But Did They Create a Binding Joint Venture?

Friends, neighbors, and acquaintances often enter into “handshake” business agreements with the best of expectations. But what suffices to create a legally enforceable “joint venture”? As a recent case illustrates, the best intentions may not be enough to support a joint venture claim.

JRAP Enterprises, Inc. and Zachary Rapaport (as an administrator of the estate of Joseph Rapaport) alleged that they entered into a joint venture agreement to perform house-lifting service after Hurricane Sandy with Zucaro Construction, LLC and Zucaro Home Lifters, Inc. And JRAP alleged that the Zucaros entered into subcontracts with general contractors to perform the work and agreed to pay JRAP 10% of the gross payments received for each subcontract.

JRAP alleged that it was not paid for more than 40 subcontracts, although they performed and filed suit to recover damages for breach of contract, breach of fiduciary duty, an accounting breach of the implied covenant of good faith, and fair dealing quantum meruit, and unjust enrichment.

The Zucaros moved to dismiss the second, third, and fourth causes of action for breach of fiduciary duty, an accounting, and breach of the implied covenant of good faith and fair dealing, respectively.

The second cause of action for breach of fiduciary duty was based on the alleged joint venture agreement. An indispensable essential of a contract of a joint venture is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses. It is not enough that two parties have agreed to act in concert to achieve some stated economic objective. A plaintiff seeking to establish a joint venture must prove more than a simple contractual relationship. It is insufficient for a plaintiff to allege mere joint ownership, a community of interest, or joint interest in profitability. Intent to submit to the burden of making good the losses of the other is indispensable. And the value of services is not sufficient to satisfy the required sharing-of-losses element.

JRAP alleged that an agreement “to accept the loss of being denied any compensation for the multitude of hours of uncompensated time and expenses incurred by them in performing the work . . . if the subcontracts, or any of them, were not awarded to [the Zucaros] or if [the Zucaros] were not paid for their work through no fault of their own.” But JRAP failed to allege a mutual promise or undertaking to share the burden of the losses of the alleged enterprise—and the allegations amounted to nothing more than an agreement to risk losing their expenses and the value of their services. The failure to allege an agreement to share losses precluded finding that there was a joint-venture agreement.

In the absence of a joint-venture agreement, JRAP merely alleged a contractual relationship. But it is well settled that parties engaged in an arms-length business transaction are not fiduciaries. A claim for breach of fiduciary duty cannot be based on the same facts and theories as a breach of contract claim. Accordingly, the second cause of action for breach of fiduciary duty was dismissed.