Two investors in CondoDomain.com, a site that transformed from a condo marketing and search portal into a real estate brokerage one year ago, are suing the site’s founder and the company, charging the business model change violated a business contract.
Meanwhile, Anthony J. Longo Jr., founder and CEO and broker of record for CondoDomain.com, has characterized the lawsuit as an "unreasonable action" with "zero basis" by a "traditional brokerage" with "deep pockets" against a "discount broker" with "limited funds."
The investors, who own a minority stake in the company, are managers at Otis & Ahearn Inc., a large real estate brokerage firm that specializes in the marketing and sale of condos in the Greater Boston area.
The civil lawsuit, filed earlier this month in Suffolk County Superior Court in Massachusetts, charges that investors Kevin Ahearn, sole owner of Otis & Ahearn; and Wayne Lopez, managing director for Otis & Ahearn, "would never have invested money in a competing brokerage firm."
Also, the complaint alleges that Longo and CondoDomain.com "breached the agreement and/or the implied agreement by changing CondoDomain’s business purpose" without the consent of Ahearn and Lopez and without "a vote of all of the members with voting rights approving that change."
They charge breach of contract, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duty by Longo and CondoDomain.
They seek a preliminary injunction to block Longo and CondoDomain from engaging in the real estate brokerage business in Massachusetts, a permanent injunction to prevent Longo and CondoDomain from engaging in real estate brokerage, and an order that directs Longo and the company "to operate an online real estate search and marketing portal for condominiums deriving revenue from advertising."
Longo said, "even though there’s not a case to be had here, in my opinion," the lawsuit "could shut down our business."
At the CondoDomain blog, Longo posted information about the lawsuit as well as commentary about the lawsuit and alleged correspondence with the investors.
"Its unfortunate for our startup company, or anyone for that matter, especially in these uncertain times surrounding real estate and the worldwide economy, to be challenged legally on zero basis, especially with limited funds to fight an individual in court with such deep pockets," Longo posted at the blog site.
John C. Ottenberg, a lawyer representing Ahearn and Lopez, said that the legal action "is not about trying to keep competitors out of the real estate brokerage business."
He added, "What this case is about is two investors who invested in a business to collect advertising revenues from essentially an online publication, and that’s what they put their money in and that’s the business they wanted to be in."
Ottenberg, on behalf of his clients, reportedly sent a cease and desist demand in November 2008 in an effort to halt the brokerage operations at CondoDomain.com.
Longo posted to the CondoDomain blog site a copy of a letter he reportedly sent to Ahearn, which states that the original advertising-based business model of CondoDomain "did not work."
"It was an unsustainable money burner, and no other player in the same or similar space has been able to make it work in this market," he states in the letter.
The letter also includes an excerpt from an e-mail message that Longo states is a comment from Ahearn about CondoDomain’s new business direction: "the more I think about the landscape … ‘the’ business model is a blend of traditional brokerage and online/Internet efficiencies/economic value back to the consumer. …I’m loving the new construction, developer direct money back model a lot so it’s going in the right direction."
Longo also states that CondoDomain’s move to a brokerage model has been the "subject of many discussions."
In the same letter, Longo says contract language for CondoDomain does not specifically exclude the company from engaging in brokerage operations.
"A reasonable personal … would understand that the brokerage business is absolutely ‘complementary with the core business,’ " Longo states in the letter.
According to the lawsuit, Lopez invested $25,000 in CondoDomain, and Ahearn invested $50,000 and provided office space "and other consideration" valued at $83,865.22. Ahearn’s interest in CondoDomain was increased from an original 19.6 percent interest in 2005 to a 23.84 percent interest in 2006, while Lopez’s interest was reduced from an original 4.9 percent to 4.4 percent, the lawsuit states.
Boston-based CondoDomain announced an expansion into Dallas in September 2008. The company offers flat-fee buyer’s brokerage services in downtown areas and refunds a portion of commission dollars it receives to buyers.
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