Compass settles lawsuit out of court

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After a seven-year legal battle, Compass has rewritten its history to include tech entrepreneur Avi Dorfman as one of the brokerage’s founders.

Dorfman sued Compass and CEO Robert Reffkin in 2014 after Reffkin allegedly reneged on an agreement to acquire Dorfman’s rental startup, RentJolt, cutting Dorfman out of a founding stake in the company. The case was headed for trial until the parties settled this month for an undisclosed sum, court records show.

Neither Compass nor Dorfman would comment on the specifics of the deal because of confidentiality terms of the settlement. Compass, however, reported a $21 million legal charge related to the case in its third-quarter earnings last week. But the full sum of the settlement is unclear as the company previously set aside an undisclosed amount for future liabilities including the lawsuit.

At the time, that would have put Dorfman’s stake between $68.4 million and $79.2 million. In 2019, when Compass’ valuation shot up to $6.4 billion after its Series G round pricing shares at $154.27, Dorfman’s stake would have penciled out to north of $300 million. The company argued that he was entitled to nothing.

As the company was gearing up for its initial public offering in April, it was aiming for a $10 billion valuation, which would have put Dorfman’s requested stake even higher, but Compass did not meet its goals, slashing its share price to $18 for the IPO, valuing the company at just under $7 billion.

The settlement, however, is surely for an amount lower than what Dorfman sought and higher than the $21.3 million set aside in the firm’s recent disclosure, and would be in cash, not shares. (Had the case gone to trial and Dorfman had been awarded a stake in the firm, its value would have depended on the share price at the time.)

Over the next three months, Dorfman shared trade secrets from his company, RentJolt, that laid the groundwork for Compass’ back end, prepared Reffkin to pitch Goldman Sachs for the brokerage’s seed funding and introduced him to Compass’ first major hires, such as founding engineer Paul Groudas.

Compass (then known as Urban Compass) launched in spring 2013 and locked in another two rounds of funding, bringing the firm’s valuation to more than $360 million after just 14 months of operation. Dorfman filed his suit in July 2014, demanding compensation and damages.

In a statement, Dorfman said he was “pleased” to resolve the dispute and be “recognized as a member of Compass’s founding team. I wish Rob and the Compass community only the best.” Dorfman has since founded two health care startups, Salvo Health and Clearing, where he is CEO.

“We are pleased to have resolved this dispute in a manner that is satisfactory to both sides,” said a Compass spokesperson. “We acknowledge Mr. Dorfman’s work in the early days of Compass as a founding team member of the company.”

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