How One New York Small Business’s Failure to Get A Written Agreement Cost Them Millions December 27, 2009

It is truly a shame when the mistakes we make on the basis of trust come back to haunt us in such a personal and economical way.

But assuming the truth of the allegations in his complaint, that’s exactly what happened to Richard Snyder, who claims that he and the defendant (who was an acquaintance) had orally agreed that they would work together as a joint venture, to acquire and operate companies in the media business.  Although the plaintiff would not put up any personal funds, he would “share in the proceeds on any consummated transaction” in exchange for his efforts to assemble deals for the joint venture.

In 2004, defendant and a group of other investors agreed to acquire Warner Music from Time Warner for approximately $2.6 billion in cash. According to the complaint, the plaintiff was a major factor to the closing of this deal: he identified the opportunity, persuaded defendant of its merits, and helped to get debt financing and obtained financial information from the target company.

One month after inviting Snyder to make an investment in the acquired company, which he did, to the tune of $1.3 million, the defendant (allegedly) told plaintiff “[T]here’s no room here for you at Warner’s” and refused plaintiff’s demand for “a lot of money” for plaintiff’s contribution to the transaction.

Unfortunately for the plaintiff, there was never any written agreement. And that proved fatal to his breach of contract (a/k/a “unjust enrichment” or “quantum meruit”) claim.

In affirming the dismissal of the claim in Snyder v. Bronfman, New York’s highest court cited General Obligations Law § 5-701 (a) (10), which says, in relevant part, as follows:

“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 . . .

“Is a contract to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a corporation and including the creating of a partnership interest. ‘Negotiating’ includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction. This provision shall apply to a contract implied in fact or in law to pay reasonable compensation . . . .” (Emphasis added.)

I guess the “Three Mistakes To Avoid When Negotiating A Small Business Deal” are as true as ever.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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