Compass’s acquisition of Anywhere could end up having a major impact on its lawsuit against Zillow, as the portal giant is seeking to determine if Compass contradicted its assertions about the value of private listings through the proposed mega-merger.
A joint letter filed by the two companies to U.S. District Judge Jeannette A. Vargas in the Southern District of New York disputed whether additional discovery, including another deposition of Compass CEO Robert Reffkin, should be allowed to determine whether “Compass made representations or disclosures to Anywhere…that are inconsistent with the theories of harm it claimed” in the lawsuit.
“Compass claims that it will be irreparably harmed because it ‘staked its future’ on implementing its 3-Phased Marketing Strategy (3PM),” Zillow’s lawyers wrote in the letter. “Zillow is entitled to test whether (Zillow’s rules or 3PM) are as material to Compass’s business as it claims.”
Compass countered that Zillow’s request for documents and the additional deposition of Reffkin, “unduly burdens Compass and the Court with a wide-ranging sideshow of an unrelated transaction. The information that Zillow demands is neither relevant to the Court’s consideration of Compass’s preliminary injunction motion nor proportional to the expedited discovery phase in this phase of the case.”
Back in the summer, Compass sued Zillow over the portal’s new rules regarding private listings, after Zillow banned most properties that were previously listed on private networks and withheld from the MLS (and Zillow). Compass has claimed that these rules were both designed and implemented to undermine its private listing-focused business model, while Zillow has defended the restrictions as pro-consumer and intended to support transparency in real estate.
As Compass seeks a court order to temporarily block the new rules, the Anywhere acquisition—still not finalized—could reveal just how important the 3PM model is to Compass, and what its plans are when (or if) the Anywhere acquisition closes.
Zillow noted that Reffkin attested in court filings that 3PM is “essential to the future of Compass and its growth” and that “the damage to Compass’s goodwill amongst its agents and clients is irreversible”; and that “uncertainty and confusion has caused Compass’s investors to doubt the soundness of their investment and the future growth of the company.”
“Other analyses of Compass’s projected stock value, financial performance, and agent recruiting as a result of the (Anywhere deal) may show the extent to which Compass actually believes it will be harmed by the (Zillow rules), and whether it in fact staked the future of the company on implementing 3PM,” Zillow’s lawyers wrote.
Zillow also broadly pointed to Compass’s financial health and cited the brokerage’s Q2 earnings report, when the company touted all-time high revenue and agent growth, as evidence the Zillow rules had not impacted its business—though notably, Zillow had not fully implemented the private listing restrictions at that point.
If Vargas does rule in Zillow’s favor, the information could provide a glimpse into the company’s overall plans for both Anywhere and the usage of private listings as it becomes the largest real estate brokerage in the country. Zillow is specifically seeking “synergy and efficiencies analyses and documents that analyze the potential for sales growth and geographic expansion” through the Anywhere deal.
A short “evidentiary” trial is scheduled for November, in which both sides will provide expert witnesses and other testimony regarding whether the Zillow rules need to be blocked in order to prevent “irreparable harm” to Compass.
Behind the scenes
For the most part, Compass pushed back by claiming that Zillow can find information on the transaction publicly, adding that the Anywhere deal is irrelevant to the lawsuit.
“Zillow is incorrect that Compass’s ability to engage in the transaction with Anywhere has any bearing on the Court’s upcoming irreparable harm analysis. Compass’s merger announcement does not erase or contradict the harms identified” in the lawsuit, Compass’s lawyers wrote.
Compass also noted the deadline for discovery on the court-ordered injunction issue has already passed, arguing that Zillow could have asked Reffkin about “potential acquisitions” during the first deposition and specifically pointing to media reports that Compass had considered buying HomeServices back in the spring.
Zillow stated it had no reason to believe that Compass was considering a substantial merger, particularly in light of the harms alleged by Compass.
Compass further wrote, “Zillow’s demand for an additional two-hour deposition of Mr. Reffkin is similarly burdensome and not proportional. Zillow already deposed Mr. Reffkin for a total of four hours regarding all of Compass’s allegations in its preliminary injunction motion. An additional two-hour deposition focused on collateral merger issues would be cumulative and disproportionate to the needs of this case.”
Regarding the financial health of the company, Compass wrote that Zillow “is incorrect that the company’s ability to purchase Anywhere has any bearing on the irreparable harm analysis. Compass’s merger announcement does not erase or contradict the harms identified in its motion for a preliminary injunction and the harms resulting from the Zillow Ban are imminent and non-quantifiable, including loss of competitive advantage, harm to Compass’s reputation and prospective goodwill, and loss of future business opportunities.”
“(E)ven financially sound companies can be harmed by anticompetitive conduct,” Compass added.
Zillow is asking Compass to turn over the relevant documents within 10 days and allow Zillow a two-hour deposition of Reffkin regarding the Anywhere transaction before Oct. 17. Vargas had not yet ruled on the request at press time.
Jesse Williams contributed to this reporting.
