| Gelman v Buehler |
| 2012 NY Slip Op 00020 [91 AD3d 425] |
| Jnury 3, 2012 |
| Appellate Division, First Department |
| Geoffrey Gelman, Appellant, v Antonio Buehler,Respondent. |
—[*1] Niehaus LLP, New York (Paul R. Niehaus of counsel), for respondent.
Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 17, 2010,which granted defendant's motion to dismiss the amended complaint, modified, on the law, to theextent of reinstating the breach of contract cause of action, and otherwise affirmed, without costs.
In September 2007, the parties formed Cardinal and Crimson Capital, LLC for the purpose ofengaging in a "search fund," whereby the partners would solicit investment capital of $600,000from investors, use that capital to search and acquire a business with growth potential, expand it,and create a "liquidity event," such as selling it for a profit, thereby allowing the investors toreceive a return on their investments.
Although plaintiff was employed in the investment banking field, earning a six-figure salary,he quit his job to pursue the business venture. Defendant moved into plaintiff's apartment, livingrent-free, while they looked for investors. In February 2008, prior to receiving any investmentmoney, defendant withdrew from the partnership.
Defendant could not unilaterally dissolve the partnership since the partnership had thespecific undertaking of acquiring a business and expanding it until the investors would receive areturn on their capital investments. Moreover, the partnership also had a definite term, namely, toachieve the liquidity event. " '[W]here a partnership has for its object the completion of aspecified piece of work, or the effecting of a specified result, it will be presumed that the partiesintended the relation to continue until the object has been accomplished' " (Hooker Chems. &Plastics Corp. v International Mins. & Chem. Corp., 90 AD2d 991, 991 [1982], quotingHardin v Robinson, 178 App Div 724, 729 [1916], affd 233 NY 651 [1918]). Here, asale or other liquidity event was the ultimate goal of the partnership, and until that time a partnercould not unilaterally terminate the partnership.
Thus, it does not matter that the partnership was to operate between four to seven years toachieve the liquidity event, and it was error for the lower court to dismiss the breach of contractclaim this early in the action. As the Court of Appeals has held, "In the absence of an expressterm fixing the duration of a contract, the courts may inquire into the intent of the parties andsupply the missing term if a duration may be fairly and reasonably fixed by the surroundingcircumstances and the parties' intent" (Haines v City of New York, 41 NY2d 769, 772[1977]; see also [*2]Scholastic, Inc. v Harris, 259 F3d 73,85 [2001] ["Whether a partnership is terminable at will is a question of fact, and the jury shoulddetermine what the parties intended if the agreement does not fix an express duration"]).
Here, neither party expressly held out that the partnership was to be one terminable at will.Nor was the venture to be perpetual in nature. That is, the partnership did not seek to achieve anindefinite number of "liquidity events," but rather to achieve the one discernable event to give areturn to a limited number of investors (see Better Living Now, Inc. v Image Too, Inc., 67 AD3d 940, 941[2009] ["Unless a contract expressly provides for perpetual performance, the 'law will not implythat a contract calling for continuing performance is perpetual in duration' "], quoting Hainesat 772). In such a situation, and at this early juncture in the action, plaintiff's breach ofcontract claim should not have been dismissed.
Nor is the oral agreement between plaintiff and defendant barred by the statute of frauds.General Obligations Law § 5-701 (a) (1) provides that "a. Every agreement. . . is void, unless it or some note or memorandum thereof be in writing, andsubscribed by the party to be charged therewith, . . . if such agreement,. . . 1. By its terms is not to be performed within one year from the making thereof."In deciding if an oral agreement falls within the statute of frauds, it matters not that it wasunlikely or improbable that the contract could be performed within a year; rather, "[t]he criticaltest . . . is whether 'by its terms' the agreement is not to be performed within a year"(Freedman v Chemical Constr. Corp., 43 NY2d 260, 265 [1977]; see also Foster v Kovner, 44 AD3d23, 26 [2007] [stating that the statute of frauds "encompasses only those agreements which,by their terms, have absolutely no possibility in fact and law of full performance within one year"and that "(i)t matters not that completion of performance within one year may be unlikely orimprobable" (internal quotation marks omitted)]). Here, although the estimated time to achieve aliquidity event was to be four to seven years, it cannot be said that there was absolutely nopossibility that performance could not be completed within one year, and since "neither party hascontended that the alleged agreement contained any provision which directly or indirectlyregulated the time for performance, the agreement is not within the bar of [the statute of frauds]"(Freedman, 43 NY2d at 265).
In any event, where, as here, there is partial performance of the partnership agreement, thestatute of frauds is inapplicable (see H.P.P. Ice Rink v New York Islanders, 251 AD2d249 [1998]). The partial performance here included naming the LLC after the respective schoolcolors of plaintiff and defendant, plaintiff and defendant moving in together and listing theirresidential address as their business address, creating joint business cards, creating marketingmaterial, and sending numerous e-mails to and attending meetings with potential investors.Concur—Saxe, Moskowitz and Acosta, JJ.
Tom, J.P., and Catterson, J., dissent in a memorandum by Catterson, J., as follows: In myopinion, because the plaintiff does not allege that the parties' oral partnership agreement had adefinite term, it was an at-will partnership that the defendant had the right to terminate at anytime. Therefore, I must respectfully dissent.
This action arises from a purported oral partnership agreement between the plaintiff and thedefendant that was formed for the purpose of engaging in a business venture called a "searchfund." The plaintiff alleges that the parties would solicit investment capital from investors, andthen use the money to locate a business with growth potential, acquire the business, expand it,and create a "liquidity event," such as selling it for a profit, when the investors would receivetheir returns on their investments. The plaintiff further alleges that upon finding a target business,he and the defendant agreed to purchase it and "operate the business until the liquidity eventcould be achieved, or, if the liquidity event could not be achieved earlier, they would operate thebusiness for a period of approximately 4 to 7 years." If a profitable liquidity event could not beachieved, then they would "sell the business," and if it could not be sold, they would attempt to"create some other liquidity event, such as an initial public offering." In February 2008, afterhaving found potential investors, but before receiving any investment money, the defendantwithdrew from the partnership.
On August 11, 2009, the plaintiff filed an amended complaint asserting causes of action forbreach of an oral partnership agreement and tortious interference with business relationships, andseeking $700,000 in damages. The defendant moved to dismiss the complaint pursuant to CPLR3211 (a) (7), and the motion court granted the motion on March 16, 2010. For the reasons, setforth below, I would affirm the motion court and dismiss the complaint.
I disagree with the majority that the oral partnership agreement was for a definite term orparticular undertaking. As the motion court noted, correctly in my opinion, the parties discussedvarious plans and business scenarios. Citing to Sanley Co. v Louis (197 AD2d 412 [1stDept 1993]), the motion court found that the plaintiff failed to allege sufficient facts to supporthis contention that the partnership was for a definite term or a particular objective. InSanley, this Court found that a partnership formed "for the purposes of acquiring,managing and reselling residential real estate," with "[n]o term of duration . . . setby the partners" was a partnership at will. (197 AD2d at 413; see e.g. Harshman vPantaleoni, 294 AD2d 687 [3d Dept 2002] [where agreement provided that partnershipwould continue until certain real property was sold, partnership had no definite term and wastherefore at will].)
Similarly, in this case, a partnership formed for the purpose of acquiring, improving andreselling a business with no specified term of duration is a partnership at will. Absent a "definite[*3]term," the purported partnership was at will and the defendantcould dissolve it at any time. (See Partnership Law § 62 [1] [b]; Shandell vKatz, 95 AD2d 742, 743 [1983].)