Huffington Post Lawsuit: Breached Joint Venture?

In a boon for Business Org. teachers, we have yet another example of a high-profile lawsuit alleging a breached business "partnership" (joint venture technically).  The latest example involves the Huffington Post's founders Arianna Huffington and Kenneth Lerer who are named as defendants in a lawsuit brought by Peter Daou, a media consultant for the presidential campaigns of John Kerry and Hillary Clinton, and James Boyce, a former Kerry adviser.  Daou and Boyce claim that six years ago they entered into a hand-shake agreement with Huffington and Lerer to form a joint venture internet site to fund raise and promote a democratic agenda utilizing citizen journalists. 

The Complaint (Download Huffington Complaint) alleges that after a series of meetings culminating in December, 2004, the four parties had a detailed business plan that included estimated financial contributions, role of each party, allocation of expenses, and strategy for the website.

A New York State Court Judge ruled from the bench on Tuesday denying Defendants' Motion to Dismiss and letting the case proceed to discovery.  The test to establish a joint venture under New York law is whether the is an agreement manifests "the intent of the parties to be associated as joint venturers, a contribution by the coventurers to the joint undertaking (i.e., a combination of property, financial resources, effort, skill or knowledge), some degree of joint proprietorship and control over the enterprise; and a provision for the sharing of profits and losses." (Kaufman v. Torkan, 51 A.D.3d 977, 979 (2d. 2008).  “The ultimate inquiry is whether the parties have so joined their property, interests, skills and risks that for the purpose of the particular adventure their respective contributions have become as one and the commingled property and interests of the parties have thereby been made subject to each of the associates on the trust and inducement that each would act for their joint benefit." Matter of Steinbeck v. Gerosa, 4 N.Y.2d 302, 317 (1958).  This specific allegations in the complaint, combined with the high standard on motions to dismiss, where the allegations in the complaint are taken as true, allowed this case to proceed to the next stage of litigation.

This is clearly going to be an interesting case to watch, and perhaps another good teaching tool for those of us tasked with convincing students of the important of understanding the rules and consequences of "default" entity forms like partnerships and joint ventures.

Anne Tucker