Goodman v. Cisco Systems, Inc.

NOT RECOMMENDED FOR PUBLICATION
File Name: 05a0687n.06
Filed: August 9, 2005
No. 04-3886
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ROBERT A. GOODMAN )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
CISCO SYSTEMS, INC., ) COURT FOR THE NORTHERN
) DISTRICT OF OHIO
Defendant-Appellee. )
)
)
)
_______________________________________)
Before: MARTIN and ROGERS, Circuit Judges; and FORESTER,* District Judge.
KARL FORESTER, Senior District Judge. Robert Goodman appeals the district
court’s grant of summary judgment to defendant Cisco Systems, Inc. (“Cisco”) on claims arising
from a “success fee” allegedly owed to Goodman for his involvement in certain corporate
transactions.
FACTUAL AND PROCEDURAL BACKGROUND
*
The Honorable Karl S. Forester, Senior United States District Judge for the Eastern District
of Kentucky, sitting by designation.
In 1986, Goodman started the law firm of Goodman, Weiss, and Miller (“GWM”), where
he served as a partner until December of 1999, when he took of-counsel status. During his
active practice with GWM, Goodman represented Aironet Wireless Communications
(“Aironet”), a company that was later acquired by Cisco. In July 1999, Aironet engaged in an
initial public offering (“IPO”), in which GWM represented Aironet. GWM billed Aironet on an
hourly basis for its work on the IPO.
Goodman claims that he was not involved in the day-to-day work on the Aironet IPO in
July of 1999, but assisted in getting the IPO “rolling”. Subsequently, during the summer of
1999, Aironet’s CEO, Roger Murphy, allegedly called Goodman and expressed some concern
about the ultimate success of the IPO. After his discussion with Roger Murphy, Goodman
claims that he became more involved with the IPO. Specifically, Goodman claims he opened up
a dialogue with the SEC, persuaded a third company to sell its shares in Aironet, and intervened
to keep people from alienating the SEC. Goodman alleges that Murphy was seeking Goodman’s
“distinct diplomatic skills [and] his personal connections and influence.” Appellant’s Br. 7. In
addition, Goodman claims that Murphy told him that “if you will get involved [in the IPO], you
will get a premium for yourself above your fee.” JA 285.
Goodman stated that the first time he and Murphy discussed the amount of the fee was in
January of 2000, and that when the IPO closed in July/August of 1999, there was not a firm
agreement as to a particular fee. After the IPO was completed, Cisco began negotiations to
acquire Aironet. At this time, Goodman claims that Murphy told him about the acquisition and
advised that he would like Goodman to be involved personally. Goodman also alleges that
Murphy told him that he would receive a premium for his participation. As for his involvement
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in the merger, Goodman claims that he acted “like an insurance policy against things going
wrong,” and used his influence to keep a third company from doing anything to harm the merger.
JA 346-47.
Goodman admits that he and Murphy did not discuss the amount of the premium at the
time Murphy asked him to get involved in the merger, but instead, Murphy told him in late
January or early February 2000, to name his figure, well after the merger agreement was signed
on November 8, 1999, but prior to the completion of the merger on March 15, 2000. Goodman
expressed some reluctance to name a figure and Murphy told him to find some benchmarks to
give guidance on setting the amount of the premium. In mid-February, Goodman told Murphy
that some people were using bankers’ fees for non-bankers and Murphy allegedly responded that
he would give Goodman sixty (60) basis points of the value of the merger. Sixty (60) basis
points would equal $7.2 million. Goodman, however, allegedly suggested cutting the fee in half
because he was uncomfortable with the proposed $7.2 million.
Subsequent to their agreement, Goodman told Murphy that he would be willing to
allocate $1 million of the $3.6 million merger fee for the work he completed on the IPO.
Therefore, Goodman claims that the $3.6 million fee sought was compensation for his work on
both the merger and the IPO. In order to collect his fee, Goodman sent a single line-item invoice
for $3.6 million to Aironet on March 8, 2000. The invoice was sent on GWM letterhead and
asked that Aironet transfer the funds to Goodman’s personal account. This was the first
reference to the alleged IPO or merger fees in writing. Murphy denies ever having agreed to pay
Goodman any fees beyond those paid to GWM for its representation of Aironet in the IPO and
the merger.
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In March of 2000, Cisco assumed all debts and liabilities of Aironet after the completion
of the merger. This included any fee owed to Goodman for services rendered. Prior to the
closing of the merger, Cisco received documents from Aironet listing the $3.6 million as a
liability. However, Cisco became suspicious of the $3.6 million fee and began investigating the
legitimacy of the invoice in April or May of 2000. On May 3, 2000, Cisco financial manager,
Mike Tamaru, sent an email to Jane Isham, Aironet’s former, and Cisco’s current, corporate
controller. In this email, Tamaru requested more detail relating to the Goodman invoice. Isham
forwarded Tamaru’s email to Murphy, who responded with the following email on May 4, 2000:
The Goodman Weiss Miller (GWM) invoice represents: 1) a fixed fee of $2.4M for
the Cisco/Aironet acquisition and 2) a 1.2M fee relating to Aironet’s IPO.
The $2.4M acquisition fee is a transaction based fee based on 0.3% of the aggregate
transaction value measured at the time the deal was announced (November 8, 1999).
The calculation being $800M x .003 = $2.4M. This transaction fee is in addition to
hourly billings that total approximately $200K (per Jane Isham).
As a point of reference, Aironet’s investment banker, Dain Rausher Wessels,
received a transaction fee of 0.6% of the aggregate transaction value measured at the
time of closing (March 15, 2000). The calculation being $1,275M x .006 = $7.64M.
Besides the difference in measurement dates, the DRW fee was due and payable at
closing.
In terms of reasonableness, the combined DRW and GWM fees total .8% of the
transaction value at closing which I believe is reasonable and fair in M&A type deals
that can range from 0.5 to 2.0 percentage points.
The $1.2M fee relating to the Aironet IPO is a different story. This is both belated
and disputed amount between the Company and GWM, I believe, based on recent
conversations with the managing partner, that the GWM firm is willing to waive any
claim to the $1.2M fee in exchange for receiving prompt payment of the $2.4M
acquisition fee.
I hope this answers your questions. Let me know if I can be of further assistance, as
I would like to conclude this matter before I leave Cisco on May 31st.
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JA 1312. Subsequently, Tamaru sent various emails to Cisco employees asking for invoice
details and any other documentation relating to Goodman’s bill. In an email to Isham dated July
28, 2000, Tamaru indicated that the invoice should not be paid.
On January 30, 2000, Goodman filed suit seeking payment of the fee. In his complaint,
Goodman alleged: 1) breach of contract; 2) unjust enrichment; and 3) promissory estoppel. The
district court granted Cisco’s motion for summary judgment on all claims, finding that there was
no binding contract between the parties because, as Aironet’s outside counsel, Goodman had an
ethical duty to undertake any action necessary to achieve the goals of Aironet. Therefore, the
district court reasoned, there was no consideration for the promise to pay Goodman an additional
amount for his personal involvement in the transactions. Furthermore, the district court found
that there was no enforceable contract between the parties because the terms of the contract were
indefinite and because no meeting of the minds had occurred. The district court found that Cisco
had not been unjustly enriched by Goodman’s involvement in the IPO and the merger because
“Goodman did not confer an uncompensated benefit on Cisco.” JA 57. Finally, the court found
that Goodman could not prove that he detrimentally relied on the purported promise to pay him a
premium in exchange for his services.
Goodman appeals the district court’s grant of summary judgment.
ANALYSIS
I. Standard
The district court’s grant of summary judgment is reviewed de novo. Valentine-Johnson
v. Roche, 386 F.3d 800, 807 (6th Cir. 2004). “Summary judgment is proper where there exists
no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
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In considering a motion for summary judgment, the district court must construe all reasonable
inferences in favor of the nonmoving party.” Id. The court must decide “whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it is so one-sided
that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
251-52 (1986). Because this is a diversity action, the Court must apply the substantive law of
Ohio. See, John Hancock Fin. Servs. v. Old Kent Bank, 346 F.3d 727, 733 (6th Cir. 2003).
II. Breach of Contract Claim
In his complaint, Goodman alleges that he entered into a contract with Murphy for the
payment of a fee upon the successful completion of Aironet’s IPO and merger with Cisco. The
district court found that Goodman and Aironet had no valid contract because there was a lack of
consideration for the alleged fee, there was no mutual assent to the contract terms, and the
contract was indefinite.
Under Ohio law, a plaintiff alleging breach of contract must demonstrate 1) the existence
of a contract; 2) performance by the plaintiff; 3) breach by the defendant; and 4) damages.
Doner v. Snapp, 649 N.E.2d 42, 44 (Ohio App. 1994). To establish a valid contract, the conduct
of the parties must evidence a meeting of the minds, and the essential terms of the contract must
be definite and certain. Nilavar v. Osborn, 711 N.E.2d 726, 732 (Ohio App. 1998). The terms of
the contract are generally considered certain when they provide a basis for determining the
existence of a breach and determining an appropriate remedy. Id. at 734.
Goodman is unable to prove either a meeting of the minds or certainty as to the essential
terms of the alleged success fee for the IPO. It is unclear what specific actions were required
beyond Goodman’s involvement through GWM in the IPO. Goodman and Murphy had no
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agreement about the fee that would be paid for Goodman’s involvement in the transaction. In
fact, Goodman repeatedly admitted that there was no binding agreement between him and
Murphy at the time the IPO closed. See, JA 286, 287 and 289.
Furthermore, Goodman is unable to prove a meeting of the minds regarding the terms of
the alleged contract for the merger success fee. In a similar action, Isquick v. Classic
Autoworks, Inc., 627 N.E.2d 624, 627 (Ohio App. 1993), the court found that an alleged oral
agreement concerning the restoration of antique vehicles was not sufficiently definite to
constitute an enforceable contract because the agreement contained no provision concerning the
extent or scope of the restoration or methods to be followed in restoring the vehicles. Similar to
Isquick, the agreement between Goodman and Murphy contained no provisions concerning the
extent or scope of Goodman’s involvement in the transactions.
III. Unjust Enrichment Claim
Goodman argues that, whether or not the court finds the success fee agreements
constituted enforceable contracts, he should be allowed to recover under a theory of unjust
enrichment.
The doctrine of unjust enrichment is a quasi-contractual theory of recovery which
provides that “a person shall not be allowed to profit or enrich himself inequitably at another’s
expense, but should be required to make restitution of or for property or benefits received,
retained, or appropriated, where it is just and equitable that such restitution be made.” Norton v.
City of Galion, 573 N.E.2d 1208, 1209 (Ohio App. 1989). Therefore, in order to successfully
state a claim of unjust enrichment, a plaintiff must establish “(1) a benefit conferred by a plaintiff
upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit
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by the defendant under circumstances where it would be unjust to do so without payment.”
Hambleton v. R.G. Barry Corp., 465 N.E.2d 1298, 1302 (Ohio 1984).
Goodman cannot establish all of the elements needed to support a claim of unjust
enrichment. First, he cannot demonstrate that he conferred a benefit. Goodman fails to
demonstrate how his role facilitated the success of the IPO or merger transaction. Second, it
appears that Cisco was unaware of any agreement between Cisco and Aironet. Furthermore, it
does not appear that Murphy or anyone else at Aironet knew exactly what Goodman was doing
to facilitate the IPO and/or the merger. Therefore, there was no apparent knowledge by the
defendant of the benefit conferred by Goodman. Finally, Goodman has failed to demonstrate
that the retention of any benefit conferred would be unjust. As outside counsel for Aironet,
Goodman was expected to work for the benefit of his client. In addition, Goodman testified that
he billed and was paid for some of the services that he performed in relation to the IPO and the
merger. Therefore, it would not be unjust for Cisco to retain any benefit received from
Goodman’s involvement.
IV. Promissory Estoppel Claim
Goodman’s promissory estoppel claim is also meritless. Promissory estoppel is a quasi-
contractual remedy employed by courts to prevent an injustice. In order to succeed on a theory
of promissory estoppel, a plaintiff must establish 1) a promise; 2) that is clear and unambiguous
in its terms; 3) reliance by the party to whom the promise is made; 4) that the reliance was
reasonable and foreseeable; and 5) that the party claiming estoppel was injured by the reliance.
Rigby v. Fallsway Equip. Co., Inc., 779 N.E.2d 1056, 1061 (Ohio App. 2002).
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Assuming Murphy promised to pay Goodman a fee for his involvement in the IPO and
merger, the terms of such a promise were not clear and unambiguous. At the time any promise
was made, it was not clear what type of involvement was required by Goodman or what amount
of compensation would be rendered. In fact, Goodman testified that he did not come to an
agreement with Murphy relating to the fee until February 2000, well after the close of the IPO
and after he became involved in the merger. Therefore, at the time Goodman alleges he
detrimentally relied on Murphy’s promise by becoming involved in the IPO and merger, the
terms of the promise were not clear and unambiguous. In addition, Goodman cannot prove that
he was injured by any reliance on Murphy’s promise. As addressed above, Goodman testified
that he billed and was paid for some of the time he devoted to the IPO and merger. Therefore, if
Goodman had billed for all of the time he devoted to the transactions, it can be assumed that he
would have been properly paid.
CONCLUSION
Goodman is unable to prove that a valid contract existed for the payment of any success
fees for his involvement in Aironet’s IPO and merger with Cisco. Furthermore, Goodman has
not shown that Cisco was unjustly enriched by Goodman’s involvement in the transactions.
Finally, the requirements of promissory estoppel have not been met in this action.
For the foregoing reasons, we AFFIRM the judgment of the district court.
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