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Nissen v. Rozsa

2011 WL 2517134 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

BROKERS — New Jersey’s statute of frauds is not applicable to a transaction that does not involve the entitlement of a business broker to a commission from the seller, buyer or authorized agency, but where it only deals with distribution of that commission from one business broker to other business brokers.

A company entered into a six month representation agreement with a consulting firm to assist it with finding financing or finding a buyer for its business, obligating the company to pay the firm a commission if it obtained financing or located a buyer. The consulting firm’s sole proprietor e-mailed a third-party regarding a brokerage project. Thereafter, the consulting firm’s proprietor and the third-party began working together to find a buyer for the company. An associate prepared a business plan and revised the company’s financial reports. The consulting firm’s proprietor reviewed the reports and the business plan was finalized. He claimed that he contacted various businesses as potential buyers. The third-party then notified the consulting firm’s proprietor that he wished to recruit another associate to assist with the project. The proprietor believed that the second associate would be paid from the first associate’s compensation.

After the consulting firm’s representation with the company expired, it stopped searching for a buyer, but continued to contact the company in hopes of executing a new agreement. The first associate continued to search for buyers. The second associate began a job as a business development consultant for a pharmaceutical company. He made internal inquires at his employer regarding the company, but failed to generate any interest.

The consulting firm’s proprietor and the two associates then met. Prior to the meeting, the consulting firm’s proprietor prepared a list of pharmaceutical companies he thought might be interested in purchasing the company. The second associate’s employer was listed as a top candidate, but because there was no representation agreement in place, the proprietor did not suggest that the employer be contacted. The associates each claimed that, at the close of the meeting, the parties agreed to share the fees, with each receiving 30% and with the additional 10% to be allocated later. The consulting firm’s proprietor disputed this, claiming that any such discussion was merely a “toast to potential future collaborations.”

The second associate later spoke to his supervisor about potential acquisition of the company. He was referred to another person. That person expressed interest in pursuing the matter further. The second associate then informed the consulting firm’s proprietor that his employer was interested in the company and, shortly thereafter, the consulting firm entered into a new representation agreement with its old client. The second associate arranged a meeting between the company and his employer with the firm’s associate was in attendance. A second meeting then took place with all three individuals in attendance. The consulting firm’s proprietor then received a verbal offer for the company and participated in the subsequent negotiations. He kept the first associate appraised of the status of the transaction, but the second associate was not involved in the negotiations or in any due diligence investigation. In fact, the second associate did not appear to have been involved in the transaction after the initial meetings. The deal closed, and the consulting firm received a commission. The two associates filed a complaint seeking a combined 60% share of the commission proceeds based on the alleged oral agreement.

The parties cross-moved for summary judgment. The associates claimed that a partnership or joint venture had been created among the parties and that there was an enforceable oral contract. The consulting firm and its proprietor argued that any oral contract that might have existed among the parties was barred by the statute of frauds or, in the alternative, was unenforceable because there was no agreement as to certain essential terms. The two associates further alleged a breach of the implied covenant of good faith and fair dealing and alleged unjust enrichment, arguing for the imposition of a constructive trust. The Court began by rejecting the associates’ motion for summary judgment on a partnership theory. According to the Court, the amended complaint contained no cause of action based on that theory, and it was improper for the associates to assert a new claim in their summary judgment motion.

The Court then found New Jersey’s statute of frauds to be inapplicable to the transaction because the transaction did not involve the entitlement of a business broker to a commission from a seller, buyer or an authorized agent but dealt with the distribution of that commission from one business broker to other business brokers.

The Court next considered the associates’ claim that they were entitled to recovery under either of two allegedly made oral contracts: the first between the proprietor and first associate; and, the second among the three parties. However, the amended complaint was faulty here, too. It failed to demand relief under the first agreement. Regarding the second agreement, the Court found that the enforceability of such an alleged agreement was significantly dependent on the credibility of the witnesses, thus precluding summary judgment. Similarly, the consulting firm’s proprietor’s request for summary judgment was denied because the question of whether essential terms were settled was a question of fact that could only be answered by considering the credibility of, and evidence offered by, the parties. Therefore, the Court could not conclude that the alleged agreement would be void for vagueness or that a missing essential term could be inferred from the circumstances without resolving the factual issues surrounding the meeting.


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