Joint Venture Must Include Sharing of Profits and Losses

On October 7, 2021, Justice Emerson of the Suffolk County Commercial Division issued a decision in JRAP Enters., Inc v. Zucaro Constr., LLC, 2021 NY Slip Op. 50967(U), holding that the existence of a joint venture depends on an agreement to share both profits and losses, explaining:

The second cause of action for breach of fiduciary duty is based on the alleged joint venture agreement. An indispensable essential of a contract of 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, and it is insufficient for a plaintiff to allege mere joint ownership, a community of interest, or a joint interest in profitablity Intent to submit to the burden of making good the losses of the other is indispensable. Additionally, the value of services is not sufficient to satisfy the required sharing-of-losses element.

The plaintiffs allege that they agreed 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 Defendants or if Defendants were not paid for their work through no fault of their own. The plaintiffs have failed to allege a mutual promise or undertaking to share the burden of the losses of the alleged enterprise. The plaintiffs’ allegations amount to nothing more than an agreement to risk losing their own expenses and the value of their own services. The failure to allege an agreement to share losses precludes finding that there was a joint-venture agreement.

In the absence of a joint-venture agreement, the plaintiffs have merely alleged a contractual relationship. It is well settled that parties engaged in an arms-length business transaction are not fiduciaries. Moreover, 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 is dismissed.

(Internal citations omitted).

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