Opinion
17390/05.
Decided September 19, 2008.
Eli Feit, Esq., Heller, Horowitz Feit, P.C., New York, NY, Attorney for Plaintiff.
Matthew J. Morris, Esq., Proskauer Rose, LLP, New York, NY, Attorney for Defendant.
Defendants Elyahu Cohen (Cohen), Alan Fallas (Fallas) and 183 Lorraine Street, LLC (183 Lorraine) (collectively, defendants) move, pursuant to CPLR 3212, for summary judgment dismissing plaintiff Shifra Mendelovitz's (plaintiff) complaint. In the alternative, defendants move for an order striking plaintiff's note of issue to enable them to serve rebuttal expert disclosure.
Background Facts and Procedural History
The facts set forth in this opinion are taken primarily from plaintiff's deposition testimony, as well as her sworn affidavit in opposition dated March 26, 2008. Defendants' version of the events that transpired between the parties undoubtably differs from plaintiff's account in many important respects. Nevertheless, as the party opposing defendants' summary judgment motion, plaintiff's affidavit and deposition testimony must be "accepted as true and given the benefit of every reasonable inference" ( Demshick v Community Hous. Mgt., 34 AD3d 518, 520 [2006]).
In or about 2003, plaintiff, who worked in the interior design field, began to explore opportunities for opening a "design center" business in Brooklyn. In particular, plaintiff envisioned a "one-stop" retail destination housing vendors who were in the business of providing design services and selling home furnishings to the public. Thereafter, plaintiff investigated several sites in both the Dumbo and Red Hook sections of Brooklyn as possible locations for the design center. In January 2004, plaintiff learned of the availability for purchase of a building located at 183 Lorraine Street in Red Hook (the building or the property), which was owned by non-party Avileb Associates, LLC (Avileb). After visiting the site with her real estate agent, plaintiff determined that the building and location met the requirements that she was looking for in developing the design center and on March 30, 2004, she made an offer to purchase this property for $10 million. When this offer was rejected, she increased her offer to $11 million.
At her deposition, plaintiff could not recall whether or not she received a response to this second offer.
At or around this time period, plaintiff learned through the Southwest Brooklyn Development Corp. that defendant Cohen was also interested in purchasing the property. Thereafter, a meeting was arranged between the parties in order to determine whether they could combine their efforts to purchase the property. In or about March 2004, plaintiff met with Cohen and defendant Fallas at Cohen's office whereat she explained her concept for the design center. In addition, plaintiff avers that she discussed with Cohen and Fallas the expenses and finances involved in the project, including projected construction costs, costs for renovation of the property, and rental incomes they could expect to collect once the renovation work was completed. In this regard, plaintiff told Cohen and Fallas that estimated construction costs would run to $100 per square foot and that space could be rented for $20-$25 per square foot. Plaintiff further alleges that she told Fallas and Cohen that the renovation work would take approximately two years, during which time there would be no rental income.
According to plaintiff's affidavit and deposition testimony, after discussing the merits of the proposed design center, estimated renovation costs, and projected rental income, Cohen and Fallas orally agreed to buy and develop the property as a design center as "50-50 partners" with plaintiff. Plaintiff also maintains that the parties agreed that it would be plaintiff's responsibility to oversee the day-to-day renovations of the building and that plaintiff would be in charge of implementing the design center concept. In addition, plaintiff would select a manager for the property, as well a contractor and architect for the renovation project. With regard to financing the acquisition of the property, plaintiff claims that Cohen told her that he would handle the negotiations with the sellers since he had a prior relationship with these individuals. According to plaintiff's affidavit, although there were still details to be ironed out, by the end of the meeting "there was no doubt that Cohen and Fallas had agreed to joint venture with me the acquisition and development of the Property as a design center." Plaintiff also maintains that she raised the possibility that the agreement be memorialized in writing but that Cohen said this was unnecessary since his word was "as good as gold." Nevertheless, at some point following the meeting, plaintiff had her attorney prepare a memorandum of understanding which reflected the agreements reached between the parties regarding the development of the design center. However, this document was never signed by Fallas or Cohen and plaintiff is unsure as to whether she ever presented the memorandum of understanding to these defendants.
According to plaintiff's deposition testimony and affidavit, after the March 2004 meeting, Cohen informed plaintiff that an understanding had been reached with the sellers whereby the property would be purchased for $13 million, with $3 million of this amount to be paid in cash "under the table" so that they could obtain a better purchase price. Accordingly, pursuant to their agreement, plaintiff was responsible for providing $6.5 million toward the purchase price. During this time period, plaintiff asked Cohen several times about the status of the contract negotiations with the sellers and expressed concern that it was taking longer than she anticipated for the contract to be signed. According to plaintiff, Cohen assured her that everything was in order and that he needed time to transfer funds from overseas for purposes of making the $3 million cash payment. In addition, when plaintiff offered to provide 50% of the down payment, Cohen told her that it was not necessary, but that at closing, she would need to provide 50% of the cash portion of the purchase price.
On July 1, 2004, defendant 183 Lorraine, an entity organized and controlled by Cohen, Fallas, and non-party Ken Cayre, entered into a contract of sale pursuant to which Avileb agreed to sell the property for $10 million. After the contract was signed, plaintiff met with architects and engineers regarding the renovation work that needed to take place on the building. In addition, plaintiff hired a design consultant and met with marketing consultants and potential tenants, all in furtherance of the planned design center. Plaintiff also obtained an oral commitment from a real estate investor, Baruch Singer, to fund part or all of her financial responsibilities for the development of the design center. Furthermore, plaintiff pursued additional outside investors by hiring a firm to prepare a prospectus detailing the opportunities that the design center would present for such investors.
On August 2, 2004, plaintiff and her attorney attended a meeting with Cohen and Fallas at which the defendants began to "back away" from the alleged agreement to develop the property as a design center. In particular, Cohen and Fallas told plaintiff that the estimated construction costs of $100 per square foot was "too rich" for them and that they believed the costs should be approximately $24 per square foot. In response, plaintiff informed Cohen and Fallas that they knew about the $100 per square foot estimate from the March meeting and that $24 per square foot "doesn't even buy carpeting." At her deposition, plaintiff testified that she intended to present the aforementioned "memorandum of understanding" to Cohen and Fallas at this meeting for their signature. However, plaintiff could not recall whether she even presented this document to the defendants given their change in position. In any event, it is undisputed that defendants never signed the memorandum of understanding.
After the August 2, 2004 meeting, Cohen and Fallas introduced plaintiff to Mr. Cayre. According to plaintiff, Cohen told her that if Cayre approved the design center concept, they would still go through with the plan to develop the property as a design center. Thereafter, plaintiff met with Cayre and outlined her concept of the design center and he told her that he would consider her idea. However, subsequently, Cohen informed plaintiff that he, Fallas, and Cayre wanted to develop the property as a self-storage facility. They proposed that plaintiff become part of a partnership to develop the property at a smaller percentage, but plaintiff rejected this offer. On September 20, 2004, defendants and Cayre, who became a 50% partner, closed on the property. Thereafter, the property was developed as a self storage facility and continues to operate as such to this day.
By summons and complaint dated June 2, 2005, plaintiff brought the instant action against Cohen, Fallas, and 183 Lorraine. The complaint alleged causes of action sounding in breach of an oral joint venture agreement and fraud, and sought the imposition of a constructive trust on the property and any profits derived from the property. Thereafter, defendants moved to dismiss the complaint pursuant to CPLR 3211 (a)(1), (a)(5), and (a)(7). In a decision and order dated December 28, 2005, this court granted defendant's motion to dismiss in its entirety. However, on appeal, the Appellate Division, Second Department modified this court's decision and order by reinstating plaintiff's cause of action for breach of the oral joint venture agreement ( Mendelovitz v Cohen, 37 AD3d 670). The case was then remitted to this court and proceeded through the discovery phase.
On or about January 11, 2008, plaintiff served a notice of expert disclosure upon defendants pursuant to CPLR 3101 (d). Thereafter, defendants' attorneys responded to this notice by requesting additional information regarding the basis for plaintiff's expert's opinion in setting the fair market value of the property. On February 11, 2008, plaintiff filed a note of issue. On February 29, 2008, plaintiffs served upon defendants' attorneys a report supplementing plaintiff's expert disclosure.
Defendants' Motion for Summary Judgment
Defendants move for summary judgment dismissing plaintiff's action. In so moving, defendants contend that plaintiff's own admissions, as well as other undisputed evidence, conclusively demonstrate that plaintiff and defendants did not agree to material terms that are necessary in order to form a joint venture agreement. Specifically, defendants note that by plaintiff's own account of the March 2004 meeting at which the joint venture was allegedly formed, there was no agreement by the parties to share losses that the joint venture might incur. In addition, plaintiff admitted that she had no "budget in mind" for the joint venture and that the parties did not discuss the operating costs of the design center. Defendants further point out that when plaintiff worked up a budget at a later date that would require an investment of $42.5 million, they told her that the construction budget that they had in mind was closer to $5 million. According to defendants, the large gap between the expectations of the parties on such a fundamental issue conclusively demonstrates that there was no meeting of the minds regarding the formation of a joint venture agreement at the March 2004 meeting.
Defendants argue that the lack of any binding agreement between the parties is further demonstrated by other important financial and managerial matters which plaintiff admits were not discussed at the meeting. In this regard, defendants point to plaintiff's admission that there was no discussion as to where the parties would obtain financing for the project, how the joint venture would be put into bankruptcy if necessary, how disagreements that might arise would be resolved, how the parties would decide whether to accept an offer to sell the property, or how long the joint venture would last. Defendants also note that there were virtually no discussions as to the role that plaintiff's investors such as Mr. Singer would play in the joint venture. According to defendants, no joint venture could have been formed without the parties even discussing, much less agreeing, as to such key terms.
Defendants also argue that the fact that a memorandum of understanding was prepared by plaintiff's attorney, but never signed by defendants, conclusively demonstrates that no oral joint venture agreement was entered into. In particular, defendants maintain that the existence of the memorandum of understanding proves that it was the intent of the parties that any agreement between them regarding the development of the design center was to be finalized in writing. Consequently, defendants contend that any oral discussions that occurred between the parties could not have resulted in a binding agreement.
Finally, defendants argue that, even if there was a valid oral joint venture agreement between the parties, their termination of this agreement is not actionable inasmuch as the arrangement was terminable at will. In this regard, defendants assert that it is settled law that absent any definite term of duration, an oral agreement to form a partnership or joint venture can be terminated at any time without liability. Otherwise, the joint venture would continue on forever and it would be impossible for a party to terminate the agreement without a breach. Here, defendants maintain that there was no definite term of duration for the alleged joint venture as evidenced by plaintiff's own admission during her deposition that she did not know how long the joint venture was going to last.
In opposition to defendants' summary judgment motion, plaintiff initially notes that there is no requirement that a joint venture agreement be in writing and that a purely oral agreement is fully enforceable. Plaintiff also concedes that the parties did not reach agreement on every item that would be included in a formal written joint venture agreement. However, according to plaintiff, the lack of such details is not fatal to her claim since the law does not make the enforceability of an oral joint venture agreement dependent upon the parties' discussion of every particularity. Instead, plaintiff avers that she need only establish that the parties agreed to the essential terms of joint venture, which include: an intent by both parties to be part of a joint venture, a contribution on the part of the joint venturers such as financial resources, skill, effort or knowledge, a degree of joint control, and a provision for sharing profits and losses.
Here, plaintiff argues that her sworn deposition testimony and affidavit are clearly sufficient to satisfy the requirement that these material terms were agreed upon. In particular, plaintiff testified that at the March 2004 meeting she and defendants reached an agreement to buy the property and develop it as a design center as 50/50 partners. Furthermore, plaintiff testified that it was made clear to defendants that the design center would operate at a deficit for the first two years of operations and that the parties agreed to share this burden on a 50-50 basis. Moreover, plaintiff argues that defendants' claim regarding the large discrepancy between the amount money that the parties were prepared to invest which came to light during the August 2, 2004 meeting is disingenuous inasmuch as defendants were aware of and agreed to plaintiff's $100 per square foot figure at the March 2004 meeting. Additionally, plaintiff maintains that there is sufficient evidence that the venturers agreed to make a joint contribution of their effort and skill in furtherance of the goal of the joint venture given plaintiff's testimony that the parties agreed that plaintiff would supervise construction and development matters and handle the day-to-day management of the design center while defendants would negotiate with the seller to acquire the property. Finally, plaintiff argues that the evidence demonstrates that she was ready, willing and able to make financial contributions toward the joint venture and that it was only defendants' wrongful exclusion of her from the joint venture that precluded her from doing so.
With respect to defendants' recitation of various details that the parties did not agree upon, such as where the parties would obtain financing for the project, how the joint venture would be put into bankruptcy, how disagreements might be resolved, and how the parties would decide whether to accept an offer to sell the property, plaintiff avers that none of these matters is an essential element to a joint venture agreement. Accordingly, plaintiff reasons that lack of agreement on these matters is irrelevant for purposes of defendants' summary judgment motion.
Plaintiff also argues that there is no merit to defendants' claim that the fact that the parties contemplated that, at some point in time they would put their agreement in writing, does not render their oral agreement unenforceable. Instead, plaintiff maintains that the law is clear that the intention to commit an agreement to writing does not prevent contract formation prior to execution.
Finally, plaintiff contends that the joint venture agreement was not terminable at will. In this regard, plaintiff notes that the joint venture agreement was formed for a specific purpose or undertaking, namely to purchase the property and develop it as a design center. According to plaintiff, any breach of the agreement prior to the accomplishment of this objective is clearly actionable.
Analysis
"A joint venture is an association of two or more persons to carry out a single business enterprise for profit, for which purpose they combine their property, money, effects, skill and knowledge'" ( Kaufman v Torkan , 51 AD3d 977 , quoting Williams v Forbes, 175 AD2d 125, 126). "The [four] essential elements of a joint venture are an agreement manifesting the intent of the parties to be associated as joint venturers, a contribution by the coventurers to the joint undertaking [i.e., a combination of property, financial resources, effort, skill or knowledge], some degree of joint proprietorship and control over the enterprise; and a provision for sharing of profits and losses'" ( Tilden of N.J. v Regency Leasing Sys., 230 AD2d 784, 785-786, quoting Ackerman v Landes, 112 AD2d 1081, 1082).
Moreover, generally speaking, the statute of frauds is inapplicable to an agreement to create a joint venture ( Foster v Kovner , 44 AD3d 23 , 27). Thus, as long as the joint venture agreement is capable of being performed within one year, there is no requirement that the agreement be in writing and an oral joint venture agreement is fully enforceable even if the venture is formed to purchase real property ( Hydro Investors, Inc. v Trafalgar Power, Inc., 6 AD3d 882, 885; compare Jordache Ltd. v Oved , 40 AD3d 400). The reason for this rule is "because, absent any definite term of duration, an oral agreement to form a . . . joint venture for an indefinite period creates a . . . joint venture at will ( Foster, 6 AD3d at 27; see also , LoGerfo v Trustees of Columbia Univ. in City of NY , 35 AD3d 395 , 397; Rutecki v S.H. Gow Co., 289 AD2d 1066, 1067).
Applying the law to the instant case, the court finds that plaintiff's evidentiary submissions are sufficient to allow a trier of fact to determine that the four essential elements of a joint venture agreement were present in this case. In particular, plaintiff's sworn deposition testimony and affidavit indicate that at the March 2004 meeting, she, Cohen and Fallas reached an oral agreement to combine their efforts and resources on a "50-50 ownership basis" so as to purchase the property with the intent of developing it into a design center ( Cobblah v Katende, 275 AD2d 637, 639; Timberline R G Bldg. Co. v Sigurjonsson, 161 AD2d 947, 948).
Furthermore, this evidence is sufficient to demonstrate that plaintiff devoted effort, skills, knowledge and resources as an experienced interior designer in furtherance of the agreement, thereby satisfying the second required element for a valid joint venture agreement. Specifically, plaintiff's affidavit and deposition testimony show that she met with architects and engineers regarding the renovation work that needed to take place on the building, hired a design consultant and met with marketing consultants and potential tenants. In addition, plaintiff avers that she actively sought out private investors and prepared a detailed prospectus in order to obtain financing for her half of the joint venture.
Plaintiff's evidence also indicates that the third essential element of a joint venture agreement was present in this case, namely that there was a degree of joint control over the enterprise. In this regard, plaintiff testified that the parties reached an agreement whereby plaintiff was responsible for overseeing the construction/renovation of the building and for the day-to-day management of the design center while defendants would use their contacts and expertise to negotiate with the sellers and thereby obtain the lowest possible purchase price for the property ( Cobblah, 275 AD2d at 639).
Finally, there is sufficient evidence that the parties agreed to share in the joint venture's losses. Specifically, plaintiff testified that at the March 2004 meeting the parties fully discussed the fact that the construction cost would cost approximately $100 per square foot. According to plaintiff, the parties also discussed the fact that space at the design center would rent for $20-25 dollars per square foot and that, until the renovation work was complete, no rental income would be generated. Plaintiff also claimed that defendants were enthusiastic about this projected rent income figure. Based upon this evidence, along with plaintiff's averment regarding the 50/50 nature of the joint venture relationship, the trier of fact could conclude that the parties reached an agreement to share in the joint venture's losses ( see Mendelovitz v Cohen, 37 AD3d at 670). Furthermore, although defendants claim that they did not learn of the $100 per square foot estimate until the August 2, 2004 meeting and immediately informed plaintiff that this was "too rich" for them, this presents a factual dispute which cannot be resolved in a summary judgment motion.
With regard to defendants' argument that plaintiff's complaint must be dismissed because the parties failed to agree or even discuss numerous important aspects of the alleged joint venture, including where the parties would obtain financing for the project, how the joint venture would be put into bankruptcy, how disagreements might be resolved, and how the parties would decide whether to accept an offer to sell the property, said argument is without merit. In particular, while the absence of these details may impact on the overall credibility of plaintiff's claims, they are not essential elements to a joint venture agreement. Consequently, the court may not dismiss plaintiff's complaint based upon the absence of any agreement on these terms.
Also without merit is defendants' argument that the existence of the unsigned memorandum of understanding conclusively demonstrates that the parties intended that any binding agreement between them would have to be in writing. It is well-settled that a binding oral agreement may exist even where the parties acknowledge that they intend to finalize the agreement in writing at a later date ( Foster, 44 AD3d at 28; Richbell Info. Servs. v Jupiter Partners, L.P., 309 AD2d 288, 298). In any event, plaintiff's sworn testimony indicates that when she raised the subject of putting into writing the agreement reached at the March 2004 meeting, Cohen told her that this was unnecessary inasmuch as his "word is as good as gold." Thus, there is conflicting evidence regarding whether the parties intended that they would only be bound by a written agreement.
Finally, defendants have failed to establish as a matter of law that any alleged joint venture agreement entered into by the parties was terminable at will. As was noted above, it is true that absent a definite term fixing the duration of a joint venture agreement, the agreement is deemed to be terminable at will ( LoGerfo, 35 AD3d at 396). However, 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). Here, there is sufficient evidence to allow the jury to conclude that the joint venture agreement contemplated the completion of a specified result, namely the purchase of the building and the development of the property into a design center. Thus, since the alleged breach of the agreement took place before the completion of this goal, plaintiff's claim is actionable.
Accordingly, defendants' motion for summary judgment dismissing plaintiff's complaint is denied.
Defendants' Motion to Strike the Note of Issue
Defendants move, in the alternative, for an order striking plaintiff's note of issue. In seeking this relief, defendants argue that the initial notice of expert disclosure which was served upon them was inadequate under CPLR 3101 (d). Defendants further assert that the report supplementing this expert disclosure was not served until after the note of issue was filed and therefore, defendants have not been given sufficient time to submit a rebuttal to plaintiff's expert disclosure. In opposition to this branch of defendants' motion, plaintiff states that she has no objection to defendant engaging their own expert to rebut plaintiff's claims regarding the fair market value of the property provided that this information is provided to plaintiff prior to trial.
Defendants' motion to strike plaintiff's note of issue is denied. As supplemented, plaintiff's notice of expert disclosure was sufficient. However, given the fact that the supplemental report was not served upon defendant until after the note of issue was filed, leave is granted to defendants to serve their own expert opinion rebutting the claims set forth in plaintiff's report.
Summary
In summary, defendants' motion for summary judgment or, in the alternative, for an order striking plaintiff's note of issue is denied. The parties are directed to appear for a pre-trial conference in Part One of the Commercial Division at 12:00 on November 5, 2008.This constitutes the decision and order of the court.