Quinn v. Gulf and Western Corp.

• Decision Date: 11 March 1981
• Docket Number: No. 467,D,467
• Citation: 644 F.2d 89
• Parties: , 28 Cont.Cas.Fed. (CCH) 81,194 Francis J. QUINN, Steam-Path Sales, Inc. and Steam-Path Services, Inc., Plaintiffs-Appellees, v. GULF AND WESTERN CORPORATION d/b/a Mal Tool and Engineering Company, Defendant-Appellant. ocket 80-7577.
• Court: U.S. Court of Appeals — Second Circuit

Page 89

644 F.2d 89

60 A.L.R.Fed. 255, 28 Cont.Cas.Fed. (CCH) 81,194

Francis J. QUINN, Steam-Path Sales, Inc. and Steam-Path Services, Inc., Plaintiffs-Appellees, v. GULF AND WESTERN CORPORATION d/b/a Mal Tool and Engineering Company, Defendant-Appellant.

No. 467, Docket 80-7577.

United States Court of Appeals Second Circuit.

Argued Nov. 17, 1980.

Decided March 11, 1981.

Bourke G. Spellacy, Hartford, Conn. (Updike, Kelley & Spellacy, P. C., Elizabeth R. Collins, Hartford, Conn., of counsel), for defendant-appellant.

Thomas J. Groark, Jr., Hartford, Conn. (Day, Berry & Howard, Hartford, Conn., Josephine Marchetti, Newington, Conn., of counsel), for plaintiffs-appellees.

Before LUMBARD, NEWMAN, and KEARSE, Circuit Judges.

LUMBARD, Circuit Judge:

Gulf & Western Corporation, doing business as Mal Tool and Engineering Company (Mal Tool), appeals from a judgment of $92,294.00 with interest entered in favor of Steam-Path Sales, Inc. after a jury trial in the District of Connecticut, Thomas F. Murphy, J., presiding. ¹ Steam-Path Sales is wholly owned by Francis J. Quinn who alleged in this action that Mal Tool had agreed to pay him a ten percent commission on a contract between Mal Tool and the Tennessee Valley Authority (TVA) which Quinn had helped to arrange. ² As we find, on the undisputed evidence, that any agreement to pay Quinn a commission fee in compensation for his services in helping to procure the TVA contract would be in violation of federal statutes and regulations and against public policy, we reverse the judgment for Steam-Path Sales and direct that the complaint for a sales commission be dismissed.

Quinn brought this diversity suit to recover for two types of services rendered in connection with a contract between Mal Tool and TVA: first, he claimed entitlement to a sales commission from Mal Tool for obtaining the contract; the other claim was for the value of quality assurance work performed by Quinn. The contract between Mal Tool and TVA provided that Mal Tool would supply steam turbine blades to TVA, which had an immediate need for such supplies. The jury awarded $13,900 on Quinn's claim for the value of inspection services performed. Gulf and Western does not dispute this portion of the judgment.

In its answer to the claim for a commission on the sales price, Mal Tool raised two affirmative defenses. First, Mal Tool claimed that any sales commission to Quinn was barred as a "contingent fee" by federal procurement statute and regulations, 41 U.S.C. § 254 and 41 C.F.R. §§ 1-1.500 et seq. (1979). Second, Mal Tool claimed that federal conflict of interest laws, 18 U.S.C. §§ 202 et seq., prohibited receipt of a sales commission by a "special Government employee" such as Quinn.

The evidence at trial, with few exceptions noted below, was largely undisputed. After Quinn left General Electric in July of 1975, he formed Steam-Path Services, Inc., an engineering consulting and training company. Quinn first worked for TVA in 1976 and executed two personal service contracts, one from August 1976 to August 1977 and one from August 1977 to August 1978, pursuant to which he provided technical training to TVA personnel upon request.

On March 4, 1978, Charles Loney of TVA contacted Quinn by telephone and told him of TVA's immediate need for a manufacturer of stationary steam turbine blades. Quinn agreed to help. After an unsuccessful attempt to reach one manufacturer, Quinn tried to locate Frank Kundahl, vice president of sales at Mal Tool. When that effort failed, Quinn telephoned Peter Spirito, a quality control engineer at Mal Tool. Quinn told Spirito about TVA's emergency and suggested that Spirito contact Loney directly, which Spirito apparently did soon afterwards. This was Mal Tool's first contact with both TVA and Quinn.

According to Quinn, in the course of the conversation on March 4, he told Spirito that he would seek a 10% commission on the sales price of the blades. Spirito testified at trial that he did not recall any mention of a commission. The jury apparently credited Quinn on this issue as it found that there was a contract for the commission. In any event, both agreed that Quinn made no mention of Steam-Path Sales, Inc. which was not formed until some weeks later.

On March 13, Mal Tool contracted with TVA to supply turbine blades at a price in excess of one million dollars. There followed, on March 28 and in early May, at least two meetings attended by Quinn and by Mal Tool employees during which the possible future relationship of their businesses was discussed. Quinn conceded that prior to the March 28 meeting he made no mention of his intention to form a sales company.

At TVA's insistence, Quinn was retained to inspect the parts manufactured by Mal Tool prior to their shipment to TVA. Although TVA first expected to pay for Quinn's quality assurance services under the existing personal service contract with Quinn, TVA later decided that this could not be done. Thereupon, TVA instructed Mal Tool to provide for Quinn's inspection services in its quotation which it did in the amount of $13,900, liability for which Mal Tool does not contest. There is no evidence, however, that TVA knew or suspected that in addition to this amount and the amounts being paid for special consulting services, Quinn would expect a fee because TVA was to purchase products from Mal Tool at Quinn's suggestion.

Judge Murphy denied Mal Tool's motions for a directed verdict made at the conclusion of the plaintiff's proof and again at the close of the trial, as well as a motion for judgment n. o. v. Both parties submitted requests to charge regarding the defenses that Quinn was a special government employee of the TVA during the contract negotiations and that the alleged agreement for a commission would constitute a contingent fee arrangement prohibited by federal statute and regulations. Judge Murphy refused to give any charge regarding these defenses and left to the jury only the question of whether there had been an agreement to pay a commission.

We conclude that the district court should have dismissed the complaint in regard to the claim for a commission on the TVA contract. It is well established that a contract between private parties for a contingent fee, in violation of Federal Procurement Regulations, will not be enforced. See, e. g., Mitchell v. Flintkote Co., 185 F.2d 1008 (2d Cir. 1951), cert. denied, 341 U.S. 931, 71 S.Ct. 804, 95 L.Ed. 1361 (1951); Bradley v. American Radiator & Standard Sanitary Corp., 159 F.2d 39 (2d Cir. 1947), aff'g 6 F.R.D. 37 (S.D.N.Y.1946); Weitzel v. Brown-Neil Corp., 251 F.2d 661 (4th Cir. 1958).

41 U.S.C. § 254(a) states that negotiated government contracts

shall contain a suitable warranty ... by the contractor that no person or selling agency has been employed or retained to solicit or secure such contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business....

This requirement is implemented in the Federal Procurement Regulations, 41 C.F.R. §§ 1-1.500 et seq., which contain a mandatory "Covenant Against Contingent Fees" to be included in government contracts.

The agreement which Quinn claimed he had made with Mal Tool was clearly an arrangement for a fee contingent upon Mal Tool's contracting with TVA. Moreover, it is also plain that Quinn did not fall within the exemption for employees or selling agents of government...