JLL Wins Appeal In Dual Representation Lawsuit

UPDATE, JULY 11, 12:50 P.M. ET: This story has been updated with new legal analysis from Aaron Sokolow, a D.C. real estate attorney.

A federal appellate court has issued a ruling in the case between JLL and a D.C. landlord that had the city's brokers on edge last year, fretting over a possible precedent it could set regarding the disclosure of dual representation in real estate deals. 

The decision, issued Friday by U.S. Appeals Chief Judge Sri Srinivasan, vacated the District Court's ruling that the landlord wasn't required to pay JLL its $781K commission for a D.C. office lease because it didn't follow the law's disclosure mandate. But Srinivasan didn't make a final ruling, instead remanding the case to the lower court to decide it again with a different interpretation of the law.

The D.C. law in question governing dual representation was passed in 1996, but it had never been ruled on by a court prior to U.S. District Judge Florence Pan's decision in March 2022. It regulates how brokers must disclose to their clients when they are acting as a dual representative, meaning they are working with both sides in a transaction. 

In JLL's case, the firm acted as the leasing representative for the owner of 1441 L St. NW, an affiliate of S.C. Herman. A separate JLL broker represented flexible workspace company Regus, which signed a 51K SF lease at the building in 2018 for its Spaces coworking brand. 

The dispute began after the pandemic upended the coworking industry and the Spaces location closed in 2020. S.C. Herman refused to pay JLL the agreed-upon commission for the deal, and JLL filed suit against the landlord in December 2020. 

In defending its decision to withhold the payment, the landlord seized upon the dual representation law, arguing that JLL didn't properly disclose it represented both sides of the deal. The District Court judge ruled in the landlord's favor, determining that it didn't technically comply with the law's strict disclosure requirements, despite acknowledging that "the parties to the Regus Lease were on actual notice of JLL's dual representation."

The section of the law at issue states that if the dual representation disclosure is included as part of a larger contract, it should stand out “in bold lettering, all capitals, underlined, or within a separate box.”

The question the Court of Appeals faced, according to Srinivasan's ruling, was whether those formatting specifications were required in all instances or whether they were included as some of the ways in which a broker can disclose its dual representation. 

The three-judge appeals court panel decided that failing to adhere to the specific formatting outlined in the law isn't on its face a violation of it.

"A broker can satisfy the Act’s baseline requirement of written consent to a dual representation (along with the necessarily-associated disclosure obligation) despite its nonadherence to the formatting specifications," Srinivasan wrote in the ruling. 

The District Court will use this interpretation of the law to decide whether JLL did, in fact, satisfy the disclosure requirement with another method. JLL's attorneys have argued in court filings and hearings that they did so and that the landlord should be forced to pay the commission along with added interest. 

A JLL spokesperson, in a statement provided to Bisnow, said the Chicago-based commercial real estate giant will continue to pursue the case at the District Court level.

"We are pleased with the court’s ruling that confirms written notice of dual agency does not need to be in a specific format in order to be effective," the spokesperson said. "All parties involved in this transaction were aware of JLL’s dual representation and no one expressed concerns. The court has seen through this form over substance argument, and we look forward to continuing the lawsuit and collecting the fee we are rightfully owed for our work."

S.C. Herman attorney Alexander Laughlin of Odin Feldman & Pittleman declined to comment on the ruling. 

While the JLL brokers will have to wait for the District Court to decide whether they can obtain the commissions, the Court of Appeals ruling may have larger implications for other brokerage agreements in D.C.

Legal experts told Bisnow last year that if the Court of Appeals had sided with the landlord and upheld the lower court's interpretation of the dual representation law, it could set a significant legal precedent.

Such a precedent could have called into question other brokerage agreements in dual representation deals that didn't meet the formatting specifications, and landlords and tenants could have used it to avoid paying broker commissions in situations like the 1441 L deal. 

Aaron Sokolow, a D.C. real estate attorney with Battino & Sokolow PLLC who isn't involved in the case but has followed it, told Bisnow in September that if the court were to uphold the ruling, “it wouldn’t surprise me at all to see a proliferation of those types of cases being filed."

But now that the court has vacated the ruling and interpreted that the law doesn't require the formatting methods in all instances, the fear among the city's brokerage community of a new precedent being set appears to be assuaged.

Speaking to Bisnow Tuesday, Sokolow said he read the court's ruling and thinks it "certainly reduces" the potential of litigation around dual representation in D.C. He said he would advise clients not to bring such cases if they were relying on the formatting specifications, and instead would advise them only to pursue a case if they actually didn't know their broker was representing both sides.

"I’m sure brokers all over are breathing a sigh of relief that they don't have to go back through previously signed contracts and worry clients were going to claw back commissions they already earned based on some technicality," Sokolow said.  

Additionally, Sokolow said he and other D.C. lawyers have discussed how this case could be extrapolated to other areas of local law. He said the D.C. Council has passed laws around consumer protection that also include clauses about bolded and underlined text, and he thinks this court's decision could set a legal precedent that influences how those laws are interpreted.

"This is coming down from a very well-regarded judge on an important appellate court, so this could definitely be used in analogous contexts in the District," he said. "It is precedential."

Srinivasan was joined on the appeals panel by Circuit Judge Patricia Millett and Senior Circuit Judge Harry Edwards, who shared some of their views on the arguments during a November hearing. Edwards said at the hearing he disagreed with the idea that the law should be interpreted strictly to require brokers to use the formatting specifications. 

"I read your brief and I read the District Court's opinion and respectfully, I think you're wrong," Edwards said to Laughlin. "The District Court was even saying, I think quite honestly in her opinion, this all seems pretty absurd to me … Well if I think she was mistaken, then her concern about this all being quite absurd has great meaning and force. It is absurd.”