Two groups of brokers, including several brokers who do business in the Bay Area, have filed notices of appeal in federal bankruptcy court objecting to a judge’s order approving the sale of all Grubb & Ellis Co. assets free and clear to New York City-based BGC Partners Inc.
Judge Martin Glenn of the U.S. Bankruptcy Court in the Southern District of New York in a 23-page order filed March 27 denied legal claims from Grubb brokers nationwide to have their commissions treated differently than other creditors’.
At stake are millions of dollars in commission payments that Grubb agents believe they are owed based on deals that have been consummated but for which they have not been paid, or are being offered only a fraction of what they believe their due.
“We appealed the order because we don’t believe the order acknowledges some of the objections that we filed,” said Michael S. Fox, a Manhattan-based bankruptcy attorney who is representing a group of more than 50 Grubb brokers nationwide including Marilyn Hansen in San Jose and Jeff Moeller in San Francisco. Hansen could not be reached for comment. Moeller declined comment for publication.
“They (BGC) are acquiring Grubb & Ellis assets free and clear of any lien, and I think they should be subject to the brokers’ claims,” Fox said. The hope is to gain relief for all Grubb brokers and agents who find themselves similarly situated in the case, he said.
Fox is a partner at Manhattan’s Olshan Grundman Frome Rosenzweig & Wolosky LLP and is chairman of the firm’s Business Restructuring and Bankruptcy Group.
Under the judge’s order, there is a seven-day period before the sale is allowed to close. His hope is that Grubb or BGC will come to the brokers during that time to offer clarity on what the brokers might be paid. It is unclear which claims will be deemed “pre-petition” or “post-petition,” he said, a crucial distinction in terms of how the claims are treated. Grubb filed for relief under chapter 11 of the federal bankruptcy code Feb. 20 and has embraced an expedited bankruptcy procedure.
Brokers can work months and even years to close a deal, Fox said. “There is no bright line as to what constitutes a pre- and post-petition claim.”
Grubb sought to find a buyer or strategic partner for more than a year before it went to court, approaching more than 50 potential bidders, the judge said. It estimated that it had as many as 10,000 creditors and assets and liabilities of up to $500 million.
Under the judge’s order, the brokers will be treated as general unsecured creditors and have been put in the same class as bondholders owed $30 million, Fox said. It is unclear whether the brokers will be in front of bondholders, behind bondholders or whether all unsecured creditors will be treated as peers, and each receive fractional amounts as money is distributed under a so-called pari-passu structure.
Many Grubb brokers have already departed the company. Since the beginning of January alone, agents representing 30 percent of Grubb’s overall 2011 brokerage revenue have left, according to the judge’s order. Those who remain are generally understood to have the largest claims, or, put another way, the most to lose by leaving.
Steven R. Morgan, a senior vice president who specializes in office properties in Atlanta, was among the firm’s largest creditors when it filed for protection last month and is owed more than $270,000, for instance. Closer to home, Jerry Igra, an executive vice president in San Francisco, was owed not quite $153,000.
Employees and brokers are also facing the loss of their deferred compensation. Nancy Niehoff, a Grubb employee in New York, told the court she is being offered nothing in compensation for more than $42,000 in her name in the company’s deferred compensation plan and nothing for nearly $11,000 she accrued in paid time off.
In ruling against the brokers’ requests, the judge noted that commission payments made to Grubb are not segregated from other revenue but are deposited in a general account that is not reserved for commission payments alone. Moreover, he said, under the terms of agreements between Grubb and its brokers and agents, some of which were reviewed by the court, most have language that clearly states that the commissions belong to the brokerage house.
Image courtesy of grubb-ellis.com