By Patrick Southern

Today, the Fourth Circuit released an unpublished opinion in the civil case of Jones Lang LaSalle Americas, Inc. v. The Hoffman Family, LLC. The appellate court reversed a decision from the Eastern District of Virginia, where summary judgment had been previously granted to the defendant in this breach of contract claim. While the district court had ruled that an agreement between the parties pertaining to commission to be paid on a real estate deal was unenforceable as a matter of public policy, the Fourth Circuit had a different interpretation of the relevant Virginia law.

The Parties Wanted to Find a Tenant to Lease Hoffman’s Property

Jones Lang LaSalle (“JLL”), the plaintiff in this matter, is a real estate business. Hoffman owns considerable property in Virginia. In 2007, the parties signed an agreement, under which Hoffman retained JLL to act as the exclusive leasing agent for its landholdings in Virginia as Hoffman tried to get the United States government to lease the land. The agreement provided that if JLL’s efforts resulted in the lease of any of the properties in question, JLL would receive a commission equal to two percent of the lease’s base rent.

JLL hired Arthur Turowski, a former member of the U.S. General Services Administration (“GSA”), to advise JLL on matters related to the federal lease procurement process. Turowski was not a licensed Virginia real estate salesperson.

In 2011, the GSA solicited proposals for a lease for a site to house the new headquarters of the National Science Foundation. JLL assisted Hoffman in presenting its property as a candidate, and the GSA selected Hoffman for the lease in 2013. As a result, Hoffman will receive a total base rent of more than $330 million over the 15-year term of the lease.

The parties then began to disagree about the commission; JLL claimed it was owed $6.62 million (two percent of the base rent) while Hoffman asserted it only owed $1 million based on what it claimed were oral agreements reflected in written submissions made to the GSA and elsewhere.

JLL Claimed Hoffman Was In Breach of Contract

JLL ultimately filed an action for breach of contract in 2013, seeking the $6.62 million it claimed it was owed under the agreement between the parties. During discovery, Hoffman learned that Turowski was not a licensed real estate salesperson.

Hoffman moved for summary judgment, arguing that as a matter of public policy, JLL could not recover commission that might have been payable under the agreement because Turowski was critical to JLL’s efforts to lease the property.

The Eastern District of Virginia entered summary judgment in favor of Hoffman. The court concluded Turowski was required to have a real estate salesperson’s license because he was centrally involved in the activities that led to Hoffman’s successful bid for the lease. The court said that there was a public policy which had been declared by Virginia’s courts that such individuals were to be licensed real estate agents.

The Plaintiffs Claimed the District Court Erred On the Public Policy Question

On appeal, JLL argued the district court erred in concluding that a JLL employee involved in the leasing efforts was required to have a Virginia real estate salesperson’s license, and that the consequence of the employee’s failure to be so licensed was a total forfeiture of JLL’s commission.

Essentially, it indicated that the district court was wrong in determining Turowski’s participation in the leasing efforts rendered the agreement between JLL and Hoffman unenforceable on public policy grounds.

The Fourth Circuit Interpreted Relevant Virginia Law Differently than the Eastern District of Virginia

Hoffman did not dispute that the agreement was valid when formed; instead, it argued that JLL performed its obligations in contravention of the Virginia real estate licensing scheme (and, thus, rendered the agreement unenforceable).

But the Fourth Circuit disagreed, saying Hoffman’s position was unsupported in Virginia law. There is no explicit statute or judicial decision the court could point to that would impose a total prohibition of JLL’s commission under Virginia law.

The appellate court did say that Virginia law was clear on two fronts: (1) that a contract made in violation of the real estate licensing statutes is illegal and unenforceable, and (2) that Virginia courts are averse to holding contracts unenforceable on public policy grounds unless their illegality is “clear and certain.” The Fourth Circuit noted that relevant precedent indicates Virginia courts are to be wary of employing public policy concerns to invalidate contracts that were valid when formed.

The Fourth Circuit’s opinion makes clear that its reversal of the summary judgment ruling doesn’t mean that JLL is entitled to the $6.62 million it seeks. Instead, this ruling only clarifies that Turowski’s participation in the leasing efforts did not render the agreement unenforceable as a matter of law. The District Court will receive the case on remand to resolve the remaining issues, including whether the parties agreed to a lesser commission in an oral agreement.