Wednesday, May 5, 2021
In Bloomfield Investment Resources Corp. v. Daniloff, the parties disagreed about the nature of their transaction. Back in 2011, Bloomfield, an entity controlled by the Reuben brothers, sophisticated investors, believed that it had loaned $25 million to two investment funds owned by Daniloff. Daniloff characterized Bloomfield's payment as an investment. When Daniloff didn't pay, Bloomfield sued for fraud, breach of contract, promissory estoppel, and unjust enrichment. Daniloff counterclaimed for breach of contract, promissory estoppel, fraud, and failure to indemnify.
Daniloff's position was supported by a Memorandum of Understanding (the MOU) that repeatedly made reference to the Reuben brothers "investing" in a Daniloff venture. Litigation began in 2014 in the Netherlands. Litigation in the Southern District began in 2015. What a long, strange trip it's been. Of interest to us here is the court's reasoning in concluding that the MOU is not binding on the parties.
Under New York law, an MOU is binding (Type I) only if the parties agreed on all essential terms, including on intent to be bound. The court applied a four-part analysis:
When deciding whether an agreement is a Type I agreement, Courts consider the following factors: (1) whether there is an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.
In this case, the first three factors all weighed against finding a binding MOU, and the court declined to consider the fourth factor.
Daniloff's promissory estoppel claim failed because he had not sufficiently explained how he was harmed if the transaction were treated as a loan. $25 million is $25 million, in effect. Daniloff's fraud claim was time barred.