Compass on Friday asked a judge to dismiss a Realogy lawsuit that alleges it practiced “illegal schemes” and accused the industry giant’s CEO of exploring a possible sale of his company.
Compass’ motion to dismiss, filed Friday afternoon in New York, calls Realogy’s lawsuit an “act of desperation” brought on by “rapidly eroding market share and a plummeting stock price.” The motion also criticizes the various specific claims Realogy makes in its suit, and ultimately argues that the case is “an attempt to impede Compass without having to compete on the merits.”
Ryan Schneider, CEO of Realogy | Credit: Realogy
“Realogy should not be permitted to use the judicial system to do what it cannot do through fair competition in the market,” Compass argues in the motion. “Each of its claims is deficient on its face and its Complaint should be dismissed.”
The motion to dismiss is a response to the lawsuit Realogy filed in July. Among other things, the lawsuit accuses Compass of stealing from, interfering with and disparaging competitors. Realogy also points in the suit to what it says are compensation packages to rivals’ employees and agents that are so inflated that Compass is sure to operate at a loss.
However Compass not only disagrees with those claims, in an email Friday a company spokesperson said that if the case isn’t tossed out it plans to countersue Realogy. That countersuit would be “based on, among other things, a meeting arranged by Realogy CEO Ryan Schneider in which Schneider discussed that he had considered selling the company.”
Compass’ spokesperson also said that in the alleged meeting, Schneider discussed the premium that his company’s board would want if Realogy was to sell.
Additionally, Schneider allegedly complained in the meeting “about Realogy’s agents leaving for Compass and proposed a plan where the two companies would form a [joint venture] — a proposal that was declined by Compass,” the spokesperson added.
The case comes at a period of intense competition and change in the real estate industry, with a number of well-funded upstarts such as Compass causing significant disruption in a sector long dominated by stalwarts like Realogy. In Compass’ specific case, it has raised $1.5 billion since its founding in 2013 and is now valued at $6.4 billion.
However, that relatively meteoric rise has not come without controversy. In its lawsuit, for example, Realogy argues that Compass is essentially trying to create a monopoly by enticing away competitors’ talent only to raise commission splits and fees in favor of the company down the road. Realogy also argues that Compass will later restrain trade by collusive actions.
Compass CEO Robert Reffkin | Photo credit: Compass
“In fact, just before filing this lawsuit, Compass co-founder and CEO Robert Reffkin personally solicited Realogy to enter into an illegal price-fixing agreement where the two companies would agree to limit agent compensation and ‘compete on brand,’ but not on price,” the July complaint reads. “Realogy declined.”
Additionally, Realogy’s lawsuit accuses Compass of recruiting Realogy talent to get confidential and proprietary information from them.
Realogy is seeking compensatory and punitive damages, among other compensation, from Compass in amounts that would be set in a trial.
Compass has faced lawsuits from other rivals as well. Both Zillow and Zephyr Real Estate and Modern Spaces have in the past sued over recruitment practices, and earlier this year Realogy itself filed a suit against one of its former managers who had defected to Compass.
For its part, Realogy operates a number of high-profile real estate brands including Coldwell Banker, Century 21, Better Homes and Gardens and others. However, in recent months the firm has seen its stock price tank and just this week embarked on a number of major organizational changes.
Compass, in Friday’s motion, repeatedly dinged Realogy for its recent market struggles, saying among other things that the older firm’s “steep decline” is due to “complacency and refusal to innovate.”
By Friday evening, however, Realogy had fired back. In a statement, the company said that in Compass’ “insatiable quest for market share above all else” it has “trampled on ethics, integrity and the legal rights of others.” Realogy also said that its lawsuit is specifically targeting Compass’ “unfair and unlawful behavior.”
Realogy stood by its allegations Friday.
“Like many other defensive tactics we’ve seen from Compass in the past that have no merit,” the statement concluded, “if they file these fanciful allegations in a counterclaim, we look forward to setting the record straight and the court’s inevitable dismissal.”
This post was updated after publication with additional context and background.
