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THAYER v. DIAL INDUS. SALES

March 6, 2002

LEROY T. THAYER, PLAINTIFF,
V.
DIAL INDUSTRIAL SALES, INC., CHARLES A. MCDONNELL, FERGUS FITZGERALD AND JERROLD B. SPIEGEL, DEFENDANTS.



The opinion of the court was delivered by: William C. Conner, District Judge.

OPINION AND ORDER

Plaintiff Leroy T. Thayer brings this action against defendants Dial Industrial Sales, Inc. ("Dial"), Charles A. McDonnell, Fergus Fitzgerald and Jerrold B. Spiegel*fn1 for common law fraud, detrimental reliance, quantum meruit and unjust enrichment. On November 22 and November 24, 2001, this Court conducted a bench trial. Pursuant to an Opinion and Order of this Court dated February 23, 2000, plaintiffs claim for damages is limited to the period of June 1992 through March 1, 1993 for Counts Four through Seven in the Amended Complaint. Familiarity with that opinion is presumed. For the reasons to follow, we enter judgment in favor of plaintiff in the amount of $25,000. Pursuant to Fed.R.Civ.P. 52(a), we set forth below our findings of fact and conclusions of law.

FINDINGS OF FACT

In or about May 1991, McDonnell, a citizen of the State of New York, incorporated Dial in New York. (Trial Tr. at 265.) McDonnell's plan was for Dial to manufacture and sell an innovative new product he and Fitzgerald hoped to discover. (Id. at 266-67.) McDonnell and Fitzgerald selected the name Dial, an acronym for Fitzgerald's successful Irish company, Dublin Industrial Auctions Limited. (Id. at 266.) McDonnell is the President, majority shareholder and a Director of Dial. Fitzgerald, during the relevant time period, was a Director, Vice President and shareholder.

After evaluating and rejecting a variety of products, in or about January 1992 Fitzgerald learned of a telescoping ladder through associates in Ireland who were manufacturing it for sale in Europe. (Id. at 267-68.) Fitzgerald notified McDonnell, who flew to Ireland in April 1992 to investigate. (Id. at 268.) After touring the factory where the ladder was being produced, McDonnell returned to the United States with several sample ladders and sought the opinions of former colleagues and friends. (Id. at 269.) McDonnell also visited two testing labs to determine whether the ladders, which he knew did not satisfy the safety standards of the American National Standards Institute ("ANSI"), could be modified and adapted to meet ANSI standards. (Id. at 269-70.) At some time during this period, McDonnell and Fitzgerald decided to commit Dial to the manufacture and sale of the telescoping ladders.

Plaintiff, a citizen of the State of New Jersey, has a juris doctor degree and has completed two-thirds of the credits necessary to obtain a masters degree in business administration. (Id. at 3-4.) From 1975 through 1977, plaintiff was employed as a contracts manager at Western Information Systems in Mahwah, New Jersey. (Id.) From 1977 to 1984 he worked for Diagnostic Retrieval Services as Vice President of Contracts, Program Management and Administration and from 1984 to April 5, 1992, plaintiff was employed by TimePlex, Inc., ultimately as an Administrative Vice President for Contracts and Sales Administration. (Id. at 4-5.) While at TimePlex, plaintiff oversaw a department consisting of five or more attorneys and fifty word processing employees. (Id. at 5.) His department was responsible for negotiating and reviewing sales contracts and administration of the sales commission plans. (Id.) After falling victim to corporate downsizing, plaintiff was provided, in his departure agreement, with six months of outplacement services at Drake Beam Morin ("Drake"), a company that specializes in finding new employment for recently unemployed executives. (Id. at 5-6.) The agreement further specified that if plaintiff did not find permanent employment within the initial six months, TimePlex would continue to pay for Drake's services for up to one year. (Id. at 76.) During the relevant time period, McDonnell was also a temporary tenant at Drake after his former employer of 25 years, Technicon Corporation ("Technicon"), decided to downsize in April 1992.

I. The Alleged Oral Agreement

In mid-June 1992, McDonnell was introduced to plaintiff by a former Technicon colleague. (Id. at 271-72.) Over the next few days, plaintiff and McDonnell had several conversations during which plaintiff learned about the telescoping ladder project. The specific content of these conversations is hotly disputed. Plaintiff testified that McDonnell offered plaintiff a fifty percent (50%) equity interest in the project and a $10,000 monthly salary. (Id. at 10-11.) The initial payment was to be made in February 1993 for all salary accrued from June 1992. (Id. at 11.) Plaintiff was also to receive a performance-based bonus between sixty percent (60%) and one hundred percent (100%) of his salary as well as normal benefits. (Id.) Although there was no specific bonus structure, plaintiff claims that there were specific performance goals to be accomplished, such as finalizing a licensing agreement, testing the product and finding a manufacturer. (Id. at 147.) Plaintiff testified that this entire agreement was established within two or three days of his initial meeting with McDonnell. (Id. at 12.) Plaintiff alleges that McDonnell never told plaintiff of the existence of Dial or that it was owned in part by Fitzgerald. (Id. at 15.) Plaintiff argues that based on these promises he accepted the terms of the oral agreement and began work on behalf of Dial.

Plaintiff testified that he first learned of the existence of Dial and of Fitzgerald in July 1992 when he was informed that Fitzgerald had a fifteen percent (15%) interest in Dial, and that McDonnell and plaintiff would each own one half of the remaining eighty-five percent (85%) interest. (Id. at 17, 19.) In September 1992, McDonnell informed plaintiff of a further modification of the alleged oral agreement, specifically that McDonnell and Fitzgerald would control the majority of shares in Dial, and that plaintiff would be given a twenty-seven and one-half percent (27.5%) equity interest. (Id. at 25.) Plaintiff acquiesced in both of these alleged modifications and understood that each new agreement replaced the old. (Id. at 98.)

Defendants, not surprisingly, recount a vastly different agreement with plaintiff. Defendants contend that plaintiff learned of the existence of Dial and the telescoping ladder over the course of several weeks. McDonnell testified that he told plaintiff at their first meeting about the creation of Dial and of his partnership with Fitzgerald. (Id. at 272.) McDonnell also told plaintiff that the ladder could not meet applicable ANSI standards and that it would be some time, at least eighteen months, before they would be able to generate any revenue from sales. (Id.) Defendants dispute that plaintiff was ever offered a fifty percent (50%) interest in Dial or that any specific compensation terms were established. (Id. at 273.) McDonnell testified, in particular, that plaintiff was never promised $90,000 payable on February 1993. (Id.) Nonetheless, plaintiff believed that the ladder was a quality product and that the venture had promise and therefore agreed to begin work on behalf of Dial with the hope and anticipation of being compensated in the future.

We find defendants' version of the facts to be more credible than plaintiffs. Plaintiffs claim that he was offered full partnership in Dial within the first two or three days of meeting McDonnell is implausible. It is unlikely that McDonnell would proffer such a generous offer without consulting his business partner of several years and without a thorough evaluation of plaintiffs work. Furthermore, we found McDonnell to be an articulate and credible witness. Plaintiff has offered no tenable explanation why McDonnell would conceal the existence of Dial and Fitzgerald. We also find it dubious that plaintiff, a non-practicing lawyer well versed in contract terms, would never reduce his oral agreement with McDonnell to writing, especially in light of his allegations that his equity position was so drastically reduced. Nonetheless, no such writing, however informal, exists and plaintiff has little support for his claims other than his own word.

Spiegel's testimony further corroborates defendants' rendition of the facts. Spiegel has a juri doctor degree from New York University School of Law and is now a partner at the law firm of Frankfurt, Garvis. (Id. at 214-15.) Like plaintiff, Spiegel learned of the existence of Dial when he met McDonnell in or about June 1992. (Id. at 215.) However, Spiegel's testimony as to the content of his conversations with McDonnell differs greatly from plaintiffs version of his interactions with McDonnell. McDonnell informed Spiegel of the existence of Dial, that it had no formal shareholders and that Fitzgerald was his partner. (Id. at 218.) Spiegel met plaintiff shortly thereafter and disputes plaintiffs contention that plaintiff was introduced to him as McDonnell's partner, (Id. at 219,) Spiegel was not informed of any salary or equity agreements between McDonnell and plaintiff at that time. (Id.) This Court finds Spiegel to be a credible witness. Spiegel was situated similarly to plaintiff upon his initial meeting with McDonnell, yet testifies to a conversation with McDonnell that substantially supports McDonnell's version of the events. We find this persuasive evidence of the truth of McDonnell's statements regarding the alleged promises made to plaintiff.

II. June 1992 Through February 30, 1993

Plaintiff began working for Dial in June 1992. (Id. at 14.) It is undisputed that at this early stage a number of tasks necessarily had to be completed before Dial would be able to generate revenue. Most importantly, a final license agreement had to be negotiated with the European patent owners. (Id. at 277.) The other important tasks included, inter alia, obtaining affordable products liability insurance, meeting United States safety standards for ladders under ANSI, developing a business and marketing plan and finding manufacturing and testing facilities. (Id. at 14, 18, 277.) Throughout June, plaintiff dedicated approximately fifty percent of his time to Dial. (Id. at 15.) He assisted in numerous tasks, most notably developing the marketing plan and assisting McDonnell in finding a manufacturer for the ladders. (Id. at 14.)

Beginning in July 1992, plaintiff devoted his time almost exclusively to Dial.*fn2 (Id. at 17-18.) His tasks included meeting with Spiegel at his New York City office, daily meetings with McDonnell, searching for products liability insurance, negotiating with marketing research firms and investigating potential manufacturing firms. (Id. at 18-20.) Plaintiff performed similar work throughout the month of August. (Id. at 20-21.) In September 1992, plaintiff worked extensively with Spiegel to negotiate the licensing agreement with the European patent holders. (Id. at 24, 242-45.) Spiegel's billing records indicate extensive contact with plaintiff throughout the month of September. (Id.) Dial successfully executed the exclusive North and South American license agreement for the ladder (the "Licensing Agreement") on September 25, 1992. (Defs. Trial Ex. A.) The balance of plaintiffs time in September was expended formulating a business strategy with McDonnell and entertaining the patent owners when they visited the United States. (Trial Tr. at 24.)

Defendants argue that compensation was not discussed, and that therefore plaintiff did not reasonably expect to be paid, until the Licensing Agreement was finalized. (Defs. Post-Trial Mem. at 20-21.) We find this argument implausible. Without concrete evidence suggesting otherwise, we are loath to assume that plaintiff knowingly provided his services without an expectation of compensation. Rather, it is more likely plaintiff expected to be paid, but to defer payment until Dial was able to generate revenue — after the Licensing Agreement was finalized. We find that expectation both probable and reasonable.


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