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STANTON v. RICH BAKER BERMAN & CO.

January 30, 1995

ROBERT N. STANTON, Plaintiff,
v.
RICH BAKER BERMAN & CO., P.A., ROSENBERG DRUKER & COMPANY, P.A., RD/RBB CERTIFIED PUBLIC ACCOUNTANTS, P.A., ALVIN P. LEVINE, BARRY D. KOPP, NICHOLAS TRUGLIO, FRANK S. LaFORGIA, KALMAN A. BARSON, AARON A. RICH, HOWARD BAKER and KENNETH A. BERMAN, Defendants.



The opinion of the court was delivered by: ALFRED J. LECHNER, JR.

 LECHNER, District Judge

 This is an action by pro se plaintiff Robert N. Stanton ("Stanton") against defendants Rich Baker Berman & Co., P.A. ("RBB"), Rosenberg Druker & Company, P.A. ("RD"), RD/RBB Certified Public Accountants, P.A. ("RD/RBB"), Alvin P. Levine ("Levine"), Barry D. Kopp ("Kopp"), Nicholas Truglio ("Truglio"), Frank S. LaForgia ("LaForgia"), Kalman A. Barson ("Barson"), Aaron A. Rich ("Rich"), Howard Baker ("Baker") and Kenneth A. Berman ("Berman") (collectively, the "Defendants") for recovery of fees under two finder's agreements. The legal theories pursuant to which recovery is sought include breach of contract, third party beneficiary, Section 14A:10-6(e) of the New Jersey Business Corporation Act, *fn1" quantum meruit, unjust enrichment, tortious interference and fraud. See Complaint, filed 2 June 1994 (the "Complaint"). Jurisdiction is alleged pursuant to 28 U.S.C. § 1332. Id., P 7.

 Currently before the court is the motion for partial summary judgment by Stanton on Claims One through Four in the Complaint and the cross-motion by Defendants for partial judgment contending the two finder's agreements they signed are void as against public policy. *fn2" For the reasons set forth below, the motion by Stanton for partial summary judgment is granted; the cross-motion by Defendants for partial summary judgment is denied.

 Facts

 A. The Parties

 Stanton is a citizen of the state of New York. Complaint, P 1; Defendants' 12(G) Statement, P 1. RBB and RD were professional corporations organized under the laws of the state of New Jersey with their principal places of business in New Jersey. Complaint, PP 2-3; Defendants' 12(G) Statement, P 5. RD/RBB is a professional corporation organized under the laws of the state of New Jersey. Complaint, P 4; Defendants' 12(G) Statement, P 5.

 Rich, Baker and Berman are citizens of the state of New Jersey and were stockholders in RBB. Complaint, P 5; Defendants' 12(G) Statement, PP 2, 5. Levine, Kopp, Truglio, LaForgia and Barson are citizens of the state of New Jersey and were stockholders in RD. Complaint, P 6; Defendants' 12(G) Statement, PP 5, 8.

 B. Background

 1. The Finder's Agreements

 In or about January 1991, RBB and its stockholders Rich, Baker and Berman entered into a written finder's agreement (the "RBB Finder's Agreement"), see Exhibit A to the Complaint, under which Stanton was entitled to a finder's fee in the event RBB entered into a transaction with another firm introduced by Stanton. Stanton Aff., P 11; Defendants' 12(G) Statement, P 6. A transaction is defined in the RBB Finder's Agreement as a purchase, sale, merger or employment. RBB Finder's Agreement, P 10.

 In or about July or August of 1992, Stanton entered into an identical finder's agreement with RD (the "RD Finder's Agreement"), see Exhibit B to the Complaint (the RBB Finder's Agreement and the RD Finder's Agreement, collectively are referred to as the "Agreements"). Stanton Aff., P 12; Defendants' 12(G) Statement, P 8.

 The Agreements provide:

 
8. Finder's Fee from Other Party. [RBB or RD] understand that [Stanton] may, in addition, receive compensation from the other party to the transaction. [RBB or RD] has no objection. [RBB or RD] agree not to assist any person [defined in paragraph ten as any person, firm, partnership, corporation or other entity] to avoid the payment to [Stanton] of any finder's fee.

 RBB Finder's Agreement, P 8; RD Finder's Agreement, P 8. The RBB Finder's Agreement was modified by a contemporaneous letter, dated 21 January 1994 (the "21 January Letter"), see Exhibit A to the Complaint, *fn3" which provides: "[Stanton]" will not receive a finder's fee from the other party that is different from the finder's fee [RBB is] paying [Stanton]."

 The Agreements are non-exclusive: "[RBB and RD] shall be free to solicit transactions on [their] own without liability or obligation to [Stanton]." RBB Finder's Agreement, P 7; RD Finder's Agreement, P 7. Finally, according to the Agreements they are to be "enforced in accordance with the laws of New York State." RBB Finder's Agreement, P 14; RD Finder's Agreement, P 14.

 2. The Introduction of RBB and RD

 On or about 18 August 1992, Stanton advised RD and RBB that they were potential candidates for a transaction. Stanton Aff., P 16; Defendants' 12(G) statement, P 14. The Defendants contend RD, already knew that RBB was seeking to be acquired. Defendants' 12(G) Statement, P 14. Stanton arranged an introductory meeting of RD and RBB on or about 21 August 1992. Stanton Aff., P 16.

 3. The Merger Agreement

 Prior to 5 March 1994, RD reincorporated itself as RD/RBB. Defendants' 12(G) Statement, P 15. On or about 5 March 1994, RBB and RD/RBB entered into a transaction (the "Transaction") evidenced by a document entitled "Plan and Agreement of Merger" (the "Merger Agreement"), see Exhibit 7 to the Stanton Aff., providing for the merger of 100% of RBB into RD/RBB. Id. at 4; Defendants' 12(G) Statement, P 16.

 The Merger Agreement provides:

 
1. THE MERGER
 
A. Delivery and Filing of Certificate of Merger.... RD/RBB and RBB will cause a certificate of merger ... to be signed, verified and delivered to the Secretary of the State of New Jersey as provided in Section 14A:10-4 *fn4" ] of the New Jersey Business Corporation Act.
 
B. Effective Date of Merger. The effective date of the merger shall be the later of January 4, 1994 or the close of business on the day the certificate of merger shall have been filed with the Secretary of the State of New Jersey. As of the effective date of the merger, the separate existence of RBB shall cease and it shall be merged with and into RD/RBB which shall be the surviving corporation.
 
...
 
F. Conversion and Exchange of Stock. The manner of converting the shares of RBB's stock issued and outstanding immediately prior to the effective date of the merger into RD/RBB stock shall be as follows:
 
(1) RBB Stock. Each share of RBB stock issued and outstanding immediately prior to the effective date of the merger shall be cancelled and four hundred forty-two (442) shares of fully paid and nonassessable shares of RD/RBB stock shall be issued in full replacement and substitution thereof....
 
(2) RD/RBB Stock. Each share of RD/RBB stock issued and outstanding immediately prior to the effective date of the merger shall be cancelled and in full substitution and replacement thereof, five hundred twenty (520) shares of fully paid and nonassessable shares of RD/RBB stock shall be issued to the holders of the [cancelled] RD/RBB stock immediately prior to the merger....

 Merger Agreement at 4-6 (emphasis in original).

 On or about 28 March 1994, pursuant to the terms of the Merger Agreement, the Defendants filed a Certificate of Merger (the "Certificate of Merger"), see Exhibit 11 to the Stanton Aff., with the Department of State of the State of New Jersey. Defendants' 12(G) Statement, P 19. The Certificate of Merger states: "On the effective date of the merger, the separate existence of [RBB] shall cease and RD/RBB ... shall become the owner, without other transfer, of all of the rights and property of RBB and [RD/RBB] ... shall become subject to all the debts and liabilities of ... [RBB] in the same manner as if [RD/RBB] itself had incurred them." Certificate of Merger, P 2.B.i.

 "Immediately following the consummation of the merger, the former principals of RBB owned 46 percent of the shares of ... RD/RBB, and had contributed 46 percent of its capital. The former principals of RD owned 54 percent of the shares of RD/RBB and had contributed 54 percent of its capital." Defendants' 12(G) Statement, P 21.

 Additionally, the Merger Agreement provides: "The Board of Directors and stockholders of RD/RBB and RBB, respectively, have approved and adopted the [Merger] Agreement as a Plan of Reorganization within the provisions of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended...." Merger Agreement at 4. Section 368(a)(1)(A) of the Internal Revenue Code defines reorganization as "a statutory merger or consolidation...." 26 U.S.C. § 368(a)(1)(A).

 4. Attempted Collection Under the Agreements

 As the Defendants explain, according to the Agreements, Stanton's "compensation in the event of merger is based upon the smaller practice['s] gross fees ... [which in this case] are those of RBB and equal to $ 2,500,000." Defendants' 12(G) Statement, P 25. Under the formula outlined in the Agreements, Stanton's compensation in the event of a merger between RD and RBB would equal $ 105,000.00. Id., P 26; Stanton Aff., P 30. Of this amount, 20 percent, or $ 21,000.00, was due at closing and the balance in 48 monthly installments of $ 1,750.00 beginning 1 April 1994. *fn5" Defendants' 12(G) Statement, P 26; Stanton Aff., P 30.

 On 8 March 1994, Stanton sent both RBB and RD a bill for $ 21,000.00. Defendants' 12(G) Statement, P 28. LaForgia, by letter dated 11 March 1994 (the "LaForgia Letter"), see Exhibit 5 to the Stanton Aff., explained the Defendants' contention that the Transaction was a merger as to thirteen percent of RBB's practice and a purchase as to the remaining eighty-seven percent. *fn6" Id.; Defendants' 12(G) Statement, P 29.

 According to the Defendants: "Although the form of the Transaction ... was that of a statutory merger, the Transaction in substance was a purchase by RD/RBB of the interest[s] of ... Rich, Baker, and Berman, but was a merger of the interest[s] of [Carl] Schwartz ["Schwartz"] and [Steven] Truppo ["Truppo"], all five of whom were stockholders of RBB." Opp. Brief at 19. Defendants allege that the Transaction is structured so neither Rich, Baker nor Berman receive the benefit of any future financial gains nor incur any risk of future loss and are paid in installments for their stock upon retirement. Rich Aff., P 12.

 On or about 23 March 1994, Stanton sent notices of default, pursuant to the Agreements, to the Defendants. Stanton Aff., PP 32-33; Defendants' 12(G) Statement, P 33. On or about 26 March 1994, LaForgia sent Stanton a check for $ 3,854.00 purporting to represent the full amount owed under the Agreements by the Defendants based on the Defendants' contention that there was not a complete merger of RBB's practice. Stanton Aff., P 34; Defendants' 12(G) Statement, P 29; LaForgia Letter (explaining Defendants' calculation of amount owed).

 Stanton returned the check to the Defendants with an accompanying letter, dated 29 March 1994 (the "29 March 1994 Letter"), see Exhibit 12 to the Stanton Aff. In the 29 March Letter, Stanton explained that under the Agreements, and pursuant to the Stockholder Agreement of RD/RBB (the "Stockholder Agreement"), see Exhibit 8 to the Stanton Aff., and the Merger Agreement, the Transaction was a merger not a purchase -- irrespective of any payments to be made to stockholders upon retirement. 29 March 1994 Letter; Stanton Aff., P 35. The 29 March Letter further stated if payments under the Agreements were not made accordingly, the amount owed would be accelerated under paragraph 6 of Agreements. *fn7" Id.; Stanton ...


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