Birch, Agents Square Off in Post-Acquisition Disputes

In Birch’s M&A frenzy, have some agents been left holding the bag?

Edward Gately, Senior News Editor

July 8, 2015

5 Min Read
Birch, Agents Square Off in Post-Acquisition Disputes

Edward GatelyTelecom consulting firm TMA Inc. lost $4,000 in monthly commissions in the aftermath of Birch Communications acquiring the services and customer accounts of Globalinx in March.

TMA is not alone. A number of telecom agents say they were mistreated and lost their commissions when Birch purchased the assets and customer accounts from companies with whom they had agent agreements. However, most are unwilling talk about their experience on the record for fear it could negatively impact their business.

Thomas Graham, TMA’s senior vice president of technology, came forward to talk with Channel Partners about his company’s experience. He started the Sewell, New Jersey-based company in 1990 after leaving AT&T.

“We cannot speak for any agents other than TMA, however, those I have spoken with seem to share our frustrations with the entire Globalinx-Birch transition,” he said.

Tim Phelps, Birch’s director of marketing communications, said the company’s partners “are an integral part of our sales strategy.” Atlanta-based Birch provides a wide variety of communications and technology services to businesses.

“We believe in engaging and enabling our partners to help them grow their business,” he said. “The partner channel will continue to be an important part of our business.”

Telecom Decision Makers Inc. (TDM) launched its legal fight against Birch in November 2008 and has yet to be awarded any compensation for what it contends is more than $5.5 million in lost commission payments.

In January 2014, a federal jury reached a verdict in TDM’s favor, deciding that Birch assumed obligation to pay TDM recurring commissions after Birch bought assets and customer accounts from Navigator Telecommunications in November 2008.

TDM of Louisville, Kentucky, contends Birch owes it more than $5.5 million in back commissions because it should have honored TDM’s agent agreement with Navigator.

“We kept our doors open, but it had a tremendous impact on the company … and made it impossible to grow,” said Robert Bowling, president of TDM. “At the time of the sale, our commissions were slashed by several thousand dollars a month. The commissions were there in October, the sale was in November and then they weren’t there. Birch is the only company we’ve ever had to do this.”

The federal jury wasn’t asked to consider the issue of awarding damages. As a result, TDM last November filed a new suit in Kentucky Circuit Court in Oldham County against both Birch and Navigator, seeking compensation for the unpaid commissions and punitive damages.

Subsequently, Birch filed a request in U.S. District Court for the Western District of Kentucky to have the state suit moved to federal court and added to the original case. Last December, the pending federal case was passed to a new judge and no decision has been rendered by the new judge. The litigation has been at a standstill ever since.

“It’s moving at the speed of justice,” Bowling said.

Phelps said Birch cannot “speak to the specifics of the litigation because the case is still active.”

Ben Bronston, a Houston-based telecom/IT lawyer and authority on agent agreements, said that, while the TDM/Birch case is still pending, the federal jury’s verdict is “potentially …

… quite meaningful for the channel as a whole.” He is not involved in the case.

“The verdict does not create binding precedent in all situations,” he said. “However, it does mean that agents don’t necessarily have to take it on the chin whenever a purchaser refuses to assume the seller’s agent agreements when purchasing customer accounts. If the assignment clause is properly worded, it’s possible a court might interpret the clause in favor of the agent. The key for all channel partners is to be sure to thoroughly negotiate every aspect of an agent agreement before signing it, especially the assignment clause.”

Birch has purchased assets and customer accounts from numerous companies in recent years, such as Lightyear Network Solutions in May 2013 and Ernest Communications in September of that year.

Last month, Birch completed its customer asset acquisition from OrbitCom, and in June 2014 it completed similar acquisitions involving Liberty-Bell Telecom and EveryCall Communications. The biggest of them was the company’s $323 million purchase of channel stalwart Cbeyond a year ago.

TMA was one of TMC Communications’ original agents before TMC was acquired by Globalinx in January 2011, Graham said. After the acquisition, Globalinx had TMC agents sign an addendum giving their “consent to the assignment of the agreement to Globalinx,” he said.

“We continued selling TMC services, as stated in the addendum, and were paid commissions for doing so,” he said.

After Birch completed its purchase of Globalinx’s assets and customer accounts, TMA received a letter stating that “we would no longer be paid the residual commissions we were receiving from Globalinx unless we signed the Birch agreement,” Graham said. “We also noticed an immediate and significant decline in customer service levels for our clients,” he said.

The Birch agreement stated it would “continue to pay residual commissions for 12 months or as long as $50,000 in live on-net revenue is maintained.”

“We probably would not meet the $50,000 requirement, so our commissions would terminate after 12 months,” Graham said.

In addition, the agreement left the dealer open to Birch potentially redefining “Birch primary markets, “on-net” or “live on-net” terms, he said.

TMA didn’t sign the Birch agreement because “we believed it was not a mutually beneficial agreement,” Graham added. “As a result, our commissions were immediately terminated and we have not received approximately $4,000 in monthly commissions since April 2015,” he said. “Unfortunately, some of our clients are still under their original Globalinx agreements, now being served by Birch, and we will not abandon them when they have service or billing issues to resolve. Trying to resolve those issues with Birch Comm has been incredibly difficult and is taking many hours of our time, which is not billable to our clients.”

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About the Author(s)

Edward Gately

Senior News Editor, Channel Futures

As news editor, Edward Gately covers cybersecurity, new channel programs and program changes, M&A and other IT channel trends. Prior to Informa, he spent 26 years as a newspaper journalist in Texas, Louisiana and Arizona.

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