 413 U.S. 376,

387–89 (1973) (finding that a regulation that prohibited the use of sex-designated columns in a

newspaper’s help wanted section did not warrant First Amendment protection because it

proposed an illegal activity). And, although a seller may later use the information in a love letter

as a basis for discrimination, without more, the act of sharing one’s personal characteristics in

not unlawful. Valle Del Sol Inc. v. Whiting, 709 F.3d 808, 821 (9th Cir. 2013) (“Central

Hudson's legality requirement, [] has traditionally focused on the content of affected speech—

i.e., whether the speech proposes an illegal transaction—instead of whether the speech is

associated with unlawful activity.”).

//

//

ii. Governmental Interest

The parties also agree that Defendants have asserted a substantial governmental interest.

It is well-established that preventing discrimination is a substantial governmental interest. See W.

States Paving Co. v. Washington State Dep't of Transp., 407 F.3d 983, 991 (9th Cir. 2005)

(recognizing preventing “the effects of either public or private discrimination” as a compelling

government interest); Roberts v. U.S. Jaycees, 468 U.S. 609, 624 (1984) (finding that the

government has a compelling interest “of the highest order” in “eliminating discrimination and

assuring its citizens equal access to publicly available goods and services”). The closer call here

is whether HB 2550 “directly advances” the government’s interest and whether Defendants’

regulation is “not more extensive than is necessary to serve that interest.” Central Hudson, 447

U.S. at 566.

iii. Direct Advancement of Governmental Interest

Central Hudson’s third prong asks whether the restriction on commercial speech directly

advances the state’s substantial interests. Id. at 564. One “consideration in the direct

advancement inquiry is underinclusivity.” Valle Del Sol Inc., 709 F.3d at 824 (citation and

internal quotation marks omitted). Plaintiff argues HB 2550 is underinclusive because it does not

prevent buyers from sending love letters directly to sellers and may not prohibit agent cover

letters, which often contain similar information.

Summarizing Supreme Court precedent, the Ninth Circuit has noted that “regulations are

unconstitutionally underinclusive when they contain exceptions that bar one source of a given

harm while specifically exempting another.” See Metro Lights, L.L.C., 551 F.3d at 906. There are

two situations where this can occur are: (1) “if the exception ‘ensures that the [regulation] will

fail to achieve [its] end,’” and (2) where the “exceptions that make distinctions among different

kinds of speech” do not “relate to the interest the government seeks to advance.” Id. (citations

omitted). “[U]nderinclusivity is relevant to Central Hudson's direct advancement prong because

it may diminish the credibility of the government's rationale for restricting speech in the first

place.” Valle Del Sol Inc., 709 F.3d at 824 (internal quotations and citation omitted).

But regulations are “not automatically underinclusive simply because they are content-

based and fail to regulate all forms of . . . communication.” Id. A government may consider

whether the targeted conduct presents a greater problem than the excepted conduct and the value

it derives from each. See id. (noting that Arizona could determine which types of “roadside labor

solicitations present more acute safety concerns” and “the benefits of different types of roadside

communications when determining which communications to restrict”).

The record supports that love letters transmitted with an offer through the seller’s agent

present a more acute problem than buyer to seller direct contact. Real estate agents play a critical

role in residential real estate transactions and facilitate the use of love letters. Bates Decl. Ex. 1 at

15–16; Mullane Decl. ¶ 9; Smith Decl. ¶¶ 3–4. Plaintiff’s witness, Ms. Smith stated in her

declaration that “it is not generally feasible for buyers, especially those relocating to the area, to

reach out directly to the seller” and under HB 2550 “there will be no way for a buyer to transmit

crucial information to a seller in a timely and reliable fashion.” Smith Decl. ¶ 13. Though HB

2550 does not prohibit all methods through which a love letter could be delivered, it prohibits the

most conventional conduit for these communications. Thus, assuming HB 2550 has its intended

effect, it targets the conduct that presents the most acute concerns.

According to the Court’s preliminary analysis, HB 2550 also does not prohibit agent

cover letters. At first blush, this presents a significant underinclusivity problem for the law. At

oral argument, Defendants conceded that essentially all the same information often found in love

letters could be included in agent cover letters. Critically though, Defendants emphasized that

other professional obligations prevent agents from including the types of information that could

be easily used by a seller to unlawfully discriminate against a buyer. The Court assumes real

estate agents are aware of and comply with their professional obligations. Thus, allowing agent

cover letters does not make HB 2550 under inclusive.

Next, Plaintiff argues Defendants have not shown that HB 2550 advances the

government’s interest—i.e., Defendants do not have enough evidence to show HB 2550 will

achieve its intended purpose. Defendants need not produce a peer-reviewed study to show that

HB 2550 may reduce unlawful discrimination in housing. See Turner Broad. Sys., Inc. v. F.C.C.,

520 U.S. 180, 195 (1997) (finding courts’ “sole obligation is ‘to assure that, in formulating its

judgments, Congress has drawn reasonable inferences based on substantial evidence’” (internal

citation omitted)); see also Jackson v. City & Cty. of San Francisco, 746 F.3d 953, 966 (9th Cir.

2014) (quoting City of Renton v. Playtime Theatres, Inc., 475 U.S. 41, 52 (1986) and noting that

governments must be given “a reasonable opportunity to experiment with solutions to admittedly

serious problems”).

Defendants have shown that racial disparities in homeownership persist in Oregon. They

have shown that most love letters contain protected characteristics, including a prospective

buyer’s race or color. They presented evidence that conscious and unconscious bias are ongoing

problems in American society and effect decision-making processes. Two expert witnesses, who

have studied urban planning and inequality for decades, concluded that love letters likely enable

discrimination. Furthermore, both parties submitted evidence that sellers are influenced by love

letters in determining which offer to select. Plaintiff did not introduce any evidence that rebuts,

or even casts doubt, on these findings.

Plaintiff is correct that Defendants did not produce direct evidence linking the practice of

sending love letters to discrimination, but significant circumstantial evidence supports

Defendants’ stated interest.4 Accordingly, Oregon legislators drew a reasonable inference that

prohibiting the transmission of love letters through seller’s agents will reduce unlawful

discrimination in homeownership.

iv. Narrowly Drawn to Achieve Governmental Interest

Although Defendants have shown HB 2550 advances the state’s substantial interests, it

cannot survive the last step of the Central Hudson test. “The last step of the Central Hudson

analysis complements the third step, asking whether the speech restriction is not more extensive

than necessary to serve the interests that support it.” Lorillard Tobacco Co. v. Reilly, 533 U.S.

525, 556 (2001) (citation and internal quotation marks omitted). The Supreme Court has clarified

that the fourth factor “does not require satisfaction of a ‘least-restrictive-means standard,’ but

rather requires ‘a fit between the legislature's ends and the means chosen to accomplish those

ends, [ ] a fit that is not necessarily perfect, but reasonable[,] . . . a means narrowly tailored to

achieve the desired objective.’” Retail Digital Network, LLC, 861 F.3d at 846 (quoting Bd. of

Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 477, 480 (1989) (citations and internal quotation

marks omitted)).

The Court finds that HB 2550 is not adequately tailored and thus violates the First

Amendment. HB 2550 prohibits the transmission of all non-customary documents. This

prohibition includes love letters and any other speech beyond disclosure forms, sales agreements,

4 Plaintiff also argues that love letters “infrequently” specify a buyer’s race. It suggests this is an

issue because much of Defendants’ evidence is based on the problem of racial discrimination in

housing. Plaintiff ignores Defendants’ expert analysis which showed that nearly half of the

letters disclosed a prospective buyer’s race or color through photographs. Steil Decl. Ex. 1 at 13–

14.

counter offers, addenda, and reports. Even if HB 2550 targeted love letters alone, Plaintiff has

shown that love letters contain significant amounts of speech beyond references to a buyer’s

personal characteristics. Plaintiff provided many examples of other innocuous information

prospective buyers include in love letters. Some examples from the love letters in evidence are as

follows: to express a desire to live permanently in the area, to explain unusual provisions of the

offer, to discuss a love of gardening and how the home is well suited for growing plants, to

admire the architectural style of the home, and to explain why a certain repair is important to the

prospective buyer. Pl. Reply at 29–30. Defendants suggest that a buyer’s agent can provide this

same information in a cover letter. But permitting agent cover letters does not cure the problem.

The 27 love letters in evidence show that love letters are highly personal and reflect the voice

and character of their authors. This personal character would be lost in an agent authored cover

letter.

Plaintiff also shows that there are a number of reasonable alternatives to HB 2550’s broad

sweep. To survive intermediate scrutiny the subject regulation need not be the last alternative or

the least restrictive response, but it does need to be a “means narrowly tailored to achieve the

desired objective.” See Fox, 429 U.S. at 476–78. Here, the alternatives offered by Plaintiff show

that Defendants could have addressed the problem of housing discrimination without infringing

on protected speech to such a degree.

Plaintiff raises these alternatives: (1) greater enforcement of existing fair housing laws;

(2) requirement that agents redact client love letters; (3) prohibition on the inclusion of photos;

(4) fair housing disclosure requirement in real estate transactions; (4) increased fair housing

training for real estate agents; (5) increase the stock of affordable housing; or (6) do nothing and

allow individual real estate agents to advise their clients to not send love letters. Pl. Reply at 27–

32.

Of course, not all the alternatives proposed by Plaintiff are equal. The last two

alternatives do not merit serious consideration. HB 2550 has not been linked to affordability, and

“do nothing” is not a legitimate alternative when the evidence shows housing discrimination is

an enduring societal problem. Greater enforcement is also not particularly persuasive. The record

shows that discrimination in housing has persisted despite the passage of local, state, and federal

prohibitions. As Defendants’ experts explained, discrimination in private housing transactions is

pernicious because it derives from multiple sources, including explicit and implicit biases. From

this standpoint, greater enforcement is not an alternative—it is the status quo or the tool the

government has already tried and has shown limited success.

The remaining suggested alternatives, however, show that Defendants could achieve their

objective in a manner that places less of a burden on otherwise lawful speech. Requiring real

estate agents to redact love letters is a more precise tool to address the government’s interest.

Defendants contend that the Oregon legislature considered and rejected that approach. They offer

no evidence though that explains why the legislature changed course, and the Senate hearing

testimony suggests legislators rejected this approach because they were concerned about

censorship and liability for real estate agents. As Plaintiff points out, based on Defendants’

expert report, prohibiting photographs would target the disclosure of race and color. And the

other alternatives— more training and a fair housing disclosure— may decrease discrimination

without placing any burden on speech.

Under the Central Hudson test, the government must show there is “a reasonable fit

between the legislature's ends and the means chosen to accomplish those ends.” Am. Acad. of

Pain Mgmt. v. Joseph, 353 F.3d 1099, 1111 (9th Cir. 2004) (citation omitted). “The fit need not

be perfect nor the single best to achieve those ends, but one whose scope is narrowly tailored to

achieve the legislative objective.” Am. Acad. of Pain Mgmt. v. Joseph, 353 F.3d 1099, 1111 (9th

Cir. 2004) (citation omitted). As its means, the government chose an approach that has the effect

of significantly limiting truthful, nonmisleading speech. In light of the reasonable less restrictive

alternatives offered by Plaintiff, Defendants have not shown that HB 2550 is “narrowly tailored

to achieve the legislative objective.” Id. HB 2550 is thus overinclusive and restricts more speech

than necessary to serve Defendants’ interest of reducing discrimination in housing. Because HB

2550 is overinclusive, the Court finds that Plaintiff is likely to succeed on the merits of its First

Amendment claim.

II. Irreparable Harm

Plaintiff must also “demonstrate that irreparable injury is likely in the absence of an

injunction.” Winters, 555 U.S. at 22. “Typically, monetary harm does not constitute irreparable

harm.” Calif. Pharmacists Ass'n v. Maxwell-Jolly, 563 F.3d 847, 851 (9th Cir. 2009), vacated

and remanded sub nom. Douglas v. Indep. Living Ctr. of S. Calif., Inc., 565 U.S. 606 (2012). The

deprivation of a constitutional right, however, may constitute irreparable injury. Melendres v.

Arpaio, 695 F.3d 990, 1002 (9th Cir. 2012) (affirming the district court's finding that, without an

injunction, the plaintiffs faced irreparable harm where it was likely they would be unlawfully

detained in violation of the Fourth Amendment). This is especially so in the First Amendment

context. See Elrod v. Burns, 427 U.S. 347, 373 (1976).

Plaintiff will suffer irreparable harm without an injunction because “[t]he loss of First

Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable

injury.” Id. HB 2550 went into effect on January 1, 2022, and there is evidence that Plaintiff’s

agents have advised clients not to send love letters in anticipation of the law. Accordingly,

Plaintiff (and their clients) will suffer irreparable harm without an injunction.

III. Balance of Equities

Plaintiff has the burden to show that the balance of equities tips in its favor. Winter, 555

U.S. at 20. Plaintiff has shown a significant First Amendment interest on behalf of itself and its

clients. Defendants raise countervailing interests: a delay in remediating discrimination in

housing and the likelihood of confusion within the real estate industry. While these are serious

concerns, the balance of hardship favors Plaintiff given the strong protection typically afforded

First Amendment rights. This is especially so where the subject regulation sweeps in significant

amounts of speech and there are reasonable alternatives to this level of restriction.

IV. Public Interest

“The public interest inquiry primarily addresses impact on non-parties rather than

parties.” League of Wilderness Defs./Blue Mountains Biodiversity Project v. Connaughton, 752

F.3d 755, 766 (9th Cir. 2014) (internal quotation marks omitted). The Ninth Circuit has found

that “it is always in the public interest to prevent the violation of a party's constitutional

rights.” Melendres, 695 F.3d at 1002 (internal citations and quotations omitted); see

also Cuviello v. City of Vallejo, 944 F.3d 816, 834 (9th Cir. 2019) (“We have consistently

recognized the significant public interest in upholding free speech principles.” (internal

quotations and brackets omitted)).

Continuing enforcement of HB 2550 likely violates the rights of Plaintiff and its clients,

but also the rights of prospective buyers of residential real estate throughout Oregon. It is not in

the public interest to enforce a law that is likely unconstitutional, even one aimed at the laudable

goal of reducing unlawful discrimination in housing.

CONCLUSION

The Court GRANTS Plaintiff’s Motion for a Preliminary Injunction [3]. Defendants are

preliminarily ENJOINED from enforcing ORS § 696.805(7). This Preliminary Injunction shall

remain in effect until the entry of a final judgment in this case.

IT IS SO ORDERED.

DATED:___M__a_rc_h_ _3_,_ 2_0_2_2_________.

______________________________

MARCO A. HERNÁNDEZ

United States District Judge