Urban Compass stole trade secrets: lawsuit

RentJolt founder alleges that startup took his ideas, then dumped him

New York /
Jul.July 25, 2014 02:30 PM

Hot on the heels of a $360 million valuation, Urban Compass is being sued by an entrepreneur claiming that the company and its CEO Robert Reffkin adopted his product and business model under false pretenses — and then unceremoniously cut him out of the action.

Avi Dorfman, the founder of now-defunct real estate startups RentJolt and iRent, alleges in a lawsuit filed on July 23 that Urban Compass built its product on the back of his proprietary software and real estate expertise. Urban Compass was supposed to give Dorfman an ownership stake and acquire RentJolt, but negotiations fell apart.  While Dorfman’s suit does not seek a specific dollar amount in losses, he is looking for compensatory and punitive damages, to be determined during a trial. He is also asking a judge to bar Urban Compass from using trade secrets the firm allegedly misappropriated from RentJolt.

According to the suit, Dorfman met Reffkin in 2012 in order to boost his ability to raise funds for RentJolt. Instead, Reffkin suggested to Dorfman that they partner up, with Dorfman contributing the real estate savvy and product knowledge while Reffkin would help scale the company up and provide access to investors from his Goldman Sachs days.

The two signed a non-disclosure agreement, and agreed that Reffkin would acquire RentJolt and form a new company, which ultimately became Urban Compass. The new entity would provide the same services as RentJolt. Dorfman would be a co-founder in the new company, according to the agreement, and would have a sizable ownership stake.

In exchange for this commitment, Dorfman gave Reffkin access to RentJolt’s business model, proprietary software code and data, the suit states. He claims he was instrumental in recruitment, product development and designing the Urban Compass website. He also alleges that he helped Reffkin secure $6 million in seed funding from Reffkin’s former employer, Goldman Sachs, by helping Reffkin explain the product and the real estate market to investors. Perhaps most notably, Dorfman was involved in luring Ori Allon, who had a stellar Silicon Valley track record, over to Urban Compass, according to the suit.

But despite Reffkin’s guarantee, the suit alleges that Reffkin “simply took those trade secrets” and formed Urban Compass, after which he “exploited this process and knowledge and disposed of Dorfman.”

In a statement to The Real Deal, Urban Compass executive Sofia Song said that “any time a company experiences success, there are going to be individuals attempting to opportunistically exploit it. We believe this claim does not have any merit, and we look forward to the opportunity to substantiate that.”

Dorfman worked briefly in the private equity sector and as a broker before forming his first startup, iRent, in 2010. One of the features of his company, according to the suit, was “neighborhood ninjas,” or brokers with intimate knowledge about specific locales.

This feature was central to Urban Compass’ initial business model, which the firm abandoned in December.

In exchange for his contributions, Dorfman alleges that Reffkin offered him a 2.5 percent stake in Urban Compass and a base salary of $80,000, but reneged on his commitment to buy RentJolt. Dorfman, in turn, requested up to a 10 percent stake. A few weeks later, Allon met with Dorfman and made an even lower counter-offer: a 1.8 percent stake and a $125,000 base salary, Dorfman alleges.

“Dorfman declined these offers, believing they were insulting,” the complaint says.

Urban Compass was launched in May 2013.

“Without Dorfman’s input in the early stages of the company, Urban Compass never would have been in a position to grow at the speed and to the size it did,” the suit states, referring to the success Urban Compass has had raising more than $70 million in funding.

Adam Ford, a partner with the law firm Harris, O’Brien, St. Laurent & Chaudhry, which is representing Dorfman, said the filing of the complaint was not triggered by Urban Compass’ recent $40 million funding announcement.

“We have been attempting to settle this with the company for quite some time and we finally realized neither Urban Compass nor Reffkin were interested and now is the time to file,” Ford said.

Dorfman’s complaint is a common one in the high-risk, high-reward world of technology startups. In 2004, the Winklevoss twins famously sued Facebook founder Mark Zuckerberg, alleging that Zuckerberg broke an oral agreement and misappropriated their source code, and sought $140 million. They settled in 2008 for cash and stock then worth about $65 million.

Likewise, the founders of StreetEasy found themselves embroiled in legal drama, court records show. The company was founded in 2005 by four individuals, including Michael Smith and Douglas Chertok, and the following year it raised $2.5 million in seed funding by issuing preferred stock.

Smith claimed the stock issue was handled in a proper manner. Chertok said it was not, and alleged that the process was actually an effort by Smith to take command of the company. Smith did eventually assume control of the firm. Chertok was not part of a reorganized board. Last year, Zillow bought StreetEasy for $50 million.


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