Court Dismisses Complaint Based on Statute of Frauds

On March 7, 2024, Justice Andrew Borrok of the New York County Commercial Division issued a decision in UNO A Brokerage Inc v. Inshur, Inc., 2024 NY Slip Op 30733(U), granting Defendant’s motion to dismiss Plaintiff’s claims, including Plaintiff’s claim for breach of contract based on a provision of New York’s statute of frauds, General Obligations Law § 5-701(a)(10). The Court explained in relevant part:

General Obligations Law § 5-701(a)(10) requires a signed writing for any contract "to pay compensation for services rendered" in negotiating a business opportunity, including "procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction."

In Dura v Walker, Hart & Co. (27 NY2d 346, 349 [1971]), the Court recognized that the General Obligations Law is not intended to apply to agreements between fellow finders or finders and third parties ("Despite the broad wording of the statute -- mandating that a' contract to pay compensation for services rendered in negotiating ... the purchase [or] sale ... of a ... business' be in writing [General Obligations Law, §5-701, subd. 10] -- it is clear that it was aimed at averting the evils arising from oral contracts 'between the finder and the principal or employer with whom he has assertedly contracted and from whom he seeks compensation' and not between fellow finders or finders and other parties."). This however is not the arrangement discussed in the AC or which the parties sought to memorialize in the Draft Producer Agreement. Thus, under Dura, it is irrelevant that both Uno and Inshur happen to be brokers because the nature of their arrangement ( as discussed above) was really that of principal and broker.

As the Court later explained in Freedman v. Chemical Constr. Corp. (43 N.Y.2d 260, 266-67 [1977]), oral agreements for commissions based on making business introductions are precluded by the statute of frauds (see Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260, 266-67 [1977] [finding that services rendered under an agreement will fall under the statute as a "business opportunity" "where ... the intermediary's activity is ... evidently that of providing 'know-how' or 'know-to"']). At its core, this is what is at issue here - i.e., Uno was to receive structured commissions in exchange for using its resources and contacts to make business referrals to Inshur (AC ,J,J 8-10, 20-23).

As it is undisputed that (i) no executed agreement exists between the parties and (ii) that any purported oral agreement between the parties is a commission agreement, Uno' s claim for breach of contract falls squarely within the statute of frauds under General Obligation Law§ 5-701(a)(10). Uno' s attempts in their opposition papers to frame the parties' relationship as like a joint venture are simply inconsistent with the AC and the Draft Producer Agreement.

It is also clear that the oral agreement is also void under General Obligation Law§ 5-701(a)(l) because it was not capable of being performed within one year because the performance of the agreement was dependent upon the will of third parties (see Apostolos v. R.D. T Brokerage Corp., 159 A.D.2d 62, 64-65, 559 N.Y.S.2d 295 [1st Dept. 1990]). The arguments to the contrary based on termination rights fail.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning motions to dismiss or New York’s statute of frauds.