Court Opinion

ID: 9467082
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:37:59.847349+00
Date Added: 2024-06-11T17:40:08.955108
License: Public Domain

NICHOLS, Associate Judge,
dissenting:
With all respect, I would affirm, though. not on the district judge’s grounds. I do not think this case should go to the jury because I see in Ehrman’s own version of the facts, if fully believed, no fact issue for a jury to decide.
The so-called merger itself was a sale of the Cook stock by Cook stockholders. This stock was listed on the American Exchange. It had fallen from $13 to $7 a share in the 1973-74 decline. Stockholders received $15 a share, a total cash consideration of $29,-790,420. A previous proposal to issue Northern stock to them for their Cook stock had fallen through.
Mr. Ehrman had acquired his knowledge of and interest in Cook through his activities as a stockbroker, in advising customers’ investment in Cook as an investment adviser, as actually investing himself, when employed to manage customers’ portfolios, and investing with his own money. In those capacities he had been given a tour of Cook’s plant and a conference with Mr. Mangle, Cook’s President, in which they discussed Cook’s problems. There were subsequent telephone conversations. Plaintiff received financial data, whether publicly available or confidential does not appear. He learned of a change of attitude when, from opposition to being acquired, Mr. Mangle was coming to view it favorably.
As the Cook stock had fallen, Mr. Ehrman might have been hearing from investors whom he had caused to acquire some of it, for whom the merger must have been a blessing.
Thirty percent of the Cook stock was owned by three Edwards brothers and apparently this 30 percent gave them control. *533Their interests respecting possible mergers might have conflicted with those of scattered owners, such as Mr. Ehrman’s clients, who had no control.
Mr. Ehrman commenced his entrepreneurial activities by advising Mr. Mangle of Northern’s existence and its suitability as a candidate to acquire Cook. He asked permission “to contact Northern on behalf of Cook,” and received it, according to his testimony. He then phoned Mr. Stark of Northern, at Montreal and said he was a partner of his New York brokerage firm, and that they were investment advisers, as well as involved in mergers and acquisitions. He said his firm represented a block of stock in a company he later identified as Cook and he suggested to Mr. Stark it might be a suitable acquisition. He apparently said nothing about having been authorized by Mr. Mangle to negotiate a merger in Cook’s behalf. Mr. Stark asked for financial data on Cook, including a product catalogue, which Mr. Ehrman had to obtain from Cook. Upon obtaining the data, he sent it to Mr. Stark with a covering letter. This letter told of Mr. Ehrman’s interest in Cook, and of his having been authorized by Cook to get in touch with Northern. Should Northern ultimately acquire Cook “we would expect to receive a finder’s fee based on the customary 5-4-3-2-1 formula.” He did not say who was to pay it, but the obvious innuendo was that Northern would. This was Mr. Stark’s interpretation as he said in his response that “ * * * we would not be prepared to pay a finder’s fee * * [Emphasis supplied.] If Mr. Ehrman wanted such a fee he should go to those who had sent him. Apparently Mr. Stark deviated somewhat from the truth in stating that Northern had already considered Cook, as he did in the same letter, but I do not see how he owed any duty to Mr. Ehrman to inform him truthfully. After Mr. Ehrman wrote Mr. Stark, but before receiving the reply, he conversed on the telephone with Mr. Mangle and said he expected to be protected, by which he meant he would get a fair and customary fee in case of a merger. Mr. Mangle is said to have replied — “Ok, don’t worry about it, you will be protected.”
This could have been intended as a mere expression of an opinion that Ehrman would have a good claim against Northern. It is ambiguous, and could be read as committing Cook.
There were interests of three basic kinds affected by the merger: Northern to get ownership and control on the most favorable terms, Cook’s management stockholder group to exact proper compensation for the value of their stock and for parting with control, and the nonmanagement stockholder group, including Mr. Ehrman himself, to get the best value for the stock, but with no interest in control, which they had not to lose. Cook Electric Company, in the event of merger, had no interest separate from Northern, since Northern would have to pay any money obligation incurred by Cook unless the merger terms were so framed as to throw finders’ fees on the selling stockholders. There is no hint of this in the record. I assume the claim is really against Northern though Cook is also named as a defendant.
Mr. Ehrman performed no service to effectuate the merger except as stated above. For this he wants $397,904.20. He may be entitled to it, however, if the persons he talked to, Messrs. Mangle and Stark, said things adequate to commit their companies or either of them to such a figure and were so understood by Mr. Ehrman. People are bound by the contracts they make, not those that in all prudence they should have made. Both Mr. Mangle and Mr. Stark represented corporations, however. They were not speaking for sole proprietorships with themselves as the sole proprietors. Mr. Ehrman should have understood this. What Mr. Ehrman might understand of their words also depended on what he himself had said.
Originally, Mr. Mangle retained Mr. Ehrman. He might have asked himself, therefore, whether he retained him to represent the stockholders, or Cook Electric. If the former, he might ask himself how he could represent individuals whose authority to do *534so he had not obtained. If the latter, he was really obligating the putative takeover company, whose identity even was not yet known. This dilemma Mr. Ehrman should have been aware of and it should have guided him in interpreting what Mr. Mangle said. He should not have resolved the ambiguity in Mr. Mangle’s words, especially that Mr. Ehrman would be “protected” as a commitment to bind some person or persons unstated and unidentified to pay $397,-904.20. It is reasonable to suppose that Mr. Mangle eventually learned with a sigh of relief that Mr. Ehrman was looking to Northern.
Mr. Stark, when he accepted information about Cook and asked for more, had already learned in the same telephone conversation, that Mr. Ehrman was a stockholder in Cook and investment advisor of other stockholders, constituting a group he represented. He would naturally, therefore, think Mr. Ehrman was suggesting a takeover in the interests of his stockholder group, to whom naturally he would look for remuneration. By Mr. Ehrman’s own account he said nothing to alert Mr. Stark that Northern was to pay his fee of $397,904.20 until his letter of February 3,1975. To be exact, Mr. Ehrman only said even then he was to be paid, not by whom. Mr. Stark, however, says in his March 12 reply that Northern will not pay the fee, so he must have understood the February 3 letter as making such a demand on Northern which he must have considered outrageous.
Thus, Mr. Ehrman blew hot and cold, claiming to represent different interests at different times. The theory seems to be that somehow Messrs. Mangle, Stark, and Ehrman made a contract implied in fact that bound them jointly and severally although neither of the two corporate executives said enough, separately, to have bound his own company, separately, and each seemed to suppose someone else would be bound. By this theory, a “finder” need but inform two companies of each other’s existence and merger potentiality, and advise them he expects to be paid, and presto! if they merge they have bound themselves to pay his fee. The only way they can avoid paying him is not to merge. The custom requiring real estate broker’s fees affords an analogy, but careful brokers always make sure the parties understand whom they represent, and it is always one, not both, and to that one the broker always looks for his fee. The finder, however, need not conduct any negotiations, and here he could not have, because of his obvious conflict of interests. Mr. Ehrman is quite frank to say in his brief that the $397,904.20 will compensate him not only for this successful coup but also for a number of other instances where he worked hard and still the finder’s fee eluded him. This finder’s fee is apparently a little gamble the law requires corporate executives to dabble in, but in which the alleged finder frequently loses, and so gets a big payoff when he wins at all.
It appears to me that the law should look at these transactions to insist on being shown who was bound to pay the fee and how he became bound. It should not allow a fee claim to be built up out of the subjective expectations of the claimant and saddled on whomever appears to be a handy target. Had it been convenient to sue the former stockholders, a claim against them would have been as good or bad as the one actually prosecuted. The stockholders benefited but had no awareness of Mr. Ehrman’s expectations. The benefit to others is less clear but the corporate executives knew Mr. Ehrman expected — or at least wanted — to be paid. Each one had every reason to expect Mr. Ehrman was working for someone else. The essence of a valid claim for compensation for personal services is a clear understanding for whom the claimant is working, and a clear showing by word or act by those to be charged that they understand the claimant is working for them.. He cannot be working simultaneously for all the parties to a bargained transaction, and hold all liable by aggregating everything anyone said or did.