JLL Sues Stephen Palmese

JLL is suing former broker Stephen Palmese to collect $3 million. And it all may come down to a typo.

Palmese was one of the top investment sales brokers at JLL, where he helped head a team that was running middle-market deals in Brooklyn. He was one of the Massey Knakal alumni who joined Cushman & Wakefield when it acquired the brokerage and then followed Bob Knakal to JLL in 2018.

As part of the employment agreement, JLL gave Palmese a $5 million forgivable loan that would have to be repaid if he left the company before 2027. Palmese parted ways with JLL in February, but in a lawsuit the brokerage claims he refuses to repay the balance of the loan, which stands at about $3 million.

“While he initially acknowledged in conversations with JLL personnel that he would need to repay amounts owed to JLL, he changed course suddenly and refused to pay the outstanding balance on the forgivable loan,” attorneys for the brokerage wrote in a complaint filed in Manhattan’s U.S. District Court Monday. “Palmese claims that, under the terms of a second amendment to the promissory note, the full balance of the forgivable loan was forgiven upon his separation from JLL.”

JLL and Palmese did not respond to requests for comment.

The dispute seems to center on what JLL called a “mutual mistake” in a 2021 amendment to the original agreement.

The company earlier in the year had agreed to forgive about $1 million on the loan, effective in July, after Palmese met certain performance benchmarks. But that would’ve required the broker to report the debt forgiveness as income on his tax returns that year — something that he didn’t want to do, according to the lawsuit.

So JLL said it agreed that if Palmese left the company before the 2027 date, the brokerage would forgive either the balance due on the loan at the time or the $1 million, whichever was the “lesser” of the two. But the amended agreement actually said the “greater” of the two. JLL characterized this as a mistake that both sides failed to notice.

When Palmese left in February, the company said it expected him to repay the balance on the loan. But Palmese said he considered the entire loan forgiven, pointing to the “greater” language in their amended agreement, according to the suit.

“The interpretation Palmese pushes now is both contrary to law and to what the parties contemplated” when they hammered out the second amendment in October 2021, JLL’s attorneys wrote.

JLL said that if they had actually intended to forgive the “greater” part of the loan, then it would no longer qualify as a forgivable loan for tax purposes. It would then be a cash advance and instead of deferring Palmese’s tax payment it would actually accelerate it.

The case pulls back the curtain on the relationships between brokerages and their high-powered dealmakers, who work as independent contractors. And while it’s not unheard of for a company to take legal action against a broker when they leave, it still only happens in rare cases and when it does it usually reveals some palace intrigue.

And if it’s true that Palmese is holding JLL over the barrel because of a typo, it only adds to the intrigue. It calls to mind the drama surrounding the $500 million payment Citibank made in error to lenders in 2021. The bank went to court trying to get the money back but a federal judge ruled the lenders could keep the money. A circuit court reversed the ruling and Citi reached a settlement with the lenders to repay some of the funds.

Palmese is now working at Legacy Equity Holdings, the real estate private equity firm he founded in 2012.