Judge Allows $5.3M Lawsuit Against Newmark Over Botched Sale To Proceed

Newmark's attempt to dismiss a former client's lawsuit — which was filed against it last year and accused the brokerage of a multimillion-dollar mishandling of a Washington, D.C., property listing — has failed.

Judge Beryl Howell denied Newmark's motion to dismiss in a March 1 ruling, allowing the $5.3M suit brought by nonprofit group OCA-Asian Pacific American Advocates to proceed in the U.S. District Court for the District of Columbia. 

The lawsuit centers around the September 2021 sale of OCA's former building near Dupont Circle for $4.4M to Richard Gersten.

The buyer successfully brought the purchase price down from $6.5M after the initial agreement was signed because he found the square footage estimate Newmark had obtained was significantly different from the actual rentable square footage. The agreement included a clause for adjusting the purchase price based on such inaccuracies.

Gersten prevailed over OCA in a separate lawsuit over this price dispute, and OCA's $5.3M in claims in this suit against Newmark also include attorney's fees for the prior case and property taxes it paid while the sale was delayed.

Newmark's listed square footage for 1322, 1324 and 1326 18th St. NW of 18,796 SF was based on an estimate by a pro bono architect who only looked at a floor plan for the building and then provided a series of caveats to the brokers about why the estimate may not be accurate and advised them to get an in-person measurement, Howell wrote in her order.

The judge said Newmark then used that estimate in marketing documents and the purchase agreement without receiving another measurement or informing the client about the architect's caveats. 

"[The] brokers had a duty to disclose the specific details of the nature of the area measurement, including the limitations of the estimate as had been expressly communicated to them," Howell wrote. 

The purchase agreement included a clause allowing for a reduction in price of $346.10 per SF if the buyer found the initial estimate to be inaccurate. That proved to be a meaningful clause, as Gersten's professional measurement of the building found it to have 12,855 rentable square feet, 31% less than the estimate. That equated to a more than $2M difference in the price. 

Newmark, in its motion to dismiss the case, argued that it told OCA that the square footage figure was an approximation and that the brokers "owe no duty to provide precise information regarding rentable square footage." The firm also argued that OCA was aware of the price reduction clause and agreed to its inclusion in the contract. 

"There were no hidden terms, there were no misrepresentations, there were no ambiguities," Newmark's attorneys wrote in its motion. "Simply put, the brokers did not breach any agreement, fail to disclose any information or misrepresent any facts."

A Newmark spokesperson declined to comment on the judge's order. 

Howell wrote that the brokers owed OCA a duty to exercise care in its measurements. The defendants named in the lawsuit were Newmark and two of its brokers, Michael Douglas Damron and Christopher Lucey, as well as the law firm that represented OCA and one of its attorneys: Offit Kurman's Mark Moorstein. 

"Plaintiffs also sufficiently allege that the Brokers did not live up to the high bar imposed by their status as fiduciaries and did not exercise ordinary professional care, most notably by failing to act in OCA’s best interests in obtaining and using the square footage measurement and in failing to disclose to plaintiffs all material facts they knew regarding that measurement," the order stated. 

The judge allowed all of the claims OCA made against Newmark and its brokers to proceed: breach of contract, breach of fiduciary duty, professional negligence and negligent misrepresentation. 

Moorstein filed a separate motion to dismiss the suit, and the judge denied that motion in part. The judge found that the case could proceed on two of the claims against the attorney, but that the two other claims were redundant and must be dismissed. 

CORRECTION, MARCH 14, 5:15 P.M. ET: A previous version of this story misspelled Richard Gersten's name. This story has been updated.