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MEREX A.G. v. FAIRCHILD WESTON SYS.

December 29, 1992

MEREX A.G., MEREX CORPORATION and PETER C. LACHMANN, Plaintiffs,
v.
FAIRCHILD WESTON SYSTEMS, INC., Defendants.



The opinion of the court was delivered by: MARY JOHNSON LOWE

 MARY JOHNSON LOWE, D. J.

 Plaintiff, Merex A.G. ("Merex"), is an international trading and brokerage company located in what was formerly known as West Germany. Defendant, Fairchild Weston Systems, Inc. ("Fairchild"), is a United States corporation whose principal place of business is Syosset, Long Island, New York. This action is brought under the diversity jurisdiction of the Court. *fn1" 28 U.S.C. ยง 1332.

 This action grows out of Merex's claim that it is entitled to collect a fee or commission, pursuant to an oral agreement, for introducing Fairchild to the Peoples Republic of China ("PRC") where a business opportunity was consummated between defendant and the PRC.

 The claims for breach of contract, quantum meruit and declaratory judgment were dismissed after hearing on defendant's Fed.R.Civ.P. 50 motion. Since the only remaining claim was an equity claim of promissory estoppel, the Court informed the parties that the trial would proceed with the jury sitting as an advisory jury. *fn2" The jury returned a general verdict for plaintiff. Defendant timely moved for the Court to render a verdict for defendant. Plaintiff moved for recusal.

 (a) By Jury. When trial by jury has been demanded as provided in Rule 38, the action shall be designated upon the docket as a jury action. The trial of all issues so demanded shall be by jury, unless (1) the parties or their attorneys of record, by written stipulation filed with the court or by an oral stipulation made in open court and entered in the record, consent to trial by the court sitting without a jury or (2) the court upon motion or of its own initiative finds that a right of trial by jury of some or all of those issues does not exist under the Constitution or statutes of the United States.

 * * *

 (c) Advisory Jury and Trial by Consent. In all actions not triable of right by a jury the court upon motion or of its own initiative may try any issue with an advisory jury . . .

 Rule 52. Findings by the Court; Judgment on Partial Findings.

 (a) Effect. In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon, and judgment shall be entered pursuant to Rule 58; and in granting or refusing interlocutory injunctions the court shall similarly set forth the findings of fact and conclusions of law which constitute the grounds of its action. . . .

 Findings of Fact

 Plaintiff Merex alleged that in the late Summer of 1982 Robert Neasham ("Neasham"), defendant's European market manager, approached Gerhard Mertins ("G. Mertins"), the president of Merex, at his office in West Germany, and informed him that Fairchild would be interested in selling its system of military aerial surveillance cameras -- the LORAP/MTRF System -- to the PRC. *fn3" Fairchild had no contacts with the PRC, and Mertins had an ongoing business relationship with that country.

 G. Mertins alleges that at the meetings with Neasham in the late summer of 1982 he informed Neasham that such a deal could be arranged but he required a ten percent commission -- an amount later reduced to eight percent. G. Mertins testified that no distributorship was discussed and that he and Neasham agreed he would earn his commission upon any Fairchild sale to the PRC. They shook hands on the deal. G. Mertins believed he had reached an agreement with Fairchild through Neasham. G. Mertins testified:

 I asked him what is your authority? How long have you been with the company? He told me he was a lieutenant colonel in the Navy [sic] . . .

 I told him: We are together, the two old soldiers, and we have a good understanding. He [Neasham] said: Naturally, Fairchild is a generous company. And . . . he asked me: What is your request? I said: We are making such deals normal on the base of 10 percent of the sales value . . .

 And he agreed. He said: Even if it is going -- he promised even more. I said: No, we will make the deal for 10 percent.

 He was agreed. . . . We confirmed our agreement with [sic] shake hand. *fn4"

 G. Mertins further testified that his German attorney advised him that such an oral contract was valid and enforceable under German law.

 On August 26, 1982, Merex telexed Fairchild:

 To efficiently pursue projects, it will become necessary for us to be granted your rights to act as Fairchild distributors. Kindly consider this matter and advise. *fn5"

 Neasham testified by deposition that during the meeting with G. Mertins:

 It was explained in exactly the terms that I had authorization to do. We could sell to Merex Corporation the systems involved, they would be, in turn, for Merex to mark it up and sell those to the Peoples Republic of China . . . *fn6"

 Neasham further testified:

 Mertins, G.G. Mertins -- not anybody else -- said that he could provide the financial arrangements to finance us under our normal government schedule of payments, and he would take the payment from the Peoples Republic of China and carry that financial burden. That's why he could mark it up for resale. *fn7"

 * * *

 Merex said he had enough money to do this, and that was going to be his role in this thing, was to carry on marketing activity and the liaison, and he would resell the system . . . to the PRC. *fn8"

 When asked if commissions had been discussed, Neasham replied:

 There were no commissions. Commissions were the big problem area in these things because these people were not a sales representative; they were a group, a company that wanted to buy these things, buy these things and resell them. There was no commission, nothing. And I wouldn't be able to discuss that anyway.

 There was [sic] no commissions discussed at this meeting primarily because I am not authorized by my company to state company policy on commissions per se, as to their amount. . . . That is the company lawyer -- Legal and Executive Departments that do those things. *fn9"

 Lachmann testified:

 Neasham's proposal was to pay to Merex, on a sale/resale basis their requested recompensation or commission, and the amount that remained, Merex did request at that time, 10 percent of the sales price, which would be reached in their -- with the contract with the Peoples Republic of China.

 Mr. Mertins felt very clearly at the beginning, in the first meeting, and following on in the next meetings in that summer [with Neasham], that an arrangement or how the commission or the recompensation [sic] of Merex should be structured is not in the hands of Merex nor in the hands of Fairchild because this depends largely on the wish of the customer of the Peoples Republic of China.

 So Mr. Mertins said that no matter how this 10 percent would be structured, as long as Merex, A.G. would get paid, they would accept it, no matter which type of structuring of this 10 percent should be paid finally. *fn10"

 Regarding Neasham's response, fachmann testified:

 Fairchild surely would pay a commission, and Mr. Neasham brought in the discussion concerning the sale/resale . . . the commission on a sale/resale basis through a mark up. *fn11"

 Pighi and Lay testified that Fairchild was reluctant to do business in China in 1982 because China was just coming out of the cultural revolution and there was much instability in the country. Because of these conditions, Fairchild did not want to deal directly with the Chinese. Merex and G. Mertins, however, impressed Fairchild as well-connected and sophisticated, particularly with respect to the PRC. Fairchild decided to explore its possibilities with Merex.

 In late August, 1982, Merex set up a meeting between Lachmann, Neasham and a delegation from NORINCO, a PRC purchasing agency. Neasham made a presentation of the LORAF camera system, and G. Mertins, Lachmann and Neasham were invited to the PRC for further discussions. In September of 1982, G. Mertins travelled to Fairchild's headquarters in New York and met with Louis Pighi, President of Fairchild, and Chris Lay, Fairchild's vice-president.

 Fairchild, at the September meeting, told G. Mertins that the only way they would consider a deal with the PRC was for Merex to secure the financing. Fairchild would sell the camera system to Merex, and Merex would add to the Fairchild ex-factory price a sum for a Merex commission. Merex was then to negotiate a resale to the PRC. Mr. Lay testified that the sale/resale format was proposed so that Merex would take the risk of negotiating and collecting against a payment clause [Clause 22]. *fn12" Fairchild would assume the responsibilities of manufacturing the cameras per the PRC specifications, installing them on the military airplanes, and supervising their functioning for a limited period. *fn13"

 All parties agree that they discussed the proposed sale to the PRC in terms of a distributorship, or sale/resale on back to back contracts, in which Merex was to receive a commission by marking up Fairchild's price and reselling to the PRC.

 G. Mertins testified that he believed the sale/resale was nonsense and rejected the proposal. After he returned to Germany, he continued his efforts with the Chinese. He testified that he did so based on the handshake agreement he made with Neasham. *fn14"

 On October 6, 1982, G. Mertins wrote Lay:

 For reasons verbally explained, we would like to work as distributors for you. *fn15"

 Accepting the August invitation extended in West Germany by the PRC delegation, G. Mertins, Lachmann and Neasham met with the PRC purchasing delegates in Beijing from November 7 through November 19, 1982. During these meetings, Lachmann and Neasham presented technical details of the LORAP/MTRF system to various PRC representatives. Neasham had proposed a sale of five systems. At the close of these meetings, at Neasham's request, the PRC prepared a proposed Letter of Intent. Neasham found the PRC form unacceptable. He then prepared a new Letter of Intent which was accepted by NORINCO. This document was executed by the PRC on November 19, 1982.

 The PRC Letter of Intent addressed to Neasham states:

 We intend to purchase from Fairchild Weston Systems Inc., 300 Robbins Lane, Syosset, New York 11701, U.S.A. a quantity of long range aerial panoramic photographic system. [sic]

 G. Mertins next met with Fairchild executives on Long Island in January, 1983. *fn16" They again discussed the sale/resale proposal and the markup of Fairchild's price as the method of payment of the Merex commission.

 In a memorandum dated February, 1983, *fn17" Merex summarized the results of the January, 1983 meeting as follows:

 It is intended at present that Merex will submit this offer as Fairchild's representative to the Chinese on Merex paper. The prices of this contract are Fairchild ex factory prices on which we will have to add our addition.

 "This contract" referred to in the memorandum was later presented to Merex by Fairchild as a draft contract and was called the "Blue Book." Merex continued to negotiate with the Chinese on the basis of this draft proposal. Mr. Wennmann, a Merex employee conducting the China negotiations, reported in a telex dated June 9, 1983:

 A later and final contract proposal between Merex and Fairchild was known as the "Red Book". *fn19" It consists of forty eight single spaced typewritten pages and fourteen annexes. The undisputed testimony is that the Red Book was used by the parties in the spring of 1984 in negotiations with the Chinese. *fn20" The Red Book provided in pertinent part:

 Clause 21.1:

 This contract contains all the covenants, stipulations and agreements of the parties. Buyer and seller agree that all prior information, inquiries, seller's general terms of sale etc., not included in this contract are hereby expressly renounced and neither party shall be bound by nor liable for, any statement, representation, promise or agreement not set forth herein.

 Clause 21.2:

 Any amendments and/or supplements to this contract shall be valid only if made in writing and signed by both parties hereto.

 Clause 29.1:

 This contract will take effect and bind the parties only after being executed by both contracting parties, and upon payment of the first advance payment of U.S. $ 13,375,000.00 provided for in Clause 22.1

 The parties to the contract were identified as Fairchild Weston Systems, Inc. ("Seller") and Merex A.G. ("Buyer").

 The testimony of the parties was in direct conflict as to the events during negotiations with the PRC during and after March, 1984. The only factual agreement of the parties is that negotiations pursuant to the terms of the "Red Book" broke off in April, 1984, and that in September, 1984 Fairchild entered into a direct contract of sale for two LORAP camera systems for which the PRC paid Fairchild $ 20,300,000.00.

 Mr. G. Mertins testified that after his son, Helmut Mertins ("H. Mertins"), graduated from college in 1983, he put him in charge of the LORAP sale. H. Mertins testified that in the latter part of February, 1984, he received the Red Book from Fairchild with a cover letter (Ex. YY). At that time the sale/resale format was used by the parties in negotiating with the PRC. Merex was to negotiate the commercial side of the proposal and Fairchild the technical side. Both sides were to be present during any negotiations.

 The Red Book proposal was for five systems at a price of $ 53,500,000, ex factory, from Fairchild to Merex. Prior to this time the PRC was told that the price to them was $ 54 million (Blue Book). *fn21" During negotiations, H. Mertins had telexed the PRC that the final price would be increased based on some scope changes to the system.

 In January, February, and March of 1984, both G. Mertins and H. Mertins were in Germany. Mr. Lay, vice president of Fairchild, was in China discussing the technical aspects of the proposal.

 On March 24, 1984, Mr. Lay sent the following telex to Gerhard and Helmut Mertins. *fn22"

 I had a meeting with Mr. Zhao Fei this morning. Tomorrow he wants to have technical meeting about pod modification. . . . Mr. Zhao Fei spoke to me directly on the commercial part and he indicated strongly that he desires your presence here for the commercial discussions. Would appreciate you trying to get over here as fast as possible.

 The next day, March 25, Mr. Lay sent the following telex to Fairchild (Pighi and Kraljic):

 1. No Red Books from Merex. *fn23" Sponsor [PRC] is very upset. Please send me five Red Books by DHL immediately. His concern is that ...


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