Yesterday, federal Judge Jeannette Vargas of the Southern District of New York ruled on a petition by Zillow regarding the deal for Anywhere, allowing the portal giant to examine documents and communications in an attempt to determine if Compass misrepresented its reliance on private listings.
Vargas denied a request by Zillow to question Compass CEO Robert Reffkin personally on the deal.
Separately, in a letter also filed yesterday, Zillow’s lawyers asked Vargas to reconsider whether a full evidentiary hearing is necessary in the lawsuit, arguing that the brokerage has failed to prove the irreparable harm claims from Zillow’s new listing rules.
The high-stakes back-and-forth comes as two of the largest companies in real estate butt heads over fundamental business practices, while also both seeking to expand through mergers and deals. Zillow’s rental “partnership” with Redfin is currently being challenged by regulators, and Compass’s surprise bid for Anywhere promises to rebalance power structures in real estate.
While Zillow has not alleged that it has any evidence that Compass was “inconsistent” in its representations as part of the Anywhere deal, the company argued it should be allowed to check and see if the brokerage is privately describing the impact of Zillow’s new policy—which disallow most private listings—differently than it has publicly.
Vargas partially agreed, denying some of Zillow’s broader requests but writing that communications to Anywhere could be important in determining whether Compass is suffering “irreparable harm.”
“The Court does find…that certain discrete categories of documents are potentially relevant. Specifically, disclosures made by Plaintiff to Anywhere Real Estate…regarding this litigation or the impact Zillow’s Listing Access Standards is anticipated to have on (Compass’s) business bear directly on the issue of irreparable harm,” Vargas wrote.
Compass previously argued the Anywhere deal was “irrelevant” and providing the requested documents—which include all communications and disclosures related to the financial impact of the new Zillow rules, as well as communications about the lawsuit itself—was an “undue burden” and a “wide-ranging sideshow” unrelated to the issues of the lawsuit.
Representatives from Compass and Zillow did not immediately respond to requests for comment.
The letter
In the separate letter, Zillow’s attorneys argued more broadly that Compass’s expedited discovery has undermined its request for a preliminary injunction on the Zillow rules on multiple fronts, which Compass claims prevented it from implementing its 3-Phased Marketing Strategy (3PM).
According to the letter, Compass initially claimed that Zillow’s standards blocked its marketing approach, confused investors and led to lost clients and agents. However, Zillow’s legal team says witness testimony directly contradicts those claims.
According to the depositions cited in the filing, nearly every Compass witness admitted the company continues to implement 3PM in some form. Compass CEO Robert Reffkin reportedly testified that the brokerage is “still doing private exclusives today” and that homeowners are “still choosing to work with Compass agents to do coming soons.”
Notably, on the same day of the filing, Compass’s President of Growth, Rory Golod, sent an email to all of the company’s national sales leaders stating that “private exclusives and the Compass (3PM) are still allowed under Zillow’s ban and we encourage every agent to share the benefits of them with their clients.”
The expedited discovery also highlighted Compass’s strong financial position, with Soham Bhonsle, the company’s head of Investor Relations, testifying that since Zillow began enforcing the standards in June, Compass’s stock price had increased by approximately 40%.
Beyond the irreparable harm point, Zillow argues that Compass’s Section 2 antitrust claim fails as a matter of law. In the letter, Zillow’s legal counsel contends that Compass’s expert, Dr. Debra Aron, failed to establish that Zillow has a duty to deal with Compass on its preferred terms or that the standards lack legitimate business justifications.
In the letter, Zillow maintains that it has procompetitive rationales for the standards, including preventing freeriding, improving listing quality and promoting transparency in the market.
Proposed next steps
Zillow proposed two options for Judge Vargas—either short briefs filed within two weeks to determine if live testimony is necessary or postponing the scheduled November hearing to December to allow the court more time for consideration.
Under the current schedule, supplemental briefs are due on Oct. 31 for Compass and Nov. 12 for Zillow, only three business days ahead of the hearing.
