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BARON & CO. v. BANK OF NEW JERSEY

January 9, 1981

BARON & COMPANY, INC., Plaintiff,
v.
The BANK OF NEW JERSEY, as liquidating trustee of the Garden State Racing Association Liquidating Trust and Garden State Racing Association, Defendants



The opinion of the court was delivered by: GERRY

FACTS

This diversity action has been transferred to this court from the Eastern District of Pennsylvania. Plaintiff, Baron & Company, Inc., (Baron) is a Pennsylvania corporation which acts as a management consultant specializing in the acquisition, merger and financing of corporations and businesses. In addition, Baron is in the business of acting as a finder of prospective buyers and sellers of businesses.

 The defendant, The Bank of New Jersey, is the liquidating trustee of the Garden State Racing Association Liquidating Trust (GSRALT), a trust created under New Jersey law (to liquidate the Garden State Racing Association after the death of major stockholder Eugene V. Mori and fire at the Garden State Race Track). Defendant Garden State Racing Association (GSRA) was a New Jersey corporation whose assets consisted of the Garden State Park Race Track, and the Cherry Hill Lodge and Cherry Hill Inn hotel restaurant facilities. On April 14, 1977, the race track was destroyed by fire. As a result, the directors of GSRA adopted a plan of liquidation, forming GSRALT on April 3, 1978 and naming The Bank of New Jersey as liquidating trustee. GSRA was dissolved, and its assets were transferred to GSRALT, which assumed all contingent liabilities of GSRA.

 Sometime in 1976, plaintiff's president, Robert Baron, learned that the Bank was the administrator pendente lite of the Estate of Eugene V. Mori, founder and principal stockholder of GSRA. The primary asset of the estate was Mr. Mori's holdings in the Association. Mr. Baron contacted the Bank to see if he could be of some service to it in connection with the Mori estate. In that conversation and in subsequent conversations with Mr. Richard Weidner, administrator of the estate and president of GSRA from 1977-1978 and liquidating trustee, Mr. Vincent Gentile, a trust officer of the Bank and Eugene E. Mori (son of Eugene V. Mori), the then president of GSRA, Robert Baron requested the opportunity to have his company assist the corporation in selling certain assets, including the Cherry Hill Inn and Cherry Hill Lodge. On April 27, 1977, Baron and GSRA entered into an agreement whereby plaintiff would attempt to secure a ready, willing and able buyer for the Cherry Hill Inn and the Cherry Hill Lodge, for which, if successful, it was to receive a finder's fee. Subsequently, the Lodge was sold independently of the efforts of plaintiff and is not involved in this dispute. Mr. Baron did, however, find a group of buyers for the Inn, who, on November 20, 1978, signed an agreement of sale contingent on whether or not a sale to a group with no relation to Baron could and would be consummated. The sale to the other group was eventually consummated, but plaintiff, claiming that it is nevertheless entitled to its finder's fee, brought this action in federal district court in Pennsylvania.

 Defendants argue that plaintiff is precluded from enforcing its claim for compensation for its services as a "finder" in connection with the sale of the Cherry Hill Inn by reason of the fact the services are covered by the real estate broker laws, which require a license. Plaintiff failed to obtain the requisite license and as a result cannot sue to recover the finder's fee.

 Plaintiff opposes dismissal on several grounds. First, plaintiff claims that its services are not subject to the real estate broker licensing laws because it acted only in the capacity of a finder, and, under Pennsylvania law, a finder (as plaintiff defines the term: "one who brings together a buyer and a seller, without more") is entitled to be compensated for his services. Plaintiff contends that the law makes a clear distinction between the activities of a finder and those of a broker. While a license might be required for a broker, it is not required for a finder. In its supplemental brief, plaintiff has argued that the Pennsylvania real estate broker licensing provisions do not apply to its activities, since it was not acting as a broker within Pennsylvania. Since "compensation is sought on the sale of a hotel and adjacent land in New Jersey by a New Jersey corporation ... the Act does not and cannot bar compensation to plaintiff." (Supp. brief at p. 6.) Moreover, even assuming that the Pennsylvania Act applies to a contract entered into in New Jersey for sale of land in New Jersey, plaintiff claims that it is still entitled to recover because it employed a licensed real estate broker "as an independent consultant and he participated in the sale of the Cherry Hill Inn." Finally, plaintiff maintains that it is not precluded from suing for its fee by virtue of the door closing statute, since the "fee is unrelated to the sale of real estate; rather it is for the sale of an ongoing business." (It is interesting to note in this regard that the amount of compensation which plaintiff seeks to recover is not only that portion allocable to the sale of the hotel business; plaintiff's calculation of its fee is based upon the full.$ 4.5 million purchase price covering the business and the land.) Plaintiff further argues that it was not hired to effectuate or assist in the sale of real estate "Indeed, Baron's fee entitlement is irrelevant to the sale, being conditioned only on finding a ready, willing and able buyer." (Plaintiff's Response to defendants' supplemental memo, p. 2.) Even if the court were to find that plaintiff's activities fall within the statutory provisions, plaintiff states that the activities for which it seeks compensation did not occur in New Jersey and therefore cannot be subject to the New Jersey statute. Plaintiff also argues in its supplemental response to defendants' motion to dismiss that the Pennsylvania Door Closing Act likewise does not apply to its claim: "The Agreement of Sale upon which plaintiff's claim rests was entered into in New Jersey ... the fee agreement itself was approved and entered into in New Jersey." (Id. at p. 8.) In support of this position, plaintiff contends that Judge Luongo, in ruling on the jurisdictional question prior to the transfer of the action to this court, found as a fact that plaintiff's activities all took place in Pennsylvania. As a final matter, plaintiff asserts that even if the New Jersey Act is somehow found applicable, the New Jersey cases do not bar recovery of the fee under the facts of this case.

 DISCUSSION

 It has long been held that the capacity of a corporation to sue or be sued in federal court is determined by the law under which it is organized. David Lupton's Sons v. Automobile Club of America, 225 U.S. 489, 32 S. Ct. 711, 56 L. Ed. 1177 (1912); see also Barling v. Bank of British North America, 50 F. 260 (9th Cir. 1892). This rule of law has been memorialized in Rule 17(b) of the Federal Rules of Civil Procedure which provides:

 (b) Capacity to Sue or Be Sued.

 
The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized.

 Prior to Erie R. R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), it was also the rule in the federal courts that:

 
... (T)he state (in which the federal court was sitting) could not prescribe the qualifications of suitors in the courts of the United States, and could not deprive of their privileges those who were entitled under the Constitution and laws of the United States to resort to the federal courts for the enforcement of a valid contract ....

 David Lupton's Sons v. Automobile Club of America, 225 U.S. at 500, 32 S. Ct. at 714. Erie established that, in diversity cases, the right to a remedy in federal district court was dependent upon the availability of the remedy under state law. Thereafter, in Angel v. Bullington, 330 U.S. 183, 67 S. Ct. 657, 91 L. Ed. 832 (1947), the court held that a federal court, sitting in North Carolina, could not grant relief to a foreign suitor in the face of a determination by the North Carolina Supreme Court that North Carolina's no-deficiency statute precluded such relief. Justice Frankfurter, writing for the court, explained:

 
Cases like Lupton's Sons v. Automobile Club, 225 U.S. 489 (32 S. Ct. 711, 56 L. Ed. 1177), are obsolete insofar as they are based on a view of diversity jurisdiction which came to an end with Erie Railroad v. Tompkins, 304 U.S. 64 (58 S. Ct. 817, 82 L. Ed. 1188). That decision drastically limited the power of federal district courts to entertain suits in diversity cases that could not be ...

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