Half of the shareholders that own the Multiple Listing Service of Northern Illinois, in a strongly worded letter stating the possibility for legal action, this week cautioned the MLS board not to move forward as planned with a proposal to join with a rival MLS.

The legal threat is the latest stumbling block for MLSNI, one of the largest MLSs in the nation, as its board attempts to convert to a new broker-centric ownership and management structure as a part of the consolidation plan.

Half of the shareholders that own the Multiple Listing Service of Northern Illinois, in a strongly worded letter stating the possibility for legal action, this week cautioned the MLS board not to move forward as planned with a proposal to join with a rival MLS.

The legal threat is the latest stumbling block for MLSNI, one of the largest MLSs in the nation, as its board attempts to convert to a new broker-centric ownership and management structure as a part of the consolidation plan. Opponents of the consolidated MLS say that the plan favors large brokerage companies and does not appear to produce any economic benefits for MLSNI owners and members.

Across the country, some other MLSs, too, are pursuing MLS consolidations and structural changes as member companies seek to play a greater role in ownership and operations and curb costs associated with membership in multiple MLS organizations.

Mike O’Neill, a member of the Oak Park Board of Realtors, which is one of five Realtor groups opposed to the transaction, said that five of 10 shareholders “do not believe that (the MLSNI board has) projected a reasonable business purpose for pursuing the transaction.”

Dated Sept. 11, the letter to the MLSNI board of directors was submitted by Brian F. Richards, a lawyer for the Katten Muchin Rosenman law firm on behalf of five of the 10 shareholders of MLSNI. The letter states, “Our clients have numerous concerns regarding the transaction and the conduct of the company’s board of directors in connection with the transaction.”

The letter also states, “We have been directed by our client to take all actions necessary to prevent the consummation of the transaction unless the members of the board properly fulfill their fiduciary obligations to all of the shareholders in connection with the transaction and, in the event such efforts shall fail, to invalidate the transaction and pursue legal recourse against all members of the board (regardless of their level of involvement) who have failed to properly fulfill their fiduciary obligations to all of the shareholders.”

Other shareholders opposing the proposed transaction include the Aurora Tri-County Association of Realtors, the Realtor Association of the Fox Valley, West Towns Board of Realtors, and the McHenry County Association of Realtors. Opponents of the combined Chicago-area MLS have set up a Web site at http://www.saveourmls.info/ that blames “a handful of large brokers” for the proposed plan.

“Behind a wall of inadequate information, and with a lack of disclosure and necessary documentation, the promoters of these changes seek to control the MLS and would greatly restrict the ability of you and your firm to exist in the near future,” the Web site states.

The proposed transaction would combine Realtor association-owned MLSNI with the smaller broker-owned MAP MLS, also known as the MLS of Mount Prospect, Arlington Heights, Palatine and Prospect Heights. As a part of that transaction, a new corporate structure would be created to govern the combined MLS entity.

Loretta Alonzo, MLSNI president, could not be reached for comment, and Brad Tertell, vice president and general manager for MLSNI, referred questions to Alonzo. Bud Fogel, director and CEO for MAP, has declined to comment about the proposed transaction.

Last month, the MLSNI board voted to continue to pursue the deal with MAP, despite objections from the five shareholders. The group of opposing shareholders stated its legal objections to the plan at a Wednesday meeting.

MAP has about 14,000 members and MLSNI has about 51,000 members — membership in MAP is voluntary and does not require Realtor association membership, while members of MLSNI also must be members of Realtor associations. Most MAP members are also MLSNI members.

Charles B. Barenbrugger, broker-owner for Barenbrugger Properties LLC in Chicago, said he uses both MAP and MLSNI services, and “in my opinion the merger will simplify the lives of agents and brokers such as myself. It is very time-consuming to compile and search for listings from both services. This will certainly be a benefit to us and to our clients from the standpoint that adding listings and making changes will be a much smoother process and the listings will be input into the system more quickly. I am looking forward to the merger.”

And Glen Tomlinson, president and general manager for Sussex & Reilly, another Chicago real estate company, said the consolidation of two MLS fees seems to be “first and foremost” in the minds of his agents. “They are not going to have to pay two MLS fees,” he said, and the consolidation of MLS data “will make it much easier.” The new MLS structure should also be more equitable for those who have equity ownership in MAP, he said.

Tomlinson said he believes MLSNI has a superior technology tool to connect to the MLS.

MLSNI leaders have said that the intent of the proposed MLSNI-MAP deal is to establish one MLS with one fee for all of the agents in the Greater Chicago area, and to give agents access to two MLS data systems — one that is now used by MAP members and one that is used by MLSNI.

But opponents of the plan say they are unconvinced, and that they believe there is more at stake than the reduction of two fees to one for the agents who are now members of both MAP and MLSNI.

“I think (the proposed transaction) is an effort by the large brokers to take away effective ownership and control of MLSNI from the top 10 boards of Realtors,” said Herbert C. Steinmetz Jr., a lawyer who is representing the five dissenting boards. “It’s an attempt to control the MLS, in my opinion, to the detriment of the smaller offices.”

Steinmetz also said that the MLSNI board has failed to provide sufficient due diligence to move forward with the proposed joining with MAP. “They have a fiduciary obligation to the shareholders and they haven’t fulfilled that obligation,” he said. “MAP brings no cash to the table at all. It’s a complete unnecessary duplication of systems and services.”

He added, “I think, for the most part, rank-and-file members, users of MLSNI, are unaware of the transaction or the implications thereof. It would probably raise their fees and the control of the MLS would be in a small handful of large brokers.”

Gregg Larson, CEO for Clareity Consulting, a real estate consulting company, said he hopes that the MLSNI-MAP discussion gets resolved one way or another, as the process has already lasted several years and cost a lot of money.

It is a difficult situation when there is not unanimous support among shareholders in moving forward with deals between MLSs, said Larson, who has worked with other deals involving MLS consolidations.

“Typically they figure out a way to work out a compromise and end up finding a way to appease everyone. It’s very difficult when you have one holdout, let alone if there are several,” he said. “From a practical point of view, regional MLSs in real estate history prefer to have a unanimous decision.”

A common keystone for such mergers, acquisitions or other consolidation of MLSs is the establishment of a balance in powers among associations or brokerages of different sizes, he said. “I think most organizations try to achieve a balance so that everyone is adequately and fairly represented. That is the challenge.”

As a part of the MLSNI-MAP consolidation plan, a new broker-controlled board would be established with 15 directors – 13 of the directors would be brokers, and the two other members would represent the 10 shareholders of MLSNI. Shareholders who purchase stock under the new for-profit MLS company would elect the members of the board, and stock purchases would be open to any broker-owner or brokerage corporation.

Under the current operating structure, MLSNI has 22 members on its board – 10 shareholders representing associations and 12 brokers.

Larson said he predicts that the final solution in Chicago will likely be unique because of the market and political peculiarities there. The trouble with resolving the deal with MAP “has been a major distraction for a couple of years,” he said. “The legal costs alone have been huge there. Resolving it either way and moving forward would be a positive.”

And while he said he believes it “makes sense to have one MLS” for the Chicago-area market, he added, “If they decided to stay separate it wouldn’t be the end of the world. Having it in limbo, going back and forth, is painful to watch.”

There is a general industry movement, he said, toward greater control by brokers in MLSs, and the Chicago proposal seems to be an example of that trend. “I think there’s a clear trend over the last couple of years toward increased broker input and control. That’s a trend that I don’t think is reversible — it’s going to continue. The role of the associations in day-to-day operations and governance of MLSs is declining and has been for several years. Brokers are stepping up and getting more involved and demanding.”

Issues about property listing data and where that data goes have “inflamed” brokers and led them to become more involved in MLSs, Larson said. “They found out listings were being sold and distributed,” he said. Also, brokerage companies have sought to pare down MLSs to core functions so that they are not competing with brokerage companies on any level. For example, a brokerage company that invests in a particular technology may not want the MLS to offer the same technology to other members, he said.

The SaveOurMLS.info Web site invites “open and complete discussions” about the proposed changes to the Chicago-area MLS system.

The Web site also charges that there has been “a lack of disclosure from MAP concerning its assets and liabilities” and “a lack of disclosure by some MLSNI board members about potential conflicts of interest from their or their company’s affiliation with MAP.”

O’Neill, of the Oak Park Board of Realtors, said he believes there are two fundamental issues at stake in the proposed joining of MLSNI and MAP: the governance structure and representation in the new entity, and the economic and strategic basis for the transaction itself.

“When you keep the issues separate they become very easy,” he said. “The business transaction fails on every measure and the governance transaction fails because it has an agenda, and the agenda is ultimately that larger brokers will have a much greater capacity in getting elected.” Small and mid-sized brokerage companies actually account for the bulk of membership in MLSNI, he said, while the proposed new governance structure would provide less opportunity for representation of small and mid-sized companies.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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