Sandicor, a California corporation, operates a regional MLS for over 18,700 real estate professionals in San Diego County. Sandicor is owned by three Associations of REALTORS® who do business in San Diego County: (i) Greater San Diego Association of REALTORS® (GSDAR); (ii) North San Diego County Association of REALTORS® (NSDCAR); and (iii) Pacific Southwest Association of REALTORS® (PSAR). These organizations appoint directors to Sandicor’s Board.
On January 14, 2016, GSDAR filed a lawsuit against its sister organizations and Sandicor. The following Q&As address certain issues relating to the lawsuit.
1. Which organization holds the majority of shares in Sandicor?
GSDAR. Sandicor annually calculates shareholder ownership and shareholder votes based on the number of MLS users enrolled through each shareholder. Since Sandicor’s inception in 1991, GSDAR has always held a majority of Sandicor’s shares and a majority of shareholder votes.
2. Which organization’s appointed directors hold the majority of votes on Sandicor’s Board?
Each shareholder is entitled to annually appoint Board members. Both GSDAR’s and NSDCAR’s appointed directors currently hold an equal number of votes on the Board. PSAR’s appointed directors currently hold one fewer vote than the others.
3. Why doesn’t GSDAR hold a majority of Board votes if it is the majority shareholder?
When the 11 Associations of REALTORS® doing business in San Diego County in 1991 decided to create Sandicor, they created a balanced voting structure that assured all organizations would have a meaningful vote on Sandicor’s Board. GSDAR agreed to that structure as part of those negotiations. GSDAR and the other AORs then signed contracts confirming such structure. That voting structure and those contracts remains in place today.
4. If GSDAR controls shareholder votes, how has GSDAR been outvoted?
As a corporation, Sandicor primarily functions through its Board, not its shareholders. Because of the balanced voting structure of the Board, GSDAR does not control the majority of the votes on the Board.
5. Can Sandicor’s Board ignore GSDAR’s concerns?
No. GSDAR and the other shareholders have special protections under Sandicor’s governing documents. For example, because of GSDAR’s majority ownership percentage in Sandicor, the Board must obtain GSDAR’s consent to take various significant actions, such as (i) capital expenditures over certain threshholds, (ii) substantial changes to the corporate structure, including mergers, (iii) approval of annual budgets if expenditures increase over a certain threshhold, (iv) amendments to Sandicor’s Articles and (v) decisions affecting capital contributions by shareholders. In addition, various Board decisions require approval of a supermajority of the Board, and the directors appointed by GSDAR hold sufficient voting power on the Board to veto such actions. For example, the directors appointed by GSDAR have sufficient voting power to prevent: (i) the employment or removal of officers, (ii) renewing or changing Sandicor’s MLS vendor and (iii) levying shareholder assessments. Third, each Board member holds a fiduciary duty to Sandicor and the shareholders as a whole, and must discharge their responsibilities consistent with such duties. Therefore, the directors appointed by any shareholder cannot ignore the concerns of the shareholders as a whole, including the concerns of the other shareholders.
In sum, the powers of Sandicor’s three shareholders are carefully balanced between shareholder rights and Board rights; that was necessary in order to create Sandicor.
6. GSDAR asserts in the lawsuit that Sandicor has refused to provide GSDAR access to its own data. Is that correct?
No. Sandicor’s Board supports the syndication of MLS data for advertising, subject to appropriate controls. GSDAR desires an MLS data feed of Sandicor’s MLS listings to power GSDAR’s JustKnock public facing website. Sandicor provides such data feed to GSDAR, but directors holding the majority of votes on Sandicor’s Board believe each individual broker should decide whether their listings should appear on GSDAR’s website. As a compromise, Sandicor management supports a structure that (i) allows all of the listings of GSDAR’s own brokers to automatically appear on GSDAR’s website and (ii) requires any non-GSDAR broker to make their own decision whether their listings should appear on GSDAR’s website. Sandicor believes this is an equitable solution that is in Sandicor’s and its shareholders’ best interest. GSDAR disagrees.
GSDAR is also mistaken if it believes it owns all of the countywide MLS data simply because it is a shareholder of Sandicor. Even Sandicor does not own the MLS data. The MLS data is owned by the brokers, who have given a license to Sandicor to use such information to operate the MLS.
7. If the powers of the three AORs are fairly balanced by Sandicor’s governing documents, why did GSDAR file the lawsuit?
GSDAR appears to have a different philosophical view about the proper operation of an MLS than the views held by the directors holding a majority of votes. GSDAR would like Sandicor to turn over many of its MLS functions to its shareholders so that they can better compete for members. While Sandicor does not object to some of these suggestions, Sandicor believes its basic MLS functions (such as providing County tax information, reciprocal MLS agreement, lock box services, broker to MLS communications, and technical support) are essential functions of an MLS and should be centrally provided by Sandicor.