Redfin has been threatened with legal action by its former CEO on the eve of its IPO.
The high-tech brokerage, which is expected to raise over $100 million when it goes public on Friday, received a letter on July 24 from David Eraker that “asserts a variety of claims” against Redfin director Paul Goodrich and Redfin investor Madrona Venture Group, Redfin disclosed in an updated SEC filing.
The claims are “related to events prior to Mr. Eraker’s departure from Redfin in August 2006” and focus on allegations “about the inventorship of one of Redfin’s patent applications that has not issued and does not cover our current products or services,” Redfin said in an amended version of an IPO prospectus that it filed today. “Mr. Eraker released all claims against Redfin in connection with his departure,” the company added.
The letter threatens litigation but no legal complaint has been filed, Redfin said.
Redfin said the claims have no merit and that it would defend itself “vigorously” if Eraker sues the company.
“However, litigation is uncertain and expensive, and any judgment or settlement could harm our business,” Redfin said.
Eraker is listed as an inventor in a number of patent applications filed by Redfin. They include applications for “interactive map-based search and advertising,” a “collaborative system for online search” and an “online marketplace for real estate transactions.”
Eraker co-founded Redfin in 2002, led its product and business development, and served as Redfin’s CEO at some point, Inman has reported. (Redfin is usually said to have been founded in 2004, not 2002.)
“David Eraker, who had dropped out of the University of Washington’s medical school for a career in software design, was inspired by his own real estate misadventures and founded Redfin with hopes of upending the traditional brokerage model,” Redfin’s Wikipedia page says.
“Redfin began offering online, map-based real estate search when David Eraker, who was working out of his apartment in Seattle’s Capitol Hill neighborhood, and his partner, Michael Dougherty, an electrical engineer with a degree from Yale, struck upon the idea of displaying homes for sale on an online map,” it later adds.
Eraker reportedly left Redfin in 2006 to pursue interests outside of real estate. But in 2014, Eraker returned with a vengeance, labeling the U.S. real estate industry a “quasi-cartel” when he launched Seattle-based Surefield, a low-fee brokerage that touted proprietary 3-D home tours.
Redfin declined to comment, and Eraker did not immediately respond to a request for comment.
In addition to developing a form of web-based map search, Eraker built “a salaried model for residential real estate agents and served on the board of directors through multiple rounds of venture capital,” according to Eraker’s profile on Surefield.
Redfin appeared to have taken steps to clean its legal slate before filing to go public on June 30, entering into an agreement in June to settle suits alleging that Redfin should have classified some of its sales associates as employees, rather than independent contractors.
This is not the first time Redfin has faced legal threats from early employees.
In March of 2014, Michael Dougherty and David Selinger, two Redfin co-founders who left the company in 2005, alleged in a lawsuit that Redfin was attempting to wipe out their shares of the company in advance of its IPO, GeekWire reported. The case was reportedly settled in July 2014.
