Statute of Frauds Does Not Preclude Claim Regarding Contract Signed By One Party But Not The Other

In a Decision and Order, dated November 21, 2023, in Bissell Street I, LLC v. Westbrook Partners, LLC, Index No. 654223/2022, Justice Joel M. Cohen denied, in part, defendants’ motion to dismiss in a dispute that concerned, inter alia, the validity and enforceability of certain agreements that were signed by one party but not the other. As to the statute of frauds, the Court explained:

As an initial matter, Defendants contend that the partially executed IMA is void under GOL §§ 5-701(a)(l), which provides that an agreement, promise or undertaking must be in writing signed by the party to be bound if (i) "by its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime" (GOL § 5 701(a)(l)). Defendants argue that "[u]nder the terms of the IMA, the contract continues for more than a year unless EGBW38R Holdings, LLC terminates it for cause" (NYSCEF 3 § 5.1). This argument is unavailing.

"The critical test ... is whether 'by its terms' the agreement is not to be performed within a year. Since neither party has contended that the alleged agreement contained any provision which directly or indirectly regulated the time for performance, the agreement is not within the bar of subdivision 1" (Freedman v Chem. Const. Corp., 43 NY2d 260,265 [1977]). Whether the agreement can be terminated within one year without breach is not the relevant question (D & N Boening, Inc. v Kirsch Beverages, Inc., 63 NY2d 449,456 [1984]; Cohen v Trump Org. LLC, 2019 NY Slip Op 32565[U], *13-14 [Sup Ct, NY County 2019]). There is nothing in the IMA that precludes it from being performed within one year. Accordingly, Defendant has not established that the purported agreement embodied in the partially executed IMA is void as a matter of law under GOL § 5 701(a)(l).

Next, Defendants argues that Plaintiffs claims seeking a $300,000 acquisition fee either under the AMA[] or via unjust enrichment-as compensation for their "time and effort to identify the opportunity for the Boeing Campus Property and perform the necessary work to effectuate the acquisition," is barred by GOL § 5-701(a)(10). That provision requires that a contract, whether in fact or law, be in writing and signed by the party against whom enforcement is sought if that contract is to pay: "compensation for services rendered ... in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity .... " (GOL § 5-701(a)(10)). "'Negotiating' includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction." (id.). "This provision has been held to apply to finder's fee agreements" (Rogoff v San Juan Racing Ass'n, Inc., 77 AD2d 831, 832 [1st Dept 1980], affd,. 54 NY2d 883 [1981]).

Defendant has not demonstrated conclusively that the acquisition fee contained in the partially executed AMA is barred by GOL § 5-701(a)(10). The Court of Appeals has "warned against the "pitfalls" of interpreting General Obligations Law 5-701(a)(10) too broadly" (Dorfman v Rejjkin, 144 AD3d 10, 17 [1st Dept 2016], citing Sporn v Suffolk Mktg., Inc., 56 NY2d 864 [1982]). "The reason for this concern is that '[t]oo broad an interpretation would extend the writing requirement' to situations beyond those intended by the legislature" and thus, the application of GOL 5-701(a)(10) should be decided on a case-by-case basis (Dorfman, 144 AD3d at 17).

Section 5-701 (a) (10) "interdicts oral agreements to pay compensation for services rendered with respect to the negotiation of the purchase of real estate or of a business opportunity or business" (JF Capital Advisors, LLC v Lightstone Group, LLC, 25 NY3d 759, 766 [2015] [emphasis in original]). It does not apply to allegations "seeking recovery for work performed so as to inform defendants whether to partake in certain business opportunities, that is, whether to negotiate. To the extent the causes of action are based on such allegations, they are not barred by the statute of frauds." (id. [emphasis in original]). Here, Plaintiffs argue that many of the services they performed extend beyond furthering the negotiation and consummation of the transaction for the Boeing Campus Property, and were made in furtherance of informing Defendants whether to negotiate, such as "drafting redevelopment plans," "conducting environmental and physical due diligence; identifying and engaging third party consultants; supervising vendors; [and] reviewing zoning issues." (see Compl. ¶ 87). These allegations, at this stage, are sufficient to withstand a motion to dismiss based on GOL § 5-701 (a) (10).[]

For the same reasons, Plaintiffs' claim for the acquisition fee under its unjust enrichment claim is not facially barred by GOL § 5-701(a)(10) (Sonenshine Partners, LLC v Duravant LLC, 191 AD3d 567 [1st Dept 2021] [finding plaintiff's unjust enrichment claim is not barred GOL § 5-701(a)(10) "because the complaint alleges that [plaintiff] was not simply an intermediary, providing services in the negotiation or consummation of a business opportunity. Rather, it allegedly performed work aimed at informing [defendant] whether to purchase [a company] or one of its subsidiaries"]; Dorfman v Rejjkin, 144 AD3d 10, 19 [1st Dept 2016] [finding that a portion of the plaintiff's unjust enrichment claim was not barred by the Statute of Frauds because some of the alleged services provided by the plaintiff went "beyond assisting in the negotiation or consummation of such opportunity."]).

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning the statute of frauds.