Town Residential founder Andrew Heiberger has filed suit against the firm’s equity partner Joseph Sitt of Thor Equities, following Heiberger’s ousting as CEO by Sitt earlier this week, according to a legal complaint obtained by The Real Deal.
Heiberger has asked that a judge issue an injunction preventing Thor from removing him from the brokerage’s board of managers. He also has requested that his dismissal as Town CEO be declared invalid. In addition, Heiberger is seeking at least $60 million in damages.
Heiberger informed Town’s agents of his intention to enter into litigation with Sitt in a mass email sent company-wide this evening, which was obtained by The Real Deal. In the email, Heiberger confirmed that he was no longer chief executive of Town.
“As you have all heard by now, I am no longer the acting CEO of Town,” he said, “but remain a 50 percent owner and board member. This is not really the position I expected us to be in at the early stages of our growth (a little over 3 years).”
He added that, “In the interest of full transparency, I wanted to tell you that I will be in a legal dispute with my partner Joe Sitt. I am confident that the Town brand has enough momentum and is strong enough to prevail.”
Heiberger, who founded Town in 2010, was issued a termination notice by Thor on January 22. Heiberger has said earlier on Wednesday that his removal as CEO was the result of the expiration of his three-year employment contract with Town, which was inked in 2011 as part of his partnership deal with Sitt. But according to the suit, the notice actually purported to dismiss Heiberger based on performance and “bad acts.”
Heiberger claims the notice also stated that Sitt reserved the right to buy him out of his 50 percent ownership stake in the company against his will. Heiberger’s total cash contribution to Town currently totals $5.87 million, according to the complaint. Sitt, who owns the other half of the company, is allegedly claiming the right to buy Heiberger out of his stake at “book value,” the value of the stake minus intangible assets and liabilities.
In response to questions about the lawsuit, a spokesperson for Thor provided the following statement: ”Joe’s focus is singular — working with Town’s first-in-class leadership and top-flight brokers to continue the company’s rapid ascent to the top of the residential brokerage industry.”
The spokesperson did not directly address the merits of the lawsuit.
Heiberger initially brought in Sitt to help fund Town’s expansion, which had four offices at the time. Sitt purportedly committed to investing a total $8 million into the brokerage over an undetermined period, starting with $1 million at the time the contract was signed.
According to the complaint, Sitt and Heiberger both agreed that, to effectively compete with other Manhattan firms, the brokerage would need at least 10 offices and 600 brokers, both benchmarks that the company has reached in recent months.
Heiberger is now claiming that Sitt is misusing provisions in the contract to “freeze out” Heiberger and seize control of the company.
In addition, Heiberger claims that Sitt consistently tried to renegotiate their contract to reduce the amount of cash he needed to supply for capital calls. While the agreement apparently provided that Sitt should provide 80 percent of the money for future capital calls and Heiberger just 20 percent, Heiberger claims Sitt insisted that capital shortfalls be funded by loans from both Heiberger and Thor, with Heiberger contributing 35 percent instead of 20 percent and Thor reducing its contribution to 65 percent.
Heiberger’s latest cash contribution to the company was on January 8, the legal filing says.
The suit alleges that Town has been experiencing some cash-flow issues. In February 2013, the firm allegedly had only $215,000 in cash while facing $1.28 million in expenses. To pay those expenses, Sitt allegedly issued a capital call for $3 million and gave Heiberger 10 days to raise his share of the cash. Heiberger claims that Sitt’s demands were an attempt to cause Heiberger to default on their agreement and thereby force him to relinquish part of his stake in the firm.
Heiberger managed to pay the cash in time, the suit says.
Heiberger also claims that Sitt upended a prospective deal to sell Town to an unidentified “international brokerage firm” last year. The deal was in its final stages – a “nine figure” sales price had been agreed upon — when Sitt allegedly insisted that he would only approve the sale if Thor received substantially more than its fair share of the profits.
Meanwhile, sources told The Real Deal that top Town brass played down the dispute today at the company’s offices, so Heiberger’s email was a shock to many.
“They made it sound like it was business as usual,” one broker said. “Then we got this email and it was like, ‘are you kidding me?’ Why isn’t Town telling us what’s going on? It’s becoming embarrassing.”
Company president Jeff Appel addressed the company in an email Wednesday evening, assuring agents that there would be no change to day-to-day operations at the company, despite the lawsuit.
“There is no effect on our operations, mission, or long-term strategy as a result of the recent events,” he said in the email. “Andrew’s vision and his leadership are forever imprinted on this company and we all look forward to his continued guidance and business development for the benefit of Town, which is something we can all agree that he is a master of.”