Fort Howard Paper Co. v. William D. Witter, Inc.

• Decision Date: 27 March 1986
• Docket Number: D,No. 453,453
• Parties: FORT HOWARD PAPER COMPANY, Plaintiff-Appellee, v. WILLIAM D. WITTER, INC., Thomas McKinnon Securities, Inc. and Charles F. Huber, Defendants, Thomas McKinnon Securities and Charles F. Huber, Defendants-Appellants, Charles F. HUBER, II, Third-Party Plaintiff-Appellant, v. FORT HOWARD PAPER COMPANY and Maryland Cup Corporation, Third-Party Defendants- Appellees. ocket 85-7551.
• Court: U.S. Court of Appeals — Second Circuit

Page 784

787 F.2d 784

54 USLW 2571

FORT HOWARD PAPER COMPANY, Plaintiff-Appellee, v. WILLIAM D. WITTER, INC., Thomas McKinnon Securities, Inc. and Charles F. Huber, Defendants, Thomas McKinnon Securities and Charles F. Huber, Defendants-Appellants, Charles F. HUBER, II, Third-Party Plaintiff-Appellant, v. FORT HOWARD PAPER COMPANY and Maryland Cup Corporation,

Third-Party Defendants- Appellees.

No. 453, Docket 85-7551.

United States Court of Appeals, Second Circuit.

Argued Nov. 19, 1985.

Decided March 27, 1986.

Sanford Litvack, New York City (Charles W. Gerdts, III, Valerie A. Cohen, Donovan Leisure Newton & Irvine, New York City, of counsel), for plaintiff-appellee.

Elliot Paskoff, New York City (Harry T. Walters, Townley & Updike, New York City, of counsel), for defendants-appellants.

Before VAN GRAAFEILAND, NEWMAN and MINER, Circuit Judges.

MINER, Circuit Judge:

Charles F. Huber, II ("Huber") and Thomson McKinnon Securities, Inc. ("Thomson McKinnon") appeal from a judgment of the United States District Court for the Southern District of New York (Keenan, J.), declaring that appellee Fort Howard Paper Company ("Fort Howard") was not liable in contract to either Huber or Thomson McKinnon for a finder's fee in connection with the 1983 merger between Fort Howard and the Maryland Cup Corporation ("Maryland Cup"). The judgment also dismissed counterclaims for fraud asserted by Huber against Fort Howard and Maryland Cup. The appeal also seeks review of Judge Keenan's denial of appellant's motion to stay, dismiss or transfer this declaratory judgment action, 578 F.Supp. 301. We affirm Judge Keenan's ruling on the motion to stay, dismiss or transfer the declaratory judgment action. We also affirm Judge Keenan's decision on the contract claims but reverse and remand on the fraud claims.

I. BACKGROUND

The facts precipitating this controversy are, for purposes of this appeal, largely undisputed. Huber, a citizen and resident of Connecticut, was employed in New York City as a promoter of mergers and acquisitions by Thomson McKinnon until June of 1981, when he joined the New York firm of William D. Witter, Inc. ("Witter") in a similar capacity. In January of 1980, Gerald Zentz, a Thomson McKinnon Vice-President in the firm's Baltimore office, learned that Maryland Cup was interested in being acquired by another corporation. Zentz called Dr. Albert Shapiro, a former Maryland Cup Officer and Director, and offered Thomson McKinnon's services in locating an acquiring company. The next month, Shapiro, on behalf of Maryland Cup, accepted Thomson McKinnon's offer to act as a finder.

A few months prior to this agreement, Dean Porter, another Thomson McKinnon employee, had offered Thomson McKinnon's services to procure suitable merger candidates for Fort Howard. In May of 1980, Arnold Janofsky, Assistant to the President at Fort Howard, accepted Thomson McKinnon's offer and requested assistance in locating an "interesting situation." In a letter to Porter, Janofsky described the type of company Fort Howard was interested in acquiring and noted that "we would appreciate it if you would contact us with available facts and information including your fee, if any." At this point, both Zentz and Porter solicited Huber's involvement. From his New York office, Huber called Janofsky in Wisconsin and advised him that he had two possible acquisitions in mind for Fort Howard. Huber promised to try to arrange a meeting with the principals of each company, and Janofsky told Huber that Fort Howard would pay the customary finder's fee to Thomson McKinnon if a merger or acquisition were to be consummated.

On June 3, 1980, Huber telephoned Janofsky in Wisconsin and told him that he believed Maryland Cup would be a suitable acquisition for Fort Howard. Janofsky expressed interest and requested more information. Huber then telephoned Merrill Bank, Maryland Cup's Chairman, and scheduled a meeting at Bank's summer home on Cape Cod. Huber met with Bank on July 11th, and the two discussed the general possibility of Maryland Cup being acquired by a company like Fort Howard. Bank expressed great enthusiasm over such a prospect and Huber revealed the identity of Fort Howard as a likely acquiring company. Bank apparently was excited by this idea and promised Huber that he "would be protected with respect to a finder's fee." Huber had indicated to Bank that an appropriate fee would be one-percent of the value of the merger transaction (which ultimately amounted to $570,000,000). Bank reiterated his interest and suggested that Huber set up a meeting with Fort Howard's President, Paul Schierl, promising that if Fort Howard did not pay Huber's fee, Maryland Cup would.

One week later, on July 18, 1980, Huber placed a call to Janofsky in Wisconsin. He was referred to Walter Charles, a Fort Howard Senior Vice-President who had replaced Janofsky. Huber informed Charles of his earlier discussions with Janofsky concerning a possible Fort Howard-Maryland Cup merger and of Bank's desire to meet with Schierl. He also informed Charles that Janofsky had agreed to a one-percent finder's fee to be paid upon conclusion of the merger. Finally, Huber told Charles that, although Bank had offered to protect him with respect to a fee, he still considered himself to be working for Fort Howard and would look to it for his fee. Charles responded that that was "fine."

Subsequent to this conversation, Charles was replaced as Huber's contact on the Maryland Cup transaction by Gerald Korb, an Assistant Vice-President for Finance at Fort Howard. Huber wrote to Korb on August 27, 1980, describing the fee agreement that had been reached with representatives of both Maryland Cup and Fort Howard. Throughout September and October of 1980, Huber spoke with Korb in an effort to arrange a meeting between Schierl and Bank. After a number of changes and cancellations, Huber managed to schedule the meeting for October 21, 1980. Bank and Schierl met that day in a Chicago hotel room reserved by Huber; Huber was not invited to attend the meeting. In a memorandum to the file dated October 28, 1980, Schierl described the meeting and reported the following Bank said he did have a meeting with Huber and that the subsequent events leading to our meeting were with his knowledge and in Bank's opinion if any deal was ever consummated, Huber would be entitled to some sort of a finder's fee.

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We agreed that we would contact Huber and say that if we do anything further it will be plant visits, and just generally cool our relationship with him.

After the meeting, Huber made a number of calls to Fort Howard to find out what had transpired. Huber also asked Korb for written confirmation of their finder's-fee agreement. Korb orally reassured Huber that Fort Howard would pay the fee and that he should stop worrying about it. Huber tried to keep abreast of the negotiations by speaking with both Korb and Bank. Although Bank assured Huber that negotiations were progressing, Korb insisted that the merger was dead. Concerned by these inconsistent reports, Huber sought guidance from Schierl, who reassured Huber that negotiations were proceeding on course. Schierl reaffirmed his promise to pay the finder's fee and asked that Huber continue to provide Fort Howard with information. He refused to provide a fee letter, however, explaining that it would involve disclosure of the negotiations to the Fort Howard Board of Directors and a consequent compromise of the secrecy essential to the success of the negotiations.

On February 23, 1981, Huber traveled to Wisconsin to meet with Schierl and Timothy Twomey, who had replaced Korb as Huber's contact at Fort Howard. Huber spoke with Twomey throughout 1981. At Twomey's request, Huber prepared a "pro forma" analysis of a Fort Howard-Maryland Cup merger. After completing that analysis, Twomey informed Huber that nothing further was needed.

In May of 1981, Huber called Twomey to advise him that he was leaving Thomson McKinnon to join Witter. He similarly advised Schierl by letter. On June 1, 1981, Twomey sent a letter to Thomson McKinnon, with a copy to Huber, stating that Fort Howard "has not agreed to retain either Huber or your corporation as a finder, investment banker or otherwise in connection with the proposed acquisition with Maryland Cup." Huber called Twomey to question him about the letter, stating that his new employer, Witter, wanted assurances that Huber was acknowledged as the finder in the Fort Howard-Maryland Cup merger. Twomey reassured Huber that the only reason for the letter was to ensure that no one at Thomson McKinnon took Huber's place in the Fort Howard-Maryland Cup transaction after Huber's departure. Huber expressed his desire to visit Fort Howard in Wisconsin with William Witter to confirm that understanding, and Twomey agreed. In a letter to Schierl dated June 7, 1981, Huber reaffirmed his faith in Fort Howard's "sense of fairness," and Schierl responded that he would be in touch with Huber. Huber and Witter visited Schierl at Fort Howard's Wisconsin offices and discussed the status of the merger.

On March 9, 1982, Huber called Twomey and was advised that the merger was dead. Huber later learned that the respective Boards of Directors had in fact agreed to the merger, subject to shareholder approval. On August 18, 1983, Huber's counsel wrote to Schierl, informing Fort Howard that Huber expected to be compensated as the finder in the merger transaction. Thereafter, Huber's counsel spoke with Fort Howard's counsel on a number of occasions to explore the possibility of resolving the parties' dispute. On September 6, 1983, Huber's counsel was informed that Fort Howard had instituted this declaratory judgment action. ¹

Two-and-one-half months later, Huber commenced an action to recover his finder's fee in the Eastern District of Wisconsin. He thereafter moved to dismiss, stay or transfer the instant action pending completion...