82 N.Y.2d 158 (1993)

Absent a specific agreement establishing a relationship of trust, a finder has no fiduciary duty to disclose adverse information about a potential business transaction partner to their client.

Summary

Northeast General Corporation, a finder, sued Wellington Advertising for a finder’s fee after introducing them to a purchaser, Sternau, who ultimately rendered Wellington insolvent. Wellington refused to pay, arguing Northeast failed to disclose negative information about Sternau’s reputation. The lower courts ruled in favor of Wellington, imposing a fiduciary-like duty on the finder to disclose adverse information. The Court of Appeals reversed, holding that absent an explicit agreement creating a relationship of trust, a finder has no inherent fiduciary duty to disclose such information. The court emphasized that parties in commercial transactions are generally governed by marketplace mores unless they explicitly agree to a higher standard of care.

Facts

Northeast, acting as a finder, entered into an agreement with Wellington to identify potential purchasers. The agreement designated Northeast as a non-exclusive, independent investment banker and business consultant for finding candidates. Northeast introduced Sternau to Wellington. Prior to the introduction, Northeast’s president learned of Sternau’s reputation for acquiring companies, extracting assets, and leaving minority investors in financial distress. Northeast did not disclose this information to Wellington. After the merger agreement but before the closing, Northeast offered further assistance, which Wellington declined. Sternau’s company acquired Wellington, leaving Wellington’s principals as minority investors. Wellington became insolvent, resulting in financial losses for Wellington’s principals.

Procedural History

Northeast sued Wellington for the finder’s fee. The jury found in favor of Northeast. The Supreme Court set aside the verdict, ruling that Northeast had a fiduciary-like duty to disclose the adverse information. The Appellate Division affirmed, adopting the Supreme Court’s reasoning. The Court of Appeals granted leave to appeal.

Issue(s)

Whether a finder, under a standard finder’s fee agreement, has a fiduciary-like duty to disclose adverse information about a potential purchaser to the client.

Holding

No, because the agreement between Northeast and Wellington did not establish a relationship of trust imposing such a duty, and absent such an agreement, the parties are governed by the normal mores of the marketplace.

Court’s Reasoning

The Court of Appeals reasoned that imposing a fiduciary duty requires a clear indication that the parties intended to create a relationship of trust. The court emphasized that the written agreement defined Northeast’s role solely as a finder, tasked with introducing potential purchasers. The court distinguished finders from brokers, who typically have a fiduciary duty due to their greater involvement in negotiating the transaction. The court noted that “the dispositive issue of fiduciary-like duty or no such duty is determined not by the nomenclature ‘finder’ or ‘broker’ or even ‘agent,’ but instead by the services agreed to under the contract between the parties.” The court refused to impose a duty retroactively that was not contemplated in the agreement. The court also acknowledged that Wellington declined further assistance from Northeast after the initial introduction, indicating that Wellington did not rely on Northeast for ongoing guidance. The court quoted Cardozo, stating some relationships in life impose a duty to act in accordance with the customary morality and nothing more and that those are the standards for the judge. A dissenting opinion argued that the finder had a duty to disclose the negative information based on the confidential information shared and the inherent reliance in the relationship. It emphasized that Dunton knew Arpadi’s business plans and that the merger was the very type of transaction Arpadi feared.