realonomics

REALonomics thinks lawsuits are good. Now that I have your attention, let’s talk. Lawsuits are good, if only because they are revelatory. They tell us something. Sometimes they tell us a lot. They give us reason to delve, analyze and ponder the intricate nature of corporate and personal motivations.

More importantly, for this blog, lawsuits within the real estate industry are to be analyzed to the end that we may extract the principals that motivate players and shape the models of tomorrow. Lawsuits, at least for REALonomics, are the judicial chess game battles between the existing controlling realms, complete with kings, queens, pawns, rooks and bishops and their emerging challengers. We look to lawsuits for new real estate model math, principals that spell change, good or bad.

It’s not the Suit, it’s the Resultant Outcome

When it comes to lawsuits we too often focus simply on outcomes, awards, winners and losers. It’s the knock out we look for. That’s not our intention here. Our objective is to wonder why and how things occur within the real estate industry, an industry where we have more than once predicted the soon to arrive fist fight for control. REALonomics predicted there would be a battle for supremacy. An industry fight without rules or referees. Our own in-house, knuckle busting, face bashing, fat lipped, bloody nose brawl to the death.

Round one has just ended…the fight has just begun. The feeling-out phase between the fighters will take a few rounds. Depositions, is what we call this phase of the fist-fight.

Industry Lawsuits are Always about us

ActiveRain (challenger) has filed suit against Move (champion). Who is ActiveRain and who is Move? The former is a company that created a blogging business model that has become the most single successful congregation of real estate industry bloggers, hands down.

The latter is, well, sort of us. Yes, you read correctly…us. We are suing ActiveRain, passively. Behind Move, defendant, is Realtor.com and thus the real estate industry’s member organization known as The National Association of Realtors (NAR). Move is paid by NAR. NAR is paid by, you got it…US!

It’s ActiveRain vs. Us if only from the dotted line perspective of our involvement with and membership in NAR to whom we pay dues. Move is no doubt free to conduct its business in ways it deems important. But remember, we are writing the check.

Our Own Speculation

Here’s what we “SPECULATE” happened, what predicated the suit and what the outcome might mean to the industry.

Phase One: ActiveRain’s membership of more than 70,000 real estate industry participants (agent, brokers, mortgage, title, etc.) finally showed up on the radar screen of Move. This created internal discussion, some distress and generated a plan on the part of Move to put the moves (pun intended) on ActiveRain by initiating a discussion to purchase them. Move is a publically traded company with a contract with NAR to operate Realtor.com, its official site. REALonomics “speculates” that Move would have been required to disclose their intent to acquire ActiveRain to NAR, since it represents potential ramifications to the operation of Realtor.com.

Phase Two: Documents known as non-disclosure agreements (NDAs) are passed between the parties and executed. NDA supposedly allow a free-flowing exchange of information the content of which is supposed to be protected from use by all parties with distribution of information to others prohibited.

Phase Three: A Letter of Intent (LOI) may have been executed at some point, allowing for the stipulation of price, terms, conditions and due diligence on the part of the buyer. It’s unlikely that the parties went straight to contract.

Phase Four: This is where things start getting sticky. ActiveRain made certain disclosures to Move pertaining to its business model, financials and other matters relevant to the buy out. Most likely, ActiveRain believed these disclosures to be protected by the NDA and indeed law.

Phase Five: Move has full possession of ActiveRain’s model, financials and collateral materials necessary for a contracted purchase. All that is missing is the code, the grail, the keys that will start the engine. At this point the parties have two differing opinions. Move’s opinion, as they will predictably claim, is that we didn’t have a binding contract…it was all due diligence. ActiveRain’s sense was that the deal was going to go down. We do not know if a formal written contract to purchase was executed.

Phase Six: ActiveRain makes its final disclosure. Giving Move full access to what it terms in the suit “highly sensitive material…in electronic format…in anticipation of the supposed impending close.” So, Active Rain claims that it believed the deal was ready to close and they delivered the goods within the timeframe for the closing date.

The Core

In short, this suit is about Move getting the goods and ActiveRain getting nothing. That’s the core of the suit.

REALonomics “speculates” that ActiveRain’s senior management may have been somewhat inexperienced in the fine art of NDAs as cleverly disguised instruments of corporate surveillance. We further predict that there will be what we term “weasel clauses” in the written documents used by Move.

Furthermore, REALonomics “speculates” that it is not entirely implausible that ActiveRain’s model posed a threat to the interests of Move and its operation of Realtor.com, including its future intentions to create social networking. After all, 70,000 ActiveRain members can’t all be wrong.

Our final “speculation” is that this fist fight represents the collision of new with old. ActiveRain’s model is successful, if for no other reason than the sheer numbers of participants. ActiveRain represents the neo-models that are emerging within the industry. ActiveRain represents the push toward freedom models, open markets, transparency, consumer-centric thinking, unfettered dialogue and what we have termed the “democratization of real estate.”

Could this be Corporate Shenanigans?

Did Move engage ActiveRain with a designed intention to surveil them? REALonomics doesn’t know. Did ActiveRain, like so many young, successful start-ups, recklessly release its “sensitive information” with a degree of naivety prior to locking-down the transaction? Again, REALonomics doesn’t know.

What we do know is that the forces of new and old are engaged in a fight to the finish. The financial stakes are enormous. Are those of us who are industry participants (members of NAR and our local ARs) in any way funding this judicial nonsense? REALonomics doesn’t know.

REALonomics thinks lawsuits are good because they are revelatory. They tell us something. Sometimes they tell us a lot. They give us reason to delve, analyze and ponder the intricate nature of corporate and personal motivations. They may well tell us where we are going in the future. Behind lawsuits there are things to be discovered that have nothing to do with the lawsuit itself and everything to do with the rest of us.

We encourage our readers to follow this suit, set for trial on December 2, 2008.

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