Two local digital real estate firms are under legal fire.
Wooing potential clients, home repair service Porch.com has been accused of violating federal telecommunications statutes. And a recently acquired company says Porch set it up to fail so it wouldn’t meet performance targets that would have led to a big payout.
Meanwhile, an erstwhile Redfin co-founder sued his former company on a slew of intellectual property-violation complaints.
Porch, a venture capital-backed, 7-year-old Seattle startup, connects homeowners in need of a quick repair with fix-it people looking for leads.
Except in recent weeks, dozens of those fix-it people have said Porch contacted them — and kept contacting them — and kept contacting them — when they didn’t want leads at all.
Eleven suits filed in the past month allege Porch.com and an affiliated business, GoSmith.com, scraped hundreds of thousands of contractors’ phone numbers from sites like Yelp, then bombarded the contractors with marketing text messages in violation of a federal telecommunications statute.
Plaintiffs in Alaska, Arizona, Connecticut, Hawaii, Idaho, Nevada, Oregon, Utah and Washington say Porch and GoSmith sent them automated text messages with client leads, even though many of them were registered on the National Do Not Call List, allegedly violating the 1991 federal Telephone Consumer Protection Act.
The legislation outlawed automated calls and text messages without “the prior express consent of the called party.”
Before this latest round of suits, Porch and GoSmith had been hauled before courts nearly a dozen times on allegations of robocalling. The companies settled those cases.
Porch is also facing a legal battle from inside its ranks. Moving concierge startup Kandela, which Porch acquired in an $11.5 million all-stock transaction in 2019, alleged fraud and breach of contract in a suit filed Monday in Los Angeles County Superior Court.
Porch was “hellbent” on sinking Kandela’s business, Kandela alleged, to avoid paying $6 million of the negotiated purchase price that depended on certain performance metrics. Porch declined to follow up on customer referrals, urged Kandela to market illusory products to potential partners and inadequately staffed its call centers, according to the filing. As a result, Kandela has “lost market share and its reputation has suffered immensely,” the company wrote.
Porch CEO Matt Ehrlichman declined to comment on the robocall violations. But about Kandela, he wrote in an email to The Seattle Times, “We strongly dispute all claims related to this lawsuit and we will defend ourselves vigorously.” During the acquisition, Kandela “oversold their ability to hit its own objectives,” Ehrlichman wrote.
Kandela’s attorney Dan Stone disputed that claim but declined to discuss in detail how Kandela’s revenue had been affected by Porch allegedly “starv[ing] Kandela of resources.”
“The fundamental issue here was the failure to support Kandela on the acquisition and the change in Kandela’s business model,” he said.
Oddly, the lawsuit contained a reference to Ehrlichman’s ancestry, not typically a subject of corporate litigation. “Ehrlichman is the grandson of John Ehrlichman, an adviser to President Richard Nixon and the architect of the Watergate break-in,” Kandela alleged.
The claim “has nothing to do with the complaint,” Ehrlichman said.
Perhaps there’s something in the water, because this week also saw civil actions filed against another Seattle-based real estate company — digital brokerage Redfin, which pioneered many of the online property-search tools that home shoppers today take for granted.
Redfin co-founder David Eraker filed two suits against his former company for infringing on intellectual property rights. One complaint, filed in King County Superior Court, alleges that Seattle investment firm Madrona Venture Group, an early Redfin backer, filed a patent claim based on misappropriated intellectual property, then concealed the filing for years to induce Eraker to accept Madrona’s investment.
A Redfin spokesperson declined to comment on the suits.
According to the suit, in 2005, Madrona partner Paul Goodrich filed a provisional patent application for technology he called “First to Know” that would allow buyers to indicate interest in off-market homes and connect potential buyers and sellers before listing.
But the idea, Eraker alleges, wasn’t Goodrich’s: It was based on the work of Martin King, the deceased inventor of the T9 text-input software for mobile phones, who described what King called “iCovet” to Eraker while the two were considering a partnership. Eraker relayed the idea to Goodrich while Madrona was conducting due diligence on Redfin in 2005, and Goodrich filed a patent claim on the idea in his own name later that year, the suit claims.
Goodrich, and later Redfin CEO Glenn Kelman, concealed the filing from Eraker for years, the suit alleges, because if Eraker had found out, he “would have considered the action an appalling breach of trust.”
Madrona’s investment in Redfin culminated in Eraker’s ouster from the company in 2006.
“If Mr. Eraker had known of the true contents of the provisional patent filing he would not have agreed to accept the investment and lose control of the company he founded. The fraudulent behavior has resulted in Mr. Eraker losing millions of dollars of equity,” the complaint states.
Another suit, filed in Texas, alleges that Redfin violated intellectual property law by implementing map-based real estate searches and virtual home tours identical to Eraker’s patented technology — which at the time he unveiled it in the early 2000s, shook the real estate world.
Redfin was aware as early as 2017 that Eraker planned to sue the company. In an investment filing, the company wrote that “We believe these claims have no merit. We will defend ourselves vigorously if Mr. Eraker sues us.”
Eraker is now the CEO of online real estate brokerage Surefield. Its big bet is that homebuyers will feel comfortable buying houses online: All of its listings have 3D virtual tours, but no in-person showings.
Surefield does not have any active listings, according to its website.