A bitter stock dispute between Redfin and two of the company’s earliest employees has ended in a settlement agreement, terms of which are not being disclosed.
Redfin co-founder Michael Dougherty and former CTO David Selinger alleged in a lawsuit in March that the fast growing company had moved to cancel their shares as it prepared for an initial public offering.
In a joint statement issued to GeekWire this morning, Redfin and the two early employees said that the dispute ended “peaceably.”
Both men received letters earlier this year with checks from Redfin which attempted to cash out their stock, though neither had moved to sell their substantial stakes. Dougherty, who now works at Amazon.com, owned two million shares of Redfin while Selinger — now the CEO of RichRelevance — owned 924,000 shares.
Selinger joined Redfin as CTO in 2004, while Dougherty was a co-founder and an original investor. As part of their employment agreements, both were given restricted stock agreements. Those shares were to become fully vested if they left the company for good reason, or if there was a change of control.
With Redfin in dire straights in the Spring of 2005 under then CEO David Eraker, Dougherty and Selinger left the company, signing a settlement agreement acknowledging that their shares were fully vested. At the time, Redfin also reserved the right to repurchase the shares at 40 cents per share, though that right disappeared at the time of a change of control.
Selinger and Dougherty argued in the lawsuit that their shares fully vested in 2005 when Madrona Venture Group took a majority interest in the then struggling company.
In an interview with GeekWire in April, Selinger said that he felt “terrible” and “bummed” when the letter arrived from Redfin attempting to cash out his and Dougherty’s stakes. It was especially tough since Selinger considered Redfin CEO Glenn Kelman a friend and peer.
“They have gone out of their way to take action…. It would be advantageous for them to try to execute this in order to force a settlement where they get some of their shares back,” Selinger said at the time. “It feels like a financial engineering move. It just really sucks.”
Dougherty offered this statement to GeekWire at the time:
“Redfin is a fantastic company. I’m proud of the role I played in its founding, and excited about what it’s achieved since. Our current dispute is unfortunate, but I’m hopeful that Redfin will recognize our rights with respect to our shares and that we’ll ultimately resolve things.”
Redfin is said to be valued at more than $500 million, and the company has been rumored as an IPO candidate. The lawsuit between Selinger and Dougherty and Redfin was seen by some as possible impediment to a public offering by the company, which is embarking on a big national expansion.
Redfin, along with Dougherty and Selinger, issued this statement on the matter.
Redfin and two of its three co-founders, Michael Dougherty and David Selinger, have resolved the differences that led Mr. Dougherty and Mr. Selinger to file a lawsuit earlier this year. Mr. Dougherty and Mr. Selinger have asked the judge to dismiss the lawsuit.
The dispute was over Redfin’s enforcement of a contract between Redfin’s founders that was entered into in 2005 when Mr. Dougherty and Mr. Selinger left Redfin. In that contract, Redfin agreed to accelerate the vesting of the departing founders’ shares and freed the two to work at Redfin competitors. Redfin in exchange got the right to repurchase Mr. Selinger and Mr. Dougherty’s shares for $1,170,000.
At issue in the recent lawsuit was whether a 2005 venture capital investment in Redfin qualified as a change in control of Redfin that canceled Redfin’s repurchase right.
Redfin CEO Glenn Kelman had in years past talked to Mr. Dougherty and Mr. Selinger of Redfin’s plan to exercise its repurchase right. Immediately prior to Redfin’s exercise of that right, Mr. Kelman notified Mr. Selinger and Mr. Dougherty by email, inviting a dialog with either. All agree that the dispute has ended peaceably.
Redfin is grateful for the co-founders’ pioneering work building the first map-based real estate search site, and Mr. Dougherty and Mr. Selinger look forward to Redfin’s continued success.
Selinger, Dougherty and Redfin declined to comment on the settlement beyond the statement.