SL 4000 Connecticut LLC, et al. v. CBRE, Inc.
Attorneys and Parties
Brief Summary
Real estate brokerage and property management—whether a broker acting as the owner's property manager may collect a commission for a dual-agency sublease without the written consents required by Washington, D.C. law.
Denied plaintiffs' summary judgment on declaratory and unjust enrichment claims; granted CBRE summary judgment dismissing those claims and on its counterclaims; declared CBRE could enforce the brokerage agreement and awarded $19,924,160.47.
The declaration that CBRE could enforce the brokerage agreement and the $19,924,160.47 award; dismissal of the declaratory-judgment claim; summary judgment for CBRE on its counterclaims. The appellate court instead declared plaintiffs owe no further commission.
Under D.C. Code §§ 42-1702(2A), (6A), (7A) and § 42-1703(i)(1) [statutory scheme defining brokerage relationships, who is a licensee, and requiring written consent from both sides for dual representation], CBRE, as plaintiffs’ agent/subagent and licensee, needed written dual-agency consents from both plaintiffs and Whittle; none existed, rendering the brokerage agreement void. The Supreme Court’s contrary view violated the law-of-the-case from the prior appeal. Disgorgement of the already-paid 50% commission was not warranted given the parties’ sophistication and plaintiffs’ awareness of the dual representation.
Background
Plaintiffs own a commercial property in Washington, D.C. SL 4000 Connecticut LLC designated SL 4000 CT Property Manager LLC as property manager, which in turn retained CBRE as exclusive manager via a sub-management agreement. In 2016, CBRE also acted as broker for a sublease to Whittle School & Studios (Washington) LLC. The brokerage agreement called for a commission; 50% was paid at signing. Whittle defaulted, leaving plaintiffs with significant liabilities. Plaintiffs sued for declaratory relief and damages, alleging CBRE knew Whittle was undercapitalized and concealed it, and that CBRE acted as Whittle’s leasing broker while simultaneously serving as plaintiffs’ agent, adviser, and property/construction manager. CBRE counterclaimed for the unpaid second commission installment.
Lower Court Decision
On remand from an earlier appellate ruling identifying a brokerage relationship under the D.C. Code, Supreme Court (New York County) nonetheless found no brokerage relationship between plaintiffs and CBRE, denied plaintiffs’ summary judgment on declaratory and unjust enrichment claims, granted CBRE summary judgment dismissing those claims and on its counterclaims, declared CBRE could enforce the October 12, 2016 brokerage agreement to recover the Whittle sublease commission, and entered judgment for $19,924,160.47.
Appellate Division Reversal
The Appellate Division modified by vacating the declaration of enforceability and the $19,924,160.47 award, denying CBRE’s motion insofar as it sought dismissal of the declaratory-judgment claim and summary judgment on its counterclaims, and granting plaintiffs’ motion to declare they have no further obligation to pay remaining commissions. It held that CBRE, as plaintiffs’ agent/subagent, had a brokerage relationship and was a licensee, thus requiring written dual-agency consents under D.C. Code § 42-1703(i)(1) [requiring written consent from both sides for dual representation], which were absent, rendering the brokerage agreement void and unenforceable. The court affirmed that disgorgement of the already-paid 50% commission was unwarranted because both sides were sophisticated and plaintiffs knew of the dual representation. The separate appeal from the order was dismissed as subsumed in the judgment appeal.
Legal Significance
Reaffirms that, under D.C. real estate law, a property manager and its subagent are licensees with brokerage relationships owing duties to the principal; dual agency without written consents from both sides voids commission agreements. Clarifies that New York courts will apply D.C. Code §§ 42-1702 and 42-1703(i)(1) [defining brokerage relationships and requiring written consent for dual representation] to D.C.-sited transactions and enforce the law-of-the-case doctrine. Highlights that equitable remedies like disgorgement are not automatic where sophisticated parties were aware of the conflict.
In Washington, D.C. commercial leasing, a broker acting as an owner’s property manager/subagent must obtain written dual-agency consents from both sides; absent those consents, the commission agreement is void and remaining commissions are unrecoverable, though prior payments may not be disgorged if the parties were sophisticated and aware of the dual role.