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Alleged Oral Agreement Survives Motion to Dismiss Premised Upon the Statute of Frauds

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In the recent case of Bardy v. Bonnem, the Court was disinclined to extinguish any avenue of relief for a plaintiff where a slippery defendant was trying, after-the-fact, to characterize services as a volunteer job.  Plaintiff produced an email memorandum of an agreement, drafted by Defendant, which Plaintiff claimed the parties agreed to orally, and Plaintiff alleged that he had expended extensive professional services in expectation of an option to buy into a business as payment.  The Court went so far as to agree that these circumstances could even create a joint venture agreement, and thus impose a fiduciary duty on the Defendant, which is seems (according to the allegations) that Defendant clearly breached.

In Bardy, as alleged by Plaintiff, Plaintiff was a hospitality industry veteran and owner of multiple restaurants and other businesses.  Defendant, in turn, was an investor who was interested in developing a chain of drive-through coffee shops.  After a seemingly fortuitous introduction, the parties spent a couple of months in negotiations for a joint venture wherein Plaintiff would develop and convert one of Defendant’s prior-owned business into a drive-through coffee shop chain, and in exchange Plaintiff would be given certain options to purchase a percentage of the business plus recoupment of certain expenses.  The parties exchanged emails and orally agreed to terms sent in an email drafted by Defendant.

Plaintiff performed and a line of successful coffee shops opened some two years later, and while Defendant reimbursed Plaintiff for certain expenses, Plaintiff received no other compensation for his substantial work.  Then, when it was time for Plaintiff to exercise his option, Defendant claimed there never was a deal and that Plaintiff had merely “volunteer[ed]” his work.  Plaintiff then brought an action for breach of contract, unjust enrichment, quantum meruit, breach of fiduciary duty, constructive trust, and accounting, and Defendant moved to dismiss the contract claim per the Statute of Frauds and the quasi-contractual claims as duplicative of the primary breach of contract claim.

The Court denied Defendant’s motion in its entirety.

In rejecting Defendant’s Statute of Fraud’s defense, which requires “some note or memorandum thereof be in writing and subscribed by the party to be charged therewith” for agreements which are not to be performed within one year, the Bardy Court pointed to the email sent to Plaintiff by Defendant laying out the contractual terms.  Citing precedent, the Bardy Court found that oral acceptance was sufficient as the memorandum was drafted by Defendant, contained all the essential terms of the agreement, and was consistent with the pleadings.  Further, citing precedent, the Court moreover found that Defendant’s partial performance in paying for Plaintiff’s incidental expenses (per the alleged agreement) also served to avoid the Statute of Frauds’ bar.  Finally, the Court found that unless there was no possibility that the agreement could be performed within one year, the Statute of Frauds will not apply.

Therefore, the Bardy case is useful one two fronts.  First, it is useful to demonstrate compliance with the Statute of Frauds, absent a formally executed Memorandum by the Defendant.  Second,  it serves as a well-heeled warning for parties (especially deceitful Defendants) to avoid setting down a proposed agreement in writing without protections against the possibility that the other party may later allege an oral acceptance.

The Court, not surprisingly, also maintained the quasi-contractual claims as alternative avenues for relief because there is a dispute regarding the validity of the agreement.   The Court did not seem to find credible Defendant’s assertion that a veteran hospitality professional would provide services to a stranger as a gift.

The final interesting factor is that even without a signed written agreement or special relationship, the above factors also allowed for Plaintiff’s claim for breach of fiduciary duties to survive Defendant’s motion to dismiss.  As set forth by the Bardy Court, a claim for breach of fiduciary duty requires (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by said misconduct.  Here, as the allegations of the existence of a joint venture agreement survive, the accompanying mutual fiduciary duties between the parties likewise survive.  A breach of fiduciary duty, of course, suddenly also opens up the Defendant to additional punitive damages.

Therefore, Bardy is an example to plaintiffs for ways to maintain their various possible claims, and a reassurance that the courts do not approve of windfalls.  Moreover, Bard serves as a reminder to businesses and individuals to not leave the possibility of the formation of an unintended contract – especially a joint venture agreement – in the hands of the courts, and all attorneys should advise their clients to obtain knowledgeable counsel at the outset of any negotiation.  As always, prevention is the best cure.





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