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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: September 3, 2018

Proposed Amendment Fails to Allege a Joint Venture

On August 16, 2018, Justice Masley of the New York County Commercial Division issued a decision inĀ Washington Diamonds Corp. v. Diamonds by IsraelĀ Standard, Inc., 2018 NY Slip Op. 32030(U), denying a motion to amend because the proposed amendment failed to allege a joint venture, explaining:

Defendant acknowledges that the assessment of whether an amendment is palpably insufficient is based on affidavits of merit showing good ground for the proposed causes of action. In other words, the moving party must submit evidentiary proof in support of its proposed amendment.

Defendant’s allegations supporting its motion are insufficient to meet the requirements for alleging a joint venture. New York law makes clear that a joint venture agreement is not simply created when two parties have agreed together to act in concert to achieve some stated economic objective. Rather, a joint venture agreement arises upon the coagulation of property, profits or other interest which the parties can then be said to hold jointly and which are made accessible to each other in terms of the confidential relationship which exists between joint associates. Most significantly, an indispensable essential of a contract of partnership or joint venture, both under common law and statutory law, is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses.

Defendant fails to allege in its proposed amended answer and counterclaims or supporting affidavits the key requirement of a joint venture: that it shared profits and losses with plaintiff. In fact, defendant asserts an arrangement antithetical to a joint venture, dispelling any notion that it shared in profits or losses, or made decisions regarding profits in concert with plaintiff.

Specifically, defendant asserts, both in its original answer and counterclaims and the proposed pleading that, with respect to the memo inventory provided by plaintiff to defendant, it had total and exclusive control over the prices it offered the Goods for sale to purchasers, and Defendant was free to seek such profit margins as it determined to be in its best interest. In addition, in a sworn statement filed with the court and dated December 19, 2016, Baruch stated that defendant was free to set any terms of sale it decided to apply, and to keep anything it received from a subsequent buyer. These sales did not involve a sharing of profits. Thus, defendant argues that it worked completely independently from plaintiff to make its own profits, thus eliminating any basis for the purported joint venture it now seeks to allege.

(Internal quotations and citations omitted).

In New York, the courts are very generous in allowing a party to amend its pleadings. However, as this decision shows, there are limits to this generosity. In particular, the amendment must state a valid claim, just as an initial complaint must do. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding whether it is too late to amend your claims or answer.

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