Finders, Oral Agreements, Statute of Frauds
It is not uncommon for a person to act as a finder and receive compensation for presenting a business opportunity to a businessperson. The two might agree the finder will receive a cash fee or perhaps a percentage of revenue derived from the opportunity. Sounds great! The businessperson has a chance to make money from an opportunity she would not have otherwise had, and the finder is compensated for passing along the opportunity. And it is great – as long as the two parties write down their agreement that the finder will be compensated.
Many people might know that a contract to sell a house in New York is not enforceable unless a signed writing memorializes the terms. Fewer people likely realize that the same New York statute requires a writing to enforce most agreements for compensation in connection with negotiating or finding a business opportunity. The New York Statute of Frauds requires a writing to pay a finder for negotiating “the purchase, sale, exchange, renting or leasing … of a business opportunity, business, its good will, inventory, fixtures, or an interest” in a business. The Statute of Frauds even applies where a person is not directly negotiating, but uses her “connections, ability and knowledge” to arrange meetings between appropriate people and procure contracts.
Acting as a finder of a business opportunity without a written agreement can lead to a situation where the finder’s efforts go entirely unrewarded, while the businessperson legally reaps and keeps all the benefits. Recent New York plaintiffs learned this lesson the hard way. In Vanacore v. Vanco Sales LLC, No. 16-CV-1969 (CS), 2017 WL 2790549 (S.D.N.Y. Jun. 27, 2017), the plaintiff presented his cousin with a potential contract to deliver pharmaceutical drugs for a major drug company. The plaintiff apparently lacked the capital to start the business. The parties allegedly orally agreed that the cousin would fund the capital to set up the business and pay plaintiff a commission of 15% of revenues for finding the deal and putting it together. The cousin paid the plaintiff a total of $300,000 over 12 years and then stopped. Plaintiff sued and defendant moved to dismiss the complaint, arguing that the New York Statute of Frauds bars the alleged oral agreement to pay plaintiff for his role in finding the delivery contract.
The court agreed and dismissed the plaintiff’s claim as barred by the Statute of Frauds. The court found the plaintiff alleged he acted only as a “finder” by negotiating the business opportunity and securing a delivery contract, while the cousin put up the capital and managed the business. Without a writing, the Statute of Frauds voided the alleged oral agreement to compensate plaintiff for his efforts as a finder.
If you have an issue with an agreement for compensation relating to finding or sharing a business opportunity, please do not hesitate to contact us.
Attorney-Client Privilege, Waiver
This post provides a cautionary tale about using work email for confidential communications with your attorney. It might seem obvious that discussing confidential legal strategy with your attorney in a crowded elevator could waive the attorney-client privilege because you shared the secret with the strangers in the elevator. What happens if an employee emails with her lawyer on her work email? The answer is — it depends — factors include what the employer’s email use policies are and whether the employer reserves ownership of the email and the right to review it (relatively common provisions in corporate email policies).
Technological advancements drive more and more communications to email, text message and other written form, leaving a lasting and mountainous record of electronically stored information (ESI) that commercial litigators and courts are forced to deal with. The proliferation of smartphones and other communications technology continues to blur the line between communications and ESI in people’s business and personal lives. In Peerenboom v. Marvel Entertainment, LLC, 148 A.D.3d 531, 50 N.Y.S.3d 49 (1st Dep’t 2017), the First Department Appellate Division in Manhattan held that the chairman of Marvel Entertainment waived his attorney-client privilege by using his work email to communicate with counsel.
The case arose from a dispute about management of the parties’ tennis club and spiraled into litigation claims of defamation in Florida state court. Plaintiff Harold Peerenboom subpoenaed Marvel Entertainment seeking the email of its chairman, defendant Isaac Perlmutter. Perlmutter and Marvel resisted production and the dispute landed in New York state court where Marvel is located. Defendant, among other objections, alleged that certain emails were protected by the attorney-client privilege.
A party can lose the privilege over communications with an attorney if the party fails to safeguard the secret nature of the communications. The court held the key issues are whether Perlmutter held a reasonable expectation of confidentiality and if Perlmutter’s use of the employer’s email system can remove the “reasonable assurance of confidentiality” necessary to invoke the attorney-client privilege. Waiver of the privilege is a fact-based inquiry and the court adopted and applied the four part test used by federal courts sitting in New York to determine whether a person has a reasonable expectation of privacy in emails sent through an employer’s email system: (1) does the employer maintain a policy banning personal emails, (2) does the employer monitor an employee’s e-mail, (3) do third parties have a right of access to the emails, and (4) did the employer notify the employee, or was the employee aware, of the company’s use and monitoring policies.
The court found that Marvel’s stated policy allowed its employees to use its email system for personal purposes, but that Marvel “owned” all emails on its systems and the emails were subject to Marvel’s rules and policies as well as periodic audit by Marvel. The court further found that Perlmutter had constructive, if not actual, knowledge of Marvel’s policies through his status as Marvel’s chairman. With actual or imputed knowledge that Perlmutter knew Marvel “owned” the emails and reserved the right to review the emails, the court held Perlmutter did not have the requisite assurance of confidentiality and his use of Marvel’s email systems to communicate with his attorneys waived the attorney-client privilege.
