MLS auctioned for $250K after years of association infighting

It didn’t feel like a typical auction, the fast-talking auctioneer and prospective buyers shouting numbers in rapid-fire succession nowhere in sight.

The room was quiet. About two dozen people witnessed an unprecedented event: the auction of a multiple listing service, mainly its data.

The auction was the result of four years of bitter litigation between the two trade associations that owned the Albany, New York-based Capital Region MLS: the Greater Capital Association of Realtors (GCAR) and the Saratoga Schenectady Schoharie Association of Realtors (SSSAR).

The winning bid of $250,000 came from an MLS that would go live just two days later, a new subsidiary of GCAR.

Given that industry experts predict more MLS and association mergers in 2017, the fate of New York’s CRMLS is a cautionary tale. Four years of hostile infighting cost hundreds of thousands of dollars, uncertainty for the brokers and agents on the ground, and, for one association, the rights to the collection of MLS data it used to own.

And lest this seem a unique situation, the associations that own San Diego MLS Sandicor are in the middle of a similar legal battle, and that MLS may also succumb to court-ordered dissolution.

At the heart of these battles are disagreements over who controls the MLSs and their data and what the future of each should be.

The birth of a new MLS

When GCAR and SSSAR formed New York’s CRMLS in 1987, they had roughly the same number of members. Each association owned half of the MLS and claimed half the seats on the MLS’s board of directors.

Now, GCAR has about 3,200 members and SSSAR has about 100. But the ownership and board seat shares remained the same, and the two associations failed to come to terms on any changes. GCAR sued to dissolve the MLS and won.

A court-appointed receiver, attorney Daniel Sleasman, put the assets of the Capital Region MLS up for auction on Dec. 30. at 10 a.m. at the shared headquarters of the MLS and GCAR in Albany.

Most of the people in the room were supporters of GCAR and the new MLS it had formed, the Eastern New York Regional MLS (ENYR MLS). SSSAR was represented by its attorney, Mark McCarthy, and no one else.

“No one uttered a word during the process except the bidders and the receiver,” GCAR CEO Laura Burns told Inman via email.

Two representatives from the New York State MLS also attended, including CEO Dawn Pfaff, who put in a bid. But she was over-bid by ENYR MLS President Miguel Berger.

“When the bid reached $250,000 and Ms. Pfaff did not counter, we knew it was done,” Burns said.

“The receiver banged his gavel down and everyone (but me) jumped up and started talking at once, clapping hands, shaking hands and smiling.

“Me? I had to take a minute to let it sink in that, after four years of really tough litigation, it was over. We could finally move on with the new MLS.”

Meanwhile, SSSAR past President Stuart Thomas said in an interview that, per the MLS shareholder agreement, SSSAR should have been allowed to continue as sole owner of CRMLS after GCAR left the joint venture. That it was not was “devastating” to the association’s membership, he said.

“This was a classic hostile takeover,” he said.

SSSAR did not bid. Any entity that showed an ability to immediately provide MLS services was qualified to bid, but SSSAR felt that they didn’t have enough time to make arrangements for the sale, McCarthy said.

The whole auction process took somewhere between 10 and 20 minutes, marking the end of a 29-year-old MLS and the birth of a new one. ENYR MLS, a wholly-owned for-profit subsidiary of nonprofit GCAR, went live on Jan. 1, a mere two days after the auction.

Service has been uninterrupted during the transition, according to Burns.

Why dissolve?

In 2012, GCAR started making overtures to SSSAR about changing the MLS’s governance. GCAR offered to buy out one of SSSAR’s six director seats, so that GCAR would have seven of the 12 seats. SSSAR rejected the offer.

“They said, ‘Well, that would put you in control’ and we said, ‘We feel we should be in control,'” Burns said in an interview.

GCAR also made an offer to buy out SSSAR, but when they couldn’t come to an agreement, GCAR filed a lawsuit in the state’s supreme court. GCAR wanted to dissolve the MLS so that it could create a new entity with a different name. That was in January 2013.

Judge Richard Platkin granted GCAR’s petition to dissolve the MLS in December 2015. In his order, he noted that, by August 2014, GCAR had more than 2,800 members who provided nearly 95 percent of the MLS’s operating income while SSSAR had fewer than 150 members.

“According to GCAR, this imbalance has resulted in a situation in which a small minority of CRMLS participants have frustrated the objectives of the overwhelming majority,” Platkin said.

He agreed with GCAR’s claims that the MLS should be dissolved on a couple of grounds — namely, the deep division among the MLS’s directors over the MLS’s management, which halted the board’s ability to act, and the MLS’s shareholders, so torn that dissolution would also benefit them.

Moreover, “credible proof at trial” showed that the MLS’s board had been “paralyzed by division and deadlock for years,” Platkin said.

He noted that the MLS’s board had been unable to obtain the votes necessary for even the approval of meeting minutes, let alone other “matters of significance,” including:

• Corporate governance
• The day-to-day administration of CRMLS
• The selection of an administrator, counsel and accountant
• Access to corporate funds and property
• Changes to the CRMLS by-laws mandated by the National Association of Realtors (NAR) and necessary to keep the MLS’s errors and omissions (E and O) insurance
• The negotiation and approval of a new contract with an MLS system vendor
• Exploring collaborative and/or regional opportunities with other MLSs

Platkin also noted that the litigation had involved “threats of personal litigation against GCAR leadership” and “highly charged allegations of criminality and other wrongdoing.”

“GCAR has further shown that the conflict between the shareholders escalated to the point of physical intimidation, threats and verbal hostility at several meetings in May 2014,” he wrote.

“Indeed, the ongoing dissension, disagreement and deadlock has created a chaotic and disruptive situation in which CRMLS is unable to address issues of significance to its current business, much less confront future challenges and opportunities,” he added.

“All of this poses an irreconcilable barrier to the continued functioning and prosperity of CRMLS, even while the corporation remains financially solvent as a result of the fees being paid to it by GCAR’s member brokers.”

What exactly was auctioned?

ENYR MLS was first registered with the New York’s Department of State in March 2015. What exactly did the new MLS get for $250,000?

The rights to data complied by CRMLS related to residential and commercial properties for sale and rent, provided by Realtor members throughout the Capital Region, according to a GCAR Facebook post.

That includes data submitted to the MLS by GCAR and SSSAR members as well as about 200 “MLS-only” members belonging to other associations. CRMLS had, and ENYR MLS now has, about 3,400 members.

When ENYR MLS bought CRMLS’s data, about 8,300 active listings and about 200,000 sold listings from 2000 through 2016 populated the database, according to Burns.

Brokers own their listing data, but not the MLS compilation. So if a broker — no matter what association they belong to — asks for a copy of his or her data, he or she will get it, Burns said.

Brokers can put their own data anywhere they want, including their own website, “but 3,400 other people aren’t going to be in there with them,” she said.

Agents don’t own the data, so their brokers will have to ask for it, according to Burns. And brokers can’t get the rest of the MLS’s data “because then they’d be taking other brokers’ data that they weren’t responsible for inputting,” she said.

All members, including those belonging to SSSAR, continue to have access to the MLS, she said. SSSAR’s members will have to choose whether or not to join ENYR MLS.

Many are leaving SSSAR and joining GCAR, even though they don’t have to to join the new MLS, she said.

“We have 1,100 GCAR members operating in Saratoga County. We’re servicing the county more than they [SSSAR] are. We [also] have the bulk of the members operating in Schenectady County. We do offer more services and we offer quite a few more benefits. Also, [SSSAR’s members are] frustrated with all that has gone on.”

CRMLS’s vendor, now the vendor for ENYR MLS — Black Knight — is hard at work transitioning to the new MLS, changing watermarks on photos and metatags indicating the source of a listing, Burns said.

The new MLS has bought a new domain name, enyrmls.com, but it’s not live yet, she added.

SSSAR plans to form its own MLS in the first half of this year. “The business model will be a for-profit broker-owned MLS that pays dividends back to the broker,” former President Thomas said.

“Brokers need to understand their listings have value beyond just information. People are making millions of dollars from our listings and we need to get paid. A lot of people make a lot of money, but many brokers struggle. Listings go to 25 million websites and brokers get nothing.”

In the meantime, most of the association’s members are choosing to join the new ENYR MLS, according to current SSSAR President Celeste Caruso. SSSAR members also have the option of joining the New York State MLS, she said. NYSMLS serves all of the state’s counties.

Many of SSSAR’s members are “upset” because they will have to pay more in fees to be part of ENYR MLS, Caruso said.

CRMLS charged subscribers $586 annually, but at ENYR MLS SSSAR’s members will have to pay $686 annually plus an additional $500 fee per office, she said.

In response, Burns said, “GCAR association members receive a lower price for MLS services than those who are ‘MLS only’ members. This is not an unusual practice among MLSs.”

More litigation and nearly $100,000 in debt

The legal battle is not over. The two associations disagree on how to split the $250,000 from the auction. According to Burns, the shareholder agreement for CRMLS stipulates that the funds in CRMLS’s coffers should be paid out according to membership counts, not number of shareholders.

“This is more than fair and equitable as GCAR members represent 96 percent of the CRMLS membership and their payments to it provided CRMLS the bulk of its working capital,” Burns said.

But SSSAR believes the funds should be split 50-50, McCarthy said. And Thomas believes SSSAR’s legal expenses should be covered first.

“CRMLS’s board of directors on three separate occasions passed motions and a corporate resolution that SSSAR and all their attorneys’ fees judgments and legal expenses were to be paid by CRMLS,” he said.

“SSSAR believes that because CRMLS had no attorney, these legal fees and expenses occurred in defending CRMLS and are debt of CRMLS and therefore should get paid first. We believe before any shareholders get a dime, we should be reimbursed for doing what we were supposed to do.”

Burns alleged that Thomas held “illegal meetings” where only SSSAR directors were present to pass those measures and also attempted to “obtain access to the CRMLS bank accounts so he could clear the debts of his association.”

Thomas’s claim that CRMLS itself should have had an attorney during the litigation contrasts with what SSSAR’s own attorney, McCarthy, told Inman.

“In a corporate dissolution in [New York State] there isn’t any need for the dissolving corporation to have an attorney,” he said in an email.

“Each of the shareholders was represented, and there is a court-appointed receiver (also a lawyer) who oversees the whole process.”

The question of who pays SSSAR’s legal bills is salient because the court has ordered the association to pay two of the law firms that represented it in this case a combined $97,591.

SSSAR owes Cooper Erving & Savage LLP $64,681.97, according to a February 2016 judgment. The association owes Farrell Fritz P.C. $32,909.05, according to a December 2015 judgment.

Three law firms, including the two above, dropped SSSAR as a client before the association obtained its current representation. SSSAR declined to comment on why, but Caruso advised any Realtor associations going through a similar dispute to “get the right attorney and let them prove to you that they have the right experience with litigation representing trade organizations because we were sold a bill of goods.”

In January 2016, SSSAR sent a $182,435 bill to GCAR for “attorney fees and other expenses” related to the court case, according to the Albany Business Review. “It was so absurd that it just ended up in the circular file,” GCAR’s attorney told the paper.

McCarthy said that any funds SSSAR gets from the sale of CRMLS will be used to pay down any judgments.

Lessons for the real estate industry?

When asked whether this litigation could have been avoided, McCarthy was unequivocal. “Yes, absolutely.”

“I looked at the amount of money that’s been spent on lawyers on both sides. It’s pretty difficult to justify in my mind, but for some reason they weren’t able to have civil conversations. They weren’t able to actually sit down and talk to each other across the table. That’s when lawyers make money.”

He estimated that both sides spent in excess of $200,000 total, which, given the bill SSSAR presented to GCAR, may be an understatement.

Burns said she had not added up how much the litigation cost.

When asked about lessons from the case for the broader industry, she said, “I’ve been in the MLS industry for almost 17 years. I’ve never seen anything like this. When you have a mixture of people who get their egos in the way, it leads you down a path of where you just can’t even begin to apply normal logic because that’s not what’s going on there.

“It’s amazing how leadership get dug in and fail to see the forest for the trees. We always kept what was best for the members right up in front. We want to give our members the tools that they want, that they demand. Our directors always knew it wasn’t about the people in the board room, it was about the people out there in the membership.”

“At the end of the day, making sure that [GCAR] could maintain a quality multiple listing service was of paramount importance” because it’s something its members use every day to do business, she added.

“Our members want all the latest technology. They want the lockboxes, they want electronic forms, they want showing services. They want to be more proficient, efficient, to service their clients in a professional manner. Our members want all the tools. It’s a busy, busy area.”

Now that the new MLS is up and running, GCAR can start looking at bringing on new vendors and talking to other MLSs about regionalizing, she said.

“We can do that now. We’re in discussions with four or five MLSs in the area. We’re able to think strategically.”

For his part, SSSAR’s Thomas said there’s nothing the association could have done differently “because it was the responsibility of CRMLS and its attorney to enforce the shareholder agreement.”

In SSSAR’s view, GCAR won because it had the most money and because it had the largest real estate brokerages on its side.

“We are smaller independent real estate offices. I always use the term David vs. Goliath,” Caruso said.

“There was never a vote of the participants and subscribers of CRMLS to dissolve CRMLS or keep it,” she added.

GCAR’s Burns said, “Saratoga tried to present it as a David and Goliath situation, which it wasn’t at all. It was a very unbalanced situation” due to the distribution of board seats.

“I always likened [SSSAR’s resistance to dissolution] to one person saying to the other, ‘I want a divorce’ and the husband saying, ‘No.’

“What do you mean, ‘no’? My bags are packed. I’m out of here,” she added.

Email Andrea V. Brambila.

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