Appeal from the United States District Court for the Central District of Illinois -- Springfield Division. No. 77-C-3147 -- Robert D. Morgan, Judge.
Cummings, Chief Judge, and Sprecher*fn* and Wood, Circuit Judges.
This lawsuit began in deceptively simple fashion in October of 1977. Overseas Development Disc Corporation ("Overseas") sued to collect a brokerage fee from Sangamo Construction Company ("Sangamo"). Overseas asserted either a contractual or a restitutionary right to be paid for helping Sangamo secure a contract with the government of Kuwait to build a motorway in that country. Federal jurisdiction was based on diversity of citizenship: Overseas is a New York corporation with its principal place of business in New York City; Sangamo is a Delaware corporation headquartered in Springfield, Illinois.
The first complication arose eight months after the filing of the initial complaint. Universal Development Corporation ("UDC"), a Cayman Island corporation with its principal place of business in New Jersey, was granted leave to intervene under Rule 24(a)(2) or 24(b)(2)*fn1 of the Federal Rules of Civil Procedure. It claimed as the assignee of Taj Farouki, a one-time employee of Overseas and after late 1975 an executive of UDC. Farouki had granted all his rights to compensation for services on the Kuwait motorway project to UDC in exchange for being established as a Middle East business broker by UDC.*fn2 UDC maintained that Farouki had been a joint venturer with Overseas and that by virtue of the assignment it was entitled to sue Sangamo directly or to collect half of any award to Overseas. Additionally UDC claimed that Overseas would be liable for breach of its fiduciary obligation to Farouki if it developed that Overseas had unilaterally accepted a less favorable contract with Sangamo than the parties had originally agreed on, or if Overseas failed to make any contract at all.
What ensued was a free-for-all between Overseas, UDC, and Sangamo. There were problems with discovery; virtually no fact of any legal significance was uncontested; there were charges that evidence had been doctored; and evidentiary rulings were hotly disputed. The choice of governing law posed difficulties: the trial judge's decision to apply Kuwaiti law to all aspects of the litigation was only half the battle; discovering the content of Kuwaiti law was also baffling. The (partial and unpaginated) record on appeal runs to five bulky volumes, and it took the judge a year after the close of the trial to produce his written opinion. It is published at 502 F. Supp. 1256 (C.D. Ill.1980).
In his order, the district judge denied Overseas' expansive claim to brokerage fees for various Middle Eastern ventures Sangamo might undertake (502 F. Supp. at 1266, judgment for Sangamo on Count III of Overseas' complaint). Focusing then on the Kuwait motorway project, the judge found that Sangamo and Overseas had initially contracted for fees of 2-5% of the entire $63 million contract price (Findings of Fact [henceforth F/F] 10, 11; Conclusions of Law [henceforth C/L] 10, 11, 12), but had later modified their contract to call for fees of 1 1/4% (F/F 25; C 13, 14). In the event his decision was reversed on appeal, the judge made an alternate finding that Overseas should recover a 1% fee, based on quantum meruit (C 17). He ruled that Kuwaiti laws designed to restrict the business activities of foreign corporations were no impediment to either the contract or the quantum meruit claims (C 8, 9). He concluded that UDC's interest in the litigation rested on an invalid attempt by Farouki to assign a personal service contract (C 21) and therefore dismissed UDC's claims against both Sangamo and Overseas. Unable to adjudicate Farouki's claims because Farouki was not a party, the district judge made an advisory finding that Farouki had been an employee, rather than a joint-venture partner, of Overseas (F/F 27) and that Overseas should pay him 30% of its fee (C 20).*fn3 Finally, he denied Overseas' claim for prejudgment interest under Kuwaiti law (unpublished order, Jan. 26, 1981), and denied Sangamo's motion to dismiss the lawsuit for failure to join Farouki under Rule 19(b) of the Federal Rules of Civil Procedure (unpublished order, Feb. 4, 1981).
This appeal challenges almost every aspect of the decision below. No. 81-1222 (Sangamo's appeal) raises the Rule 19(b) issue first. It then attacks as clearly erroneous the district court's factual findings about the contract and its modification and as legal error the court's interpretation of Kuwaiti statutes. Finally it characterizes as abuses of discretion the judge's refusal to admit some evidence and his failure to rule at all on other proffers. No. 81-1273 (UDC's appeal) maintains that Farouki's assignment was valid under Kuwaiti law (or more appropriately, according to UDC, Illinois or Pennsylvania law; see note 46 infra). UDC challenges the factual findings that Farouki was an employee and that he had agreed to accept 30% of Overseas' profit as his commission. It also appeals the denial of its direct claim against Sangamo. No. 81-1327 (Overseas' appeal) is anticlimactic: it challenges only the refusal to award prejudgment interest. We affirm in part, reverse in part, and remand for a new trial on the unresolved issues.
Some discussion of the factual background of this litigation is unavoidable. The dramatis personae are Allan Reyhan, president and chief executive officer of Sangamo; Attila Turkkan, president of Overseas; and Taj Farouki, who worked for Overseas in 1974 and 1975 and became a vice-president of UDC in October of 1975. Sangamo is in the road construction business. In the mid-1970's, curtailment of American Highway construction programs led it to seek new projects in the Middle East. Overseas at the same time was trying to establish itself as a Middle East representative for American corporations. Its services were identifying lucrative projects and helping companies deal with unfamiliar bureaucratic procedures for bidding on or negotiating deals. Farouki came to Overseas in 1974. Born in Palestine, he had emigrated to the United States in 1952, became a citizen, and settled in Illinois. He had extensive business experience and spoke fluent Arabic.
The chronology of the dealings among Sangamo, Overseas, Farouki, and UDC is as follows:*fn4
1974-1975: Turkkan and Farouki made several trips to the Middle East to explore possibilities there (Tr. 32-33, 43). Allan Reyhan was independently investigating opportunities through a Turkish friend and sometime joint-venture partner (Necati Dep. at 94-95).
June 1975: Turkkan announced plans to form a new corporation, Inter-Arab Commercial Company, to concentrate on the procurement of Middle Eastern business (Tr. 60, 74, 168-169, 181). Farouki was to be employed by the new company (Tr. 34, 174, 181). At about this time Turkkan made the first overtures to Sangamo (Tr. 692-698; Exh. 15).
July 3, 1975: Farouki met with Reyhan to discuss the new company's ability to obtain negotiated jobs in the Middle East. Negotiated jobs characteristically involve greater profits and fewer risks than bid jobs. (Tr. 699, 702-703, 488-489, 1095-1096.)
July 28, 1975: Turkkan, Farouki, and Zuhair (a Saudi Arab involved in Inter-Arab) met with Reyhan. Again conversation seemed to center on negotiated jobs, particularly in Saudi Arabia (Tr. 706). Turkkan contended that Sangamo and Overseas agreed at this meeting on a brokerage contract for 2-5% of the total price of any contract Sangamo might get through Overseas' efforts (Tr. 230); Reyhan denied that any such agreement was made (Tr. 718); and Farouki did not remember any discussion of commissions (Tr. 491-492).
The district judge found that an enforceable contract had been formed, subject to later modification.
Fall 1975: Farouki went to the Middle East to work for Inter-Arab. By October it was clear that no such company existed or would be formed (Tr. 187, 189; UDC App. 56-58). Farouki settled with his family in Kuwait. He offered to continue as a salaried employee of Overseas, as a part-time employee on a salary-plus-commission basis, or as an independent contractor for Overseas (UDC App. 58). Turkkan rejected all three proposals (Tr. 412-413). Farouki became vice-president of UDC (Tr. 409, 410), but he and Turkkan continued to work together on the Sangamo account (UDC App. 67; Tr. 199, 430).
The district judge concluded that Farouki was a project-to-project employee of Overseas after October 1975.
December 12, 1975: Farouki wrote directly to Reyhan to request "my percentage of compensation for my services" (UDC App. 65). Turkkan assured Reyhan that Farouki was still working for Overseas and need not be paid separately (Tr. 717-718).
January 1, 1976: Farouki executed an employment contract and assignment with UDC (Tr. 61, 169).*fn5
The district judge treated the assignment as an invalid attempt to delegate performance of a ...