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Posted: August 21, 2014

Statute of Frauds Applies to All Aspects of Agreement Regarding Negotiating Business Opportunity

On July 30, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Penncolab LLC v. 118 E. 59th St. Realty LLC, 2014 NY Slip Op. 32027(U), holding that all aspects of an agreement “to pay compensation for services rendered in negotiating a business opportunity” were governed by the statute of frauds, even those collateral to the negotiation.

In Penncolab LLC, the plaintiff brought an action relating to the defendants’ alleged failure to honor an oral agreement. In granting the defendants’ motion to dismiss on statute of frauds grounds, the court explained:

GOL § 5-701(a)(l0) requires that every agreement to pay compensation for services rendered in negotiating a business opportunity be (1) in writing and (2) subscribed by the party to be charged therewith. § 5-701(a)(10) provides that negotiating includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction. In JF Capital, the First Department addressed a case with virtually identical facts . . . .

Here, as in JF Capital, the parties disagree on whether the statute of frauds applies to plaintiff’s claims. In JF Capital, the Court held that all of plaintiffs services rendered in connection with the real estate investment negotiations fall under the ambit of the statute of frauds. The Appellate Division found it irrelevant that plaintiff provided other services in addition to negotiating deals because plaintiff undertook those other services to assist defendants’ negotiations, largely by determining the value to defendants of pursuing the deal. In other words, all services rendered in connection with the facilitation of a real estate sale are subject to the statute of frauds. The Appellate Division has foreclosed the possibility of severing claims to recoup compensation for services relating to the “negotiation or consummation of[] investment opportunities from claims to recoup compensation for ancillary services related to those investment opportunities. Rather, such ancillary services clearly fall within § 5-701(a)(10).

Penncolab, like the plaintiff in JF Capital, provided a broad array of services to help defendants purchase the Property. Such services ran the gamut from conducting due diligence, valuing the property, procuring legal services, and interfacing with the seller. To wit, while some of the properties defendants were interested in were located by defendants, the Property actually purchased by 118 East was suggested to defendants by Penncolab. Penncolab’s breach of contract claim, therefore, is barred by the statute of frauds because its services were rendered in connection to defendants’ purchase of the Property and no signed, written agreement exists.

(Internal quotations and citations omitted).

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