[The Real Deal] – A co-owner of Rutenberg Realty is suing the brokerage and firm heads Paul Purcell and Kathy Braddock for almost $2 million, claiming they have failed to pay him any dividends since the company’s founding, a new lawsuit filed in New York State Supreme Court says.
The suit was filed last Friday by Joseph Moshe, who heads the large Long Island branch of the Rutenberg franchise and is a co-owner of the New York City office. He claims in the suit that Braddock and Purcell are improperly siphoning funds from the New York Rutenberg office, and that they are competing against the firm with their own consulting company, Braddock + Purcell.
According to the complaint, Moshe is seeking at least $1.9 million in monies he says he is owed, including distributions paid to Braddock and Purcell that he claims should have been directed to Moshe.
Braddock declined to comment, but Purcell said he anticipates the dispute will be resolved amicably.
“I have every expectation that we can have a swift resolution to this,” he said. “All I want to do is run a business and make everybody money.”
Moshe and his attorney did not respond to requests for comment.
Moshe is the trustee and sole beneficiary of an entity called the Krug Family Trust, which controls the Rutenberg name in New York state, according to court papers. Moshe owns one-third of New York City’s Rutenberg Realty, while Purcell, Braddock and two other investors each own one-sixth of the brokerage.
The lawsuit underscores the tension between outside partners who expect a certain return on their investment and believe they are not being paid their fair share. In a similar suit filed in 2008, Timothy King, as a minority partner with the Brooklyn office of investment sales firm Massey Knakal Realty Services, sued to discover how much the firm was making to know with certainty his ownership stake. State court records show that case was disposed of in 2009, when the dispute was sent to arbitration. Such court actions are known as derivative lawsuits, because the plaintiff, as an owner of the company, is suing on behalf of all owners who are allegedly being harmed by the actions of those leading the company.
The dispute also raises questions about the profitability of the “100-percent commission” brokerage model, which has grown in popularity in recent years, due in large part to Rutenberg Realty. Founded in 2006, Rutenberg has become one of the fastest growing firms in the city under the leadership of Prudential Douglas Elliman veterans Purcell and Braddock. The firm charges set transaction and monthly fees rather than taking a percentage of agents’ commission checks.
The firm expected to begin quarterly profit distributions in February 2008, the lawsuit says, but no money was ever sent to the Krug Family Trust. The suit claims that $480,000 was improperly distributed to Purcell, Braddock and others, under the “guise of general business expenses and/or consulting fees.”
To check up on the situation, Moshe asked to review the financial records, but claims he has not been given access.
In addition, the lawsuit alleges that Braddock + Purcell is competing for business with Rutenberg Realty, and is not paying rent although it operates out of the same office space.
Terrence Oved, a partner with the law firm Oved & Oved who is not involved with the litigation, said those claims are particularly biting.
“It’s a very reprehensible allegation to say that not only are [Braddock and Purcell] not diligently and faithfully and accurately performing their duties to [Rutenberg Realty], but they have formed a competing business in breach of fiduciary duties at the cost and expense of [Rutenberg Realty],” he said.
But real estate insiders had high praise for Purcell and Braddock.
“They are fantastic people and experienced brokers,” said Lawrence Link, president of the residential firm the Level Group, which operates under a 100-percent-commission plus transaction fee model, like Rutenberg. Because of the similar model, they speak frequently, Link said, adding: “I have the utmost respect for them.”
But Link noted that the high-commission-split model, by definition, is less profitable for firms than the traditional model, in which the house often takes around 50 percent of each broker’s commission.
“The transaction fees don’t come anywhere near 50 percent,” Link said. “You try and provide a high-quality, well-designed platform for a lower margin. You just know that at the outset.”