By: Thomas S. Tripodianos Published: August 2015

Does Sunny's Contract Breach Claim Fall within New York's Statute of Frauds?

Question.        Florida resident Sunny's action against New York-based Stone Inc. alleging contract breach and quasi-contract claims arose from Stone Inc.'s failure to pay him for his services in helping Stone Inc. obtain Big Bucks Corp. as a client for Stone Inc.'s financial services. Sunny claimed entitlement to $20,000—10 percent of Big Bucks’ $200,000 advisory fee to Stone Inc.—and at least $300,000, the "minimum total fee" he would receive from Stone Inc.'s sale of $1.2 million worth of Big Bucks’ securities. Although Sunny's alleges that he and Stone Inc. formed a "binding agreement," he did not specify whether that agreement was oral or in writing. Does Sunny's contract breach claim fall within New York's statute of frauds?

Answer. Yes.

Sunny's alleges that in 2012, Stone Inc., a financial advisory firm, sought an engagement to provide banking and advisory services to Big Bucks, in connection with the "planned sale of one or more of Big Bucks’ businesses." Sunny entered into a "binding agreement" with Stone Inc., pursuant to which Sunny agreed to assist Stone Inc. in procuring Big Bucks as a client. In return, Stone Inc. agreed to pay Sunny: (1) 10 percent of Stone Inc.'s "initial and subsequent retainer fees" from Big Bucks, (2) 10 percent of Stone Inc.'s success fee up to 2 percent of its total transaction with Big Bucks, and (3) 50 percent of any success fee earned by Stone Inc. in excess of 2 percent of the total transaction.

In February 2012, Sunny "initiated the relationship" between Stone Inc. and Big Bucks and "effectuated an introduction" between Big Bucks’ CFO and Stone Inc. representatives. He also facilitated the execution of a non-disclosure agreement and the exchange of information between Stone Inc. and Big Bucks. In March 2012, Sunny attended in-person meetings with Stone Inc. in New York, and arranged and participated in teleconferences between Stone Inc. and Big Bucks. In February and March 2012, and "throughout the third quarter of 2012," Sunny participated in meetings with Stone Inc. and Big Bucks in Florida. Sunny "forewent employment opportunities" in order to perform services for Stone Inc.

In April-May 2013, Big Bucks retained Stone Inc. in connection with the sale of Big Bucks securities. Big Bucks has "paid retainer fees to Stone Inc." and has agreed to pay Stone Inc. a success fee "upon the consummation of a transaction." On June 21, 2013, Sunny's counsel sent a letter to Stone Inc. demanding payment of "[Sunny's] portion of the retainer fees" that Big Bucks had paid Stone Inc., Sunny also sought Stone Inc.'s acknowledgement that it would honor its "payment obligations to [Sunny] going forward." Stone Inc. refused Sunny's demands. On "numerous subsequent" occasions, Sunny sought payment from Stone Inc., but Stone Inc. continued to "withhold [Sunny's] compensation."

Stone Inc. argues that New York's statute of frauds bars Sunny's breach of contract claim. New York's statute of frauds provides that certain contracts must be in writing, including: [C]ontract[s] 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, business, its good will, inventory, fixtures or an interest therein. N.Y. Gen. Oblig. Law §5-701(a)(10). The statute defines "negotiating" to include "procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction." The statute of frauds therefore applies when an "intermediary" seeks compensation for providing "'know how' or 'know-who,' in bringing about between principals an enterprise of some complexity or an acquisition of a significant interest in an enterprise."

Sunny argues that the statute of frauds does not apply to his agreement with Stone Inc. because he "has played — and will play — no part whatsoever in effecting the sale of Big Bucks's business." It is clear however, that Sunny's actions fall squarely within those contemplated by the New York statute of frauds. Indeed, Sunny alleges that he "initiated the relationship" between Stone Inc. and Big Bucks, that he "effectuated an introduction," and that he "facilitated the execution [of a non-disclosure agreement] by Big Bucks and Stone Inc.."

Accordingly, Sunny must plead that there was a written agreement that satisfies the statute of frauds. Yet while Sunny alleges that Sunny and Stone Inc. formed a "binding agreement," he does not specify whether the agreement was oral or written. Nor does he provide or describe any written documents that may partially or fully satisfy the statute of frauds.

Sunny also asserts claims for quantum meruit and unjust enrichment. New York's statute of frauds, however, "extends to a contract implied in fact or in law." Because the statute of frauds applies to Sunny's agreement with Stone Inc., "the requirement of a writing cannot be circumvented by an action for compensation in quantum meruit" or by a claim of unjust enrichment.

Because Sunny has pointed to no written documents that would even arguably satisfy the statute of frauds with respect to either his quantum meruit or unjust enrichment claims, his claims fail.

Under New York law, promissory estoppel requires (1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance by the party to whom the promise is made, and (3) an injury sustained in reliance on the promise. When a plaintiff's promissory estoppel claim seeks relief as a way to circumvent the Statute of Frauds, plaintiff must demonstrate unconscionable injury. Unconscionable injury is harm beyond that which flows naturally from the non-performance of the unenforceable agreement. Allegations that plaintiff expend[ed] various sums of money and time, and forewent other business opportunities elsewhere do not constitute unconscionable injury.

Sunny has not alleged that Stone Inc.'s actions caused him unconscionable injury. His assertions that he expended time and money and "forewent employment opportunities" while working on Stone Inc.'s behalf are insufficient.

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