National Association of Realtors Accused|of Stealing Chinese Business From a Partner

     AUSTIN, Texas (CN) – A Texas company demands punitive damages from the National Association of Realtors, claiming it reneged on a partnership agreement and stole referrals and trade secrets for Chinese business.
     Austin-based China United Real Estate Group sued the National Association of Realtors (NAR) in Federal Court Friday in 15 causes of action, including fraudulent inducement, misappropriation of trade secrets, deceptive trade practices and breach of contract.
     China United claims that NAR sought its help because the association wanted its real estate business to “get going” in China. It says that NAR had had little success there, but China United had “substantial credentials and experience in doing business in China.”
     The Chinese government’s easing of restrictions on foreign investment has led to massive investments in U.S. residential and commercial property. Chinese investors have focused on coastal “gateway cities” such as New York, San Francisco and Los Angeles.
     An NAR report estimates that Chinese buyers spent $22 billion on U.S. properties from March 2013 to March 2014, up from $12.8 billion the year before.
     China is the fastest-growing source of foreign clients for U.S. property sales.
     Appreciation of the yuan has made U.S. property more affordable for the Chinese, and U.S. credit standards favor buyers who pay with cash. About 76 percent of the purchases by Chinese investors from March 2013 to March 2014 were cash only.
     The NAR 2014 report says Chinese buyers favor urban-suburban areas, and that half of the U.S. purchases were for vacation and/or residential or rental purposes.
     Chinese buyers bought mainly detached single-family housing, but only 39 percent planned to use the property as a primary residence.
     The United States-China Economic and Security Review Commission said in a February report that Chinese buyers can exacerbate housing bubbles by buying U.S. homes as investment properties.
     In China United’s 43-page lawsuit, it says the NAR needed it “specifically to promote defendant’s global programs, recruit overseas members, sell ‘international Realtor memberships’, increase sales of its educational products, and increase the connections and referrals between Chinese real estate agents and buyers with U.S. Realtors.”
     China United says it was “well suited” to carry out NAR’s China-U.S. Objectives because of its 20 years of experience doing business in China. It says it was surprised that NAR, a “large wealthy national trade association,” wanted a much smaller company such as China United to substantially fund and finance the NAR’s China-U.S. Objectives.
     China United says it gave NAR a presentation of “key elements and conditions” to be met before it would commit to financing and implementing a strategy for the China objectives. Its specific requirements included: (a) exclusivity for China United regarding China-U.S. business; (b) the right to develop and sell NAR’s educational programs in China; and (c) NAR’s “bona fide cooperation” in directing referral business to China United, so it could receive referral business income.
     China United hoped that by being positioned in the middle of “the China buyer side” and “U.S. seller side,” it could develop a solid business through receipt of referral business income.
     NAR’s requirements for China United were that it sell 2,000 International Realtor Membership (IRM) packages in China, that it pay the costs to develop NAR’s China-U.S. Objectives, and that NAR be paid a fixed amount for each IRM and educational course sold by China United. NAR would allow China United to keep the price markup on IRMs/courses plus all referral business income.
     The complaint states that NAR was aware that China United would generate minimal revenue from selling the IRMs and would rely on the referral business income to make a reasonable profit and achieve the objectives. China United said this was especially true given that NAR “would not contribute any funds and wanted plaintiff to cover all expenses by itself in China.”
     China United says it “proceeded cautiously” before signing the agreement with NAR because it would have to give up its other businesses “if it accepted the defendant’s offer.”
     China United says it signed the contract on June 29, 2012 because it trusted Adrian Arriaga, who was in charge of NAR’s China business. China United’s president had known Arriaga for years from the real estate business in Texas and Mexico.
     Arriaga is not named as a defendant – the only defendant is the NAR.
     One of the key contractual terms was an exclusivity clause that stated: “During the term of this agreement, NAR agrees that with respect to China, it will not directly or indirectly utilize the services of any other administrator, vendor, or contractor for the same or similar services to be provided by China United under this agreement and that NAR will refer all business leads involving the services to China United for handling per this agreement,” according to the complaint.
     China United says that NAR initially complied with the terms of the agreement and started a referral program for China United in the United States and China.
     China United says it “worked seven days a week, invested substantial sums to carry out the business trade with defendant NAR, was dedicated, and tirelessly promoted the benefits of the defendant’s organization throughout China – inasmuch as it was essentially unheard of in China prior to the efforts of plaintiff.”
     Citing an example of its hard work to win key clients, China United says it “made six trips to China to the offices of that one client solely to promote defendant NAR’s business in China to that client.”
     NAR extended the agreement with China United for 18 months, until July 2015, and the amended agreement made no other changes to the substance of the original contract, according to the complaint.
     China United says it felt frustrated because NAR refused to allow it to make any modifications to the International Membership Program even after China United voiced concerns about the program’s lack of appeal to Chinese real estate agents.
     In November 2013, China United wrote a memorandum of understanding between NAR and a major “quasi-governmental real estate group,” in China and then arranged a meeting. NAR then improperly deleted China United’s name from the memorandum, according to the complaint.
     Despite such actions, China United says, it continued to “promote the defendant’s name and brand in China, and set up two nationwide websites which could be used to sell the defendant’s educational courses, memberships, RPR program, Realtor® University, and promote the referral and connection business.”
     In early 2014, China United says, NAR’s senior vice president for global business, Janet Branton, made a “remarkable statement” during a phone call. Branton told China United that the agreement “was different and much more restrictive than what plaintiff had been working on and investing in for the last 20 months in China and it did not include referral business, educational products, and other things.”
     “Defendant NAR’s statement (Branton’s statement) was so far removed from reality that it did not take long for plaintiff to deduce that defendant NAR was scheming and planning to renege on the agreement.” (Parentheses in complaint.)
     The complaint adds: “During the period of February 2014 through present date, defendant has embarked upon and established various competing programs, diverted business leads to others, and conducted activities which are in violation of its agreement with plaintiff and constitute defaults under the agreement. Despite plaintiff’s objection, defendant has intentionally and encouraged and permitted its favored agents, directors, and ‘presidential liaisons’ and ‘ambassadors’ to siphon off business leads for China which it promised would go to plaintiff.”
     China United says it sent NAR a list of complaints and notices of default, but NAR failed or refused to cure the defaults. It claims that NAR waited six weeks to respond to an April 2, 2014 letter asking NAR to preserve evidence regarding the dispute and agreement. It says NAR belatedly initiated a litigation hold after a May 19, 2014 letter telling NAR that “its behavior was in bad faith.”
     China United says NAR deceived it with a multitude of misrepresentations before and after the formation of the agreement. For example, it says, NAR gave inaccurate information about the number and price of International Realtor Memberships sold in other countries, did not give China United a speaking position at the 2014 NAR Convention as promised, and did not pay compensation to China United for all of the IRMs it sold.
     “Defendant is now seeking to reap the benefits from plaintiff’s extensive work and investment in China promoting defendant, its brand and its products for the prior three years without having to pay for it,” the complaint states.
     China United seeks $595,000 for out-of-pocket expenses, $850,000 in lost profits, and damages for loss of referral business income.
     It also wants an accounting, constructive trust, disgorgement and restitution, an injunction and punitive damages. The 15 claims include fraudulent inducement, consumer fraud, common law fraud, misappropriation of trade secrets, deceptive trade, breach of contract, negligent misrepresentation, breach of fiduciary duty, and tortious interference, under Texas and Illinois laws.
     China United is represented by Herbert Charles Jahnke Jr. in Austin.

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