One for the Contracts Profs – With a little Statute of Frauds and a little Varney v. Ditmars
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’tAnna Nicole Smith die that year?), but it certainly should be on the radar ofContracts Profs. It will beargued before the New York Court of Appeals next week (10/14) – and there is an added bonus, because the Courtwebsite now features webcasts of oral arguments.
In the lawsuit, Richard Snyder, the former Chairman and CEOof Simon & Schuster, sues Edgar Bronfman, the CEO of Warner MusicGroup. In a nutshell, Snyderclaims that, while vacationing in the Carribean, he and Bronfman agreed to worktogether to “acquire companies using funds principally from sources outside theBronfman family.” However, afterSnyder assisted in negotiating Bronfman’s 2003 takeover of Warner Group, Snyderalleges that Bronfman failed to compensate Snyder accordingly. Snyder’s claims sound in (1) breach ofjoint venture agreement; (2) breach of fiduciary duty; (3) joint ventureaccounting; (4) unjust enrichment; (5) promissory estoppel; and (6) quantummeruit. Bronfman moved to dismissall claims.
Here’s the rub (or part of it at least): after Snyder andBronfman discussed their business venture (over daquiris?), they did not puttheir agreement in writing. Indeed,Snyder alleges that Bronfman said they did not need a writing because they wereboth “honorable men.”
One issue that has been percolating in the courts is whetherSnyder and Bronfman’s deal comes within the statute of frauds, NY GOL5-701(a)(10). That provisionprovides, in pertinent part, that the following agreements must be in writingto 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, includinga majority of the voting stock interest in a corporation and including the creating of a partnership interest. “Negotiating” includesprocuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction. This provision shallapply to a contract implied in fact or in law to pay reasonable compensation .. . .
Bronfman argues that, because the deal was not in writing, thestatute prohibits Snyder from recovering a finder’s fee or other compensationbased on services rendered in connection with a corporate acquisition. Synder argues that this section of thestatute does not apply in this case, because Snyder was a joint venturer withBronfman, not a finder or broker. Thetrial court sided with Snyder, and held that Snyder’s allegations, when takenas true, allege that he “functioned as more than just a broker assistingdefendant in a limited and transitory manner to find a company the latter couldacquire and run.” Accordingly, thetrial 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 widerlens:
In relevant part, this enactmentrenders void any oral agreement “to pay compensation for services in . . . negotiating the purchase . . . of any .. . business opportunity.” As isevident, the statute broadly applies to “any” business opportunity.
Issue two at the Court of Appeals could be: even if Snyder’sclaims do not come within the statute of frauds, should the breach of a jointventure agreement, breach of fiduciary duty and a claim for an accounting bedismissed because Snyder alleges an agreement that is too inherently vague tosupport a joint venture claim and the complaint fails to allege any agreementbetween the parties as to the sharing of losses? Relying heavily upon Varney v. Ditmars, the trial court heldthat the agreement was too vague to create an enforceable contract. Here’s a taste of its reasoning:
[A]s a matter of basic contractlaw, “[i]f an agreement is not reasonably certain in its material terms,there can be no legally enforceable contract.” Cobble HillNursing Home, Inc. v. Henry & Warren Corp., 74 NY2d 475, 482, (1989),citing JosephMartin, Jr., Delicatessen, Inc. v. Schumacher, 52 NY2d 105, 109 (1981)
In Varney v.Ditmars (217 NY 223 [1916]), the Court of Appeals affirmed adirected verdict in favor of the defendant where the plaintiff alleged that hisemployer, in addition to paying him $40 per week to work as an architecturaldraftsman, promised to pay plaintiff a “fair share” of defendant’sprofits through the end of the calendar year. Id. at 225-26.The Court ruled that this promise was “vague, indefinite and uncertain andthe amount cannot be computed from anything that was said by the parties or byreference to any document, paper or other transaction.” Id. at 227.
The contract in question, so far asit relates to a share of the defendant’s profits, is not only uncertain but itis necessarily affected by so many other facts that are in themselvesindefinite 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 toa 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 goodfaith of the parties making it. The courts cannot aid parties in such a casewhen they are unable or unwilling to agree upon the terms of their own proposedcontract.
It is elementary in the law that,for the validity of a contract, the promise, or the agreement, of the partiesto it must be certain and explicit and that their full intention may beascertained to a reasonable degree of certainty. Their agreement must be neithervague nor indefinite, and, if thus defective, parol proof cannot be resortedto.
* * *
This is not a case involving amissing “price term” where the amount can be determined objectivelywithout input from the parties or by reference to an extrinsic event,commercial practice or trade usage. Nor is this an employment contract thatcontains an open additional compensation clause, as in Guggennheimerv. Bernstein Litowitz Berger & Grossmann LLP (11 Misc 3d 926 [Sup Ct, NYCounty 2006]), where sufficient guidelines could exist from pastpractices by the defendant law firm to allow the court to supply a bonusfigure. It is the plaintiff’s job to articulate the terms of the joint ventureagreement upon which he sues, and if he cannot do so in his own pleading withsufficient definiteness, than the action is ripe for dismissal at this stage.See Freedman v.Pearlman, 271 AD2d 301, supra (breach of contract claim premised onpromises of “fair compensation” dismissed, pre-answer, for failure tostate a cause of action).
Having dismissed based on the statute of frauds, the Appellate Division did not reach the certaintyissue.
The promissory estoppel claim was likewise dismissed as “tooinherently vague.” The unjustenrichment and quantum meruit claims were also dismissed.
[Meredith R. Miller]