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Aequus Technologies, LLC v. GH, LLC

2009 WL 2526697 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

PARTNERSHIPS — Where multiple parties have not agreed to share the profits and losses for a venture, do not own or control any property or business, do not have a written partnership agreement and do not provide for rights upon dissolution of their venture, they had not formed a partnership.

Two parties had a difference of opinion as to whether they had entered into a partnership. It was undisputed that they had executed a formal management contract. The first alleged that they orally formed their partnership at a meeting held after the management agreement was executed. It was undisputed that after this meeting the parties executed a letter of intent reflecting the parties’ desire to either merge or proceed with an acquisition. The letter of intent contained key terms such as the appointment of officers, allocation of assets, and the capital contributions required of the first party prior to merger. The second party denied there was a partnership and asserted that any discussions between the parties related to the parties’ roles if and when the merger happened. It also contended that even had there been an oral agreement, it was superseded by a joint marketing, sales, and business development agreement (joint agreement) signed by the parties at a later date.

The first party claimed that the joint agreement merely supplemented the partnership agreement, but did not supersede it. The first party made a $250,000 payment without any written agreement between the parties relating to this payment. It claimed the payment was a capital contribution to the partnership. The second party denied this, arguing that the payment was not governed by any prior oral agreement, because the joint agreement not only superseded any oral agreement but also provided that any subsequent agreement would need to be in writing. When the second party refused to acknowledge existence of a partnership, the first party sued, claiming breach of contract and a violation of the New Jersey Oppressed Shareholder statute and Uniform Partnership Act. It also sought to recover the $250,000 payment.

The United States District Court dismissed the first party’s claims, holding that there was insufficient evidence to show that the parties had: (a) agreed to share in the profits or losses of a venture; (b) owned or controlled any property or business (and there was no evidence of property transfer by either party); (c) entered into a written partnership agreement; or (d) provided for the rights of the parties on dissolution. Therefore, the Court found that a substantial majority of the factors required for there to be a partnership under New Jersey’s case law were not met. It ruled the first party had no valid right to $250,000 as compensation for damages for breach of a partnership agreement since there was no partnership agreement. As to whether there was an “agreement to merge,” the Court ruled that New Jersey courts have looked at parties’ intent to discern whether a preliminary agreement was binding. If the parties intend to be bound by their preliminary agreement and view the later written contract as merely a memorialization of their agreement, they are bound by the preliminary agreement. The Court stated this was not the case here, finding that the first party’s evidence of the parties’ intent to be bound by the alleged agreement to merge was insufficient. The Court pointed out that the first party failed to provide any evidence that the parties acted in any way to carry out the alleged oral agreement to merge. In furtherance of this position, it noted that the first party failed to explain why the parties would enter an oral agreement to merge without any specific points written out when the parties had already executed a detailed letter of intent.

The Court also dismissed the first party’s claim under the Oppressed Shareholder Statute, declaring that the first party lacked standing. To have standing under that statute, the party must be either a director or shareholder of the second party. The first party was neither a director nor shareholder of the first party.

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