Acquiring a Realtor from a Competing Firm leads to Lawsuit

Compass – a New York based real estate firm – has been sued in federal court over an agent they hired from a competing brokerage.

Post-2008 has showed increased mergers, acquisitions and movement of real estate agents among firms.  The tapering revenue and desire to expand geographically has fueled the corporate side of this movement.  The search for more money, more prestigious firms or a better work balance spurs individuals into moving.  However, these transactions are not without their risk.  Compass found out first hand just what that risk could mean.

In this specific lawsuit, Compass hired Meg Salem from Saunders & Associates.  The problem was that Ms. Salem took with her over an alleged 11,000 listings from her former firm and handed them to Compass.  In the most recent court documents, it has been revealed that listings have been returned and the agent has been fired.  However, Saunders claims that only a fraction of the stolen records were returned and they need them all.

Compass argues that they have nothing left to do as they have not acted on the listings, returned the listings and also fired the agent who did the improper act.  Compass explains that Saunders is trying to “stifle legitimate competition from Compass” in their overlapping market.

Compass was founded in 2013, but with investor capital.  Now has raised $123M in funds, hired 300 agents and is reportedly nearing 800M in valuation as a firm.  It is by no means a small company or an unsophisticated one.

However, most firms do not have this level of resources, so hiring practices should be an item to take careful note of.  Firms should make it clear prior to hiring an experienced real estate agent that no resources from the previous firm should be brought over.

Relationships follow the person, but files, documents or other proprietary data should not.  It is important to make this a very clear item during both the interview and the on-boarding process.  It is also wise to have this rule noted in the firm’s policy manual.

To discuss ways to protect your firm or about ways insurance can provide a backstop when sued, contact us today.