A Final Agreement and a Losses Sharing Provision Might No Longer Be ‘Indispensable’ Elements of Joint Venture Agreements

A recent decision by the Appellate Division, First Department, Bradbury v. Israel, 204 A.D.3d 563 (1st Dep’t 2022), suggests potential increased flexibility with respect to pleading two key elements that have been “indispensable” to alleging the formation of a joint venture under New York law: a concrete, final agreement (rather than an agreement to agree) and sharing of profit and losses.

First, New York courts have consistently held that if a document setting forth the parties’ alleged agreement only provides the framework for future negotiations, such document constitutes an unenforceable agreement to agree. See, e.g., Scheider v. Jarmain, 85 A.D.3d 581, 582 (1st Dep’t 2011) (holding that a letter of intent that merely provided framework for continuing negotiations constituted an unenforceable agreement to agree). Similarly, communications do not constitute an offer where the language and context of the document make clear that a future bargain is contemplated. See FCRC Modular v. Skanska Modular, 159 A.D.3d 413, 414 (1st Dep’t 2018) (holding that a document upon which alleged joint venture was allegedly created was “at most a nonbinding offer to enter into a joint venture and insufficient to form the basis of a breach of contract claim”); New York Mil. Acad. v. NewOpen Grp., 142 A.D.3d 489 (2d Dep’t 2016) (“[I]t is rightfully well settled in the common law of contracts in this State that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.”); Michaels Dev. Grp. v. Greene, 267 A.D.2d 760, 760-61 (3d Dep’t 1999) (holding that a purported written offer was not an offer where the writing contemplated a future bargain). The First Department’s decision in Aksman v. Xionwei Ju is particularly noteworthy. 21 A.D.3d 260, 260 (1st Dep’t 2005). The plaintiff alleged that the parties created a joint venture through a letter of intent. See id. The defendant moved to dismiss on the grounds that the letter of intent was an unenforceable agreement to agree and, therefore, did not create a joint venture. See id. at 261. The trial court denied the motion to dismiss, but the First Department reversed, holding that the letter of intent was “clearly a preliminary, non-binding proposal to agree” and expressed the parties’ intent to be bound by a later agreement, which conclusively negated the breach of contract claim. See id. at 260-62.