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Posted: July 2, 2015

Services in Deciding Whether to Negotiate Real Estate Deal Not Covered by Statute of Frauds

On July 1, 2015, the Court of Appeals issued a decision in JF Capital Advisors, LLC v. Lightstone Group, LLC, 2015 NY Slip Op. 05622, holding that services provided in connection with aiding in the decision whether to enter into a real estate transaction are not covered by the Statute of Frauds.

In JF Capital Advisors, the plaintiff alleged that it had “rendered to defendants financial advisory services for . . . nine groups of investment opportunities,” and sought “recovery for those services rendered based on theories of quantum meruit and unjust enrichment.” The trial court dismissed the plaintiff’s claims with respect to some, but not all, of the opportunities on Statue of Frauds grounds. The Appellate Division not only affirmed the dismissal that had been ordered, but “modified” the trial court’s decision “by granting the motion in its entirety and dismissing the amended complaint based upon its conclusion that ‘investment analyses and financial advice regarding the possible acquisition of investment opportunities clearly fall within General Obligations Law § 5-701(a)(10)'” (New York’s Statute of Frauds).

On appeal, the Court of Appeals adopted the distinction that had been made by the trial court, explaining:

Here we are specifically concerned with General Obligations Law § 5-701(a)(10), which applies to a contract implied in fact or in law to pay reasonable compensation and which provides that 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 the purchase of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein.

The same subdivision further states that negotiating includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction.

. . . Supreme Court properly dismissed the parts of the amended complaint bound by the common thread of allegations pertaining to defendants’ negotiation of a business opportunity and declined to dismiss the parts of the amended complaint pertaining to project groups ##2-5 and 8, which are not braided by such claims. Indeed, the allegations with respect to project groups ##2-5 and 8 could be construed as 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.

(Internal quotations and citations omitted) (emphasis added).

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