I was reviewing the grapple rules, technically yes, and then again by all reason no. Allow me to explain. The way I understand grappling, it removes your ability to use your dex mod in your AC, but this creature probably should not be held to that rule. According to the rules I will allow it to be flanked, as the mechanic is still the same as denying the creature its dex. Alomar can still fight from his grappled state. Though he is restricted to small weapons since his arms are pinned to his side.