Opinion
105454/07.
Decided April 24, 2008.
DLA Piper US LLP, New York, NY, (Robert Gold, Joseph G. Finnerty III), for Plaintiff.
Gibson, Dunn Crutcher LLP, New York, NY, (Orin Snyder, Joshua Wilkenfeld), for Defendant.
Defendant Edgar M. Bronfman, Jr. moves, pursuant to CPLR 3211(a)(5), to dismiss the complaint of Richard E. Snyder on the grounds that the alleged oral agreement between the parties that forms the basis of this lawsuit is barred by the Statute of Frauds. Additionally, defendant moves for dismissal pursuant to CPLR 3211(a)(7), maintaining that each of the plaintiff's claims are legally insufficient.
Defendant also sought a stay of disclosure pursuant to CPLR 3214 pending the resolution of his motion to dismiss. At argument of the motion held on November 9, 2007, this portion of the motion was granted subject to counsel communicating to their clients that all documents, records, and materials related to this action are to be preserved. Tr., at 61.
Plaintiff Richard E. Snyder is the former Chairman and CEO of Simon Schuster. Defendant Edgar M. Bronfman, Jr. is presently the Chairman and CEO of Warner Music Group ("Warner Music"). Before becoming the top executive at Warner Music, defendant served as the CEO of The Seagram Company, and then as the Executive Vice Chairman of Vivendi Universal and on its board of directors.
Plaintiff alleges that, in December of 2001, the two men met while vacationing in the Carribean. Defendant told plaintiff of his confidential plan to resign from his positions at Vivendi Universal, and "launch a new business venture that would acquire companies using funds principally from sources outside the Bronfman family." First Amended Complaint ("FAC"), ¶ 28. "Bronfman Jr. further stated that he was looking for the right partner to work with him in this new undertaking and asked if Snyder would be interested in joining him in this endeavor." Id. Defendant allegedly persuaded plaintiff "to work together with him in an enterprise they could control and operate as a platform' for significant expansion through strategic acquisitions and financial investments, preferably in the media industry." Id., ¶ 2. Defendant allegedly told plaintiff that he wanted him to function as defendant's "experienced right hand," "sounding board," "loyal ally," "principal advisor," and, most importantly, his "consigliere." Id., ¶ 33.
The parties' alleged joint venture is described as follows:
Bronfman Jr. and Snyder agreed that each would pay their own expenses and draw no salary, except that Bronfman Jr., having already leased new office space on the fourth floor of the Lever House, would bear most of the office costs. Bronfman Jr. also promised Snyder that, since he was planning to raise investment capital from sources principally outside the Bronfman family, Snyder would not have to put up his own funds in order to share in the proceeds on any consummated transaction. Bronfman Jr. guaranteed that, on any consummated deal, Snyder would receive a share of the value created that would be "fair and equitable." With that statement, Bronfman Jr. and Snyder shook hands, their agreement was consummated, and their joint venture began (the "Joint Venture").
FAC, ¶ 34. No written contract was ever entered into because defendant allegedly told plaintiff that since they were both "honorable men," they would not need to put their agreement in writing. Id.
Plaintiff alleges that he then spent the better part of the next two years working with defendant to find a media target company for acquisition. He was given an office in space leased by a company called Lexa Partners, where defendant also maintained an office, and defendant arranged to have plaintiff's personal computer connected to the Lexa Partners website. FAC, ¶ 54. The name Lexa Partners was "of no particular significance" to plaintiff, and he "understood that these offices would serve as the base of operations for the Joint Venture." Id., ¶ 54.
By March 2004 and after some failed attempts involving Columbia House Company and the media assets of Vivendi Universal, the collective efforts of the parties culminated in the $2.6 billion acquisition of Warner Music by a consortium of private investors which included Thomas H. Lee Partners, Bain Capital, Providence Equity and Music Capital Partners L.P., the latter being a Cayman Islands company controlled by defendant. FAC, ¶¶ 3, 101. The FAC alleges that plaintiff personally invested $1.3 million in the deal through defendant's company. Defendant became Warner Music's top executive. Id., ¶ 83. The New York Times ran a front-page article on November 24, 2003 entitled "Bronfman Jr. Starts Comeback with Music Deal." Id., ¶ 83 and Exh. F thereto. Plaintiff claims that he did the interview with the paper at defendant's request. In the article, plaintiff is described as "a Bronfman friend and advisor." Id.
The FAC alleges that plaintiff "conceived the entire transaction, set the process in motion, and deserved to be fairly compensated on that basis." FAC, ¶ 115. Plaintiff claims further to have helped secure the equity financing from Thomas Lee Partners; helped secure the debt financing; helped to obtain financials on the company; and participated, at defendant's request, in planning for cost-cutting at Warner Music after the acquisition. Id., ¶¶ 70-77, 100. Plaintiff admits, however, that he did not play any role in either conducting due diligence or the closing of the acquisition. Id., ¶ 115.
However, in April of 2004, shortly after the deal closed, defendant told plaintiff that there was no room for him at Warner Music, and then defendant reneged on his alleged promise to pay plaintiff a "fair and equitable" share of the value created by the Warner Music deal. FAC, ¶¶ 112-113.
This action was commenced on April 23, 2007. Plaintiff sues for over $100 million in damages based on the following six theories of recovery: (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.
Defendant moves to dismiss all of these claims pursuant to CPLR 3211(a)(5), contending that section 5-701(a)(10) of the General Obligations Law ("G.O.L.") prohibits a plaintiff from recovering a finder's fee or other compensation based on services rendered in connection with a corporate acquisition in the absence of a written agreement. Plaintiff argues that this section of the statute of frauds does not apply in this case, because the FAC alleges that he was a joint venturer with defendant, and did not act merely as a finder or business broker. Plaintiff argues that the type of oral agreement which is unenforceable under G.O.L. § 5-701(a)(10) is where the services are limited and transitory, and that an oral joint venture agreement is free of the writing requirement of this statute.
G.O.L. § 5-701(a)(10) provides, in pertinent part, that the following oral agreements are void:
a contract to pay compensation for services rendered in negotiating . . . the purchase, sale, exchange, renting or leasing of . . . a 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. . . .
In Freedman v Chemical Constr. Corp. ( 43 NY2d 260), an oral agreement under which the plaintiff was to negotiate a construction contract on the defendant's behalf in exchange for a fee was held to be unenforceable under this section of the Statute of Frauds. Id. at 267. The Court of Appeals explained that section 5-701(a)(10) "applies to various kinds of intermediaries who perform limited services in the consummation of certain kinds of commercial transactions." Id. at 266. In Freedman, the court found that the agreement by which the plaintiff "was to use his connections', his ability', and his knowledge' to arrange for [the defendant] to meet appropriate persons'" so that the defendant could procure a construction contract fell within the Statute of Frauds. Id. at 267. The Court explained that where the "intermediary's activity is so evidently that of providing know-how' or know-who', in bringing about between principals an enterprise of some complexity or an acquisition of a significant interest in an enterprise," the statute of frauds applies. Id.
However, where the plaintiff's function transcends the limited role of serving as an intermediary, the statute of frauds does not apply. Thus, for example, in Lazard Freres Co. v First National Bank of Maryland ( 238 AD2d 273, 274 [1st Dept 1997]), an oral agreement to pay a residual broker's commission in connection with the leasing of a commercial aircraft for a term of years was held by the First Department not to be governed by G.O.L. § 5-701(a)(10), because the services contemplated were "clearly not limited and transitory,'" citing Freedman v Chemical Constr. Corp. ( 43 NY2d 260, supra). Likewise, in Super v Abdelazim ( 108 AD2d 1040 [3d Dept 1985]), the plaintiff alleged that he and the defendant had entered into an oral agreement whereby the plaintiff was to perform all necessary services to find a suitable location and then to act as construction manager in converting a former school building into a medical office complex in exchange for a percentage of the cost of the building. After he was discharged, the plaintiff sued the defendant for money which he claimed the defendant owed him. In denying summary judgment for the defendant on the ground that the statute of frauds barred the plaintiff's claim, the Court found that the plaintiff's allegations, if believed, established that he was to render a "wide variety of services" and that his function was not limited to "merely negotiating a business opportunity"; therefore, his claim was "broad enough" to survive the limitations of G.O.L. § 5-701(a)(10). Id. at 1041-42; see also Riley v N.F.S. Services, 891 F Supp 972, 977 (SD NY 1995).
Other courts have ruled, in similar fashion, that G.O.L. § 5-701(a)(10) does not apply to an oral joint venture agreement, which involves two or more individuals pooling their respective efforts to create and/or operate a business venture as opposed to one person assisting or facilitating another to do so. Richman v Federated Adjustment Co., 95 AD2d 850, 851 (2d Dept 1983); see also F.S. Intertrade Office Products, Inc. v Babina, 199 AD2d 95, 96 (1st Dept 1993) (upholding trial court's decision that the oral agreement did not violate G.O.L. § 5-701[a][10] because it "was more closely akin to that of a joint venture', to which the Statute of Frauds is inapplicable"). Baytree Assocs., Inc. v Forster ( 240 AD2d 305, 306 [1st Dept 1997]), does not, as defense counsel maintains, hold that G.O.L. § 5-701(a)(10) applies to joint ventures. To the contrary, the First Department dismissed the complaint on the ground that the alleged oral agreement in that case was "nothing more than a finder's agreement, void under the Statute of Frauds at General Obligations Law § 5-701(a)(1)." In doing so, the court rejected the plaintiff's attempt to show that the oral agreement had created a partnership or joint venture, thus falling outside the statute of frauds, because certain key terms — such as the sharing of profits and losses, joint control and management of the company, and contribution of capital — were not established on summary judgment.
Accepting all of the allegations of the FAC as true and according plaintiff every possible favorable inference, the FAC alleges that plaintiff acted as more than just an intermediary or finder, and was given a broad role on behalf of the alleged joint venture. It is alleged that defendant persuaded plaintiff to "work together with him in an enterprise they could control and operate as a platform' for significant expansion through strategic acquisitions and financial investments, preferably in the media industry (emphasis added)." FAC, ¶ 2. Plaintiff alleges that he worked for the better part of two years working with defendant, in shared offices, to find a media target for acquisition. He alleges that he spent considerable efforts trying to orchestrate a deal for the joint venture to acquire Columbia House Company ("Columbia House"), and that he got so far as putting together a deal "in principle" between himself, defendant and The Blackstone Group, a very successful private equity firm, in which the joint venture would put up $25 million in cash for 20% of stock of Columbia House. Significantly, plaintiff alleges that part of the deal involved both plaintiff and defendant getting a seat on the board of directors of Columbia House. Id., ¶¶ 41, 44. With respect to the Warner Music transaction, the FAC alleges that shortly before the deal closed, plaintiff participated, at defendant's behest, in a conference call that focused on cutting costs at Warner Music, and that, after the closing, defendant e-mailed plaintiff certain corporate tracking reports that were only sent to senior executives at Warner Music. Id., ¶ 104 and Exhs. N-Q thereto. The FAC also alleges that even after a deal with Warner Music was agreed to in principle in September of 2003, plaintiff continued to work for the joint venture to arrange a merger between Warner Music and EMI, another major record company. Id., ¶¶ 85-97. These allegations, when taken as true, allege that plaintiff 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, dismissal of the complaint based on the statute of frauds is denied at this juncture, although the facts may develop through discovery showing that plaintiff did indeed function only as a finder or business broker.
Even if plaintiff's claims do not fall within the ambit of the statute of frauds, defendant contends that dismissal of the first, second and third causes of action alleging breach of a joint venture agreement, breach of fiduciary duty and a claim for an accounting is warranted, because plaintiff alleges an agreement that is too inherently vague to support a joint venture claim and the FAC fails to allege any agreement between the parties as to the sharing of losses.
A "definite agreement with respect to the sharing of profits and losses is an indispensable element of any joint venture agreement, oral or written." Schnur v Marin, 285 AD2d 639, 640 (2d Dept 2001); see also Samuel v Bastress, 267 NY 279, 283 (1935) (joint venture claims require that the parties agree "to a definite agreement as to their respective interests").
Indeed, as 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), 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.
Id. at 228 (citations omitted). Likewise, in Freedman v Pearlman ( 271 AD2d 301 [1st Dept 2000]), alleged promises to provide the plaintiff with "fair compensation" and to "equitably" divide certain fees was held too indefinite to be enforced.
The FAC alleges an indistinct, imprecise, and open-ended arrangement whereby plaintiff was to be paid a purely discretionary fee for his services. Like the agreements in Varney and Freedman, determining what is a "fair and equitable" share of an amount of money is pure conjecture. But the joint venture agreement alleged herein is even more indefinite and uncertain than the alleged agreement in Varney, which was based on the profits of an established business as of a particular date in time. Here, plaintiff claims he was promised a "fair and equitable" share of some undefined "value created" by any "consummated deal" at some unknown point in time. In paragraphs 116 and 117 of the FAC, plaintiff offers various theories as to the amount of financial benefits defendant personally realized from the Warner Music transaction through dividends, increases in stock prices, "termination fees," salary and bonuses starting from March 1, 2004 through the filing of the lawsuit in May 2007, but fails to allege whether this takes into account any profits plaintiff may have made from his own $1.3 million investment through defendant's Cayman Islands company. Absent some agreement between the parties as to how and when the value of any deal was to be determined, the alleged contract in question is affected by too many facts that are in themselves indefinite and uncertain such that the intention of the parties is pure conjecture.
Plaintiff argues that this case cannot be dismissed at the pleading stage, and that claims of indefiniteness as to compensation terms can only be resolved on summary judgment or at trial. He further relies on Cobble Hill Nursing Home, Inc. v Henry Warren Corp. ( 74 NY2d 475, supra), in which the Court of Appeals held that an agreement does not necessarily fail for indefiniteness even though it does not include a specific dollar amount in its payment terms or contains no computational formula, leaving any calculation to the future.
Cobble Hill Nursing Home, supra, is completely distinguishable. The agreement in that case was a tenant's option to purchase a nursing home at a price to be determined by the Department of Health, and the option was held to be valid, because the parties' intent that the price be fixed by a third party itself was an objective standard by which the price could be determined. Id. at 483. The Court of Appeals explained, that "a price term may be sufficiently definite if the amount can be determined objectively without the need for new expressions by the parties; a method for reducing uncertainty to certainty might, for example, be found within the agreement or ascertained by reference to an extrinsic event, commercial practice or trade usage." Id. at 483.
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).
The fifth cause of action, which is premised on the theory of promissory estoppel, is likewise legally deficient, because plaintiff alleges a promise that it too inherently vague to support a promissory estoppel claim. Knight Securities, L.P. v Fiduciary Trust Co. , 5 AD3d 172 , 174 (1st Dept 2004) (promise must be sufficiently "clear and unambiguous" for promissory estoppel claim); see also Gurreri v Associates Ins. Co., 248 AD3d 356, 357 (2d Dept 1998); James v Western New York Computing Systems, 273 AD2d 853 (4th Dept 2000).
Accordingly, defendant's motion is granted to the extent of dismissing the first, second, third and fifth causes of action, as they are all premised on the existence of an oral joint venture agreement that is too vague and indefinite to be enforced.
Plaintiff's fourth and sixth causes of action sound in unjust enrichment and quantum meruit. To state a cause of action for unjust enrichment, plaintiff must allege that he conferred a benefit upon defendant, and that it is against equity and good conscience to permit defendant to retain that benefit without adequate compensation to plaintiff. Citibank, N.A. v Walker , 12 AD3d 480 , 481 (2d Dept 2004); Nakamura v Fujii, 253 AD2d 387, 390 (1st Dept 1998). In order to make out a claim in quantum meruit, plaintiff "must establish (1) the performance of the services in good faith; (2) the acceptance of the services by the person to whom they are rendered; (3) an expectation of compensation therefor; and (4) the reasonable value of the services." Moors v Hall, 143 AD2d 336, 227-38 (2d Dept 1988).
In Varney v Ditmars ( 217 NY 223, supra), the plaintiff was not prevented from a recovery in quantum meruit for the performance he actually rendered, and the Court ruled that the law will presume a promise to pay reasonable value. Id. at 231. However, in that case, the plaintiff was unable to prove that the work he actually performed was worth more than the $40 per week he was paid. In this case, the FAC alleges that plaintiff was induced by defendant to perform, and did perform, valuable services for defendant from January 2002 to April 2004, that defendant willingly accepted those services, that plaintiff expected to be compensated for his services, and that plaintiff's services reaped a large financial recovery for defendant such that in equity and good conscience he should be ordered to make restitution to plaintiff. Whether plaintiff can establish some reasonable value for any services actually rendered must await discovery. As such, he adequately states a cause of action sounding both in quantum meruit and unjust enrichment.
For the foregoing reasons, it is hereby
ORDERED that defendant's motion to dismiss the complaint is granted to the extent of dismissing the first, second, third and fifth causes of action in the First Amended Complaint; and it is further
ORDERED that defendant shall serve and file an answer to the remaining two causes of action in the First Amended Complaint within 20 days of service of a copy of this order with notice of entry; and it is further
ORDERED that counsel for the parties shall appear in Part 60, Rm. 248 at 60 Centre Street for a preliminary conference on June 3, 2008 at 12:00 noon.