A split appellate court has recognized the validity of a breach of contract claim filed by a partner in a longtime unmarried lesbian relationship who claimed she had quit her job to care for the couple’s children in exchange for a share of the couple’s assets and the working partner’s retirement benefits.

A 3-1 panel of the Appellate Division, Second Department, reinstated the claim of Laura Dee.

“There is no reason, on this record, at this early stage of the litigation to conclude, as the Supreme Court did, that the oral agreement between the parties cannot serve as the basis for a breach of contract cause of action,” Justice Leonard Austin (See Profile) said in Dee v. Rakower, 2011-02738, joined by Justices Ruth Balkin (See Profile) and Jeffrey Cohen (See Profile).

The court agreed to resolve the appeal though the parties settled, apparently accepting the position of Dee’s pro bono attorney, Michele Kahn of Kahn & Goldberg, that the case involved important issues for both gay and heterosexual couples.

Kahn noted in a letter to the court that there were “tens of thousands of unmarried, mostly gay, couples in the State.” Although those couples can now marry, she said “questions will remain” about the application of equitable distribution laws to “specific and identifiable promises and agreements” prior to their marriages.

Kahn also argued that, according to the Census Bureau,”an increasing number of couples are rejecting the institution of marriage.”

“The manner in which this couple conducted their lives—relying and acting upon each others’ specific promises, without formal writings, is the way that most unmarried couples live their lives,” she wrote. “Inevitably, many of these couples will break up, and inevitably many of these couples will be involved in litigation over property and assets that were acquired during the relationship,” Kahn wrote.

The Second Department majority reversed a lower court that had thrown out the breach of contract claim. But Justice Mark Dillon (See Profile) argued that the claim should have been rejected.

“The complaint is devoid of any allegation as to whether and how their assets and pension benefits would be divided in the event the parties were to no longer be together,” he wrote. “To read such a provision into the parties’ agreement, where none is expressed in the complaint, would result in the invention of implied contractual provisions which, as noted, is prohibited by our law for agreements between unmarried persons living together.”

He emphasized that none of his partial dissent reflected views on the state’s marriage equality law. He said he was “sensitive to the complications occasioned by various forms of familial relationships” but had to abide by the rules established that govern the distribution of assets through marriage or enforceable contracts.

The Nov. 13 ruling arose from the 2007 breakup of a nearly 18-year relationship between Dee and Dena Rakower.

The Brooklyn couple had two children, with each being the biological parent of one and adopting the other. Before the children’s birth, both Dee and Rakower worked full-time, earning salaries and retirement benefits. Dee worked in hospice care and Rakower was an administrator at Bellevue Hospital Center, where she had a pension.

In her 2009 lawsuit—prior to the July 2011 enactment of the state’s Marriage Equality Act—Dee said that after the first child’s birth, the couple entered an oral “joint venture/partnership” agreement.

Dee claimed the couple decided she would leave her job and work part-time to “be home with the child (later, children) and perform other non-financial services for the benefit of the family” while Rakower would keep working full-time.

Dee maintained the pair had agreed all financial contributions from either woman would be shared equally. She also said that they specifically agreed Dee would be entitled to half of Rakower’s retirement earnings and contributions earnings for the time that Dee was not at a job with a retirement plan.

Dee’s suit pressed claims including breach of contract, unjust enrichment and constructive trust.

Rakower denied any agreement existed. In January 2011, Brooklyn Supreme Court Justice Yvonne Lewis granted her dismissal motion.

“The alleged oral agreement suggests the manner in which the parties were to conduct their relationship while it lasted, but Ms. Dee has not alleged any written or oral agreement about the distribution of assets or property that they acquired during their relationship or about distribution after they parted,” said Lewis, who refused to “imply such an agreement.”

The Second Department majority disagreed.

Austin said the elements of a breach claim are the existence of a contract, performance, breach of the obligations and damages as a result—all of which Dee pleaded.

Austin said the alleged agreement was “supported by consideration.” This included Dee’s decision to refrain from advancing her career, “the inability to continue to save toward her retirement during that forbearance, and her maintenance of the household in return for a share in the defendant’s retirement benefits and other assets earned during the period of forbearance.”

Dillon acknowledged that state courts recognized that agreements between cohabitating, non-married individuals are enforceable “as long as illicit sexual relations are not part of the consideration underlying the contract.”

But he added courts cannot “imply contractual obligations between cohabitating unmarried persons, as it is natural that services will be rendered from one to the other gratuitously.”

Here, Dillon said Dee failed to state there was a “meeting of the minds” about how to divvy property and assets after the break-up.

“The plaintiff’s theory of recovery is dependent upon implying terms for the distribution of retirement benefits to circumstances involving the dissolution of the parties’ familial relationship,” he said.

But Austin said Dee’s breach of contract claim had “sufficient definiteness” and did not need to state a meeting of the minds to survive a dismissal motion.

“The failure to include the mechanism for the implementation of the parties’ alleged agreement does not negate the allegations in the complaint that they entered into an agreement with regard to the rights to their assets,” he said.

While reinstating the contract claim, the majority affirmed dismissal of the other claims.

In an interview, Kahn said she was “extremely gratified” with the ruling. She said she had seen too many other split, non-married gay couples in similar situations “and seen a lot of poorer partners end up with little or nothing.”

The majority decision “clarifies what’s needed to state a claim for breach of contract,” she said.

Kahn noted that Roberta Kaplan of Paul, Weiss, Rifkind, Wharton & Garrison appeared on reply appellate brief in the case.

David Rubinstein of Weiss & Hiller represented Rakower on appeal. He said he agreed with Dillon’s dissent but understood “reasonable minds can differ. It’s a thorny issue.”

He continued, “What’s fascinating is the interplay between the line of cases that stand for the proposition that a court won’t recognize implied contracts arising from non-marital couples cohabitating…and the cases that arise outside that context which might enable courts to imply terms as a means to address defects in pleadings.”