Work Other than Negotiating Business Opportunity Not Barred by Statute of Frauds

On September 22, 2016, the First Department issued a decision in Dorfman v. Reffkin, 2016 NY Slip Op. 06116, holding that work relating to a business opportunity, other than work associated with negotiating that opportunity, is not covered by the statute of frauds, explaining:

The statute of frauds is codified in General Obligations Law § 5-701. Under the statute of frauds, to be enforceable, certain types of agreements cannot be oral; they must be in writing. Simply stated, the purpose of the statute is to prevent perjury and fraud and to preserve the integrity of contracts.

This appeal concerns a lesser-known provision of the statute of frauds, that is, General Obligations Law 5-701(a)(10), which requires a writing in an agreement pertaining to the negotiation of services for the purchase of real estate or of a business opportunity. Specifically, it provides, in pertinent part:

a. Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking:

. . .

10. Is a contract to pay compensation for services rendered in . . . negotiating the purchase . . . of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein . . . .

The same paragraph further states that negotiating' includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction.

The tension around this section concerns the scope of services within the meaning of negotiating a business opportunity. In this appeal, defendants argue that because the motion court dismissed plaintiff Dorfman's implied contract claim, as barred by the statute of frauds, the court was required to dismiss plaintiff's quasi contract (quantum meruit and unjust enrichment) claims as well. Defendants' argument, however, is based on the false premise that the quasi contract claims and the implied contract claim overlap as all seeking compensation for the work Dorfman performed in creating Urban Compass, which would be barred as assisting in the negotiation or consummation of the business opportunity.

. . .

To be sure, General Obligations Law § 5-701(a)(10)'s sweep is comprehensive as it covers conduct at the outset, during the course of, and at the conclusion of the services rendered for the purpose of assisting in the negotiation or consummation of a business opportunity, as illustrated by the Court of Appeals' pronouncement in Snyder v Bronfman. In Snyder, the Court of Appeals held that General Obligations Law 5—701(a)(10) applied where the plaintiff alleged that he devoted years of work to finding a business to acquire and causing an acquisition to take place — efforts that ultimately led to defendant's acquisition of his interest in Warner Music. Specifically, the plaintiff in Snyder alleged that he developed a series of business relationships with key figures in the corporate and investment banking communities, met with defendant and defendant's other business associates to discuss possible acquisitions, worked on several aborted deals, and was a major contributor to the defendant's eventual successful acquisition of Warner Music. The plaintiff identified the opportunity, persuaded the defendant of its merits, helped to get debt financing, and obtained financial information from the target company Warner Music. The Court of Appeals held that in seeking reasonable compensation for these services, plaintiff obviously seeks to be compensated for finding and negotiating the Warner Music transaction, and that such a claim is of precisely the kind the statute of frauds describes . . .

. . .

In the present case, the amended complaint contains allegations that, if accepted by the trier of fact, demonstrate that plaintiff's role consisted of more than functioning as an intermediary that assisted in the negotiation or consummation of the business opportunity. Rather, Dorfman allegedly rendered a wide variety of services, which presumably took place after the company came to fruition, making these services related to a purpose other than assisting in the negotiation or consummation of a business opportunity, so as to escape the strictures of General Obligations Law 5-701(a)(10).

To be clear, we simply hold that Dorfman's unjust enrichment and quantum meruit claims were properly sustained, but only insofar as they involved services that went beyond the negotiation or consummation of a business opportunity pursuant to General Obligations Law 5-701(a)(10). The motion court, however, sustained those claims based on all the alleged services provided. As defendants correctly indicate, the amended complaint also avers that Dorfman was negotiating a business opportunity for defendants by providing know—how in bringing a business enterprise to fruition. Those alleged services clearly fall under the statute of frauds and should have been dismissed.

(Internal quotations and citations omitted) (emphasis added).