A dispute over running one of Hawaii’s largest real estate firms has moved from a management shake-up in October to litigation between current and prior leaders of Locations LLC.

The company and its parent filed a lawsuit in April in federal court alleging that top executive and board leaders last year sabotaged the business through an illegal stock buyback amid a shareholder revolt.

Lawyers representing the prior leadership group called the lawsuit a misguided action with allegations based on incorrect information.

One thing not disputed, however, is that Locations — which has nearly 250 sales agents and affiliates in property management, home lending, maintenance contracting and title and escrow services — has been torn apart internally after 51 years.

“We’ve seen friends of decades turn on each other,” Ian Bigelow, the firm’s chief operating officer, said in an August memo to other partners and shareholders in the company, at which shareholders are almost exclusively current employees.

Locations and parent Resco Inc. filed the suit against Bigelow and the company’s other four prior board members: Brian Stewart, who was also Resco CEO; Mike Sklarz, who was board chairman and long ago served as director of research for Locations; James Chan; and Elizabeth Makanani.

The complaint alleges that the “band of five” obtained $2.9 million of the company’s cash reserves by having the company buy back their stock for a high price that they set.

The lawsuit also asserts that Stewart canceled an important bank credit line a few days before the buyback and the board’s resignation in October.

Other assertions in the case claim that some departing board members nullified their noncompete agreements and that the company’s ability to retain agents was damaged because bonuses needed to be reduced to conserve remaining cash.

“The defendant’s actions were intentional and malicious,” the complaint said.

Attorneys for Bigelow, Stewart, Makanani and Chan said in a joint statement that current management has wrong opinions about what occurred and that the prior leaders were instrumental in the firm’s success over the years.

“Once the truth is shown, we expect this ill-considered lawsuit to be dismissed,” the group said.

An attorney for Sklarz called allegations in the lawsuit offensive, insulting and wrong, and said the roughly 40-year Locations shareholder will fight the case with passion.

It appears that discontent at Locations leading up to the lawsuit was partly and perhaps largely rooted in feelings of inequity among employees regarding layoffs and Bigelow’s compensation, which increased last year due to bonuses linked with rising company income supported by federal Paycheck Protection Program aid during an economic downturn in Hawaii triggered by the coronavirus pandemic.

The lawsuit claims that Stewart, a former Bank of Hawaii and Hawaiian Airlines executive who joined Locations in 2015 and became Resco’s CEO early last year, joined other board members to approve a compensation package for Bigelow that was “out of touch with reality” and contrary to company interests.

From January to September 2020, Bigelow earned a $506,498 bonus representing 25% of net operating income from three subsidiaries excluding the brokerage business, according to the complaint.

Plaintiffs also took issue with Bigelow receiving a fee for arranging acquisitions, which allegedly earned him $75,000 on a $1.5 million down payment purchase of Big Island firm Clark Realty Corp. in 2018 that was followed by Locations selling Clark last year for about $1 million to rival Coldwell Banker Island Properties.

According to the lawsuit, Jason Lazzerini, who was hired in 2019 as president and CEO of Locations but not Resco, began questioning whether subsidiary costs were being mis-allocated to boost net operating income for subsidiaries generating bonuses for Bigelow.

Lazzerini, a former American Savings Bank home loan senior vice president, also disagreed with some plans to lay off employees amid concerns that the coronavirus would negatively affect the company, the lawsuit claims.

Resco’s board, according to the lawsuit, took issue with Lazzerini’s positions and fired him in September as other company shareholders began questioning Resco board actions.

Bigelow defended his compensation as a high-risk/high-reward plan that requires him to cover 25% of any negative net operating income.

In his August memo, Bigelow, who joined Locations in 2012 when Locations bought a rental housing management company he founded, explained that he wanted to leave Locations in 2017 and earn more money on his own but was enticed to stay by then-CEO Scott Higashi, who agreed in 2017 to give Bigelow 25% of net operating income from Resco’s property management division.

After Higashi resigned in 2019, Resco’s board expanded Bigelow’s profit- sharing deal to other subsidiaries last year while also adding the loss-sharing provision, Bigelow said in his memo, which also claimed that Lazzerini was passed over to become Resco CEO in favor of Stewart, who had been Locations chief financial officer.

“I signed up for a high risk/high reward comp plan, and although things far exceeded my brightest of expectations, I understand that is now casting me in a negative light given the current situation,” Bigelow said in his memo.

Bigelow’s August memo apparently didn’t placate disgruntled shareholders, as Stewart emailed a consultant in October saying that “we have a shareholder revolt issue brewing at our company,” according to documents in the lawsuit that also claim the board initiated the stock buyback plan to let feuding parties go separate ways.

The buyback, which was available Oct. 15-21 to all shareholders, resulted in 48% of Resco stock being redeemed by 13 sellers for $4.4 million, or about half the company’s cash, the lawsuit said.

All five board directors, who sold their stock and then resigned, received $2.9 million representing 67% of redemptions, according to the complaint.

Current Resco leaders claim in the lawsuit that the buyback was an illegal scheme to enrich the five directors before they could be ousted during the firm’s annual shareholders meeting Oct. 31.

The lawsuit claims that written company rules permit shareholders to sell stock only for the highest price offered by other shareholders.

For example, Bigelow, as the company’s largest shareholder before the buyback, acquired all his shares for $5 to $10 each, or about $410,000 total, while the buyback price set by the board was $30.57 and generated $1.8 million for Bigelow, the suit said.

The buyback price, according to a board memo noted in the lawsuit, was largely based on the amount of cash held by the company.

“When it became clear to defendants that they could not keep control of the company, they decided to take as much as possible out of the company for their own purposes, without regard to how their decision affected the company or its other shareholders,” the complaint said.

The board said in its memo that the buyback offer, which was capped at 70% of all shares, would leave “more than enough” cash to continue operations.

After the buyback a new board reinstalled Lazzerini to lead the company, and the departing leadership team moved on to mainly new ventures.

Bigelow formed a new property management firm, Agency Rentals LLC.

Stewart, who allegedly received $427,980 in the buyback, retired, according to his LinkedIn page.

Sklarz, who allegedly received $305,700 in the buyback, was already running his own firm, Collateral Analytics.

Chan, who allegedly received $320,037 in the stock buyback, joined real estate firm Compass.

Makanani, who the lawsuit said received $76,425, joined Corcoran Pacific Properties.

“I’ve seen a company that I loved and committed more than half of my professional career to seemingly turn into something that I don’t recognize anymore,” Bigelow said in his memo. “I hope we can heal.”