Bushkin Associates, Inc. v. Raytheon Co.

• Decision Date: 02 September 1983
• Docket Number: No. CA 81-1101-T.,CA 81-1101-T.
• Citation: 570 F. Supp. 596
• Parties: BUSHKIN ASSOCIATES, INC. and Merle J. Bushkin, Plaintiffs, v. RAYTHEON COMPANY, Defendant.
• Court: U.S. District Court — District of Massachusetts

570 F. Supp. 596

BUSHKIN ASSOCIATES, INC. and Merle J. Bushkin, Plaintiffs, v. RAYTHEON COMPANY, Defendant.

No. CA 81-1101-T.

United States District Court, D. Massachusetts.

September 2, 1983.

Thomas E. Cargill, Jr., Edward I. Masterman, Dana Hanson, Neil Tully, Cargill & Masterman, Boston, Mass., for defendant.

John R. Hally, Alan D. Rose, Nutter, McClennen & Fish, Boston, Mass., for plaintiffs.

OPINION

TAURO, District Judge.

The plaintiffs, Bushkin Associates, Inc. and Merle Bushkin ("Bushkin"), brought suit to recover on an oral fee agreement allegedly made between Bushkin and the defendant Raytheon Company ("Raytheon") for services in connection with Raytheon's acquisition of Beech Aircraft Corporation ("Beech"). The complaint also contains a count seeking payment for the reasonable value of any information Bushkin gave Raytheon, and a count alleging violations by Raytheon of Mass.Gen.Laws ch. 93A (1972). Raytheon has moved for summary judgment, arguing that the New York statute of frauds should apply to this case and that, under its provisions, the oral agreement alleged here would be unenforceable. Bushkin responds that the Massachusetts statute of frauds should be applied, and that its provisions would not invalidate the oral agreement alleged here.

I. Factual Background.¹

Bushkin, a New York resident, is an investment banker specializing in mergers and acquisitions. He is the president of Bushkin Associates, a corporation organized and based in New York. Raytheon is a Delaware corporation with its principal place of business in Massachusetts.

Bushkin's dealings with Raytheon concerning possible mergers and acquisitions began in 1971. In 1974, Bushkin discovered that Beech might be available for acquisition. He attended a meeting in January, 1974, with Olive Ann Beech and Frank Hedrick, the president and vice president respectively of Beech, at which he learned some information regarding the type of merger that might interest them.²

On May 21, 1974, Bushkin, in New York, telephoned Robert Seaman, a vice president of Raytheon, in Massachusetts, to ask if Raytheon would be interested in acquiring a general aviation company. Seaman replied that Raytheon might be interested if the company were either Cessna or Beech. Seaman followed up with a May 24 letter to Bushkin, stating that Raytheon's interest in a general aviation company was uncertain. During a July 19, 1974, telephone conference, Seaman told Bushkin that it was unlikely that Raytheon would have an interest in a general aviation company.

The next conversation on the subject, and the one in which Bushkin alleges the oral fee agreement was made, occurred on January 28, 1975. Bushkin apparently telephoned Seaman (or Seaman returned Bushkin's call). In either event, Bushkin was in New York and Seaman in Boston. Bushkin asked if Raytheon were still interested in general aviation. Seaman replied yes, if the company were Beech or Cessna. Bushkin stated that he could reveal the name of the company, but first wanted to discuss a fee arrangement. Seaman told Bushkin that if Raytheon consummated an acquisition of the company Bushkin was discussing, Raytheon would pay a fee of one percent of the value of the transaction. Bushkin replied, "fine," and then identified the company as Beech.³ He went on to disclose information as to his understanding of the kind of acquisition or merger that Beech wanted.

Seaman and Bushkin had a few more contacts with regard to Beech and, on June 27, 1975, Seaman presented Beech as a possible acquisition candidate to Thomas Phillips, Raytheon's chairman of the board. An internal Raytheon "acquisition log," dated June 19, 1975, identifies Bushkin as the person who offered or suggested Beech as a candidate. On June 30, Seaman called Bushkin to report on the presentation, and to discuss various aspects of a possible Raytheon acquisition of Beech. Later that day, Seaman sent a memo to Phillips summarizing relevant aspects of his conversation with Bushkin.⁴ In the memo, Bushkin was identified as "our contact in this matter."

In a telephone conversation on July 29, 1975, Seaman told Bushkin that Raytheon had decided it was not interested in pursuing Beech as an acquisition candidate. Bushkin had subsequent contacts with Seaman and Phillips with regard to possible acquisition candidates other than Beech. On one occasion in November 1975 Bushkin broached the subject of Beech with Phillips (in the course of discussions about another candidate), and Phillips replied that he was not interested.

On September 1, 1976, Raytheon entered into a written agreement with Lonsdale Enterprises, Inc., and its principals Royal Little and James Robison, for consulting services in connection with Raytheon's interest in mergers and acquisitions. About three months later, in letters to Phillips dated November 29 and December 9, 1976, Little and Robison suggested Beech as a possible acquisition candidate. Phillips' first reaction was not enthusiastic, but by February 16, 1977, Phillips indicated that he wanted to meet with Olive Beech. On February 28, while Bushkin was meeting with Phillips concerning another company, Bushkin again mentioned Beech, but Phillips said he was not interested. Nonetheless, on March 3, Phillips authorized Little and Robison to contact Beech through their business associate Angus MacDonald. In June, 1977, it became public knowledge that Beech was negotiating a merger with General Dynamics, and Raytheon, therefore, dropped the matter until those negotiations fell through.

Phillips finally met with Frank Hedrick, vice president of Beech, on January 24, 1978, and with Olive Beech on July 12, 1978. After further negotiations and studies, Raytheon and Beech reached a preliminary agreement on October 1, 1979. Raytheon subsequently entered written agreements, dated November 26, 1979, to pay Lonsdale and MacDonald $600,000 and $500,000 respectively for their services in connection with the merger. The agreements were contingent on its consummation.

In February, 1980, Raytheon acquired Beech. The value of the transaction was approximately $800,000,000.00.

II. Choice of Law.

The question of whether New York or Massachusetts law governs the parties' alleged oral agreement is crucial. Under the New York statute of frauds, an oral agreement to pay compensation for services rendered in connection with the sale of a business, or an interest therein, is void.⁵ Massachusetts has no comparable invalidating provision in its statute of frauds.

Under Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), a federal court having diversity jurisdiction must apply the choice of law rules of the forum state. Bushkin argues that, in a contract action, the Massachusetts rule is that the law of the place where the contract was made governs. See Dicker v. Klein, 360 Mass. 735, 277 N.E.2d 514, 515, 516 (1972); Molinar v. Western Electric Co., 525 F.2d 521 (1st Cir.1975). Building on that premise, Bushkin's thesis is that the oral contract here was made in Massachusetts, that Massachusetts law applies, and that the oral fee agreement is, therefore, valid.

Raytheon responds that the Massachusetts Supreme Judicial Court (SJC) has indicated that it is ready to abandon its "place-of-making" rule in favor of "a more functional approach" in determining what law to apply in contract cases. Choate, Hall & Stewart v. SCA Services, Inc., 378 Mass. 535, 392 N.E.2d 1045, 1048-49 (1979).⁶ In Choate, Hall, the SJC recognized that the place-of-making rule "can produce awkward or arbitrary results," and that most states had abandoned such one-factor tests. Id. The SJC continued, however, that "the facts of the present case deprive us of an opportunity to elect among the extant doctrines," because the same result would be reached regardless of what choice of law rule were applied. Id. at 1049.

Picking up on this discussion in Choate, Hall, one federal court subsequently predicted that the SJC would, when squarely confronted with the question, abandon the place-of-making rule in favor of a more functional approach. McKinney v. National Dairy Council, 491 F.Supp. 1108, 1112 (D.Mass.1980).⁷ In McKinney the court applied the choice of law principles set forth in the Restatement (Second) of Conflict of Laws (1971).⁸

This court respectfully anticipates that the SJC will discard the strict requirements of the place-of-making rule when next confronted with the issue. The facts of this case provide an example of the rule's indiscriminate impact, and a strong argument for its abandonment.

The alleged oral agreement was entered into during a phone call from Bushkin in New York to Seaman in Massachusetts. Bushkin said he could reveal the name of the possible acquisition candidate, but wanted a fee arrangement first. Seaman said the fee would be one percent if the deal were consummated. Bushkin then identified the company as Beech. These simple facts give rise to an interesting issue of contract law. Did Bushkin make an offer that was accepted by Seaman, thereby making a Massachusetts contract? Or did Bushkin set negotiating terms, resulting in an offer by Seaman that, when accepted by Bushkin, made a New York contract? A reasonable argument could be made for either position. Under the place-of-making rule, the resolution of that issue would control the conflict of laws question in this case.

A little fine tuning of the underlying facts demonstrates how senseless it would be in this age of sophisticated business technology to permit the rights of the parties here to be determined by what would essentially be a toss of the coin characterization of a conversation between Bushkin and Seaman. Suppose, for example, that the conversation had not taken place with Seaman in his office in Massachusetts but, instead, Seaman had returned Bushkin's call during a short layover at an airport in Chicago. Assume further that the...