A federal judge is allowing antitrust claims against two California Realtor associations to go forward, keeping the fate of one of the nation’s largest MLSs up in the air.
In January, the Greater San Diego Association of Realtors (SDAR) filed a federal lawsuit against its own MLS, Sandicor Inc., and its fellow Sandicor shareholders, the North San Diego County Association of Realtors (NSDCAR) and the Pacific Southwest Association of Realtors (PSAR).
The suit alleges NSDCAR and PSAR have denied SDAR access to its own MLS data and used Sandicor to compete unfairly with SDAR for members.
As the number of MLS and association mergers rises, the power struggle among these three associations illustrates some of the risks inherent to an industry in which listing data control is paramount, and competitors — be they agents, brokers, associations or MLSs — regularly cooperate to close home sales.
In October, NSDCAR and PSAR filed a separate lawsuit asking a state court to order the dissolution of the regional MLS for the purposes of, they say, protecting their rights and interests in the MLS’s data.
SDAR, which owns more than two-thirds of Sandicor’s shares, has intervened in that case, urging the court to allow SDAR to buy out its fellow shareholders instead of dissolving the MLS.
Sandicor itself has submitted a legal filing asserting that NSDCAR and PSAR don’t have the right to dissolve the MLS. The MLS, which has 19,500 members, did not suggest an alternative, such as a buyout.
Antitrust claims ‘plausible’
On Monday, U.S. District Judge Michael Anello affirmed a ruling finding that two antitrust claims against Sandicor’s minority shareholders, NSDCAR and PSAR, crossed a line from “possible” to “plausible.”
In its third amended complaint, SDAR alleged that the two other associations prevented Sandicor from providing SDAR with a complete MLS data feed for Just Knock, a public-facing listing site that SDAR was developing.
SDAR claims it is entitled to an unrestricted data feed — with listings submitted not just by SDAR’s members but also by members of NSDCAR and PSAR — under Sandicor’s service center agreement. Sandicor, NSDCAR and PSAR deny this.
Because the three associations compete for agent and broker members through the services they offer, SDAR alleged NSDCAR and PSAR conspired to eliminate a competitive threat — “innovation in the delivery of MLS information” (Just Knock) — and to get rid of “their only other competitor in the market for broker-member services” (SDAR).
SDAR claimed a minimum of $1.5 million in damages from the loss of its investment in Just Knock, loss of advertising revenue the association would have gained from the site, and for at least 200 members the association claims it would have recruited or retained had the site launched as planned.
Because of Sandicor’s governance structure, although SDAR owns a majority of the MLS’s shares, it holds only four-elevenths of the voting power on Sandicor’s board of directors.
SDAR alleged that NSDCAR and PSAR “have already merged in all but name,” but are maintaining “a fiction of separateness” because the governance structure gives them greater power over the MLS data that way.
NSDCAR and PSAR announced an agreement to share member services on July 1, though the announcement noted that the associations would remain independent.
In their motion to dismiss the complaint, attorneys for the smaller associations noted that the “obvious alternative explanation” for the shared services agreement was that the associations “agreed to cooperate on certain matters in order to increase their efficiencies.”
But Judge Anello deemed defendants’ arguments “unpersuasive at this juncture.”
He noted SDAR’s many allegations of concerted action between NSDCAR and PSAR, including that they have allegedly:
- Aligned their respective committees and committee responsibilities, and convened joint committee meetings to ensure each association was acting the same as the other and to prepare for a potential future merger
- Provided joint services, such as joint caucus dinners, to their members, and have coordinated their marketing efforts and issued promotions designed to harm SDAR
- Regularly held jointly marketed broker events that were meant to persuade brokers and other real estate professionals in San Diego County to cancel their memberships with SDAR
- Offered transfer “credits” for any dues or fees paid to SDAR if a broker leaves SDAR and joins PSAR or NSDCAR as their primary membership
- Entered into a market allocation agreement, agreeing not to recruit the other’s members, in addition to the shared services agreement
- Ordered their Sandicor board members to vote in concert with the members of the other colluding association
Anello wrote that the court “tentatively concludes” the “significant coordinated action” alleged between NSDCAR and PSAR renders “plausible Plaintiff’s allegation of a conspiracy, combination, or agreement to deny Plaintiff an unrestricted data feed.”
He added that the association defendants’ argument that SDAR failed to allege an unreasonable restraint of trade was “unconvincing” because SDAR “sufficiently alleged” that the other associations’ actions had diminished the quality of its services or products.
“Plaintiff pleads new allegations explaining that Sandicor’s web portal is difficult for consumers to use, whereas Just Knock was a user-friendly and innovative way to provide consumers with both MLS data and additional information, such as descriptions of neighborhoods,” he wrote.
“Plaintiff was never able to launch Just Knock, an allegedly superior portal for consumers, which Plaintiff alleges was due solely to Defendants’ refusal to allow Plaintiff an unrestricted MLS feed.”
Defendants’ responses
In emails to Inman, both NSDCAR and PSAR emphasized that, after multiple dismissals of the antitrust claims before this week’s ruling, the court had only deemed the claims “legally sufficient” and that SDAR had yet to prove its claims.
“[I]t’s taken nearly a year for [SDAR] to pass a very simple legal hurdle in this case,” said Raylene Brundage, 2016 president of NSDCAR.
“At this point, all SDAR has is unproven claims, which it will have to produce evidence of. We are confident that SDAR will fall woefully short in providing proof to the court.”
Both associations defended their decision to prevent SDAR from obtaining access to Sandicor’s full MLS data feed.
“At its core, this case is about the rights of our Realtors and brokers to maintain control of their own hard-earned MLS listings. SDAR wants the right to take those individual listings and monetize them on their own website,” Brundage said.
PSAR CEO Richard D’Ascoli added, “PSAR stands by its decision to allow its brokers to determine whether or not they want to opt in to sending data to SDAR’s Just Knock system.
“If an association is not operating in the best interest of its brokers, what’s the point of working as an association? We are defending our members rights to have ultimate control over their MLS listing data.
“Our brokers work hard to get these listings; they should have a right to determine where these listings go. If their data is going to be monetized, the brokers should have control over that.”
Both PSAR and NSDCAR deny the allegation that they have merged in all but name and note that each is run by a separate board of directors and has separate governing documents.
“Merger requires a vote of the membership. Shared services have been promoted by the National Association of Realtors for a number of years,” D’Ascoli said.
2016 PSAR President Anthony Andaya added that it “makes perfect business sense” for the associations to partner and expand their ability to serve their members while remaining autonomous.
“Merging as we all know is often a large undertaking that requires extreme diligence, member buy-in, and lots of legal help to make sure things are done right,” he said.
“With many of our resources being consumed in defending our case against SDAR and fighting a case at the Sandicor level, it is not an optimal time for us to put together a merger.
“PSAR has, however, grown our relationship with NSDCAR throughout this legal battle and the hopeful is that one day we will be able to seriously look at the business decision of merging.”
Sandicor CEO Ray Ewing declined to comment for this story.
California Regional MLS (CRMLS) CEO Art Carter penned an open letter about the situation in which he stated that SDAR “wants full control over the data with no say from those brokerages that provide the listings.”
Sandicor in the crosshairs
In a press release about the judge’s ruling, SDAR President Cory Shepard said, “I’m hopeful that the court’s lengthy rebuke will curb further, similar issues, and cause the defendants to reconsider their ill-conceived lawsuit seeking dissolution of Sandicor.
“In the meantime, we are confident in our ability to meet our members’ needs, and ensure that the data is protected and remains uninterrupted and unrestricted.”
In an email to Inman, Shepard said that when Sandicor was formed, a buyout agreement was put in place in case an association wanted to leave.
“It is our opinion that NSCAR and PSAR should have proceeded under the terms of the agreement versus filing litigation to accomplish the same result,” he said.
“We continue to believe that dissolution is not the answer and we will continue to work to find a solution that’s acceptable for everyone,” he added.
NSDCAR and PSAR are confident that SDAR cannot exercise buyout rights to prevent the dissolution, NSDCAR’s Brundage told Inman.
“Therefore, SDAR’s complaint is not necessary and should be dismissed,” she said.
If Sandicor is dissolved, the two associations plan to join CRMLS, which aims to be a statewide MLS and, at more than 80,000 members, is the biggest MLS in the country.
SDAR’s opposition to a merger with CRMLS was part of the impetus behind the association’s original lawsuit. SDAR claimed such a merger would “destroy and devalue” the Sandicor database.
“Our members want innovation in the multiple listing service, and that’s why a statewide MLS is so appealing,” PSAR’s Andaya said.
“PSAR is advocating for the consumer, as well as the real estate community, to open up the market and improve business for everyone.
“On the other hand, SDAR’s leadership has spoken for their members by stating publicly that they will not consider a merger with the California Regional MLS.”
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