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MLSNI senior management, led by President Loretta Alonzo, has attempted to put an employee termination (buy-out) package for its embattled CEO Jay Huffman for approval before the board of directors, who were asked to meet on Thursday for an emergency Executive Session. The agenda was outlined to discuss Huffman's employment agreement and REBIG insurance.
Huffman is under fire from the board of directors for facilitating a generous no-bid consulting contract for his wife, as well as arranging multi-million dollar funding of her company REBIG as well as positioning her to be handsomely paid as CEO - all with MLSNI monies. Huffman claims that he was within his powers to make such decisions as CEO of MLSNI and that the board not only knew of his actions with regard to his wife, but approved.
A recent audit by PriceWaterhouseCoopers revealed material that suggest breaches of fiduciary responsibility to MLSNI shareholders as well as conflicts of interest by Huffman, MLSNI attorney Robert Cichocki, and others, including failure to find any authorization by the board to extend and enrich Ms. Huffman's consulting contract, to remove from MLSNI and to give her a portion of the intellectual property rights to the business plan she was developing for MLSNI, or to give her and her holding company Dona LLC more favorable shareholder rights than were given to MLSNI as a major investor.
The audit report was so suggestive that the West/South Suburban Chicagoland Association of Realtors asked for extensive "shareholder request for information" documents which could lead to possible legal action against certain persons in MLSNI management, shareholder directors who failed in their fiduciary duties, and others.
In a possible attempt to defrag shareholder anger toward MLSNI senior executives and executive committee members, Alonzo and Huffman seemed to have arranged an Executive Session in which it appeared that Huffman's employment contract would be proposed for buy-out. Also, on the agenda was to be a discussion of REBIG insurance, presumably its E & O insurance, which apparently MLSNI is being asked to pay a portion, but the Dona LLC member (Ms. Huffman) was not.
A shareholder director, Charles Melidosian, wrote to Alonzo a number of questions in an email. He asked her for details on the E & O insurance and why paying for it provides any benefit to MLSNI and who is advising MLSNI about the matter. He also asked whether or not the employee (Huffman) is desiring to terminate his agreement, or whether or not the agenda was to terminate him. He even asked Alonzo who requested "this Special Board of Directors meeting."
Melidosian also scolds Alonzo for attempting to stop any other business from being discussed at this meeting. He reminds her that is up to the board of directors to alter the "Order of Business" which should consist of reading and approval of minutes, reports of officers, boards and committees, reports of special committees, special orders, unfinished business, and new business.
"Your immediate reply to these inquiries is critical for me to make informed decisions at the meeting," wrote Melidosian.
Alonzo wrote back, "...we have a verbal proposal from Jay's attorney which will be shared with the Directors at the meeting. If we go forward, I have a list of outside counsel who specialize in employment contract law."
She adds,"I will be the Chairperson of this meeting and since this is an Executive Session meeting no outside counsel will be permitted at this meeting as only the two agenda items will come before the meeting. 9 directors will be required for quorum."
She did not address Melidosian's other questions, but did say a copy of the REBIG E & O coverage is being sent to directors.
The directors' meeting was not to take place. According to Chicago Association of Realtors voting shareholder John Vranas, the directors meeting was improperly called because the request did not come from the CEO or the President. The request to meet was improperly sent out by a staff member, allegedly.
The Chicago Association of Realtors and the Three Rivers Association of Realtors had attempted to get new shareholder directors ratified by the shareholders via mail, but they were not successful. Someone had rallied the smaller broker boards not to ratify the new shareholders before the emergency meeting, says a source. The reason?
Without CAR or TRAR voting members in attendance, Huffman presumably had a better chance of getting a generous exit package approved by the board than he would with the new broker-dominated board (complete with new CAR and TRAR directors) which will meet in a few weeks. This is presumably why the emergency Executive Session was called one day before the scheduled board meeting which would allow the ratification of the new directors. A quick exit for Huffman could also remove enough anger that the "search for the guilty" would stop, and remaining, but equally culpable, executives would never have to face accusations, lawsuits or loss of their positions, suggests a source.
Vranas explained to Realty Times, "We were not successful in getting the directors seated, and we went into the Circuit Court of Cook County to get a restraining order to keep the board of directors from meeting today without our representatives being seated. He says it's not known who requested the meeting, but "it was defective because it was not sent out or called by the president or CEO. That's how we were able to restrain them from meeting today without our shareholder representatives present."
According to witnesses to the proceeding on Wednesday, October 6, 2004, the court was filled to overflowing. Witnesses reported that when the presiding judge allowed the temporary restraining order to stop the emergency meeting that the situation "didn't pass the smell test."
Vranas says that the other directors cannot oppose the newly appointed shareholder directors, and that they should be installed at Friday's scheduled meeting.
While some shareholders have threatened to boycott the meeting, Vranas believes that CAR and TRAR will have enough votes for a quorum to ratify the new directors.
What's next? "They'll take office as soon as they are ratified tomorrow."
Is there anything planned for discussion about Huffman? "His contract provides for termination and some payment without cause, but if there are issues relative to cause, there is a possibility that we may be looking at trying new leadership to move it forward."
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