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Monday, October 5, 2009

One for the Contracts Profs – With a little Statute of Frauds and a little Varney v. Ditmars

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Back in April 2007, the WSJ Law Blog declared Snyder v. Bronfman “the best tabloid suit” of that year.  The lawsuit may not have lived up to that superlative (didn’t Anna Nicole Smith die that year?), but it certainly should be on the radar of Contracts Profs.  It will be argued before the New York Court of Appeals next week (10/14) – and there is an added bonus, because the Court website now features webcasts of oral arguments.

In the lawsuit, Richard Snyder, the former Chairman and CEO of Simon & Schuster, sues Edgar Bronfman, the CEO of Warner Music Group.  In a nutshell, Snyder claims that, while vacationing in the Carribean, he and Bronfman agreed to work together to “acquire companies using funds principally from sources outside the Bronfman family.”  However, after Snyder assisted in negotiating Bronfman’s 2003 takeover of Warner Group, Snyder alleges that Bronfman failed to compensate Snyder accordingly.  Snyder’s claims sound in (1) breach of joint venture agreement; (2) breach of fiduciary duty; (3) joint venture accounting; (4) unjust enrichment; (5) promissory estoppel; and (6) quantum meruit.  Bronfman moved to dismiss all claims.

Here’s the rub (or part of it at least): after Snyder and Bronfman discussed their business venture (over daquiris?), they did not put their agreement in writing.  Indeed, Snyder alleges that Bronfman said they did not need a writing because they were both “honorable men.”

One issue that has been percolating in the courts is whether Snyder and Bronfman’s deal comes within the statute of frauds, NY GOL 5-701(a)(10).  That provision provides, in pertinent part, that the following agreements must be in writing to be enforceable:

[A]  contract  to  pay  compensation  for  services  rendered  in negotiating  a  loan, or  in  negotiating the purchase, sale, exchange, renting or leasing of any . . .  business  opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a  corporation  and  including  the creating  of  a  partnership interest.  "Negotiating" includes procuring an introduction  to  a  party  to  the transaction  or  assisting  in  the  negotiation  or consummation of the transaction. This provision shall apply to a contract implied in fact or in law to pay reasonable compensation . . . .

Bronfman argues that, because the deal was not in writing, the statute prohibits Snyder from recovering a finder’s fee or other compensation based on services rendered in connection with a corporate acquisition.  Synder argues that this section of the statute does not apply in this case, because Snyder was a joint venturer with Bronfman, not a finder or broker.  The trial court sided with Snyder, and held that Snyder’s allegations, when taken as true, allege that he “functioned as more than just a broker assisting defendant in a limited and transitory manner to find a company the latter could acquire and run.”  Accordingly, the trial court refused to dismiss the complaint based on the statute of frauds.

 The Appellate Division reversed.  The Appellate Division read NY GOL 5-701(a) (1) with a wider lens: 

In relevant part, this enactment renders void any oral agreement “to pay compensation for services in . . .  negotiating the purchase . . . of any . . . business opportunity.”  As is evident, the statute broadly applies to “any” business opportunity. 

Issue two at the Court of Appeals could be: even if Snyder’s claims do not come within the statute of frauds, should the breach of a joint venture agreement, breach of fiduciary duty and a claim for an accounting be dismissed because Snyder alleges an agreement that is too inherently vague to support a joint venture claim and the complaint fails to allege any agreement between the parties as to the sharing of losses?  Relying heavily upon Varney v. Ditmars, the trial court held that the agreement was too vague to create an enforceable contract.  Here’s a taste of its reasoning:

[A]s a matter of basic contract law, "[i]f an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract." Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 74 NY2d 475, 482, (1989), citing Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 NY2d 105, 109 (1981); Restatement [Second] of Contracts §33).

In Varney v. Ditmars (217 NY 223 [1916]), the Court of Appeals affirmed a directed verdict in favor of the defendant where the plaintiff alleged that his employer, in addition to paying him $40 per week to work as an architectural draftsman, promised to pay plaintiff a "fair share" of defendant's profits through the end of the calendar year. Id. at 225-26. The Court ruled that this promise was "vague, indefinite and uncertain and the amount cannot be computed from anything that was said by the parties or by reference to any document, paper or other transaction." Id. at 227.

The contract in question, so far as it relates to a share of the defendant's profits, is not only uncertain but it is necessarily affected by so many other facts that are in themselves indefinite and uncertain that the intention of the parties is pure conjecture. A fair share of the defendant's profits may be any amount from a nominal sum to a material part according to the particular views of the person whose guess is considered. Such an executory contract must rest for performance upon the honor and good faith of the parties making it. The courts cannot aid parties in such a case when they are unable or unwilling to agree upon the terms of their own proposed contract.

It is elementary in the law that, for the validity of a contract, the promise, or the agreement, of the parties to it must be certain and explicit and that their full intention may be ascertained to a reasonable degree of certainty. Their agreement must be neither vague nor indefinite, and, if thus defective, parol proof cannot be resorted to.

* * *

This is not a case involving a missing "price term" where the amount can be determined objectively without input from the parties or by reference to an extrinsic event, commercial practice or trade usage. Nor is this an employment contract that contains an open additional compensation clause, as in Guggennheimer v. Bernstein Litowitz Berger & Grossmann LLP (11 Misc 3d 926 [Sup Ct, NY County 2006]), where sufficient guidelines could exist from past practices by the defendant law firm to allow the court to supply a bonus figure. It is the plaintiff's job to articulate the terms of the joint venture agreement upon which he sues, and if he cannot do so in his own pleading with sufficient definiteness, than the action is ripe for dismissal at this stage. See Freedman v. Pearlman, 271 AD2d 301, supra (breach of contract claim premised on promises of "fair compensation" dismissed, pre-answer, for failure to state a cause of action).

Having dismissed based on the statute of frauds, the Appellate Division did not reach the certainty issue. 

The promissory estoppel claim was likewise dismissed as “too inherently vague.”  The unjust enrichment and quantum meruit claims were also dismissed. 

[Meredith R. Miller]

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