In a lawsuit that seeks to prevent former realtor.com President Errol Samuelson from working for rival Zillow, Move Inc. and the National Association of Realtors say Samuelson was privy to two secret, yet-to-be-launched realtor.com projects -- one that would provide "new consumer functionality" and the other which is "the modification of a major product."
Filings in the case reveal that Samuelson's would-be successor at Move, Curt Beardsley, was worried about the speed at which he would be expected to execute a plan to "save ListHub," Move's listing syndication subsidiary. Beardsley ended up following Samuelson to Zillow.
Gavel image via Shutterstock.
Move and NAR filed a lawsuit against Zillow and Samuelson for alleged breach of contract, breach of fiduciary duty and misappropriation of trade secrets on March 17, less than two weeks after Samuelson unexpectedly jumped ship to become Zillow's new chief industry development officer.
In a motion for a preliminary injunction filed on March 27, an attorney for Move argued Samuelson's "new position is so entwined with the role he had at Move that Samuelson cannot work for Zillow without relying upon trade secret information. Hence, the court should enjoin him from employment or consulting with Zillow."
[UPDATE: After press time today, the court denied Move's motion for a preliminary injunction.]
Such a motion is not uncommon in cases where a senior exec goes to work for one of the company's biggest competitors, but courts are reluctant to grant such motions unless there are "troubling facts" involved, said I. Neel Chatterjee, a partner specializing in intellectual property at global law firm Orrick, Herrington, and Sutcliffe LLP. Orrick is not involved with this case.
"What courts are typically doing is they are trying to figure out is this a person that can be trusted to safeguard the trade secrets of their former employer," Chatterjee said.
They gauge trustworthiness by factoring in whether the former employee took materials from the company or tried to wipe his or her computer clean, he said. Whether or not the exec's new role is substantially similar to his or her previous role is also considered. Given Move's allegations, each of these factors would seem to weigh in favor of the motion in this case.
Most similar cases are ultimately settled, Chatterjee said.
"These cases are hard to win without some troubling facts. Something that indicates the person is doing something kind of sketchy," he said.
In a statement sent to Inman News, Zillow said, "We believe Move's claims are entirely without merit and we deny the allegations set forth in their complaint. Beyond that, we cannot comment given the pending litigation."
But in a declaration (a statement made under penalty of perjury) submitted to the court on April 2, Zillow CEO Spencer Rascoff said Samuelson had not provided Zillow with any information about Move's or NAR's business activities.
"We have not asked, and will not in the future ask, him to disclose or use Move's or NAR's confidential or proprietary information or trade secrets. There is no need for him to use any of that information in the course of carrying out his responsibilities at Zillow," Rascoff said.
In his own declaration, Samuelson said, "I have not knowingly disclosed or used any trade secrets or confidential information of the Move group of companies, nor do I intend to."
His job at Zillow is about industry relationships, not Move's confidential information or trade secrets, Samuelson said.
"It is my understanding that Move has no right to restrict me from continuing these relationships, or working for its competitor, Zillow, because I never signed a noncompete agreement, and I never agreed not to accept work with another company in the industry," Samuelson said.
Move declined to comment on pending litigation.
Move and NAR's motion noted that Samuelson had been privy to two confidential, yet-to-be-launched projects for "new consumer functionality and the modification of a major product."
The public court filings don't shed much light on these secret projects, although Ernie Graham, Move's senior director of product management and the former leader of the development team for realtor.com's controversial -- and now defunct -- AgentMatch agent-ranking tool, is heading up one of them.
When realtor.com pulled the plug on tests of the agent ranking system in two markets in December, Samuelson said, "This AgentMatch pilot has concluded, but the larger project remains: We intend to create the most accurate and complete resource for consumers looking for a Realtor online, and to continue moving the industry forward with innovative solutions."
According to a partially redacted declaration from Graham, the project has been in development for several months and is in the process of being finalized.
In his own declaration, Move CEO Steve Berkowitz noted Samuelson's knowledge of how Move maintains and develops its access to data from the real estate industry to power its business-to-business products (Top Producer, TigerLead and FiveStreet); nonpublic written and unwritten agreements and joint strategies between Move and NAR and between realtor.com and multiple listing services and brokerages; individual agreements between Move and MLSs; Move's merger and acquisition targets; and the operation of listing syndicator ListHub.
"With his knowledge of Move's budget, product plans and strategies, Samuelson will be able to predict what Move will do for several months into the future, devise ways to interfere with Move's strategies, usurp opportunities he knows Move is interested in, exploit weaknesses he knows Move has, and develop industry relations strategies he has seen work at Move," Berkowitz said.
But Samuelson countered that Move's court papers "exaggerate the importance and secrecy of things" he knew.
"I had a fairly detailed knowledge about some parts of the business, but only information at the '30,000-foot level' for other parts of the business," he said.
Moreover, much of what Move now says is a "secret" isn't, he added -- "it's readily available or already disclosed."
For instance, Move refers to Samuelson's knowledge of "specific competitive content enhancements to realtor.com." Samuelson said he presumed that referred to NAR's plans to add content from NAR's HouseLogic.com and advocacy groups to realtor.com.
"That's true, but it's old news: NAR and Move publicly announced these improvements at NAR's annual convention in November of 2013," he said.
Samuelson and Rascoff also noted that Zillow does not consider Move's business-to-business products competition because the two have taken different approaches to providing such software.
"Move has created a suite of premium-priced products which have deep and robust functionality," Samuelson said.
"Zillow is taking the approach of offering free (or very low-cost, e.g., $10/month) products with limited functionality, and then integrating with third-party companies, such as [Move's] Top Producer, to offer the additional functionality to agents and brokers on the third-party platforms they choose to use."
"Zillow thinks Move's strategy is fundamentally flawed -- and we have repeatedly said so publicly -- so we will not endeavor to copy it, with or without Errol's help," Rascoff added.
Rascoff also said Samuelson would not be responsible for mergers or acquisitions or overseeing Zillow's potential acquisition targets.
Trouble at Move?
While Samuelson has previously said he joined Zillow because of the company's innovative culture and the chance to connect with a large consumer base, his statement to the court pointed to another reason as well.
"I decided to leave Move because of their unwillingness to make changes I thought were necessary and ethical," Samuelson said.
"I left because I felt that I could no longer, in clear conscience, represent Move given that the company was asking me to publicly make commitments that the company was unable or unwilling to keep. Right up until the end, I was pushing for Move to do the right thing in living up to our commitments to our partner, National Association of Realtors."
He said he began criticizing the company's decisions in this regard in November and that by February, friction with Berkowitz over those criticisms "had escalated to the point that I might be fired by Move, and if I was, I would have to go somewhere -- Zillow or somewhere else."
Asked whether Move was living up to its commitments from NAR's perspective, NAR declined to comment, citing pending litigation.
Samuelson said his resignation was not "timed to inflict maximum damage on Move," as Move's attorneys claim, but rather to comply with Securities and Exchange Commission (SEC) requirements that obligated both publicly traded companies to file a public document soon after he reached an employment agreement with Zillow and resigned from Move.
Less than two weeks after Samuelson resigned, his successor at Move, Curt Beardsley, also joined Zillow. In a public statement at the time, he noted Zillow's "commitment to build great products and services that benefit the real estate industry and consumers."
But in his resignation email to Berkowitz, Beardsley said Move had disappointed him.
"I have lost faith in Move," he wrote.
"When I think of having to work with a new head of realtor.com, this fills me with trepidation, not excitement. When I think of the speed with which we will have to execute the 'save ListHub' plan, this fills me with doubt, not hope."
He had been "looking for a path out" for months, he said, when "suddenly timing and opportunity conspired to present me with the keys to a kingdom I didn't want, and the spotlight on a stage I didn't want to be on."
So he reached out to Rascoff at Zillow, who offered Beardsley his current position as vice president of industry development.
"This is a very hard decision, but I don't believe simply pushing ahead puts a happy ending on this story. I cannot be the hero that is required. It is unfair to the company for me to pretend that I can," Beardsley wrote.
According to a Move court filing, Beardsley sold 33,775 shares of Move stock for over $450,000 in the month before Samuelson resigned.
Both Samuelson and Beardsley said they were unaware of each other's plans to leave Move. Beardsley has not been added as a party to the lawsuit.
Plans for ListHub
Some MLSs -- including the Wilmington (N.C.) Regional Association of Realtors, the North Alabama MLS and the Austin Board of Realtors -- have recently decided to stop handling the syndication of their members' listings to third-party portals through ListHub. On Feb. 3 the Combined Los Angeles/Westside MLS (CLAW) began delaying both its ListHub feed and the one it sends to realtor.com by 48 hours.
ListHub has countered these defections in part by noting its continuing growth -- at least three dozen MLSs joined its platform in 2013.
Whether Beardsley's reference to a "'save ListHub' plan" in his resignation indicates that ListHub is in trouble is an open question. Beardsley offered no other details of such a plan.
In his court filing, Samuelson alleged that Berkowitz and Move's chief financial officer, Rachel Glaser, had publicly said that "Move is going to shift the expense of collecting and distributing information through ListHub onto Zillow and another competitor, Trulia Inc., by jacking up the prices on its competitors."
ListHub supplies Zillow with about 50 percent of the listing data on its website, Glaser said in a court filing. Should ListHub raise its prices, the agents and brokers who pay for advertising on those sites could see their own fees rise.
Claims of destroyed evidence
As part of Move's original complaint, Move alleged Samuelson had erased all memory from the laptop, iPhone and iPad that Move had issued to him for business use, despite warnings that the data contained in them belonged to Move and specific instructions not to discard certain litigation-related documents.
"Move says I 'deleted and destroyed evidence.' The suggestion is that I was trying to cover my tracks, which is false," Samuelson said.
He said he deleted "sensitive personal information -- regarding financial, personal tax and family matters" from his Move-issued Mac laptop and restored his Move-issued iPhone and iPad to their factory settings because he wanted to protect his privacy and "the privacy of other member[s] of my family."
In an amended complaint filed Tuesday, Move and NAR made additional claims, including alleged "trespass to chattels" and "conversion" for switching a business phone number belonging to Move to his personal name and for interfering with a Move-owned Dell laptop Samuelson did not return to Move after his departure.
Samuelson said he had forgotten about the laptop and it was being transferred to his attorney. As for the phone line, he said it was "not atypical" for Move's Canadian employees to have phone numbers transferred to them after termination of employment.
Read the motion for preliminary injunction.
Read the amended complaint.
Editor's note: This story has been updated with comments from intellectual property attorney I. Neel Chatterjee.