Avi Dorfman Compass Settlement: Legal Battle Resolved

Settlement Reached in Long-Standing Compass Co-Founder Dispute

Avi Dorfman, an entrepreneur who initiated legal action against Compass seven years prior concerning his recognition as a co-founder, has now received a settlement and formal acknowledgement from the publicly traded real estate firm. This resolution arrives shortly before the anticipated trial date for the continuing litigation.

Details of the Lawsuit

Dorfman had been seeking a $200 million stake in the company, as outlined in court documents, to reflect his contributions and pivotal role in the company’s development. He asserted his expertise was instrumental in shaping the business.

In a statement provided to TechCrunch, Dorfman expressed his satisfaction, stating, “I am pleased to have been recognized as a member of Compass’s founding team and to have resolved this dispute in a manner that is satisfactory to both sides. I wish [CEO] Rob Reffkin and the Compass community only the best.”

Compass's Response and Financial Impact

A Compass spokesperson acknowledged “Mr. Dorfman’s work in the early days of Compass as a founding team member of the company” in an official statement.

The company disclosed a $21.3 million charge in an SEC filing related to the settlement, alongside its recent earnings report. However, the precise total amount of the settlement remains confidential.

Timeline and Initial Allegations

Dorfman originally filed the lawsuit in 2014, just two days after Compass announced a new valuation of $360 million. Currently, Compass’s market value is approximately $4.4 billion.

The initial complaint filed by Dorfman alleged that “Despite the company’s astronomical success due, in part, to Dorfman’s significant contributions towards conceptualizing, creating, and launching the company, Dorfman was intentionally and wrongfully cut-out.”

Furthermore, the lawsuit claimed that Compass had improperly used trade secrets originating from RentJolt, Dorfman’s previous company, violating a pre-existing non-disclosure agreement.

Compass's Defense

Compass countered that Dorfman’s lawsuit stemmed from an opportunistic motive. The company’s motion for summary judgment stated: “Having spurned multiple offers of employment to join Reffkin’s new real estate venture, Dorfman now seeks a do-over of that decision, claiming he should be awarded tens of millions of dollars in equity in Compass — far in excess of what he could have earned if he had actually chosen to join that venture and invested his time and energy building it into the successful company it is today.”

In its summary judgement filing, Compass asserted that it underwent a significant transformation, evolving “from a start-up venture into a successful real estate technology company.”

The Rise of Founder Disputes

This case highlights the increasingly prevalent and complex challenges that can emerge between founding team members during the initial stages of a business. Early decisions are often made informally, and formal contracts may be delayed.

Notable examples of similar founder disputes include the legal battle between the Winklevoss twins and Facebook’s Mark Zuckerberg, and the dispute between Reggie Brown and Snapchat.

Insights from Legal Expert

Arun Subramanian, a partner at Susman Godfrey who represented Dorfman in this case, discussed with TechCrunch the growing frequency of founder disputes in the current fast-paced startup environment.

“We’re in an ideas economy, and so there are more and more companies and successful ventures that are premised on ideas as opposed to products,” he explained, contrasting this with previous eras. He noted the difficulty in quantifying contributions in the modern economy.

He further elaborated, “As we shift into the ideas economy, it is natural that we will have more of these issues come up where a particular individual says ‘I played a role in the development of this technology, but in the infancy of the business you kind of left me on the sidelines and now, that technology, those ideas, that I helped build are extremely lucrative.”

Current Ventures and Market Performance

Currently, Dorfman is the founder of Clearing, a digital health startup focused on chronic pain, which has secured $20 million in funding. Compass, since its initial public offering last April, has experienced volatility in the stock market, with its share price declining by nearly 40% from its opening value.