Appeals from the United States District Court for the Central District of Illinois, Peoria Division, No. 84 C 1005 -- Michael M. Mihm, Judge.
Wood, Coffey and Manion, Circuit Judges.
This diversity action presents elaborate facts centered about three businessmen trying to build roads in Arab countries. But after more than ten years of litigation, including a prior opinion by this court, the only legal question which remains is the arcane one of interpreting quantum meruit under Kuwaiti law.
The fifty-three-page opinion below which gives rise to this appeal is unpublished. Overseas Dev. Disc Corp. v. Sangamo Constr. Co., No. 84-1005 (C.D. Ill. Oct. 21, 1985) ("Overseas III"). Because of its length, we do not attach a copy of the district court's opinion as an appendix. We inform the parties that we find each of the district court's findings of fact to be not clearly erroneous, see Fed.R. Civ.P. 52(a), and we adopt and affirm those findings in full. We also adopt and affirm its conclusions of law and judgment, except where noted below. We shall refer to the district court's opinion as necessary to clarify the following discussion.
Sangamo Construction Co., Inc. ("Sangamo"), a construction company which primarily builds roads, is incorporated in Delaware with its principal place of business in Illinois. In 1974, Sangamo decided to explore opportunities in Arab countries. Allen Reyhan is Sangamo's president.
To assist him in Saudi Arabia and Kuwait, Reyhan was introduced by a mutual friend to Attila Turkkan, the president of Overseas Development Disc Corp. ("Overseas"), a budding international business broker. Overseas is incorporated in New York and has its principal place of business there. Its primary business is selling steel.
From August, 1974 until October, 1975, Overseas employed Taj Farouki full-time as one of its representatives in the Middle East. Farouki, who was born in what was then commonly referred to as Palestine, has been an Illinois citizen since 1952. He is fluent in Arabic and English and knows the business culture of the Middle East.
In June, 1975, Turkkan asked Farouki to call on Sangamo to interest Sangamo in doing business in the Middle East. Farouki met with Reyhan. Several weeks later, Farouki and Reyhan met again and specifically discussed a project known as the Kuwait Motorway Project. Overseas III, Finding of Fact No. 68. In November, 1975, Reyhan appointed Farouki the "official representative" of Sangamo and granted him "the authority to negotiate with the government of Kuwait on behalf of Sangamo." Overseas III, Finding of Fact No. 87.
After October, 1975, the relationship between Overseas and Farouki became decidedly more ambiguous. Farouki formed his own company, Universal Development Corp. ("Universal"). Universal is incorporated under the laws of the Grand Cayman, British West Indies, and has its principal place of business in New Jersey. Farouki became Universal's vice-president on January 1, 1976. But he remained with Overseas on a project-to-project basis; while working for Universal, he remained affiliated with Overseas, particularly to assist Sangamo. Overseas and Farouki shall collectively be referred to as "the Finders."
In January, 1976, Overseas introduced Reyhan to Nabil Sharif, the Chief Engineer of Burhan Trading and Contracting Company ("Burhan Trading Company"), a Kuwaiti engineering concern. Reyhan discussed with Sharif the possibility of Burhan Trading Company serving as the local agent, partner, subcontractor or joint venturer with Sangamo in Kuwait. Overseas III, Finding of Fact No. 98.
A year and one-half later, in July, 1977, Kuwait awarded Sangamo a contract for $63,191,000 ("the project amount") to build a highway on a project known as Phase I of the Kuwait Motorway Project. Sangamo had submitted the lowest bid. Burhan Trading Company would serve as Sangamo's local agent for the project as well as a subcontractor.
The parties still dispute how much of Sangamo's success in receiving the contract is attributable to the Finders. What is not disputed is that Sangamo won the Kuwait Motorway Project contract without having ever entered into a written agreement with Overseas or Farouki regarding any commission or fee Sangamo would pay should it receive a contract, though Reyhan had discussed that issue often with Turkkan and Farouki, as had Turban and Farouki between themselves.
Overseas filed its complaint first. Then Universal, to whom Farouki had assigned his rights, intervened to file a complaint against Sangamo and a cross-claim against Overseas. Jurisdiction was proper pursuant to 28 U.S.C. § 1332, diversity of citizenship.
The Finders' complaints against Sangamo seeking a commission were based upon express contract and alternatively in quantum meruit for the reasonable value of their services. For example, Count II of Overseas' complaint sought in quantum meruit 3 percent of the project amount in the event that the court failed to find Overseas entitled to recover on the oral contract set forth in Count I. Three percent of the project amount of $63,191,000 equals $1,895,730. Count II of intervening plaintiff Universal's complaint against Sangamo similarly demanded 5 percent of the project amount directly from Sangamo. Universal predicated its claim on an implied contract between Sangamo on the one hand and Farouki "and/or" an Overseas-Farouki joint venture on the other. Universal also sought to recover from Sangamo in quantum meruit.
Universal's cross-claim against Overseas claimed that, as the assignee of Farouki's rights, it was entitled to half of any commission received by Overseas from Sangamo. Universal predicated its claim on an alleged joint venture agreement between Farouki and Overseas and in the alternative on the basis of "quantum meruit, quasi-contract and theories of estoppel." The district court (both the first time and on remand) reasonably read this part of Universal's cross-claim (Count V of Universal's complaint) as seeking only a declaratory judgment as to its (Farouki's) rights against Overseas. Paragraph 49 of the cross-claim in its entirety emphatically demanded that "[a]s a result of the dispute between Plaintiff [Overseas] and Intervenor [Universal], the rights and liabilities of the parties should be resolved by a declaratory judgment."
Universal further alleged in its cross-claim that Overseas negligently failed to obtain a written agreement from Sangamo for a 2 percent commission. On its negligence claim, Universal prayed for money damages against Overseas in the event that the court should find Sangamo was not obligated to pay to the Finders a commission equal to at least 2 percent of the project amount.
After a bench trial, the district court found for Overseas against Sangamo on a contract for 1.25 percent of the project amount (= $789,887) and -- in the alternative -- for Overseas against Sangamo in quantum meruit for 1 percent of the project amount (= $631,910). Overseas Dev. Disc Corp. v. Sangamo Constr. Co., 502 F. Supp. 1256, 1266 (C.D. Ill. 1980) (Overseas I). The court based its quantum meruit award solely upon expert testimony that the normal rate for brokerage services in circumstances like these was 1 to 5 percent of the contract price: "The credible evidence required a finding that a range of 1 to 5 percent of gross would customarily apply to a construction contract, which thus renders a rate of 1 percent as a measure of recovery." Id.
The district court further denied Universal's cross-claim against Overseas on the grounds that Farouki could not assign to Universal his rights against Overseas. While the court found that otherwise Farouki would have been entitled to 30 percent of Overseas' commission from Sangamo, it found for Overseas as against Universal because Farouki was not a party to the action. Id.
On appeal, this court affirmed in part and reversed in part. Overseas Dev. Disc Corp. v. Sangamo Constr. Co., 686 F.2d 498 (7th Cir. 1982) (Overseas II). We first held that Farouki validly assigned his rights to Universal. 686 F.2d at 504-05. We then held that no contract existed between Overseas and Sangamo. 686 F.2d at 505-08. Sangamo had not agreed to pay the Finders for their services; instead, Sangamo had rejected every request the Finders made.
We also reversed the district court's alternative conclusion that the Finders were entitled to recover 1 percent of the project value in quantum meruit. While finding that there existed "no real dispute about the validity of Overseas' quantum meruit claim under any law that might be applied," 686 F.2d at 508, we found "difficulty with the quantum meruit claim . . . in the measure of damages . . . [because] the district court erred in giving conclusive weight to the expert testimony." 686 F.2d at 509. The district court erred in relying solely on testimony about custom and usage from business practice experts. 686 F.2d at 506 n.22, 509. We therefore remanded this specific issue:
[T]he court must hear evidence on the quantum meruit claim. In order to decide how much money Overseas should receive in restitution, the court should permit the parties to explore in some detail exactly what services were performed, how much they cost, and what benefit inured to Sangamo from them. . . .
We also directed the district court "to determine the nature of the Farouki-Overseas relationship, because that in turn will establish what [Universal] is entitled to receive and from whom." Id.
Following a second bench trial, the district court issued its unpublished opinion and judgment (Overseas III). The court first established that Article 180 of Kuwait Law of Commerce No. 2 of 1961, which can best be thought of as the Kuwaiti quantum meruit provision, governed both the claims of Overseas against Sangamo and those of Farouki against Overseas.
The court then found that the market value of the services rendered by Overseas (including Farouki) equaled 3/4 of 1 percent of the Kuwait Motorway Project award. This amount equals, tracking the language of Article 180, the loss the Finders sustained and is less than the benefit received by Sangamo. The court reasoned that the market value of the services rendered to Sangamo by the Finders would customarily fall within a range of 1 percent to 2 percent of the value of the Kuwait Motorway Project. But Overseas' inexperience, its limited knowledge of construction, and the assistance Sangamo reciprocally rendered to Overseas in developing Overseas' fledgling business all mitigated towards reducing the quantum meruit recovery to 3/4 of 1 percent of the project value, which equals $472,500.
In determining the nature of the Farouki-Overseas relationship, the court declared that Farouki -- in light of how he and Overseas divided responsibilities between themselves -- earned one-half of Overseas' commission. But the district court then invoked Kuwaiti equitable powers under Article 180 to insure that Farouki would pay for and not be unjustly enriched by a benefit Overseas conferred upon itself and Farouki together:
27. Because the quantum meruit claim against Sangamo flowed directly to [Overseas], [Overseas] was faced with the prospect of, arid in fact obligated itself to pay, attorney fees and costs of collection to procure collection of the commission from Sangamo, from which Farouki's right to payment was derived. Under Article 180, therefore, Farouki is entitled to receive from [Overseas] 50 percent of the net commission received from ...