From the Web to Court, a Real-Estate Broker Battles Lennar
A dispute between a local real-estate broker and one of the nation's largest home builders has mushroomed into a legal battle reaching all the way to Wall Street. At the heart of the fight is a Web site started by Mike Morgan, the real-estate broker, to collect complaints and dispense advice about what he considers shoddy workmanship on homes built by Miami-based Lennar Corp.
From the Web to Court, a Real-Estate Broker Battles Lennar
By MICHAEL CORKERY
July 21, 2007; Page B1
STUART, Fla. -- A dispute between a local real-estate broker and one of the nation's largest home builders has mushroomed into a legal battle reaching all the way to Wall Street.
At the heart of the fight is a Web site started by Mike Morgan, the real-estate broker, to collect complaints and dispense advice about what he considers shoddy workmanship on homes built by Miami-based Lennar Corp.
"People tell me I am the Ralph Nader of the housing industry," Mr. Morgan said in an interview.
|Mike Morgan says that after Lennar, it's 'on to the next builder.'|
Lennar sees it differently. The company has filed two lawsuits against Mr. Morgan -- in Circuit Court in Martin County, Fla., and in federal court in Florida's Southern District -- charging trademark infringement and defamation by spreading false information about the quality of its construction.
Lennar says many of Mr. Morgan's complaints about its workmanship are false and that according to its federal complaint he was using his Web site to extort money from the company. The builder says Mr. Morgan launched the site after Lennar wouldn't pay him as much as $225,000 in co-commissions on homes that he sold, but were later canceled.
Previously, companies might have felt free to ignore campaigns like these. But they're increasingly taking them more seriously as the Internet makes it easier for campaigns to spread nationally. Still, rarely do they spark such broad counterattacks from their targets.
"As a company with a 50-year history of exemplary customer service and integrity, we are left with no choice but to vigorously defend our company against those who attack our name and reputation with unfounded allegations," Lennar's chief executive, Stuart Miller, said in a statement.
On Friday, Mr. Morgan was dealt a setback when a federal magistrate judge recommended a preliminary injunction preventing him, among other things, from using the word "Lennar" in Web-site domain names.
The magistrate wrote that while the Web site presents itself "for the sole purpose of advancing the public good, it actually appears" that Mr. Morgan sought to use the site for "private gain." The magistrate added that Mr. Morgan "has a motive to harm Lennar" because of the real-estate dispute.
Mr. Morgan says he is exercising his First Amendment right to free speech in trying to help Lennar customers.
Mr. Morgan, 51 years old, isn't a typical real-estate broker. In recent years he moonlighted as a consultant to hedge funds and Wall Street analysts seeking information about the important Florida housing market.
He also runs a small Internet marketing company and has used his Internet savvy to attract hits to his Web site from Lennar home buyers across the country.
It's not uncommon for homeowners to gripe about builders even in the best of times. But this legal battle comes as U.S. builders face mounting lawsuits and complaints from buyers wanting out of their contracts due to the softening real-estate market.
In recent years, Mr. Morgan had gained some measure of influence for his opinions on the Florida housing market. Alex Barron, a former housing analyst at JMP Securities in San Francisco, said in an interview that Mr. Morgan led him and some of his hedge-fund and mutual-fund clients on an informational tour of Florida real-estate projects.
Mr. Barron described himself as previously one of the "most bullish analysts on the Street," but said Mr. Morgan "was instrumental in changing my views."
Battle With an Analyst
Mr. Morgan says the legal battle has hurt this kind of consulting work. In April, Ivy Zelman -- formerly of Credit Suisse and a prominent housing-stocks analyst on Wall Street -- stopped communicating with Mr. Morgan about the Florida market, saying in a deposition in one of the Lennar lawsuits that she had decided Mr. Morgan was "using me as a pawn in his bigger scheme of whatever he was attempting to do."
Mr. Morgan says Lennar pressured Ms. Zelman to halt their discussions. Lennar denies that allegation. The company "never pressured Ivy Zelman to terminate any relationship with Mike Morgan," says Mark Sustana, Lennar's general counsel.
Ms. Zelman and Credit Suisse declined to comment.
Mr. Morgan moved to Florida and became a real-estate agent in 2004. He'd worked previously in marketing at a group of resort hotels in Pennsylvania's Pocono Mountains, but left in a dispute after he added hours to the timecard of a mailroom employee who needed money, Mr. Morgan said in his deposition.
In an interview, Mr. Morgan said it was an unusual situation: The worker's normal hours had been cut, and she needed the income, so the employee agreed to make up the hours later.
Mr. Morgan moved to Stuart, a quiet town north of Palm Beach, obtained a real-estate license and started selling homes.
About 30 of his clients had signed up to purchase Lennar homes in 2005 when the housing market was strong and prices were surging. Mr. Morgan himself bought a Lennar home there.
But in the spring of 2006, the market was cooling and buyers started looking for ways to break their contracts, Lennar says.
Mr. Morgan says his clients never asked him to help break their contracts. Nonetheless, he says he felt obligated to raise with the builder and local officials omissions in the builder's disclosures to buyers. For instance, Lennar didn't disclose that a nature preserve next to some properties would allow limited public access.
Mr. Sustana, the lawyer for Lennar, says the company felt its contracts were entirely fair. Nevertheless, Lennar made an unusual gesture: In June 2006, it offered to return deposits to all 130 buyers, with interest, and rescind their contracts. In total, 114 buyers accepted the offer, canceling about $41 million in sales.
According to Mr. Sustana, Lennar didn't want to get into a fight with its customers. "We would rather give them their money back."
At the time, the average selling price of those homes was $365,000. Since then, Lennar has closed a total of 68 homes in the development with an average selling price of $255,000.
With his buyers released from their contracts, Mr. Morgan told Lennar it still owed him commissions on the canceled homes, arguing that Lennar's omissions from the contracts were the reason the deals fell apart. Lennar said it wasn't contractually obligated to pay him commissions.
Birth of the Web Site
In June 2006, Mr. Morgan emailed Lennar executives and unveiled a Web site he created to highlight alleged construction defects in Lennar homes.
In a June 5, 2006, email, contained in the Circuit Court file, Mr. Morgan wrote: "Seeing as though Lennar has cost me hundreds of thousands of dollars in revenue, I have chosen to make a living on the other side of this, through my website in marketing of the defect and code issues to potential buyers and current buyers."
Mr. Morgan's site, defective-homes.net, encourages homeowners to write to Lennar's executives, national and local news reporters, and the company's board members with their complaints.
The lawsuit in the Circuit Court is entering its second year.
On May 29, Mr. Morgan wrote a letter to the judge, Larry Schack, stating that "I will not be filing any more documents, nor will I be appearing for any hearings or court dates absent a subpoena. I've had it." Last month, Mr. Morgan filed a motion requesting Judge Schack recuse himself, saying he's biased in favor of Lennar and has "lost control of this case."
The judge, who declined to comment for this article, denied Mr. Morgan's motion, which he called "legally insufficient." In a case-management order last month, Judge Schack wrote that during his 17 years on the bench, "One could count on the fingers of a careless butcher the number of cases that have required this level of court monitoring and involvement."
In an email to a Wall Street Journal reporter last month, Mr. Morgan said he hopes the ultimate result of the fight will be that Lennar addresses his criticisms.
"Once that is done," Mr. Morgan wrote, it's "on to the next builder."
Write to Michael Corkery at