Legros v. Tarr, 88-279

CourtUnited States State Supreme Court of Ohio
Citation44 Ohio St.3d 1,540 N.E.2d 257
Docket NumberNo. 88-279,88-279
PartiesLEGROS et al., Appellants, v. TARR et al., Appellees.
Decision Date28 June 1989

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44 Ohio St.3d 1
540 N.E.2d 257
LEGROS et al., Appellants,
TARR et al., Appellees.
No. 88-279.
Supreme Court of Ohio.
Submitted March 8, 1989.
Decided June 28, 1989.

Syllabus by the Court

1. A business finder is one who finds, interests, introduces, and brings parties together for a transaction that they themselves subsequently negotiate and consummate. Unlike a business broker, a finder is an intermediary or middleman who is not necessarily involved in negotiating any of the terms of the transaction.

2. Although a party to an acquisition is ordinarily held to have no liability to a business finder in the absence of a contract, express or implied in fact, to pay for such finder's services, an exception exists where the party or its agent misappropriates the finder's proprietary information and uses it to such party's benefit, in which case an agreement to pay may be implied in law and the finder can recover in quantum meruit.

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Appellant Emile A. Legros, Jr., an investment banker, commenced this action in January 1982 to recover a finder's fee from appellees, Michael E. Tarr and Burning Hills Steel Company ("Burning Hills"), alleging that Tarr had misappropriated information supplied by Legros to Tarr's former employer, using such information for his own benefit and the benefit of Burning Hills. Legros' former employer, appellant Butcher & Singer, Inc., intervened as a plaintiff in the action.

The pertinent facts pertaining to the issues presented are that, beginning in 1977, Legros was employed by Butcher & Singer as a vice-president in the corporate finance department in the firm's Cleveland, Ohio, office. Butcher & Singer is a licensed broker-dealer and investment banking house with its principal place of business located in Philadelphia, Pennsylvania.

Tarr was employed in July 1979 as vice-president of strategic planning of Union Metal Manufacturing Company ("Union Metal"). Tarr was responsible for developing a strategic business plan for Union Metal, and was in charge of acquisitions and divestitures. He reported directly to Union Metal's president, Kenneth E. Glass. The strategic plan and acquisition guidelines of Union Metal were considered highly confidential by the officers of the corporation.

In August or September 1979, Tarr (and possibly Glass) met with Legros to discuss hiring Butcher & Singer to identify potential acquisition possibilities within the guidelines called for by Union Metal's strategic plan. On November 6, 1979, the parties executed a written contract whereby Butcher & Singer would be paid $1,500 per month plus out-of-pocket expenses, and a two-percent fee on whatever consideration Union Metal paid for an acquisition brought to it by Butcher & Singer. In addition, the contract provided:

"We would expect full conpensation [sic ] on the basis set forth above in the event that, within one (1) year after termination of our employment, a sale or purchase is consummated with a party identified by B & S. The agreement shall be exclusive with B & S on a quarterly basis and may be extended at the end of each quarter by both parties * * *."

This agreement was extended by the parties to June 30, 1980. Both the original agreement and the extension were executed by "Emile A. Legros, Jr., Vice President" for Butcher & Singer, and "Michael E. Tarr, Vice President" for Union Metal. Legros apparently was the only employee of Butcher & Singer who worked with Union Metal and he reported to Tarr. Although it was not specifically expressed in the agreement, Legros understood that any information supplied by him to Union Metal was confidential.

In December 1979, Legros provided the name of Speedrack, Inc., a materials handling company, to Tarr as a candidate for acquisition. The initial meeting between Tarr and the president of Speedrack was held on December 17, 1979 and, following subsequent negotiations, Union Metal made an offer to purchase Speedrack in January 1980. Speedrack responded with a [540 N.E.2d 260] counterproposal on or about March 31, 1980, in the amount of $5,000,000 ($4,000,000 in cash). This counter-proposal was unacceptable to Union Metal's president and was rejected. Although no further negotiations occurred between Union Metal and Speedrack, Inc., the facts show, and the trial court included within its findings of fact, that "[a]t no time did Union Metal lose interest in acquiring Speedrack * * *." Rather, Ken Glass

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decided to put the negotiations on hold and pursue Speedrack at some future date. In this latter regard, the facts show that Tarr was requested by the other officers to check back with Speedrack on two occasions between April and October 1980, and Tarr reported that Speedrack was not interested in selling at that time.

In June 1980, Legros provided the name of Wisconsin Bridge & Iron Company ("Wisconsin Bridge") to Tarr as another candidate for acquisition. Wisconsin Bridge was in a turnaround situation with substantial net operating losses. Tarr developed a strategy whereby Wisconsin Bridge and Speedrack, Inc. would be acquired together, and the net operating losses of Wisconsin Bridge would be used to shelter the earnings and profits from Speedrack. The other officers of Union Metal, however, did not feel Wisconsin Bridge was a good acquisition candidate, and it was soon decided not to pursue it further.

On June 30, 1980, the agreement between Butcher & Singer and Union Metal expired and was not renewed. Legros had been informed by Butcher & Singer that it would close its Cleveland office effective July 31, 1980, and Legros was offered a position in Philadelphia, which he declined. Legros left Butcher & Singer's employ sometime after June 30, 1980, but continued to pursue new business with Union Metal, and in August 1980, joined another investment banking firm and retained Union Metal as a client. Union Metal acquired three companies from 1979 to the end of 1980, each of which, it appears, had been identified by Legros and a fee paid.

Meanwhile, in June and again in July 1980, Tarr had discussions with a former business associate, Jack S. James, about the possibility of forming a holding company, knowing from his prior contacts that Speedrack and Wisconsin Bridge could be acquired. These discussions were general in nature, however, and Tarr did not specifically mention Speedrack or Wisconsin Bridge to James at those meetings. As a result of these discussions, James initiated the formation of appellee Burning Hills Steel Company in Oklahoma on August 11, 1980. Tarr was elected president of Burning Hills at the corporation's first meeting of the board of directors, held August 14, 1980. Tarr was made a forty-four-percent shareholder and paid an annual salary of $80,000 as president, in exchange for his expertise. In this regard, the trial court set forth at Section 28 of its "Finding[s] of Fact":

"Michael E. Tarr, in effect, traded the confidential information concerning Speedrack and Wisconsin Bridge for a 44% ownership interest in Burning Hills. He would also receive a five year written employment contract as President of Burning Hills at $80,000 per year in exchange for providing confidential information from Union Metal's strategic business plan."

In late August or early September 1980, Tarr gave James the names of Speedrack, Inc. and Wisconsin Bridge as possible acquisition candidates for Burning Hills. In September, shortly after its formation, Burning Hills began negotiating with Speedrack, Inc., although without Tarr's participation, and acquired that company (and related companies) on October 30, 1980 for some $7,000,000. This acquisition date was within one year of the June 30, 1980 termination date of the contract between Union Metal and Butcher & Singer. Tarr resigned from Union Metal the next day, October 31, 1980. Tarr immediately joined Burning Hills and became involved in ongoing negotiations with Wisconsin Bridge,

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which had begun in October. Wisconsin Bridge was acquired by Burning Hills on November 17, 1980. The record shows that Tarr never told Legros about his involvement with Burning Hills, or about that company's acquisition of Speedrack and Wisconsin Bridge.

[540 N.E.2d 261] The officers of Union Metal first learned of Burning Hills' acquisition of Speedrack in November 1980, and immediately contacted Legros and stated their intention of filing litigation against Tarr. At no time did Legros inform Butcher & Singer of the Burning Hills acquisitions. Tarr and Union Metal settled their differences pursuant to a written release on February 13, 1981. The officers of Burning Hills first learned of Legros' claim for a finder's fee in mid-September 1981. Tarr's employment with Burning Hills was terminated on September 21, 1981.

On January 12, 1982, Legros filed a three-count complaint against Tarr and Burning Hills, seeking an accounting and judgment pursuant to the Butcher & Singer/Union Metal agreement or, in the alternative, seeking recovery of $150,000 as the amount of the value of his services. His third count sought recovery of $50,000 plus punitive damages from Tarr. Tarr and Burning Hills answered with general denials, and each filed cross-claims against the other, claiming a right to indemnification. On April 19, 1983, Butcher & Singer intervened in the action, claiming a right as Legros' employer to his finder's fee. Following a bench trial, the court issued findings of fact and conclusions of law, stating that Butcher & Singer was entitled to recover a two-percent commission on the $7,000,000 purchase price of Speedrack and the $3,000,000 purchase price of Wisconsin Bridge, based upon the theory of a contract implied in law or quantum meruit, or upon the theory of misappropriation of trade secret information. The court, in its initial "Conclusion of Law," denying Legros any recovery, set forth that "[t]he role of Legros concerning the acquisition and disclosure of information...

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