The opinion of the court was delivered by: PLATT
Plaintiff seeks compensation for services allegedly performed for the defendants, Mite Corporation ("Mite") and O.S.G. Tap and Die, Inc. ("O.S.G."), in connection with the purchase by O.S.G. of a Mite subsidiary, the Sossner Tap & Tool Corporation ("Sossner"). The demand for such services is $200,000 (an amount equivalent to 10% of the purchase price). Plaintiff in his complaint asked in state court for remuneration on the basis of implied contract and quantum meruit. The action was removed to this Court on diversity grounds.
Both defendants have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure and have submitted statements of uncontested facts pursuant to Rule 9(g) of the Eastern District Rules. The defendants ground their requests on the Statute of Frauds of New York (New York General Obligations Law 5-701(10)) suggesting, that the Statute bars suits for finder's fees due under alleged oral agreements. Plaintiff, seeking partial summary judgment, asks the court to strike defenses three and four of Mite, and defenses three, four, and five of O.S.G. Defenses three and four in the answers of both defendants are defenses under the Statutes of Frauds of New York and Illinois. O.S.G.'s fifth defense claims that New York Real Property Law § 442-d, barring actions by unlicensed real estate brokers for services tendered pursuant to real estate sales, applies under the facts of this case.
There is no dispute as to the following material facts. Plaintiff is a resident of New York and has been so continuously since 1948. Sossner, a company which manufactures taps, is a New York corporation whose only facilities are located in New York. Plaintiff is a former employee of Sossner. He served as a plant manager, and acquired a stock interest in the company in 1952. In 1960, he became Sossner's Vice President. In 1967, when plaintiff was President of Sossner, Helicoil Corporation acquired the company and plaintiff's stock interest.
In 1970, Mite, a Delaware corporation with its principal place of business in Connecticut, acquired Helicoil, including the Sossner subsidiary. Plaintiff continued as President at an annual salary of $35,000 until March 5, 1973, when he resigned because of policy disagreements with Mite. Prior to his resignation, plaintiff made an unsuccessful attempt to purchase Sossner from Mite. When this effort failed, plaintiff established his own tap manufacturing company, Pioneer Tap & Tool Corporation ("Pioneer").
On May 14, 1973, plaintiff, while attending a convention in Chicago, Illinois, visited the offices of O.S.G. in Elmhurst to inquire about the possibility of O.S.G. supplying semi-finished taps to Pioneer for further finishing and resale. During the course of the day, plaintiff had general discussions concerning the tool cutting business with O.S.G. personnel, among whom were Robert Zoppelt, President, and Terry Osawa, Vice President of O.S.G.
After lunch on that same day, plaintiff, having "sensed the idea that O.S.G. was looking for some sort of expansion in the United States", brought up the subject of Sossner. During the ensuing conversation, O.S.G. personnel discussed the possibility of investigating the availability of Sossner for purchase. Plaintiff indicated that he would be willing to contribute 5% of the estimated purchase price of $2,000,000 and to serve as President of Sossner if Sossner should be acquired by O.S.G. Plaintiff then suggested that before they discussed the matter further he should find out whether Sossner was actually for sale.
At this point, plaintiff placed a telephone call from the O.S.G. offices to Mr. Leo Brancato, Executive Vice President of Mite, at Mite's Connecticut office. Mr. Brancato was not in, but by late that afternoon plaintiff, still in Illinois, was able to reach Mr. Brancato in Connecticut. The plaintiff told Mr. Brancato that he knew of a company that might be interested in Sossner and asked whether the company was for sale. Mr. Brancato indicated that Mite was not actively seeking a buyer for Sossner but that he would nevertheless mull the matter over.
On May 16, 1973, plaintiff, apparently still in Illinois, telephoned Mr. Brancato to inquire further about Mite's plans for Sossner. Mr. Brancato indicated that he had not given the matter much thought and that it "remained indefinite in his mind". During the course of the conversation, plaintiff told Mr. Brancato that O.S.G. was the interested party, and that he had been authorized to say so by Mr. Zoppelt.
On May 17, 1973, plaintiff returned to his home in New York and wrote two letters, one to Mr. Osawa at O.S.G. and one to Mr. Brancato at Mite. In his letter to Mr. Osawa, plaintiff indicated that he had spoken to Mr. Brancato on May 16th and had revealed O.S.G. as the party interested in Sossner. He also told Osawa of Mr. Brancato's statement that he would mull over the possibility of selling Sossner. Plaintiff's letter to Mr. Brancato advised him to consider seriously the possibility of selling Sossner to O.S.G.
On May 24, 1973, plaintiff, again in New York, called Mr. Brancato to check on Mite's position with respect to a possible sale. On the same day, Mr. Zoppelt wrote a letter to the plaintiff at his New York residence expressing an interest in Sossner, informing plaintiff that O.S.G. could handle the deal financially, indicating that Mr. Osawa's father (an expert in the tool cutting industry) would probably want to visit the Sossner facility and most importantly, thanking plaintiff for "making contact at Sossner" and saying that he looked forward to "hearing the results of your discussions with him (Brancato) on May 23 or 24."
Between May 24, 1973 and June 2, 1973, plaintiff communicated with Mr. Zoppelt three times. On May 29, 1973 and June 2, 1973, plaintiff made telephone calls from New York to Mr. Zoppelt at O.S.G. The purpose of these calls was to inquire how the discussions between O.S.G. and Mite were proceeding. The third communication was a letter dated June 2, 1973 from the plaintiff in New York to Mr. Zoppelt in which the plaintiff indicated that "rather than confuse the possible deal", he would delay his decision to begin the marketing or manufacturing of tools by his own corporation under the Pioneer name.
Plaintiff's next contact with either defendant was a letter dated June 4, 1973, written in New York and addressed to Mr. Brancato in Danbury, Connecticut. This letter suggested that if Mite and O.S.G. should consummate a deal for the sale of Sossner, plaintiff would be entitled to a finder's fee. Mr. Brancato responded to this claim in his letter of June 6, 1973, addressed to the plaintiff, wherein he flatly stated that Mite never authorized the plaintiff to act on its behalf, and that plaintiff would have to look to the buyer for any possible finder's fee. On receipt of Mr. Brancato's letter, plaintiff telephoned Mr. Brancato in Connecticut from his New York residence. Mr. Brancato reiterated that Mite would not pay any finder's fee and that if plaintiff expected any fee he should look to the buyer.
However, the plaintiff at no time before bringing this lawsuit notified O.S.G. that he expected a finder's fee from them. Rather, his plan was to participate with O.S.G. in the corporate acquisition, obtaining a 5% interest in Sossner and serving as its president after the transaction was consummated.*
On June 12, 1973, Messrs. Zoppelt and Osawa came to New York to meet with the plaintiff and visit the Sossner manufacturing facility. During that trip Messrs. Zoppelt and Osawa had conversations with the plaintiff at his New York residence and asked the plaintiff to prepare a memorandum setting forth his proposal for employment at Sossner in the event that Sossner was purchased. Plaintiff prepared his memo and delivered it to Mr. Zoppelt at the latter's hotel in New York plaintiff proposed terms which were found completely unacceptable by O.S.G. officers.
Fearing that O.S.G. and the plaintiff would not come to terms about his participation in the project, Mr. Zoppelt considered the possibility of asking Warren Demory, plaintiff's successor as president of Sossner and at that time an employee of Mite, to remain with Sossner if the purchase was consummated. Mr. Zoppelt discussed this with Mr. Brancato and was told that Demory would be free to consider an offer from O.S.G. Mr. Demory eventually was hired as Executive Vice President of Sossner.
The negotiations between Mite and O.S.G. proceeded rapidly. From mid-May to the end of June, Messrs. Zoppelt and Brancato were in touch by phone regularly about the proposed transaction. In addition, Mr. Brancato sent a letter dated May 30, 1973, to Mr. Zoppelt which provided O.S.G. with financial information about Sossner.
On June 27, 1973 representatives of O.S.G. and their attorneys met with representatives of Mite and their attorneys in New York. At this meeting the negotiations were virtually completed and a letter of intent was signed by both parties.
On July 2, 1973, Mr. Zoppelt wrote a letter addressed to the plaintiff at his New York residence again offering plaintiff a position at Sossner on the condition that plaintiff serve as Vice President in charge of manufacturing (reporting to Mr. Demory) at a salary of $30,000 per year. Provisions were made for an automobile, an appropriate expense account, and participation in the management and profit sharing program. Mr. Demory informed the plaintiff on July 6 in New York that the period of his contract of employment would be one year. Plaintiff told Mr. Demory that a one year contract would not work out and rejected the O.S.G. offer.
By letter dated July 13, 1973, Mr. Demory confirmed the plaintiff's rejection of July 6. Mr. Zoppelt expressed his regrets that the plaintiff could not come to an agreement with O.S.G. on terms of employment in a similar letter dated July 17, 1973.
On August 1, 1973, a stock purchase agreement was signed by representatives of Mite and O.S.G. whereby O.S.G. purchased Sossner from Mite.
Defense Motion for Summary Judgment
Defendants Mite and O.S.G. move for summary judgment under New York's Statute of Frauds. In pertinent part, General Obligations Law § 5-701 provides that
"Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking:
"10. Is a contract to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a corporation and including the creating of a partnership interest. 'Negotiating' includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction. This provision shall apply to a contract implied in fact or in law to pay reasonable compensation but shall not apply to a contract to pay compensation to an auctioneer, an attorney at law, or a duly licensed real estate broker or real estate salesman."
A. The Joint Venture Theory
Before discussing the effect of these provisions on this action, the Court will consider the argument introduced by plaintiff's counsel in response to defendant's claim that the Statute bars this action. Counsel suggests that § 5-701, which on its face applies where recovery is sought under an oral finder's or broker's contract, is inapplicable because plaintiff's contract is a joint venture contract. Plaintiff and O.S.G., it is said, agreed to conduct a joint venture which had as its object the acquisition and operation of Sossner. In assessing this argument, we will treat it as a motion to amend plaintiff's complaint.
1. The Choice of Law Question
We begin by determining which State's law is controlling as to the existence or non-existence of a joint venture contract. The contract is alleged to have been made between a New York and an Illinois resident (plaintiff and O.S.G.). Its object was the purchase of a subsidiary of Mite, a Delaware corporation with its principal place of business in Connecticut. The subsidiary, Sossner, is a New York corporation, with its only offices and manufacturing facilities in New York. The place where the contract was allegedly made was Illinois.
In deciding this choice of law issue, we apply the conflicts principles established by New York case law.
New York utilizes the "interest analysis" approach to choice of law problems. Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954). That is, the forum is to apply the law of the jurisdiction with the most interest in the problem and the most concern in the outcome of the particular litigation. Our question thus becomes, which State has the most concern about the existence of the alleged joint venture.
Clearly, it is of little moment to the States of Mite's incorporation and principal business location whether the purchaser of Mite's property is a corporation (O.S.G.) or a joint venture (O.S.G. and plaintiff). Nor is it significant that Illinois was the place where the contract was allegedly made. That an agreement between highly mobile businessmen about a venture to purchase New York property would have been reached in Illinois can only be termed "accidental," and by itself creates no interest in the matter for Illinois.
The parties to the alleged venture are New York and Illinois residents, and both States therefore have some interest in the venture's status. But the crucial factor is that the object of the alleged venture was the purchase and operation of a New York corporation. New York has a far more immediate concern than Illinois in determining which parties actually possess an interest in New York property, and of what their interests consist. Thus, considering that one party to the alleged venture is a New York resident, and that the purpose of the venture was to acquire and operate a New York corporation, the Court finds that New York's interest in the joint venture question is paramount, and applies New York law. We turn to an analysis of the cases setting forth the principles which govern joint venture agreements under New York law.
2. Prerequisites of a Joint Venture
Plaintiff claims that he and O.S.G. agreed to a joint venture. He was to provide 5% of the capital needed to purchase Sossner, and was to make initial contacts to set up negotiations for the purchase. O.S.G. was to provide the bulk of the purchase money.
These allegations are strikingly similar to those made by the plaintiff in Yonofsky v. Wernick, 362 F. Supp. 1005 (S.D.N.Y. 1973). In Yonofsky, the plaintiff contended that he and the defendant entered an oral agreement to acquire and operate as a joint venture a corporate division. Plaintiff was to use his close relationship with the parent corporation's officers to "initiate, influence, arrange and facilitate" the sale of the division, and defendant was to supply the purchase money. Plaintiff claimed the defendant arranged the sale and ousted him from the venture. (Defendant interposed the Statute of Frauds as a defense, but the court found joint venture contracts to be outside the Statute.) The court was faced with the task of determining whether a venture had indeed been created.
Summing up the New York cases on point, the Court established prerequisites for a joint venture contract:
1. There must be a specific agreement to carry on some enterprise for profit;
2. The agreement must manifest the intent of the parties to be associated as joint venturers;
3. Each co-adventurer must make a contribution of property, financial resources, effort, skill, or knowledge;