The Real Deal New York

Jilted BHS sues Compass’ new recruit Ed Reale

Startup firm accused of having "utter disregard" for fair play

November 09, 2015 04:08PM
By E.B. Solomont and Kyna Doles

EdRealeHallWillkieRobertReffkin

From left: Ed Reale, Hall Willkie and Robert Reffkin

Brown Harris Stevens is suing former Hamptons manager Ed Reale — one of Compass’ latest recruits – for allegedly violating a non-compete agreement even after Brown Harris gave him a 20 percent pay raise and agreed to compensate him for six months should he leave the firm, according to a new lawsuit.

Reale, the former senior managing director of Brown Harris’ Southampton, Sag Harbor and Westhampton offices, was one of Compass’ key hires last month when it launched in the Hamptons and now occupies an office that is located directly across the street from Brown Harris’ Bridgehampton outpost on Montauk Highway.

In the lawsuit, filed Nov. 6 in New York State Supreme Court, Brown Harris didn’t mince words regarding Compass, a venture-backed firm that’s expanded aggressively by hiring top agents and managers from its competitors. “As its business model, Compass seemingly has determined that it is cheaper and faster to build its business by unlawfully ‘poaching’ competitors’ employees than to engage in lawful competition or attempt to purchase competitors’ businesses,” the complaint states.

Reale, a real estate attorney for 25 years, joined Brown Harris in 2010 after working as a manager in Sotheby’s International Realty’s Southampton office.

“As its business model, Compass seemingly has determined that it is cheaper and faster to build its business by unlawfully ‘poaching’ competitors’ employees.” — BHS complaint

In January, Brown Harris re-negotiated Reale’s employment contract with several incentives designed to keep him at the firm. “In exchange for [Reale’s] agreement not to compete with Brown Harris in only one county” in the state of New York, the suit says, “Brown Harris added three years to the term of Reale’s employment, gave Reale a 20% raise, and agreed – at Reale’s insistence – to pay his base salary during the non-competition period.”

Reale emailed his resignation on Oct. 5 and eight days later, Brown Harris learned he joined Compass via an article in The Real Deal.

“What makes this case especially egregious is the fact that [Reale], an experienced New York lawyer, sought and received increased compensation and long-term security for signing the very restrictive covenants that he then violated and now apparently considers unenforceable,” the suit states.

Compassmap

Brown Harris, one of the largest firms in New York City, has locked horns with Compass before.

When elite broker Kyle Blackmon moved to Compass a year ago, his departure from Brown Harris prompted a no-holds-barred statement from the brokerage’s president, Hall Willkie, who said Blackmon decided the “equity proposition offered to him trumps a singular focus on brokerage.”

There’s no doubt that Compass, which has raised $125 million from investors to date for an $800 valuation, is aggressively expanding nationwide. Launched in 2013, Compass now has offices in Manhattan, Brooklyn, Washington, D.C., Miami and Boston, and the company launched a Los Angeles office last week.

Compass, founded by Ori Allon and Robert Reffkin, has been taken to court several times over its aggressive recruiting.

In New York, the firm was sued by rivals Citi Habitats and the Corcoran Group, which accused the startup of “brazenly” raiding its talent pool. Both suits were later settled.

Compass is also named in Brown Harris’ suit, which alleges the brokerage is no “innocent bystander.”

The “utter disregard of fair play is exemplified by the recent conduct of its CEO, Robert Reffkin,” who continued to solicit Brown Harris talent even while Brown Harris was making “good faith efforts” to resolve the dispute with Reale, BHS’s lawyers claimed in the suit.

“Utter disregard of fair play is exemplified by the recent conduct of its CEO, Robert Reffkin.” — BHS lawsuit

Reale’s departure leaves Brown Harris’ Long Island operations particularly vulnerable, the firm argues.

At Brown Harris, Reale managed three out of nine offices in the Hamptons and was privy to knowledge of Brown Harris’ agents and splits, sales data and non-public company information. He also knows when Brown Harris’ exclusives expire and which ones can be terminated – information that’s usually kept close to the vest to keep rival firms at bay, his former firm argued. Without the court’s intervention, Compass now has “laser-focused guidance about which listings are open game – right now – to try to steal from Brown Harris,” the suit alleges.

The suit also claims that Reale can use confidential information to directly or indirectly recruit agents by one-upping Brown Harris’ current financial arrangements with agents or use other “inside information to incentivize them to join Compass.”

In a statement Monday, a Compass spokesperson said the firm is “disappointed that Brown Harris Stevens has sought to use the legal system to inhibit the autonomy and economic free will of one of their former employees.” Compass “believes that culture and opportunity should be the means of retaining employees and has modified its own legal agreement to eliminate legal barriers for people to work where they want,” the spokesperson added.

Brown Harris is seeking damages to be determined at trial.

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