Hamptons agents have at it

A case of computer hacking has brokers asking who really controls online listings, and how they can be protected

Jun.June 11, 2018 01:00 PM

Against the backdrop of the serene waters of the Hamptons and its laid-back, resort-style living, a bitter legal storm that’s been long brewing between Compass — a relative newcomer to the East End — and the more established Saunders & Associates reached the boiling point.

A jury in the case in question, which revolved around charges of computer hacking, ruled this winter against Meg Salem, who was a top agent for Saunders & Associates before jumping to Compass. An appeal is expected.

But in the meantime, the case has sent ripples of anxiety across the East End real estate industry, bringing to the forefront the issue of who actually controls the rights to online listings — as well as what can be done to protect them.

“I think the case has put everybody on alert to be more aware of what’s going on,” said Judi Desiderio, the president of Town & Country Real Estate. She has researched online data protection in the wake of the case, she said, which has dragged on since 2015.

A messy breakup

Salem, a vice president at Saunders & Associates, left the firm in November 2015 after a five-year stint. It was what went down during her departure that led to Saunders’ lawsuit against his former star employee.

According to the complaint, Salem and some colleagues coordinated a days-long, multi-pronged effort to pull rental and sales listings from Saunders’ computers around the time she left. The suit alleged that a hefty 11,600 listings were taken without permission, as well as personal data about house alarm codes and key locations.

But for her part, Salem said the only listings she wound up with, a total of 441, were those she brought to the company and thus controlled, according to court filings. Indeed, according to news reports, her attorney, Robert Folks, said it’s an industry standard that agents who hop from one firm to another can take their listings with them, or are at least entitled to commissions on them.

So far, the courts have agreed with Saunders. In February, after five days of testimony and 23 witnesses, a jury at the U.S. District Court in Central Islip found — after a swift two hours of deliberations — that Salem had stolen listings that did not belong to her.

Saunders was awarded about $13,000, for the cost of hiring online investigators. Salem does not have to pay up immediately, however. All appeals must be exhausted before the money is due, according to attorneys in the case.

Andrew Saunders, the president of Saunders & Associates, declined to comment. But Claude Szyfer, his attorney, said he thought the issues were open and shut.

“Our case was very easy to understand. We had a situation where an agent downloaded information before they left, then left,” he told The Real Deal. “We were very pleased with a just verdict,” he added.

Salem, who continues to work in the Hamptons, according to her LinkedIn profile, could not be reached. And her attorney, Folks, did not respond to a request for comment.

But back in March, Folks expressed his disappointment with the outcome. Regarding the listings, he told 27East.com that Salem “never used them, never downloaded anything, never took anything, never changed the system, didn’t do anything to it.” In the same article, Folks added that Saunders was a hypocrite: “Whenever he took on a new salesperson, it was expected that you would bring your listings with you.”

Some brokers appear sympathetic to Salem’s arguments, saying that thanks to the Internet, the times are changing when it comes to who owns what. “There’s nothing really proprietary about listings anymore,” said Paul Brennan, an agent and manager for Douglas Elliman. “The Internet has made them fair game for everybody.”

But Saunders contended that Salem pilfered far more than just bedroom count and pond proximity. In court documents, he lists “house security and alarm codes,” “location of hidden door keys,” “color-coded survey maps” and “property descriptions by professional copywriters” — among other items — as the type of information that should be protected.

A history of legal run-ins

Compass, which splashily launched in Manhattan in 2013 and the Hamptons in 2015 — and which many accuse of aggressive agent poaching — seems to frequently run into a buzz saw of lawsuits.

Indeed, almost since forming, Compass has butted heads with firms large and small, in both the Hamptons and New York City, including the Corcoran Group, Citi Habitats, Douglas Elliman and Modern Spaces. Rivals have portrayed the company as a new player trying to claw its way to market dominance using unethical and illegal tactics.

Charges in those cases have echoes of the Saunders conflict.

For instance, in 2014, Citi Habitats — then focused mostly on rentals — sued Compass for hacking into its off-limits proprietary database. Compass “misappropriated Citi Habitats proprietary information, using it to compete against Citi Habitats,” according to the brokerage’s suit. Specifically, Compass used the data to hire away agents and steal clients, the suit said.

The case was eventually settled under confidential terms, and Compass acknowledged it had accessed the database, according to a statement released at the time. Compass also “ensured and will continue to ensure that its employees and independent contractors understand their legal and ethical obligations going forward.”

Likewise, in 2015, Corcoran — which shares the same parent as Citi Habitats, NRT — accused Compass of a “coordinated, multi-front assault of unfair competition by Compass on Corcoran’s New York real estate business,” according to a suit Corcoran filed against the company.

Two agents from Corcoran’s office in Park Slope, Brooklyn, were among those named in the case. A senior managing director there, Patrick Brennan (no relation to Paul Brennan), was accused of stealing files with possibly “unannounced products and services; sales data; client lists; agent commission ‘splits’; agent and sales associate production; confidential client information; P&L reports; non-public financial information; and significant projects,” the suit said.

Maryanne Farrell, a sales agent in Park Slope, was accused of coming into the office after hours one night, connecting a laptop to a computer enabled with the firm’s proprietary TAXI software, and “downloading information from Corcoran,” according to the suit, which was also settled confidentially.

The most recent dustup centers around Modern Spaces, a 10-year-old firm focused on Long Island City. According to a suit filed in New York Supreme Court in February, Jessica Meis, an agent who left Modern Spaces for Compass in January after a three-month stint, stole “dozens of files” from the firm’s computer networks before she left. The files included photos of apartments, which ended up on Compass’s website, the suit said.

“This case represents the latest in a long string of lawsuits against the real estate startup Compass,” the suit went on to say, “whose main corporate strategy appears to willfully and unlawfully rely on undermining its competition.”

Compass declined to comment on the Salem verdict, but in an email, a spokeswoman commented on the Modern Spaces case: “Compass has never been found liable by court of committing any of the allegations set forth in Modern Space’s complaint.”

For some, these legal skirmishes reveal an industry that seems at times to have lost its way. “Buying” agents is not the way firms used to expand, nor is tapping into another company’s database, said Town & Country’s Desiderio, who has about 160 agents in eight offices on the North and South Forks. Instead, a growing brokerage would purchase another firm and absorb its intellectual property.“It is really kind of sad,” Desiderio said. “The industry has become so cannibalistic.”

Elliman’s Brennan said he does not make his agents sign noncompete agreements, though he recognizes why so many firms now seem to be using them. They came about as a result of online listings theft, he said, adding, “Somebody can come in and work for you for just a few minutes and then take all your inventory.”

Still, he said, agents who marketed a house while they were with a firm are entitled to a share of the proceeds once that property sells, even if a 70 percent split gets chopped to 50 percent. “Salem should have gotten her commissions,” Brennan said. In a counterclaim Salem filed, she said Saunders owed her hundreds of thousands in unpaid commissions.

The matter of who owns the listing, though, appears to be settled: When an owner markets a house, the contract is between the owner and the firm, not the agent, said Craig Price, an attorney with Belkin Burden Wenig & Goldman who handles real estate contract cases but who is not affiliated with the Saunders case. “The agent might be the person that you trust to market your house,” Price said. “But you are engaging contractually with the brokerage company.”

Devilish details

In the Hamptons, the Salem affair seemed to play out in cloak-and-dagger fashion, updated for the Internet age.

Saunders’ 2015 suit originally also named Vanessa Bogan and Jesse Spooner, two former Saunders agents. However, they settled with Saunders before the case went to trial — and agreed to testify against Salem.

On Nov. 2, 2015, Bogan, who was interested in relocating to Compass with her old boss Salem, went to Salem’s house and began downloading thousands of listings from Saunders’ database, according to the suit. In fact, over about 24 hours, she managed to email 10,994 sales and rental listings to Salem’s personal account, the suit said.

The next day, while Bogan was still frantically downloading, Salem went to meet Saunders for coffee at the Golden Pear Cafe in East Hampton to announce she was quitting, according to the suit. The meeting lasted just seven minutes. Bogan and Spooner were coming with her to Compass, Salem told Saunders, the suit said.

Bogan had worked at the firm for only nine months, Saunders said in the suit. Immediately after she left the firm, Saunders blocked the fresh Compass hires from his firm’s computer system. But the damage appeared to be done.

A few weeks later, after Salem had started at Compass, she handed Ed Reale, a senior managing director, more than a thousand pages of listings, the suit claimed: “Reale replied ‘that’s great’ or words to that effect, and told Salem the listings would be sent to ‘the guys in India’ for inputting into the Compass listing system.”

Salem also suggested that she still had access to her former employer’s email system, as she “responded with a big grin that emails sent to her Saunders email account were still being forwarded automatically to her personal email account,” the suit said, “and so she was able to keep track of developments.”

Both Salem and Bogan were fired from Compass when Saunders filed his suit, which led to a restraining order against Compass to keep the firm from further poaching Saunders’ agents. Spooner was not fired, but he later left Compass.

Also listed as a defendant in the initial suit was Jessica Grainger-Rozzi, a former Saunders administrator who had moved over to Corcoran. In the fall of 2015, she was allegedly asked by Salem to hack into Corcoran’s network, but instead she provided log-in information to Saunders’ system. Grainger-Rossi also reached a deal with the plaintiffs before this winter’s trial.

From Salem’s point of view, according to filings, the legal attack by Saunders has been nothing more than an attempt to sink a rival firm. Compass continues to make inroads in the Hamptons, with 68 agents and four offices. Saunders, meanwhile, has 221 agents and four offices.

Salem claims she’s the victim, and has almost categorically denied Saunders’ charges. In a counterclaim, she contends that he still owes her $429,777.50 in unpaid commissions, plus about $4.5 million in damages for defaming her character. In fact, Saunders’ comments to newspapers and websites were the equivalent of a “‘grass roots’ campaign to blacklist Ms. Salem from the Hamptons, New York real estate market,” which has rendered her “unemployable,” according to the counterclaim.

Yet the jury found that Salem is the one who owes Saunders $13,299.60, to cover the costs of the online investigators. Saunders, however, had initially sought more money (the amount was not specified) for the theft of “trade secrets.”

Next up

Judge Leonard Wexler, who presided over the case, died in March, so the case was transferred to Judge Joan Azrack, also of the Eastern District of New York.

It’s now for Azrack, then, to rule on whether the verdict against Salem should be overturned. Salem’s lawyers have cited two somewhat obscure procedures, according to the appeal. A decision is expected in late spring, Szyfer said, but was not available at press time.

If Judge Azrack lets the verdict stand, Salem could also file a traditional appeal, which would likely have to happen this summer.

Salem, in the meantime, is still selling Hamptons homes as an independent agent, though it’s not clear if she has any listings. In her LinkedIn profile, she describes herself as “honest, savvy and straightforward” and adds that “within the industry, Meg is well known for her innovative marketing and integrity.”

Spooner, meanwhile, currently works for Brown Harris Stevens but also does not appear to have listings. A message left for him was not returned.

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