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‘It Is Absurd’: Judge Critiques Landlord Argument In JLL Dual Agency Case

An appeals court judge said he was "highly skeptical" of a D.C. judge's ruling that JLL had violated the city's dual representation disclosure law in a case that could have major implications for JLL and other brokerage firms.

The courthouse building in D.C.'s Judiciary Square that is home to the U.S. Court of Appeals for the D.C. Circuit.

The judge, Harry Edwards, was part of a three-judge panel at the U.S. Court of Appeals for the D.C. Circuit that heard arguments Tuesday morning from the attorneys representing brokerage firm JLL and the landlord, S.C. Herman & Associates.

The panel didn't come to a decision Tuesday, but the questions and statements made by the appeals court judges provided the first glimpse into how they view the case that will have financial implications for JLL and could set a precedent for other D.C. lease agreements. 

The parties have been engaged in a dispute over a $781K commission for a 2018 D.C. office lease that S.C. Herman claims it shouldn't owe JLL because the brokerage firm didn't properly disclose it was representing both sides of the deal. The lease, a 51K SF deal with a subsidiary of flexible workspace company Regus at 1441 L St. NW, led to this dispute after the company closed its coworking space in the building in 2020. 

The appeals court hearing comes after District Court Judge Florence Pan ruled in favor of the landlord, deciding that JLL didn't follow the law's disclosure requirement. 

The law, a 25-year-old statute that hadn't previously been ruled on by a court, lists a series of ways that the required disclosure can be given, including a sample form and a clause that if the disclosure is part of a larger contract, it should stand out from the text “in bold lettering, all capitals, underlined, or within a separate box.” 

The attorneys' arguments Tuesday, and a series of questions from the three judges, centered around whether the law should be interpreted as setting those methods of disclosure as strict requirements, or whether the disclosure requirement can be satisfied using other methods. 

In Pan's ruling, she said the landlord was "taking advantage of JLL's technical non-compliance with the law to avoid paying a commission that JLL rightfully earned," but still ruled in favor of the landlord because she interpreted the law's disclosure methods as a strict requirement.

Edwards, speaking at Tuesday's hearing to S.C. Herman's attorney, Alexander  Laughlin of Odin Feldman & Pittleman, said he disagreed with the interpretation that the law sets strict requirements for how the disclosure must be written.

"I read your brief and I read the District Court's opinion and respectfully, I think you're wrong," the judge 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.”

"In any sense of justice, there's no conceivable way they could be denied the commission. None," Edwards added.

"We disagree, your honor," Laughlin said in response. "And the District Court judge doesn't see it that way."

Laughlin then described his interpretation of the law: that if brokers don't disclose dual representation using the law's sample form — which JLL attached to its leasing agreement but didn't sign — the law says they must make the disclosure stand out from the contract in one of the specified ways. He said JLL also failed to do that.

"Bad facts make bad law, and there's a lot of bad facts against JLL," Laughlin said at the start of his remarks. 

These comments came during a roughly 30-minute hearing Tuesday in wood-paneled court chambers on the fifth floor of the E. Barrett Prettyman United States Court House in D.C., with about 40 people in attendance. The oral argument session allowed attorneys for each side to present their positions, but shortly after each side began speaking, the judges interjected with questions and comments. 

Another judge on the panel, Patricia Millett, raised a series of points to JLL's attorney that called one of the firm's main arguments into question. 

Millett focused on JLL's contention that the sample disclosure form it attached to the signed leasing agreement with the landlord should count as disclosure of dual representation even though the form wasn't filled out or signed. 

"It's completely blank, which to me would imply that it's not implicated in the case," Millet said. "It's not filled out. There's no identification of who you were representing in here."

JLL's attorney, Laura McNally of Morgan, Lewis & Bockius LLP, said the form attached to the leasing agreement was one of just three documents in which the brokerage firm disclosed dual representation. She also pointed to the 65-page finalized Regus lease, which included a mention of the dual representation on Page 51, and to a December 2017 letter the landlord sent to one of the JLL brokers that showed it had knowledge of the firm's dual representation. 

Millett then raised the question of timing, as the leasing agreement was signed in June 2016, more than a year before the 2017 letter or the 2018 lease. She said if dual representation wasn't disclosed until the point in the process when a tenant was nearly signed on, then the landlord with vacant space it needs to lease could have its "back against the wall" and be unable to object to the practice. 

"If we were to accept your theory of consent very late in the process, how would that not allow this back-against-the-wall in other cases?" Millett asked

In response, McNally said the landlord knew in practice that JLL was representing both sides of the deal. 

"[The landlord] never raised that as an issue and never complained about the fact that JLL represented Regus in the deal or brought up any claim that they were somewhat harmed," McNally said. 

Millett also asked questions of the landlord's attorney, though Edwards didn't ask any questions of JLL's attorney. 

The panel's third judge, Sri Srinivasan, spoke less than the other two and didn't signal much about his thoughts on the attorneys' arguments. It remains unclear when the court will issue its decision on the case or how it will rule.

The ruling could have implications for D.C.'s commercial real estate industry beyond just whether JLL receives its commission.

If the court rules in favor of the landlord, legal experts told Bisnow in September, then it could set a precedent that calls into question other D.C. lease agreements that didn't include the proper disclosure of dual representation.

The only court that could hear an appeal to the three-judge panel's ruling would be the U.S. Supreme Court, and experts said it is unlikely the high court would have interest in hearing this case.

Related Topics: JLL