The Greater San Diego Association of Realtors filed a federal lawsuit Thursday against its own MLS, Sandicor Inc., and its fellow Sandicor shareholders.
GSDAR owns Sandicor, which has 19,500 members, along with the North San Diego County Association of Realtors and the Pacific Southwest Association of Realtors.
GSDAR, which has more than 12,000 members, makes the following allegations:
- Sandicor and the other shareholders have denied GSDAR access to its own MLS data
- The other shareholders have used Sandicor to compete unfairly with GSDAR for members
- The other shareholders have used Sandicor funds to “push” a potential merger with California Regional MLS — the nation’s largest MLS at nearly 80,000 members
“Although Plaintiff owns a supermajority of Sandicor’s outstanding shares and contributes most of Sandicor’s funding, Sandicor’s board is controlled by PSAR and NSDCAR,” attorneys for GSDAR wrote in the complaint.
“They have used this position of power to wield Sandicor as an anticompetitive weapon, milked its resources for their own enrichment, and frustrated its purpose, all while actively preventing Plaintiff from participating in corporate decisions.”
The complaint’s claims against Sandicor, the North San Diego County association and the Pacific Southwest association include breach of fiduciary duty, waste of corporate assets, “unfair, illegal, and/or fraudulent business practices,” and breach of written contract, among other claims.
NSDCAR and PSAR are also accused of violating state and federal antitrust laws, breach of fiduciary duty by controlling shareholders and intentional interference with contractual relations.
Board voting skewed
Sandicor CEO Ray Ewing declined to comment for this story, noting that he and Sandicor’s legal counsel had not seen a copy of the complaint until Inman’s inquiry.
In an emailed statement, PSAR CEO Richard D’Ascoli said, “We are deeply disappointed that SDAR has taken this step. PSAR is a member driven organization that remains focused on serving Realtors together with the National Association of Realtors and the California Association of Realtors.
“We will be reviewing the matter with legal counsel who has advised us not to comment further at this time until we can review the allegations made.”
The North San Diego County Association of Realtors also said it was “very disappointed” by GSDAR’s choice to file a lawsuit.
“We firmly believe the claims made in the lawsuit are without merit and therefore will be denied. The North San Diego County Association of Realtors has always acted in the best interests of its members and will continue to do so,” the association said in an emailed statement.
NSDCAR did not respond to a request for comment by publication time.
According to the complaint, although each of the three associations have two members on the Sandicor board and GSDAR is the majority shareholder in Sandicor, the board’s voting formula only gives GSDAR four-elevenths of the voting power.
This means, GSDAR’s attorneys allege, that PSAR and NSDAR have been able to “dominate and control” Sandicor’s board and proceed with certain projects over GSDAR’s objections, including:
- “exploring, approving, and creating a task force to investigate a merger with CRMLS, which, if the merger went through, will diminish the value of Sandicor’s database;
- “authorizing Sandicor to develop a Web portal that competes with one its shareholders (Plaintiff) at great expense and without the necessary shareholder approval; and,
- “preventing Plaintiff from obtaining a data feed to use in conjunction with its Web portal while allowing other consumer-facing websites to have feeds from Sandicor.”
According to the complaint, GSDAR’s share stake in Sandicor is about 68 percent, followed by NSDCAR at about 22 percent and PSAR at about 10 percent.
Data-share agreement could ‘destroy and devalue’ MLS database
GSDAR also objected to a data-share agreement between Sandicor and CRMLS, also announced Thursday. In the complaint, GSDAR’s attorneys claimed agreement “threatens to destroy and devalue Sandicor’s most valuable asset: its database.”
CRMLS CEO Art Carter told Inman that was not a fair statement.
“The value of the database in CRMLS’s opinion is derived by how many eyeballs can be placed upon that data and from our standpoint a datashare increases the value of the database, not decreases,” he said.
He confirmed that CRMLS and Sandicor have been in merger talks since November 2012, with the most recent meeting taking place this week.
“From CRMLS’s standpoint the enthusiasm in the room seemed to indicate to us that there was a lot of support from their brokerage community in having a merger occur,” Carter said.
CRMLS was not aware of GSDAR’s displeasure at the idea of a merger until about six to eight months ago, he said. “Whether or not they voiced it internally is unknown to us,” he added.
According to the Greater San Diego association, if the merger were to go through, “it would destroy the value of Sandicor and value proposition offered by the Associations. The merger would also dramatically impact each Association’s operational revenue.”
In response to the allegation that a merger would destroy Sandicor’s value, Carter said, “It’s CRMLS’s position that our database is made up by information that is directly attributable and owned by the brokerage community and as such the brokerage community should have a say in the dissolution or use of that database.
“We were a little bit surprised that Greater San Diego has taken the position in the lawsuit that the business purposes of the association might be of a higher concern than the brokers’ needs, wants and desires.
“We’re also a little bit surprised by the statements in the lawsuit that signify San Diego is a unique and isolated marketplace. The 2,300 shared members between Sandicor and CRMLS probably would differ with that statement.”
CRMLS is not a party to this lawsuit.
The complaint also accuses Sandicor CEO Ray Ewing of using his position “to market the ‘benefits’ of a merger, while defaming Plaintiff to its members and other third parties, and actively encouraging Plaintiff’s members to leave Plaintiff in favor of the Association Defendants.”
GSDAR’s attorneys noted that the association has opposed renewal of Ewing’s contract, “but has been unable to be heard by the current board.”
Competition between associations
Instead of trying to compete directly with the Greater San Diego association, NSDCAR and PSAR have been using Sandicor to provide benefits and services to their own associations paid for mainly with funding from the Greater San Diego association, the complaint alleges.
Specifically, GSDAR claims Sandicor has denied the association a current and historical MLS data feed — which it is entitled to by shareholder agreement — for its hyperlocal website, Just Knock, launched in 2015.
“The fact that Plaintiff is utilizing the MLS data to create innovative programs and services for its members has been seen as a direct competitive threat by PSAR and NSDCAR,” GSDAR’s attorneys said.
“In response, and to frustrate and prevent competition, PSAR and NSDCAR conspired to cut off GSDAR’s access to the MLS data in its entirety.”
After Sandicor denied GSDAR a direct feed, the association contracted with third-party syndicator Point2 to receive Sandicor’s syndicated MLS feed. The other associations then told Point2 to eliminate their members’ data from the Just Knock feed, reducing the data feed by 30 percent, according to the complaint.
The other associations also took steps to ensure their members would not have the option to opt-in to Just Knock syndication, the complaint added.
The Greater San Diego association also asserts that the Pacific Southwest association and the North San Diego county association denied GSDAR an MLS data feed for its Showing Suite offering “unless GSDAR agreed to make Showing Suite also available for use by the other competing associations, PSAR and NSDCAR, so GSDAR could not use it to compete for members against them.”
“GSDAR’s products and services allow for more informed purchasing decisions, reduce transaction costs and other inefficiencies among buyers, sellers, and brokers, and above all, connect prospective clients with its member-brokers,” GSDAR’s attorneys said.
“These products and services are a competitive threat to PSAR and NSDCAR because GSDAR’s products and services are a primary reason that brokers choose to join GSDAR over PSAR and NSDCAR.”
NSDCAR’s and PSAR’s “collusive actions have stifled GSDAR’s efforts to provide the innovations it has invested time and money developing, including Just Knock and Showing Suite,” they added.
“GSDAR has lost members and has not obtained new members it would have obtained but for PSAR and NSDCAR’s conduct.”
In addition, GSDAR accused the other associations of causing Sandicor “to incur more than $75,000” to build a consumer website for Sandicor “for the sole benefit of PSAR and NSDCAR, and to the detriment of GSDAR.”
“[R]ather than devoting their own resources to producing a Web portal for the benefit of their own members, the Association Defendants impermissibly used their control of Sandicor’s Board of Directors to create a website that directly competes with Plaintiff’s Web portal, at great expense and over Plaintiff’s objection, for the sole benefit of the Association Defendants,” the complaint said.
The creation of a competing consumer portal was a “type of activity was beyond the scope of Sandicor’s duties and was the exclusive responsibility of the Associations,” the complaint added.
GSDAR also accuses the other associations of using Sandicor to provide educational programs, products and services that are typically provided by individual associations for their members.
“Indeed, Plaintiff provides these types of services to its members, and has incurred substantial time and expenses in developing these services,” the complaint said.
“Rather than incurring the expense of providing these services themselves, the Association Defendants opted to, instead, use Sandicor’s funds (which, again, are provided primarily by Plaintiff) to provide their members with these value-added programs/services.”
The complaint demands, among other items, a jury trial, a minimum of $1.5 million in damages, restitution, a “judicial determination” of disputes between Sandicor shareholders in regards to its corporate structure, and an order compelling Sandicor to produce for inspection its books, records and documents regarding its finances and operations, the datashare agreement and the potential merger.
Editor’s note: This story has been updated with further details from the complaint and comments from PSAR and NSDCAR. The headline has also been updated to correct that Sandicor has been accused of unfair business practices, not antitrust violations.