The Real Deal New York

Urban Compass sued by Citi Habitats, hit with restraining order

Lawsuit claims upstart firm stole trade secrets by accessing rival's database
By E.B. Solomont | August 13, 2014 06:22PM

 

This story was initially published yesterday at 8:15 p.m. It has been updated with the court’s ruling on the order below.

Following a lawsuit filed by real estate brokerage Citi Habitats, which accused rival Urban Compass of hacking into its proprietary listings database, a judge has granted a restraining order against the tech startup, preventing it from accessing the database. But the court did not grant Citi Habitats’ request that the court halt Urban Compass’ own software development — which Citi Habitats argued may improperly utilize data gleaned from its system.

The ruling, by Judge Jeffrey Oing, came on the same day that Citi Habitats sued Urban Compass — the second time Urban Compass was hit with a lawsuit in two months accusing the startup of stealing trade secrets.

In a lawsuit filed Tuesday, Citi Habitats claims its proprietary listing database was accessed from computers at Urban Compass’ offices. The suit, filed in New York State Supreme Court, seeks unspecified damages and a restraining order, and it demands and a temporary restraining order preventing Urban Compass from using data gleaned from Citi Habitats’ database. The suit also demands the court halt Urban Compass’ development of its own listing system and force the tech startup to conduct a forensic investigation of computers belonging to 31 Urban Compass employees, including some former top-producing agents at Citi Habitats, and members of Urban Compass’ software development team.

In addition to granting the restraining order, the judge on Tuesday approved an expedited discovery process — a step that will allow Citi Habitats to ascertain what information, if any, Urban Compass had gleaned from its database. But he did not say Urban Compass must stop its software development. “I don’t believe in stunting creativity,” Oing said, according to a transcript of the hearing obtained by The Real Deal. “What I believe [is] if they want to go ahead and continue to develop it, they will develop it at their own risk.”

Citi Habitats’ proprietary listing system, known as the Listing Exchange Apartment Rentals (LEAR) system, is comprised of more than 12,000 listings and contains proprietary data regarding landlords, sellers and rental history, according to the suit.

In addition to using the LEAR system to target potential clients, the suit alleges that Urban Compass has used the system to develop its own listing database and further, to poach Citi Habitats agents.

“Given the many sales professionals that Urban Compass has recently poached from Citi Habitats, it may well be that Urban Compass reviewed the listing portfolio of each agent on the LEAR system before selecting whom to approach,” Gary Malin, president of Citi Habitats, said in an affidavit.

In particular, former executive vice president Gordon Golub is now Urban Compass’ Chief Residential Real Estate Officer. Others include Jason Saft, who worked with Golub for nine years, and Steve Halpern and Udi Eliasi. This week, brokers Scott Hustis and Mark Jovanovic joined Urban Compass from the Corcoran Group, which like Citi Habitats is a subsidiary of parent company Realogy. 

According to the suit, Citi Habitats discovered that individuals at the tech startup accessed its database on at least 25 occasions. Based on an analysis of recorded login attempts, Citi Habitats identified several unauthorized logins that came from computers sharing an IP address with computers at Urban Compass’ office. In the suit, Citi Habitats said whoever accessed the database used login credentials assigned to current Citi Habitats agents, who said their passwords must have been compromised.

On Wednesday, a spokesperson for Urban Compass said the company was pleased with the outcome of Tuesday’s hearing.

Previously, the company sent TRD a statement — which it also advertised via a sponsored post on Facebook — claiming that it was “disappointed to learn that Citi Habitats/Realogy has decided to initiate legal action in a transparent attempt to intimidate, and stifle competition from Urban Compass. We recognize that they may be upset given that over 30 of their agents and employees have joined Urban Compass, but we do not believe that resorting to baseless litigation is the answer.”

In a letter sent to Citi Habitats’ attorney that was dated August 7, Urban Compass said it “expressly denies all of the allegations made by Citi Habitats.”

Last month, Urban Compass was sued by entrepreneur Avi Dorfman, who alleged the company used his proprietary software and real estate expertise to build its product, only to elbow him out of the business, as TRD previously reported.

According to the suit, Urban Compass was to give Dorfman, founder of now-defunct real estate startups RentJolt and iRent, a stake in the company and buy RentJolt. Negotiations fell apart, the suit alleges, and Urban Compass CEO Robert Reffkin “simply took those trade secrets” and disposed of Dorfman. “Without Dorman’s input in the early stages of the company, Urban Compass never would have been in a position to grow at the speed and size it did.”

At the time, Urban Compass told TRD it did not believe the claim had merit.

As of last month, Urban Compass was valued at $360 million, having raised more than $70 million in funding to date. In July, it raised $40 million — this only a year after raising $25 million from investors such as Salesforce’s Marc Benioff and Condé Nast parent Advance Publications. American Express CEO Kenneth Chenault invested in the Series B round, joining repeat investors Joshua Kushner’s Thrive Capital, .406 Ventures and Founders Fund.

Since launching in May 2013, the firm has hired top-producing brokers from other firms, such as Leonard Steinberg and Hervé Senequier from Douglas Elliman, who brought over about $250 million worth of listings with them. Others who have joined the tech startup include Sofia Song, StreetEasy’s former vice president of research; Jay Glazer, formerly of Warburg Realty; Tinnie Chan Sassano, formerly of Town Residential, and Stribling & Associates’ James Cox Jr. and Frank Giordano.

A spokesperson for Citi Habitats said the brokerage does not comment on litigation matters, and said the filing speaks for itself.