Geoffrey Gelman, Respondent,v.Antonio Buehler, Appellant.

Brief

N.Y.February 7, 2013

Geoffrey Gelman, Pro se Plaintiff-Respondent, to argue for Respondent Time Requested: 12 Minutes New York County Clerk's Index No. 101535/2009 =============================================================== Court of Appeals STATE OF NEW YORK --------------------->><<--------------------- GEOFFREY GELMAN, Plaintiff-Respondent, against ANTONIO BUEHLER, Defendant-Appellant. =============================================================== BRIEF OF PLAINTIFF-RESPONDENT Geoffrey Gelman Pro se Plaintiff-Respondent 14 Berkeley Pl Brooklyn, NY 11217 617-909-2066 gmgelman@gmail.com Paul R. Niehaus Attorney for Defendant-Appellant Antonio Buehler Neihaus LLP 1359 Broadway, Suite 2001 New York, New York 10018 212-631-0223 pniehaus@niehausllp.com August 3, 2012 I. Table Of Contents I. Table Of Contents...................................................................................................1 II. Table Of Authorities..............................................................................................2 III. Preliminary Statement.........................................................................................6 IV. The Instant Partnership Was Not At Will...........................................................11 A. There Is No Applicable Case Law Indicating That The Instant Partnership Was At Will..................................................................................................11 B. The Standard For A “Particular Undertaking” Is That Partnership Objectives Are Capable Of Accomplishment At Some Time.....................14 C. Copious Levels Of Specific Details Are Not Required..............................15 D. The Instant Partnership Definition is “Specific”........................................21 E. Defendant Has Not Shown How He Would Have Been Harmed If The Instant Partnership Was Not At Will ..........................................................22 F. The Value-Added And Funded “Search Phase” Was An Intrinsic Element Of The Partnership......................................................................................23 G. The Instant Partnership Was For A Definite Term ....................................25 V. There Is No Requirement For A Written Partnership Agreement ......................28 VI. Other Applicable Cases.....................................................................................30 VII. Conclusion.......................................................................................................37 1 II. Table Of Authorities 68th Street Apartments, Inc. v. Lauricella, 142 N.J.Super. 546, 362 A.2d 78 (1976), aff'd, 150 N.J.Super. 47, 374 A.2d 1222 (1977) 33 Affidavit in Opposition to Motion to Dismiss Amended Complaint, Plaintiff-Respondent 6, 7, 8, 9, 10, 29, 30 Amended Complaint, Plaintiff-Respondent 6, 7, 8, 9, 10, 14, 20, 24 Bates v. McTammany, 10 Cal. 2d 697, 76 P.2d 513 (Cal. 1938) 33 Beller v. Murphy, 139 Mo. App. 663 [123 S.W. 1029] 34 Brief of Defendant-Appellant in the Present Appeal 6, 7, 19, 23 Community Capital Bank v. Fischer & Yanowitz, 47 AD 3d 667 - NY: Appellate Div., 2nd Dept. 2008 20 CPLR 3016(b) 19 Exhibit to Affidavit in Opposition to Motion to Dismiss Amended Complaint, Plaintiff-Respondent 9, 10 F & K Supply, Inc. v Willowbrook Development Co., 304 AD2d 918, 920 (3rd Dept 2003) 30 Fischer v. Fischer. No. 2003-SC-000982-DG. Supreme 31 2 Court of Kentucky, 197 S.W.3d 98, June 15, 2006 Girard Bank v. Haley, 460 Pa. 237, 244, 332 A.2d 443, 447 (1975) 14 Haines v. City of New York, 41 NY 2d 769 - NY: Court of Appeals 1977 17 Hardin v Robinson, 178 App Div 724, 729 [1916], affd 233 NY 651 [1918]) 14, 17 Harshman v. Pantaleoni, 294 A.D.2d 687, 741 N.Y.S.2d 348 (3d Dep't 2002) 11, 16, 17, 19 Hooker Chems. & Plastics Corp. v International Minerals & Chem. Corp., 90 AD2d 991 [1982] 14, 17, 18, 29 Investment Law Group: http://www.investmentlawgroup.com/structural- distinctions-between-private-equity-funds-and-hedge- funds 22 Klein v. Greenberg, 461 F.Supp. 653, 655 (M.D.N.C. 1978) 35 Matter of Steinbeck v Gerosa, 4 NY2d 302, 317 [1958] 20 Meherin v. Meherin, 93 Cal. App. 2d 459, 464, 20. P.2d 36, 39 (1949) 35 Mendelovitz v. Cohen, 2008 NY Slip Op 51893(U) , New 29 3 York Supreme Court, Kings County September 19, 2008, Demarest, J. Mendelovitz v. Cohen, 2009 NY Slip Op 7600; 66 A.D.3d 849; 886 N.Y.S.2d 608 29 Mendelovitz v Cohen 2010 NY Slip Op 51380(U) [28 Misc 3d 1217(A)] Decided on August 5, 2010 Supreme Court, Kings County Demarest, J. 29 Mervyn Investment Co. v. Biber, 184 Cal. 637, 641-642 [194 P. 1037] 32 Napoli v. Domnitch, 18 A.D.2d 707, 236 N.Y.S.2d 549 (2d Dep't 1962), aff'd without opinion, 14 N.Y.2d 508, 248 N.Y.S.2d 228, 197 N.E. 2d 623 (1964) 18 Owen v. Cohen, 19 Cal.2d 147, 150 [119 P.2d 713] 32 Partnership Law § 62 7, 15, 16, 18, 19, 37 Pemberton v. Ladue Realty & Constr. Co., 237 Mo. App. 971, 982, 180 S.W.2d 766, 771 (1944) 35 Rhue v. Dawson, 173 Ariz. 220, 841 P.2d 215 (App. 1992) 33 RICHBELL INFO. v. Jupiter, 309 AD 2d 288 – NY: Appellate Div., 1st Dept. 2003) 20 Rooney v. Tyson, 697 NE 2d 571 - NY: Court of Appeals 18 4 1998 Sanley Co. v. Louis, 197 A.D.2d 412, 602 N.Y.S.2d 605 (1st Dep't 1993) 12, 13, 17 Scholastic, Inc. v. Harris, 259 F. 3d 73 - Court of Appeals, 2nd Circuit 2001 12 Shandell v Katz, 95 A.D.2d 742, 743, 464 N.Y.S.2d 177 29 Shannon v. Hudson, 161 Cal.App.2d 44, 48 [325 P.2d 1022] 31 St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 202 A.D.2d 844, 844-45, 609 N.Y.S.2d 370 (3d Dep't 1994) 13 U.S. Census Bureau's website, http://www.census.gov/cgi- bin/sssd/naics/naicsrch? code=525990&search=2002%20NAICS%20Search. 22 Vangel v. Vangel, 116 Cal.App.2d 615, 625 [254 P.2d 919] 32 Williams v. Terebinski, 261 N.E.2d 920, 922 (Ohio 1970) 32 Zeibak v. Nasser, 12 Cal. 2d 1, 82 P.2d 375 (Cal. 1938) 34 Zimmerman v. Harding, 227 U.S. 489 (1913) 33 5 III. Preliminary Statement Defendant-Appellant Buehler conceived of the idea for the instant partnership, and spent nearly a month recruiting Plaintiff-Respondent Gelman to join him as an equal partner in a search fund.1 As part of the search fund, the partners would raise investor capital, search for a suitable business to acquire, purchase and operate the business to increase its value, and ultimately sell the business in a “liquidity event” that would allow investors to redeem their capital. The partnership agreement was made in the summer of 2007. Plaintiff quit his job,2 giving up a salary and year-end bonus, and worked for over four months without pay to further the partnership objectives. In the fall of 2007, with the partnership already in full swing, Defendant moved into Plaintiff's apartment, ostensibly so both could work together on the partnership objectives.3 Defendant paid no rent for the duration of his stay. (138, ¶5) By late February, 2008, Plaintiff and Defendant had obtained commitments for $600,000 (133-134, vii) from 1 Defendant “actively sought Plaintiff's cooperation for weeks through conversations and emails.” (79, ¶3) 2 Both Plaintiff and Defendant had been gainfully employed at the time they agreed to the partnership, and both quit their jobs October 12, 2008, in order to begin work on the partnership. (80, ¶6-7; 111, ¶4) 3 Defendant misstates the order of events to suggest that the partnership was a “dorm room business fantasy” conceived while Plaintiff and Defendant were “sharing an apartment” . (Def. App. Br., p9, p3) This is completely untrue. In fact, Defendant alone conceived this venture and moved in with Plaintiff well after they became partners. Specifically, the partnership agreement was sealed on September 16, 2007 (80, ¶5), and Defendant moved into Plaintiff's apartment on or about October 31, 2007. See (138, ¶5). 6 prospective investors. However, on February 25, 2008, Defendant demanded majority ownership of the partnership. (80, ¶11) When Plaintiff refused this unfair demand, Defendant quit. (80-81, ¶11-12) Setting aside Defendant's clearly self-serving motivations for quitting, Defendant now argues that he felt “ensnared” in a “vague” endeavor, and should therefore not be bound to honor his partnership agreement with the Plaintiff. Defendant's main argument is two-fold. First, he incorrectly states that N.Y. Partnership Law §62(1)(b), requires that a partnership for a “particular undertaking” provide a litany of specific details about how the partnership will accomplish its objectives. Second, ignoring the many details provided in Plaintiff's Amended Complaint (79-85) and papers (104-142), and further ignoring the highly specialized nature of a “search fund”, Defendant argues that the stated partnership objectives contain “zero specifics” (Def. App. Br., p9) and are merely a “dorm room business fantasy”. However, more consistent with New York law is a definition of a particular undertaking as any undertaking that is capable of accomplishment at some time. In other words, “particular” means “having a discernible conclusion”, and is the opposite of “perpetual”. A long list of details therefore has nothing to do with defining a particular undertaking. 7 The First Department was correct in finding that the instant partnership was not at will, and the Defendant's abandonment was therefore in contravention of the partnership agreement (ii-ix). As noted by the First Department, the term of the instant partnership would conclude with “one discernible [liquidity] event to give a return to a limited number of investors.” (iv, ¶2) Furthermore, the “partnership had the specific undertaking of acquiring a business and expanding it until the investors would receive a return on their capital investments.” (iii, ¶2). The fact that there is a single concluding event, and the entire aim of the partnership is directed towards achieving this event indicates that the partnership was not intended to be perpetual in nature, but rather to conclude upon the achievement of a well-defined goal. Even assuming, for the sake of argument, that “specifics” are required, a number of specifics are evident from Plaintiff's Amended Complaint (79-85) and from Plaintiff's papers (104-142). Among these “specifics”, the partners agreed to an undertaking with four distinctly defined phases, agreed to raise $600,000 to fund the initial search for a business to acquire, agreed to solicit funds from alumni of the partners' respective alma maters, agreed that the initial money raised would pay the partners' salaries and travel expenses, agreed that the search for a business would be scheduled to last two years, agreed that they would purchase a single 8 business as opposed to many, agreed that they would step in and operate the business as active rather than passive managers, agreed that they would attempt to sell the business within seven years of its purchase, agreed to split equally all profits, losses, and expenses, and agreed that the ultimate goal of the partnership was a liquidity event in which investors could receive a return of their capital investment (79-80, ¶5). Additionally a “search fund” is a highly specialized endeavor, more specialized even than the most granular entry used in the popular North American Industry Classification System (NAICS), as discussed below. Finally, all the facts and circumstances surrounding the formation and operation of the instant partnership show that it was a well-considered venture. The instant partnership arose when two educated individuals, after lengthy and careful consideration, both agreed to quit their jobs to embark on the instant search fund. In doing so, they followed in the footsteps of dozens of others who had similarly started search funds over the prior 20 years, and whose methods, successes, and failures had been documented in academic studies from Stanford Business School (126-127, 143).4 In the initial months of operations, the partners were successful in obtaining commitments from sophisticated investors for 4 A 2005 Stanford study had documented a 39% historical internal rate of return (IRR) achieved by 49 search funds (143). 9 $600,000 in investments. (133-134, vii) Where a number of knowledgeable individuals commit considerable time and money to a venture, the reasonable inference is that the venture is a legitimate venture, and not a “dorm room business fantasy” as Defendant now calls it. It would be inappropriate at this juncture for the Court to second-guess the decisions and actions of so many individuals, and to simply dismiss the instant venture for “lack of specifics”. The Dissenting Opinion of the First Department (vii-ix) apparently misunderstands the significance of the “search phase” of the instant partnership. The “search phase” of the partnership was not merely an opportunity for the partners to “discuss[] various business plans and scenarios” (viii, ¶3). Rather, the search for a business was intended to be a paid, value-added service, during which the partners would draw upon the $600,000 raised, and would receive salaries and a budget to pay search expenses (79, ¶5). The search phase was designed to maximize returns to investors by allocating sufficient time and money to search for a business with high growth potential.5 The Dissent was therefore incorrect in its implication that the parties had simply undergone discussions, but had not yet started their actual venture (viii, ¶3). The search was part of the venture, and is in fact a defining characteristic of “search funds” as compared to other types of 5 Search criteria listed in the partnership brochure include finding a business with: “$5 - $50 million in revenue; Operating Margins > 15%; Stable cash flows; Growing or fragmented industry; Easily understandable business...” (143) 10 investment funds. IV. The Instant Partnership Was Not At Will The Defendant argues that the instant partnership was at will. He relies on a non-binding case and on a case that actually supports Plaintiff's position. Defendant further ignores actual binding precedent, and discards the long accepted notion of a “particular undertaking”. Clearly, Defendant's arguments are no reason to find the instant partnership to be at will. A. There Is No Applicable Case Law Indicating That The Instant Partnership Was At Will Harshman6 actually supports a finding in favor of Plaintiff that the partnership at bar is for a particular undertaking. Harshman states that the partnership there in question has no time limitation only because the termination of the partnership by sale of the real property in question “is not among the purposes of the partnership and will not achieve any of its stated objectives.” Thus, the circumstances in Harshman stand in marked contrast to those of the present case, where achieving a liquidity event is the stated purpose of the partnership and does achieve its stated objective. By drawing the distinction between circumstances where a terminating event is or is not among partnership objectives, Harshman actually supports a finding in favor of Plaintiff, since the terminating "liquidity 6 Harshman v. Pantaleoni, 294 A.D.2d 687, 741 N.Y.S.2d 348 (3d Dep't 2002) 11 event" was the stated objective of the partnership at bar. Sanley7 states that “partnerships formed for the purposes of acquiring, managing and reselling residential real estate had no definitive term and were therefore at-will”. However Sanley is not analogous because "residential real estate" is not singular in quantity the way "one business" is, and therefore Sanley does not necessarily conclude with the sale of one parcel of real estate. A partnership formed to buy manage, and resell “real estate” is engaged in an ongoing or perpetual trade, whereas a partnership whose purpose is to sell a single parcel of real estate has a definite conclusion when that one parcel is sold.8 In reaching its decision, the First Department noted this very distinction, emphasizing that the instant partnership would sell only a single business, not multiple businesses. “...the partnership did not seek to achieve an indefinite number of "liquidity events," but rather to achieve the one discernable event to give a return to a limited number of investors” (iv, ¶2). This significance of the the non-singular “real estate” in Sanley is also highlighted in Scholastic, Inc. v. Harris, 259 F. 3d 73 - Court of Appeals, 2nd Circuit 2001. There, the court draws a contrast between the Sanley partnership 7 Sanley Co. v. Louis, 197 A.D.2d 412, 602 N.Y.S.2d 605 (1st Dep't 1993) 8 Defendant notes that the partnership at issue in Sanley owned just a single property at the time, but this is still consistent with an objective permitting the purchase of multiple items of real estate. For example, this property may have been the first of many. 12 pertaining to “real estate”, and the partnership in St. Lawrence9 that pertains to a single “parcel of land” and is therefore for a particular undertaking: Compare St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 202 A.D.2d 844, 844-45, 609 N.Y.S.2d 370 (3d Dep't 1994) (partnership to develop factory outlet on parcel of land is for particular undertaking), with Sanley Co. v. Louis, 197 A.D.2d 412, 413, 602 N.Y.S.2d 605 (1st Dep't 1993) (partnership to acquire, manage and resell residential real estate is terminable at will). Additionally, unlike the instant partnership, it is not clear in Sanley if "reselling" was the overriding objective, or whether managing the the residential real estate indefinitely would also be a permissible alternative objective. In any case, what Sanley does say about the pertinent question of "at will" partnerships is merely tangential to the Sanley case, and was not disputed or argued by either side. In fact, the central issue of Sanley was whether or not a receiver should be appointed for the property of the partnerships in question. On the other hand, the determination in St. Lawrence that the subject partnership was for a particular undertaking was central to the court's decision. With its minimal treatment of the present issue, Sanley should not form the basis for all of New York partnership law. 9 St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 202 A.D.2d 844, 844-45, 609 N.Y.S.2d 370 (3d Dep't 1994) 13 B. The Standard For A “Particular Undertaking” Is That Partnership Objectives Are Capable Of Accomplishment At Some Time The most reasonable and consistent interpretation of a “particular undertaking” is that it should describe a partnership that “has for its object the completion of a specified piece of work, or the effecting of a specified result” Hooker Chems. & Plastics Corp. v International Mins. & Chem. Corp., 90 AD2d 991, 991 [1982], quoting Hardin v Robinson, 178 App Div 724, 729 [1916], affd 233 NY 651 [1918]). The mere “effecting of a specified result” in no way requires any details about how the result is to be accomplished. A respected case from another jurisdiction says a particular undertaking “must be capable of accomplishment at some time, although the exact time may be unknown and unascertainable at the date of the agreement.” (Girard Bank v. Haley, 460 Pa. 237, 244, 332 A.2d 443, 447 (1975). ). All of the objectives described in the Amended Complaint (79-85) are capable of accomplishment at some time. Additionally, all are particular, unambiguous, well-specified results. At no point can there be any doubt as to whether or not any these results have been accomplished. For example, there can be no doubt as to whether the partners have raised $600,000.00. There can be no doubt as to whether or not the partners have purchased a business. Either they have or they have not. There can be no doubt as to whether or not an investor has 14 invested money in exchange for an ownership stake, and then been given the opportunity to convert his ownership stake back into cash. Consequently, there can be no doubt as to the definite time when the partnership has accomplished all of its objectives. Thus, the partnership at bar was for a particular objective. C. Copious Levels Of Specific Details Are Not Required The Defendant has suggested various reasons why a “particular undertaking” requires that partnership objectives recite numerous specific details. However, these arguments do not make sense, and are contracted by case law. At the outset, it makes little sense that a partnership for a “definite term” need include little or no “specifics”, while a partnership for a “particular undertaking” is required to have a long list of “specifics”. Partnership Law §62(1) (a) describes that a partnership can be [dissolved] “without violation of the agreement between the the partners, by the termination of the definite term or particular undertaking specified in the agreement.” Since the statute refers in one breath to partnerships for a “definite term” and for a “particular undertaking”, it makes no sense that these two categories of partnership should be interpreted so radically differently. A far more reasonable interpretation is that §62(1)(a) is simply seeking to encompass all manner of triggers and circumstances through which a partnership 15 would dissolve. These triggers would include time-based triggers (e.g., partnership lasts 10 years), event-based triggers (e.g., partnership lasts until the first snowfall of the year), or goal-based triggers (e.g., partnership lasts until a partnership asset is sold). Thus, it would not make sense to examine partnership goals for a sufficient recitation of “specifics”. Rather, the intent of §62(1)(a) and §62(1)(b) is simply to ascertain whether a partnership has placed any time limitation on its existence, regardless of how or why the time of termination is reached. Put another way, a “particular undertaking” refers to a partnership with an ascertainable conclusion, and is not concerned with the details of what happens during a partnership. In fact, Harshman only uses time-centric descriptors, such as “perpetual”, “place no time limitation” and “forever”, as reasons why the partnership at issue was not a particular undertaking. Stated objectives in Harshman, such as the “operating”, “improving”, and “farming” of land would presumably be “vague” under Defendant's interpretation, yet the Harshman Court made no reference to the objectives' vagueness. Defendant's own arguments support this interpretation of a “particular undertaking”. Namely, Defendant argues that Harshman and Sanley each refer to specific circumstances, yet even these partnerships are still not considered 16 particular undertakings. This is only underscores the fact that Defendant is misinterpreting the meaning of “particular undertaking”. The reason Harshman and Sanley are not particular undertakings is because the partnership objectives are perpetual in nature. The question does not turn on specific details, but rather on whether or not there is a discernible conclusion necessitated by the partnership objectives. In determining the duration of a partnership, or indeed any contract, New York law has always sought to be flexible and to give maximum leeway to the partners' intentions. In keeping with this policy, the decision of the First Department has properly cited Haines for the proposition that, “In the absence of an express term fixing the duration of a contract, the courts may inquire into the intent of the parties and supply the missing term if a duration may be fairly and reasonably fixed by the circumstances and the parties' intent”.10 Moreover, in Hooker Chems11, a long-standing Partnership case, Haines has been cited for the same proposition. In fact, as indicated in Hardin-Robinson12, and quoted in 10 Haines v. City of New York, 41 NY 2d 769 - NY: Court of Appeals 1977 11 Hooker Chems. & Plastics Corp. v. Int'l Minerals & Chem. Corp., 90 AD 2d 991 - NY: Appellate Div., 4th Dept. 1982 12 Hooker Chems quoting Hardin v. Robinson, 178 App. Div. 724 – 1916: If a partnership is not limited as to time and "there is nothing to show the intention of parties as to its duration," it is a partnership at will (Hardin v Robinson, supra, at p 728). "But where a partnership has for its object the completion of a specified piece of work, or the effecting of a specified result, it will be presumed that the parties intended the relation to continue until the object has been accomplished" (Hardin v Robinson, supra, at p 729). 17 Hooker Chems, virtually anything showing an intention of the the parties as to a partnership's duration is sufficient to define a particular undertaking. In Napoli v. Domnitch,13 although finding the subject partnership at-will for factual reasons, the court indicated a particular undertaking may exist even if there is merely a “particular event” that will terminate the partnership: The partnership agreement did not specify any definite term for the duration of the partnership; and, in view of the date on which it was actually signed, it did not specify any particular event that was to terminate the partnership (see Partnership Law, § 62). The flexibility of New York law is further evident in Rooney v. Tyson,14 where this Court found that “an oral contract between a fight trainer and a professional boxer to train the boxer 'for as long as the boxer fights professionally' is a contract for a definite duration.” In doing so, this court noted: “New York's jurisprudence is supple and realistic, and surely not so rigid as to require that a definite duration can be found only in a determinable calendar date. Thus, although the exact end-date of Tyson's professional boxing career was not precisely calculable, the boundaries of beginning and end of the employment period are sufficiently ascertainable...Though the times are not precisely predictable and calculable to dates certain, they are legally and experientially limited and ascertainable by objective benchmarks. That is what makes this case distinctive within the myriad of arrangements people may undertake.” Accordingly, it was wholly proper for the the First Department to find that the 13 Napoli v. Domnitch, 18 A.D.2d 707, 236 N.Y.S.2d 549 (2d Dep't 1962), aff'd without opinion, 14 N.Y.2d 508, 248 N.Y.S.2d 228, 197 N.E. 2d 623 (1964) 14 Rooney v. Tyson, 697 NE 2d 571 - NY: Court of Appeals 1998 18 definite term of the instant partnership was bounded by the “liquidity event”, which is clearly “ascertainable by objective benchmarks”. Given the flexibility of New York's law, Defendant says that “it is difficult to see how any oral partnership would remain at will”. (Def. App. Br., p19) However, this fear is completely unfounded. Any partnership of a perpetual nature, such as those performing an ongoing activity, trade, business, or profession, would remain a partnership at will. Indeed, many of the activities described in Harshman, including lumbering, farming and leasing, etc., are activities that are “perpetual in nature”. Absent any other certain limitation as to a partnership's duration, such partnerships would remain “at will”. Defendant has previously argued that even objectives that are not perpetual in nature could still bind partners together “forever” because the partners might be slow in achieving the objectives. But this is true of any particular undertaking, detailed or not. To disallow undertakings where partners might be slow in achieving their objectives is to throw out the entire concept of a particular undertaking. Defendant also argues that since the word “particular” is present in both Partnership law §62(1)(b), and CPLR 3016(b),15 somehow a description of a particular undertaking must conform to these pleading standards. However, the 15 CPLR 3016(b): Particularity in specific actions 19 wordings in the the statute and the CPLR appear to have entirely different origins, and therefore there is no reason to require one to conform to the other. Secondly, while the aforementioned pleading standards do apply to certain causes of action (e.g., libel), breach of a partnership agreement is not among them. Further, Plaintiff has properly pleaded the essential elements of a partnership agreement, describing how Plaintiff and Defendant would share equally in “all income, expenses, and authority”, how Plaintiff and Defendant would both work full time, and how Plaintiff and Defendant would receive cash upon achievement of the liquidity event (80, ¶5). “An indispensable essential of a contract of partnership or joint venture, both under common law and statutory law, is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses” Community Capital Bank v. Fischer & Yanowitz, 47 AD 3d 667 - NY: Appellate Div., 2nd Dept. 2008, quoting Matter of Steinbeck v Gerosa, 4 NY2d 302, 317 [1958]). A preliminary partnership or joint venture agreement may be binding even if partners subsequently intend to hammer out additional details (RICHBELL INFO. v. Jupiter, 309 AD 2d 288 - NY: Appellate Div., 1st Dept. 2003). Defendant argues that the supposed lack of details in the partnership objectives show that he never manifested any intention to be bound by them. 20 However, not only do the objectives delineate a clear termination event, they also show an obligation of stewardship of investor money. Given that the Defendant agreed to raise large sums of money from third-party investors, and in fact did spend several months fund raising, Defendant could not expect to simply walk away. To do so would abdicate his duty as a caretaker of investor funds, and would leave investors in a potentially difficult position trying to recover their money. D. The Instant Partnership Definition is “Specific” Though Defendant's standard for defining a particular undertaking is highly problematic and unsupported, let us assume for the sake of argument that a particular undertaking must be “specific”. The Defendant has still not made any convincing arguments as to why the instant objectives were vague. He lists details that were purportedly not stated, while ignoring the many details that actually were stated (e.g., the intermediate objective to raise $600,000, the use of money, the solicitation of investments from alumni of partners' respective schools, and the specific ordering of the objectives). It is a rather absurd notion that objectives are judged by what they do not state, rather than what they do. A more unbiased way to gauge the “specificity” of a partnership definition would be to see how the partnership would be classified by the US Census using the North American Industry Classification System (NAICS). Of nearly 1200 21 available codes used in the year 2007, a search fund falls under just the single code “525990”. Going even more granular, of nearly 20,000 available index entries, a “search fund” falls within the single index entry “Investment funds, closed end”.16 Yet even this narrow index entry is too broad, encompassing such things as venture capital funds, private equity funds, real estate funds, etc.17 Of the aforementioned funds, a “search fund” is a very specialized subset of private equity funds.18 So, employing a widespread and reasonably objective classification system for business ventures, a “search fund” is “specific” to a granularity of more than 1 in 20,000. As is apparent, Defendant's standards for what constitutes a “particular undertaking” is highly problematic and very difficult to define. Yet an objective system of classifying business ventures still shows that the instant partnership is quite specifically defined, and therefore constitutes particular undertaking. E. Defendant Has Not Shown How He Would Have Been Harmed If The Instant Partnership Was Not At Will Defendant's main rationale for finding the instant partnership at-will is 16 See the North American Industry Classification System, at the U.S. Census Bureau's website, e.g., http://www.census.gov/cgi-bin/sssd/naics/naicsrch? code=525990&search=2002%20NAICS%20Search. 17 See, for example, http://www.investmentlawgroup.com/structural-distinctions-between- private-equity-funds-and-hedge-funds. 18 For example, it is not commonplace for a general private equity fund to invest in only a single business, nor for the managers of the private equity fund to take over management of the acquired business, both of which happen in a search fund. 22 seemingly his belief that the partners would never agree on whether its “amorphous goal had been achieved” (Def. App. Br., p17). In turn, he believes the partnership objectives are “amorphous” mainly because the instant partnership had not identified a business to acquire at the outset. However, the partnership objectives clearly provide that the business to acquire would be identified during the two-year search phase. If the partners did not successfully identify a business within two years, then the partnership would terminate and the partnership would thus have the character of a partnership with a “definite term” of two years. On the other hand, if the partnership did find a business to acquire, then a “specific” business would be identified, and all of Defendant's objections would be rendered moot. Thus, there is no situation in which Defendant would find himself drifting for some “indefinite” period without clear objectives. Either he is engaged in a clearly demarcated two-year search for a business, or he is operating and attempting to sell a specific business that has been identified as a result of the search. F. The Value-Added And Funded “Search Phase” Was An Intrinsic Element Of The Partnership The Dissent from the First Department apparently believed the partners had 23 not yet settled on a “business plan” or “scenario”, and that the stated search phase of the partnership was just some kind of exploratory or brainstorming exercise. This, however, is contradicted by Plaintiff's statement of the partnership objectives. The partnership objectives clearly contemplated that a “search” process was to be explicitly funded by investors, and there was to be a set budget of $600,000 for the search process. The $600,000 was "budgeted to last approximately two years". Additionally, from the $600,000, the partners were to receive set salaries during the search process (79, ¶5). In other words, the partners were to be paid for the value- added process of finding a favorable investment opportunity for investors, much as mutual-fund managers are paid to find good stock picks for investors in their funds.19 The distinguishing “search” phase of a “search fund” is not so dissimilar from other types of services that may be provided by a partnership. A head- hunting firm may search for a professional to fill a vacant job position. An interior decorating firm may search for ideal furnishings to place in a building. A medical lab may search for the cause of an unidentified illness. A mineral exploration company may search for an appropriate place to mine. Evidently, these and many other services could be objectives for a partnership for a particular undertaking. There is no reason to treat a search for a business any differently, since a search for 19 Of course, in the instant case, the partners were searching for only a single business to buy. 24 a business is also a value-added service with the potential to bolster returns to investors. Indeed, if this Court were to find that partnerships involving any type of searching, research, or discovery are automatically “at will”, then there would be widespread repercussions in our service-based economy. People would be reluctant to pool their efforts in pursuit of risky endeavors fearing their partners might jump ship at any time. G. The Instant Partnership Was For A Definite Term The case at bar places a maximum term of 9 years following the brief initial fund raising period. This encompasses up to a 2-year search for a business to acquire, followed by up to 7 years to operate and then sell the business. However, New York law also permits that a definite term can be delimited by a concluding event rather than by a precise calendar date. So the First Department was also correct to find that the definite term in the instant partnership was delimited by the achievement of the “liquidity event”. Further, in a real-world partnership, it is perfectly reasonable that there might be more than one event or calendar date that will conclude the partnership. In other words, a partnership might conclude upon the soonest to occur of two different events. So long as at least one of the concluding dates or events is bound 25 to occur, then the partnership would not be at will. It also follows that since a partnership may conclude under multiple different scenarios, the actual calendar duration of the partnership may vary. But this does not obviate the existence of a definite term. It just means, for example, that one limitation to the partnership's existence was reached before another. In the instant partnership, certainly the time of the liquidity event may occur well before 9 years, but this does not change the fact that the 9-year limitation still exists. Since a certain concluding event may also be the objective of a particular undertaking, Defendant has argued that the courts have blurred the distinction between a “definite term” and a “particular undertaking”. Perhaps the distinction lies in the degree of control that the partnership exercises over bringing about the concluding event. But in reality, this only begs the question of why make the distinction at all? In all cases, the simple inquiry is to determine the partners' intention as to when the partnership will conclude. If the partners have intended for the partnership to continue until some point in time, or until some event, then that intention should be honored. Only if the partners have neither expressed nor implied any intention about the partnership's duration should the partnership be deemed at will. Defendant would argue that even where the partners have expressed an 26 intention as to the partnership's duration, the partnership would still be at will if the concluding point could not be clearly established. For example, a partnership that will last until “the release of the next blockbuster movie” is at will because reasonable people could disagree on what is a blockbuster movie. In Defendant's parlance, the word “blockbuster” is “vague” and “amorphous”. Therefore, Defendant's basis for distinguishing a “definite term” from a “particular undertaking” is that there can be no confusion when a partnership concludes at a precise date and time, whereas there is potential confusion where a concluding event is “vaguely” defined. This is all very well, except now Defendant makes a huge logical leap. He says that even if the concluding event is precisely defined, the partnership is still “at will” if the manner of reaching the concluding event is not precisely defined. There is simply no rational basis for this jump. In the instant case, the “liquidity event” is precisely defined as a point where investors have the ability to recover their invested capital. Thus, there can be no confusion as to when the partnership has concluded. If the intent of the statute is to honor partners' intentions as to the partnership duration, then the instant partnership would not be at will, since the concluding event is precisely ascertainable. 27 Realizing that this is indeed a huge logical leap, Defendant argues that there must be two completely independent and unrelated methods of determining whether a partnership is at will. One method would seek a precise time of duration, but would be wholly unconcerned with details. The other would seek details, but would be little concerned with time of duration. But this simply defies rationale, credibility and all precedent. Defendant's one attempt at a unifying argument is that by supplying either a time of duration or a number of details (but not necessarily both), the partners are somehow manifesting an intention to actually enter into the partnership. This makes little sense, and furthermore, there are many other ways of gauging partners' intentions. Certainly, in the instant case, the partners did agree to many items and details, did engage in extensive discussions and planning, and did actually perform the work of the partnership for several months, not to mention hold themselves out as partners. There is no need for Defendant's artificial mechanisms to determine whether the partners actually manifested intention to enter into the partnership. V. There Is No Requirement For A Written Partnership Agreement Many of Defendant's arguments depend on linking “oral partnerships” with partnerships at will, but these purported links are simply non-existent. Oral 28 partnerships are presumed at will only in the absence of a definite term20 and in the absence of a particular undertaking.21 However, the same is also true for partnerships with written agreements, and the existence of a definite term or a particular undertaking is the question now before the Court. Obviously, it would be circular reasoning to presume the absence of a definite term or particular undertaking, and then use this presumption to prove that a partnership is at will and therefore has no definite term or particular undertaking. Defendant's emphasis on the purported need to have the objectives in writing is also unfounded. Oral contracts are well recognized, as are oral partnerships, as are oral partnerships that are not at will.22 Plaintiff has already met the requirements of the Statute of Frauds by producing a suitable signed written memorandum (108-109), and detailing extensive partial performance by the 20 Shandell v Katz,95 A.D.2d 742, 743, 464 N.Y.S.2d 177 – A law practice, where “partnership agreements were both oral and written and specified no definite time for the partnership duration,” was found to be at will. 21 Mendelovitz v. Cohen, 2008 NY Slip Op 51893(U) , New York Supreme Court, Kings County September 19, 2008, Demarest, J. : For an oral joint venture agreement, the court held, “where the object of the joint venture agreement contemplates the completion of a specified result or piece of work, a breach which occurs prior to the completion of this goal is actionable notwithstanding the absence of a definite term fixing the duration of the agreement (Rutecki, 289 AD2d at 1067; Hooker Chems. & Plastics Corp. v International Minerals & Chem. Corp., 90 AD2d 991 [1982]).” affirmed by Mendelovitz v. Cohen, 2009 NY Slip Op 7600; 66 A.D.3d 849; 886 N.Y.S.2d 608 - Affirmed that the joint venture based on an oral agreement is not necessarily terminable at will. Note, the trial court later found for the Defendants on other grounds, namely that facts failed to establish that a binding contract had ever been formed. Mendelovitz v Cohen 2010 NY Slip Op 51380(U) [28 Misc 3d 1217(A)] Decided on August 5, 2010 Supreme Court, Kings County Demarest, J. 22 Mendelovitz v. Cohen, 2009 NY Slip Op 7600; 66 A.D.3d 849; 886 N.Y.S.2d 608. A joint venture based on an oral agreement is not necessarily terminable at will. 29 partners (111-112), among other things. Otherwise, the Defendant has shown no legal rationale for why partnership objectives should be in writing. An oral agreement may be more difficult to prove at trial,23 but this is no reason for dismissal at this juncture. VI. Other Applicable Cases Numerous cases, both in state and out of state, have parallels to the present case, and clearly show the instant partnership to be a partnership for a particular undertaking. While it is true that New York is not obligated to follow decisions from other states, the partnership statutes in New York and other states do share a common ancestry24 and wording. As such, the extensive reasoning provided by other states on these very subjects bears at least passing consideration. In these cases are described various particular undertakings that are to last until projects have been completed, until obligations (including financial obligations) have been met, until leases have expired, and/or until predefined sales have been accomplished. It will be apparent that the partnership at bar is analogous to many of the particular undertakings described below. For example, the instant partnership had as its ultimate objective the sale of a single business. 23 “A party claiming the existence of an oral partnership bears the burden of proving the indica of such a relationship.” F & K Supply, Inc. v Willowbrook Development Co., 304 AD2d 918, 920 (3rd Dept 2003). 24 The Uniform Partnership Act has been adopted by virtually every jurisdiction. 30 Aside from indicating a “specified piece of work” in its own right, this objective is in keeping with the financial obligation to provide investors with a return of their investments in what would be a privately-held and generally illiquid business - an obligation, in other words, to provide investors with a “liquidity event”. A partnership agreement intending to use a parcel of land to be “bought, leased variously, and eventually sold...supports the view that the partnership was for a particular undertaking; because it could be accomplished at some point in the future”. Fischer v. Fischer. No. 2003-SC-000982-DG. Supreme Court of Kentucky, 197 S.W.3d 98, June 15, 2006. A joint venture whose purpose was “the acquisition of real property . . . and the building, furnishing and equipping and the operation of a twelve-unit motel until [***7] a sale of said motel could be effected at a profit" was found to be “not terminable at the will of any one of the parties.” Shannon v. Hudson, 161 Cal.App.2d 44, 48 [325 P.2d 1022]. Where parties “entered into an oral agreement whereby they contracted to become partners in the operation of a bowling-alley business”, which agreement further stipulated “that all obligations incurred by the partnership, including the money advanced by plaintiff, were to be paid out of the profits of the business”, it was found that “the parties intended the relation should continue until the 31 obligations were liquidated in the manner mutually contemplated”, and thus that the partnership was not at will. Owen v. Cohen, 19 Cal.2d 147, 150 [119 P.2d 713]. Where a partnership involved business relations that were to continue “until the debts were paid from the profits”, “it [was] presumed that the parties intended the relation should continue until the object had been accomplished.” Mervyn Investment Co. v. Biber, 184 Cal. 637, 641-642 [194 P. 1037] Where a partnership agreement provided that money advanced by one partner was to be repaid "'only out of funds accumulated from the operation of the ranch or a sale' thereof”, the partnership was found not to be at will. Vangel v. Vangel, 116 Cal.App.2d 615, 625 [254 P.2d 919]. A partnership whose purposes included “first, to purchase the two cemeteries in issue, and second, to sell the cemetery lots or plots contained therein to the public at a profit” was ruled a partnership “for a particular purpose, and not terminable at the will of the parties”. This despite the fact that the “the business of the partnership involved also the employment of salesmen of the cemetery lots, the payment of commissions for their services in effecting sales, and financial arrangements and the execution thereof for the improvement and maintenance of the cemeteries.” Williams v. Terebinski, 261 N.E.2d 920, 922 (Ohio 1970). A partnership whose purpose was “to acquire and develop shopping center 32 property”, and which included an agreement to “to purchase, renovate, and sell a shopping center” was found to be “a partnership other than one at will.” Rhue v. Dawson, 173 Ariz. 220, 841 P.2d 215 (App. 1992). Where “the nature of the project was such that substantial investments of money, time and energy would be required from which no return would be forthcoming unless and until the building was completed”, it was found that “the only commonsense view is [ ] that the principals intended their relationship not to be one from which either could withdraw at will before completion of the project, but one rather to which each committed himself until the building was completed.” (68th Street Apartments, Inc. v. Lauricella, 142 N.J.Super. 546, 362 A.2d 78 (1976), aff'd, 150 N.J.Super. 47, 374 A.2d 1222 (1977)) Zimmerman v. Harding, 227 U.S. 489 (1913) pertained to a partnership in Porto Rico to lease and operate a hotel. “The agreement of partnership was never reduced to writing, and there was no express stipuation as to its duration.” Nevertheless, the court found that “although there was no express stipulation as to the duration of the partnership agreement, it was by implication to continue during the term of the lease of the hotel property.” In Bates v. McTammany, 10 Cal. 2d 697, 76 P.2d 513 (Cal. 1938), the court found that a partnership was for a “definite undertaking” where the “"partnership 33 was formed for the purpose of building, constructing, operating and maintaining radio station KTRB so long as the license therefor could be obtained from the federal government", and that the station was operating on a license that must be renewed every six months.” The court had noted that “to order a dissolution at the time would destroy a large part of the value of the business due to the fact that a federal license to operate the radio station was under the control of the federal communications commission and could not be sold at a dissolution sale.” The court in Zeibak v. Nasser, 12 Cal. 2d 1, 82 P.2d 375 (Cal. 1938), in a case pertaining to a partnership to operate a theater, noted that the partnership was of a particular undertaking by virtue of the presence of the term defined by the lease: “Here there was a definite, and "particular undertaking", voluntarily assumed by each of the partners, and as hereinabove stated, the term of the venture, at least impliedly, was of similar duration as the term of the leases under which the theatres were operated.” The court went on to state that “where a joint venture or partnership has leased property for the purpose of carrying on a particular business and no fixed period is set for the duration of the partnership, it will be deemed, by implication, to continue during the term of such lease.” The court further noted, “Also, in the case of Beller v. Murphy, 139 Mo. App. 663 [123 S.W. 1029], wherein certain persons had agreed as partners to 34 conduct a mining business on land leased by them, and the question later arose as to whether it was a partnership for a fixed period or merely a general partnership with no time fixed for its duration, the court said, "The purpose of this partnership was to conduct a mining business upon the land leased, and the partners must have understood that the business was to continue during the life of the lease, and this made it a partnership contract for a definite period, towit, ten years."” In Meherin v. Meherin, 93 Cal. App. 2d 459, 464, 20. P.2d 36, 39 (1949), the court found a partnership was not at will by virtue of a term implied by an insurance broker's license which did not expire until a particular date, by virtue of a lease which did not expire until a particular date, and by virtue of a term implied by insurance policies of from one to five years requiring members of the [partnership] to perform continuous services during the term of such policies. In Pemberton v. Ladue Realty & Constr. Co., 237 Mo. App. 971, 982, 180 S.W.2d 766, 771 (1944), where Partners agreed to develop land and sell off lots, the court ruled, “Although there was no express stipulation as to the duration of the partnership agreement, it was by implication to continue until all the lots in the subdivision were sold.” In Klein v. Greenberg, 461 F.Supp. 653, 655 (M.D.N.C. 1978), where partners had an agreement to publish and sell [a] book, the court stated that the the 35 partnership “appears to be a partnership for a specific undertaking and thus would not be terminable at will under the Uniform Partnership Act.” * * * 36 VII. Conclusion The First Department was correct in its decision that the instant partnership was for a particular undertaking and for a definite term. The partners intended to acquire a business, and intended that the partnership would continue until they could sell the business and thereby generate a liquidity event to return investor capital. At its heart, Partnership Law §62(1) seeks to determine partners' intent as to duration. This fundamentally time-based inquiry has little to do with “specifics” and “details”. In the instant case, regardless of which business the partners chose, the partnership would still conclude at an objectively ascertainable time, namely at the time of the sale of the business. Defendant has advanced no convincing rationale for his interpretation of a “particular undertaking”. Why is a “vague” partnership lasting for a definite term not terminable at will, while a similar partnership lasting until the achievement of a goal is terminable at will? Nor can the Defendant point to a scenario where he would be bound “indefinitely” in a “vague” or “amorphous” endeavor. Either the instant partnership ends after two years of a failed search, or the partners do acquire a “specific” business which can ultimately be sold. Even if this Court finds that “specifics” are required, the instant partnership 37 is still a particular undertaking. This is evident from the recitation of numerous details in the Partnership agreement, the highly specialized nature of a “search fund”, and the commitment of $600,000 by a number of sophisticated investors. Finally, the process of “searching” for the right business is a paid, value- added service, and “search funds” are a recognized form of business, as detailed in academic studies from prestigious schools. It is therefore improper to deem the instant partnership “half-baked” or “ill-conceived” just because an acquisition target was not specified at the outset. To do so would wholly disregard the fundamental nature of a search fund, and disregard the good judgment of the partners and investors who were intimately acquainted with the venture. WHEREFORE, as such, Plaintiff-Respondent respectfully requests that the Decision of the First Department be upheld. Dated: August 3, 2012 Brooklyn, New York ____________________________ Geoffrey Gelman 14 Berkeley Pl Brooklyn, NY 11217 Plaintiff-Respondent 38