The opinion of the court was delivered by: HUYETT
FINDINGS OF FACT, DISCUSSION, CONCLUSIONS OF LAW, AND ORDER
Following a non-jury trial, I make these findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).
1. O'Brien & Gere Engineers, Inc. (O&G Inc.) is a business corporation duly organized under the laws of the State of New York. O&G Inc. is headquartered in Syracuse, New York, and has offices in five other cities throughout the eastern United States, including Philadelphia. The corporation provides engineering services to clients throughout the world. (Uncontested Fact P 1)
2. Khalil Taleghani (Taleghani) is a citizen of Iran who is currently residing in the United States at 72 Curtis Drive, Teton Village, Wyoming. (Uncontested Fact P 2)
3. Jamshed Daftary (Daftary) is a citizen of Iran who is currently residing in Switzerland. Service was made on Daftary by having a specially appointed process server, Ervin D. Sacks, serve a copy of the complaint and summons on Joel B. Justin in his capacity as manager and the person for the time being in charge of T-D's Philadelphia office. (Affidavit of Plaintiff's Attorney Richard R. Rulon in Support of Request for Entry of Default Against Defendant Jamshed Daftary)
4. On February 19, 1980, O&G Inc. filed a request for entry of default and supporting affidavit with the clerk of the district court requesting that a default be entered against Daftary for failure to plead, answer or otherwise defend as required by law. Daftary has not responded, either in person or through counsel, to the complaint and summons or to the request. A default was entered against Daftary by the clerk on February 19, 1980. (Request to Clerk for Entry of Default; Entry of Default)
5. In late 1972, O&G Inc. acquired control of Justin & Courtney (J-C), a Philadelphia-based engineering firm which specialized in designing water resource projects such as dams and hydroelectric power plants. Prior to its acquisition by O&G Inc., J-C had carried on its business as a partnership. Simultaneous with its acquisition, J-C was incorporated under the name Justin & Courtney, Inc. (J-C Inc.) and operated for a time as a subsidiary of O&G Inc. with J-C's former senior partner, Joel B. Justin (Justin), serving as its President and as a member of its Board of Directors. As a consequence of a stock for stock organization in January, 1978, the business of J-C Inc. was transferred to an operating division of O&G Inc. (Uncontested Fact P 3)
6. During the period of time that it operated as a subsidiary of O&G Inc., J-C Inc., principally through Justin, engaged in a number of projects in Iran with an Iranian engineering firm that did business under the English name "Taleghani-Daftary, Consulting Engineers" (T-D). (Uncontested Fact P 4)
7. T-D was formed by Taleghani and Daftary in 1960 and was headquartered in Tehran, Iran. Taleghani and Daftary were the two principals, each owning a 50% interest, for most of the time that the entity has been in existence. Approximately three years ago, two additional principals obtained interests in the entity. As a result of the addition of the two new parties, Taleghani's share in the entity dropped to 20%. Taleghani never told anyone at O&G Inc. about this change in the ownership of T-D. (Testimony of Taleghani)
8. Because of the ongoing business relationship between J-C Inc. and T-D and between Justin and Taleghani, Justin had considerable opportunity to observe the operations of T-D and the role played by Taleghani and Daftary in those operations. In December 1976, while on a business trip to Iran to provide consulting services to T-D pursuant to a contract between O&G Inc.'s subsidiary, J-C Inc., and T-D, Justin reported back to O&G Inc.'s Vice President: "T-D is doing well. The two principal partners (whom Justin identified as Taleghani and Daftary) are taking over a million a year from the firm." (Uncontested Fact P 5)
9. At the time he wrote the December 22, 1978 memorandum referred to in finding of fact P 8, Justin was still an employee of O&G Inc. (Testimony of Justin)
10. To any third party observing it, T-D appeared to be a partnership. The name which appeared on the firm's English letterhead and under which it did business in the United States-"TALEGHANI-DAFTARY"-was comprised solely of the names of the two defendants-Taleghani and Daftary. Nothing in the English version of the firm's name suggested that it was anything other than a partnership. No words such as "Corporation", "Incorporated", "Ltd." or "Establishment" appeared in the firm's English name although the Farsi (Iranian) term for "Establishment" did appear in the Farsi version of T-D's letterhead. Moreover, T-D appeared to operate as a partnership would: i. e., it appeared that the two principals, Taleghani and Daftary, made all the major decisions and either could bind the firm. (Testimony of Taleghani, Justin and Johnson; Joint Exhibit 2)
11. In the summer of 1977, representatives of O&G Inc., including its then President, Samuel W. Williams, Jr. (Williams), participated in discussions with Justin, Taleghani and others concerning the best way to structure a continuing relationship between O&G Inc. and T-D in order to minimize the impact of both Iranian and United States taxes. In the course of these discussions, Taleghani advised those present that he would have to consult with his partner, Daftary, before any final decision could be made. At the conclusion of such discussions, Taleghani returned to Tehran to consult Daftary. In early October, 1977, O&G Inc. received a letter from Taleghani dated September 25, 1977 in which he confirmed the tentative decisions reached in the earlier discussions. In his September 25, 1977 letter, Taleghani stated:
after discussing the matter here (in Iran) with my partner Mr. Daftary, and our tax people we think it would be to our mutual advantage, especially from a tax point of view, for Taleghani-Daftary to set up a branch office in Philadelphia to be headed and managed by Mr. J. B. Justin. This office will contract with J&C in USA for engineering consulting services to be performed in USA by J&C. All disbursements will be made directly through T-D branch office in Phila.
(Uncontested Fact P 6; Joint Exhibit 2)
12. In early 1978, representatives of O&G Inc., including the President of its J-C Division, Peter C. Johnson (Johnson), engaged in negotiations with Justin, who had recently retired from O&G Inc. and was now acting as an agent and representative of T-D. The purpose of these negotiations was to formulate the terms and conditions under which O&G Inc. would provide consulting services to T-D in connection with the Doroodzan, Dariush Kabir and Taleghan water resource projects then underway in Iran. The upshot of those negotiations was an Agreement dated February 21, 1978 (February 21 Agreement) between O&G Inc. and T-D which Justin signed on behalf of T-D. (Uncontested Fact P 7; Joint Exhibit 3)
13. The February 21 Agreement was prepared by Justin, acting on behalf of and as a representative of T-D and was presented by Justin to Johnson for O&G Inc.' § approval. It was written in English which was to be the ruling language. (Testimony of Justin; Joint Exhibit 3)
15. Other language in the February 21 Agreement shows that Justin who drafted the agreement believed that T-D was a partnership. For instance, Justin made the decision to include paragraph 2.2.6 which provides "the Agreement shall not be dissolved by the death or demise of the Client (T-D). His rights and obligations shall pass to his successors." Justin knew that such language is appropriate only in the case where the "Client" is a partnership or proprietorship. (Testimony of Justin; Joint Exhibit 3)
16. The initial contractual relationship between T-D and O&G Inc. is contained in the February 21 Agreement. The agreement reveals that T-D had certain engineering consulting contracts with agencies of the Iranian government and was engaging O&G Inc. as a consultant to T-D to supplement T-D's services to the Iranian government for the development of hydroelectric projects. The February 21 Agreement does not condition the payment by T-D of O&G Inc.'s invoices upon T-D's receipt of payments from the Iranian agencies for whom the work was performed. On the contrary, section 2.8 of the February 21 Agreement, entitled "Payments to the Consulting Engineer," provides that O&G Inc. is to be paid within one month after submission of its invoices. Section 2.8.3 provides that if T-D should question or dispute an item or part of an item in an invoice, the remainder of that invoice is to be paid within the one month period. (Joint Exhibit 3)
17. O&G Inc. personnel rendered consulting services to T-D throughout 1978. In early December, 1978, Justin wrote O&G Inc.'s Williams describing the growing civil unrest in Iran and its impact on the work O&G Inc. was performing for T-D. In this connection, Justin stated:
From the practical viewpoint T-D has contracts with the Government and they must continue until they receive orders to do otherwise. T-D is not getting paid, no one is, at present. We have sufficient funds at present for a couple of months. The situation must be reassessed at least weekly. At present foreign exchange is difficult. However, I do not believe at present there is any problem on getting paid for work completed.
(Uncontested Fact P 9, Joint Exhibit 4)
18. On December 29, 1978, Justin wrote to O&G Inc.'s Johnson, reporting on the further deterioration of conditions in Iran. He reported, among other things, that "... business in Iran is at a standstill, banks are not functioning and no foreign exchange is being transferred." Due to such chaotic conditions, Justin directed:
The work of investigation and design of the Taleghan project should be put in the deep freeze. Your staff should prepare a memorandum of the present status of the work with reference to drawings and documents now in hand. All work should be stopped after this is completed until further notice. It will probably be several months before we can completely evaluate the future.
The Dariush Kabir report for Phase II is about 90% completed and the technical specifications for the Civil Contract is 85% completed. It is suggested that these be completed as soon as possible and we will send these to ...