Case Name: Fred EHRMAN, Plaintiff-Appellant, v. COOK ELECTRIC COMPANY and Northern Telecom Limited, Defendants-Appellees
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1980-09-17
Citations: 630 F.2d 529
Docket Number: No. 79-2373
Parties: Fred EHRMAN, Plaintiff-Appellant, v. COOK ELECTRIC COMPANY and Northern Telecom Limited, Defendants-Appellees.
Judges: Before CUMMINGS, Circuit Judge, NICHOLS, Associate Judge, and PELL, Circuit Judge.
Reporter: Federal Reporter 2d Series
Volume: 630
Pages: 529–534

Head Matter:
Fred EHRMAN, Plaintiff-Appellant, v. COOK ELECTRIC COMPANY and Northern Telecom Limited, Defendants-Appellees.
No. 79-2373.
United States Court of Appeals, Seventh Circuit.
Argued May 9, 1980.
Decided Sept. 17, 1980.
George W. Hamman, Chicago, 111., for plaintiff-appellant.
Stewart S. Dixon, Chicago, 111., for defendants-appellees.
Before CUMMINGS, Circuit Judge, NICHOLS, Associate Judge, and PELL, Circuit Judge.
Judge Philip Nichols of the United States Court of Claims is sitting by designation.

Opinion:
PER CURIAM.
The plaintiff, Fred Ehrman, appeals from the judgment entered by the district court after granting the defendants' motion for a directed verdict under Fed.R.Civ.P. 50(a).
The plaintiff argues, and we agree, that Illinois law applies to this case. To recover a finder's fee under Illinois law, the plaintiff must demonstrate the existence of an agreement, express or implied, to pay for services in finding an acquisition or merger candidate, and that he was the procuring cause of the ultimate transaction. See Modern Tackle Co. v. Bradley Industries, Inc., 11 Ill.App.3d 502, 297 N.E.2d 688, 692-93 (1973); Hennessy v. Schmidt, 521 F.2d 1282, 1286 (7th Cir. 1975). To be the procuring cause of the acquisition, the plaintiff must show that he brought one party to the acquisition to the attention of the other party for that purpose, and that the acquisition actually took place through his efforts. Modern Tackle Co., supra; Bittner v. American-Marietta Co., 162 F.Supp. 486 (E.D.Ill. 1958). The finder is not a broker and need not participate in negotiations. Modern Tackle Co., supra. Finally, the plaintiff must prove that the contract was breached, resulting in damages.
The district court held that the plaintiff submitted sufficient evidence to raise a question of fact as to all of the elements of his case against both defendants on an implied contract theory, except as to damages. The defendants argue that the district court's ruling should be affirmed if it is correct for any reason, and argue that even if there were sufficient evidence of damages, the evidence relevant to the other elements of the plaintiff's case is insufficient to create a question for the jury. We agree with the district court that the evidence against both defendants was sufficient to create a jury question on the issues of whether there was an implied agreement with either or both to pay a finder's fee, and whether the plaintiff was the procuring cause of the merger. We disagree with the district court's ruling that there was insufficient evidence to create a jury question on the issue of damages, however, and accordingly, must reverse the judgment.
Considering only the operative facts in favor of the plaintiff, disregarding conflicting and unfavorable testimony, and drawing inferences in favor of the plaintiff, see Oberlin v. Marlin American Corp., 596 F.2d 1322, 1326 (7th Cir. 1979), we conclude that a jury reasonably could have found that the defendants, acting through Mangle and Stark, impliedly agreed to use Ehrman as a finder, and that Ehrman's efforts brought about the acquisition. Although there is little evidence to show an express agreement to this arrangement or to compensate Ehrman for his services, there is sufficient evidence that the customary fee arrangement in this field, based on the so-called 5,4,3,2,1 formula, is a reasonable measure of damages for the implied contract.
Ehrman called Stark, financial vice-president of Northern, and introduced himself as a partner of the firm of Shufro, Rose, and Ehrman. According to Ehrman's testimony, "I told [Stark] that we were investment advisors as well as involved in mergers and acquisitions." Stark requested the name of the prospective acquisition and more information, and, according to Ehrman, "said to me that he was unaware of the existence of this company. He had never heard of Cook Electric Company." Later, Ehrman sent a letter to Stark explaining that Cook authorized him to contact Northern on their behalf, and adding, "Should Northern Electric ultimately acquire Cook Electric, we would expect to receive the finder's fee based on the customary 5,4,3,2,1 formula." Stark was a sophisticated businessman, and despite Stark's later letter rejecting the finder's arrangement, his original request for information from Ehrman and Northern's subsequent consummation of the acquisition are sufficient at least to create a jury question on whether the finder's relationship existed between the plaintiff and Northern. See Schaller v. Litton Industries, Inc., 307 F.Supp. 126, 131 (E.D.Wis.1969) ("One who speaks one way and acts another should be judged by what he does and not by what he says.") The defendant Northern certainly had a motivation to send the letter to avoid liability to Ehrman, even if it fully intended to take advantage of the opportunity he disclosed.
As to Cook Electric, Ehrman testified that
I said to Mr. Mangle that if a transaction ultimately arose between Cook Electric and Northern or any other possible acquir- or that my firm would be protected. . Mr. Mangle, then, inquired of me what I meant by protected; and I said to him I would assume that we would get a fair fee if a transaction ultimately arose between Cook Electric and another company that I brought to Cook's attention or brought Cook to its attention. Mr. Mangle answered me, okay, don't worry about it. You will be protected.
Cook argues that the use of the term "protected" clearly shows that Mangle was to act only as a surety if the finder's fee was not paid by Northern. Such a surety agreement, Cook further argues, is barred by the Illinois statute of frauds, Ill.Rev.Stat. ch. 59, § 1 et seq. Mr. Ehrman's reply to Mr. Mangle's question defines "protected" merely as meaning he would receive his fee. One might infer the existence merely of a surety relationship, but the evidence is hardly sufficiently compelling to support a directed verdict for Cook.
On the issue whether Ehrman was the procuring cause of the merger, the defendants emphasize the proposed Browning meeting in 1971 or 1972 and the Stark letter as evidencing past contacts between Cook and Northern. The evidence of these contacts shows them at most to have been fleeting, and it is therefore for the jury to determine the significance of the plaintiff's role in the light of all of the circumstances in subsequently bringing about the merger. Indeed, the evidence at this point shows that the Browning incident was mentioned only after the plaintiff's initial request for a fee, and is contradicted by the plaintiff's initial conversation with Stark, during which Stark told the plaintiff that he had never heard of Cook.
Finally, as to damages, the plaintiff had the burden of submitting evidence of the fair and reasonable value of the services rendered under the implied contract. On this issue, the plaintiff was permitted to submit only the following evidence: the letter from Ehrman to Stark demanding a fee calculated under the customary 5,4,3,2,1 formula, and Ehrman's testimony that the application of this formula would result in a fee of approximately $397,000 and that this customary figure was fair compensation for his services. The defendants argue that this amount is "ludicrous" to claim under the circumstances. The evidence shows, however, that such acquisitions are consummated only infrequently, and a jury could conclude on this basis that the importance of the plaintiff's role to the defendants is thereby more significant than it might at first seem and that the apparent "windfall" to the plaintiff is only reasonable compensation in light of years of attempted mergers that yielded him nothing. See Schaller v. Litton Industries, Inc., supra, 307 F.Supp. at 132-33 (calculating the reasonable value of finder's services under an implied contract on the basis of the 5,4,3,2,1 formula).
The judgment of the district court is reversed and the cause is remanded under Circuit Rule 18 for a new trial.
REVERSED.
. The defendants urge that the district court erred in not applying the law of New York. We are persuaded by Judge Robson's opinion, 468 F.Supp. 98 (N.D.Ill.1979), that Illinois law controls this case.
. The defendants, of course, do not concede that the evidence as to damages was sufficient to create a jury question.
. There is no dispute that the merger actually took place.
. The dissenting opinion does not disagree with our holding that there was sufficient evidence on damages to require this case to be submitted to the jury but disagrees with our holding, and the conclusion of the experienced district court judge, an Illinois lawyer, that the evidence against both defendants was sufficient to create a jury question on the issues of whether there was an implied agreement with either or both to pay a finder's fee, and whether the plaintiff was the procuring cause of the merger. Credibility questions are inherent in the determination of these issues.
We have not indicated in this opinion that the case is a strong one but merely have held that under Illinois law there were sufficient factual questions to mandate jury consideration. That this might not have been true if the law of some other state had been applicable is not our concern here. The dissenting opinion sets forth an extensive factual analysis which when argued to a jury might well be persuasive. The jury, however, in our opinion, is the proper body to which this analysis should be presented rather than this appellate court notwithstanding that in appropriate cases this court can affirm on other grounds than those on which the trial court decision rested.
. The plaintiff argues that this statute of frauds defense was not pleaded in accordance with Fed.R.Civ.P. 8(c) and that it was therefore waived. Although we conclude that this affirmative defense was properly raised in the paragraph of Cook's answer labeled "FIRST AFFIRMATIVE DEFENSE," Cook has not argued suretyship with any specificity until this appeal, indicating to some extent that the evidence of such a relationship is lacking.
. The plaintiff has also challenged several of the district court's evidentiary rulings. Because of our disposition of the directed verdict issue, we need not address these arguments. The plaintiff of course is free to offer this evidence again at a new trial.