Irvine, L.A. Real Estate Brokerages Settle Suit

An Irvine commercial real estate brokerage settled a lawsuit Tuesday with a Los Angeles rival that had accused the Irvine firm of improperly raiding brokers and listings.

Scher-Voit Commercial Brokerage Co., an upstart Irvine firm, was sued for $1 million by Daum Commercial Industrial Real Estate in Los Angeles late last year.

The suit had been closely followed by local brokers, who said the settlement was generally favorable to Daum.

Both companies said they had agreed not to disclose details of the settlement.

The dispute started a year ago, when about two dozen brokers and other employees walked out of Daum’s Anaheim office one night and showed up for work at Scher-Voit’s new Anaheim office the next day.

Raiding other brokerages for employees is merely considered bad form in the brokerage industry.

But when Daum filed suit in Orange County Superior Court shortly afterward, it also accused former employees of taking listings of commercial buildings for sale and lease. Since then, more employees have defected. Daum alleged those employees had breached their contracts and also accused Scher-Voit of unfair business practices. Daum in its suit called it a “conspiracy” to carry out a “systematic, wide-ranging overnight raid.”

Scher-Voit denied it had aggressively recruited the employees. After the suit was filed it stopped marketing the disputed listings, lawyers in the case had said.

But the defections hit Daum at a particularly bad time. Daum’s parent, Southmark Corp. of Dallas, had hit the skids in the ailing Texas real estate market. Southmark filed for bankruptcy in July. Johnstown American--the Southmark subsidiary that owned Daum--filed for bankruptcy even earlier this year, shortly after Southmark had divested its interest in Johnstown American.

Because of Southmark’s problems, which were readily apparent by 1988, Daum was widely rumored last year to be on the block. In fact, the October raid cost Daum so much in lost revenue that it effectively killed a plan by employees to buy the brokerage, Daum’s chairman said last year.

This year Daum dropped “Johnstown American” from its name to distance it from the troubled company.

It was the turmoil at Daum last year that convinced the defecting brokers to leave, Scher-Voit President Lawrence M. Scher said last year. Those brokers feared a loss of business, because clients tend to shun a brokerage they perceive to be troubled, he said.

But Scher also admitted he was paying some of the new brokers a higher “split,” or share of commissions, than Daum had paid. Those commissions from leasing office and industrial buildings can often run into the hundreds of thousands of dollars.

Daum insiders say that despite the damage from the defections and the subsequent publicity, the brokerage has held on to many of its clients.

It was natural that the defecting brokers would go to Scher-Voit because many of them had already worked for Scher in an Orange County brokerage that he sold to Daum in 1984 for $4.4 million. The same year Daum was gobbled up by Johnstown American of Atlanta, a property management firm that was in turn acquired by Southmark. Daum is one of Los Angeles’ oldest brokerages, starting as a broker of industrial buildings in 1904.

By 1987, Scher had got back into the brokerage business, starting Scher-Voit with Robert D. Voit, the developer of the enormous Warner Center project in Woodland Hills.

The suit was watched closely by the local industry for clues as to what is legally permissible when a broker leaves one brokerage for another. Many of the brokerage managers familiar with the case said they disapproved of Scher-Voit’s actions.

Instead, however, the suit was settled quietly and in secret sometime earlier this month. The two companies issued a statement Tuesday that said, in part, they hoped the settlement would “result in a new era of cooperation between the two brokerage houses in all geographic markets in which the companies compete.”

BACKGROUND

Local real estate brokers have followed the suit against Scher-Voit in the hope that a court ruling would provide firm guidelines governing the hiring of brokers from rival firms. Because the suit was settled out of court, and the details of the settlement are secret, the issue of what is and isn’t legally permissible remains undecided.