Agreeing to Form a Partnership is Not a Partnership Agreement: Illinois Case Example
One of the thornier problems in the law concerns so-called “agreements to make an agreement.” Many San Diego and California businesses have found themselves facing litigation when one party asserts that an agreement was reached while the other says, “no, we just agreed to try and reach an agreement.” The same problem occurs many times with partnerships. Under California law, a partnership is formed when two or more persons or business agree to start a business and to share profits (and losses). This is true whether or not the parties involved draft up a written partnership agreement. Oral partnerships can be valid in California as can partnerships-via-conduct. Partnership is entirely a creature of contract and agreement. Thus, there can arise the problem of agreeing-to-agree and whether that amounts to a partnership. This is among the many reasons that businesses should consult an experienced San Diego corporate attorney for advice and counsel with respect to general partnerships.
A recent case from Illinois involving the company Groupon shows that, generally, an agreement to make a partnership is not the partnership agreement. This is particularly true if the facts show that there are efforts made and steps taken after the agreement-to-agree is reached to negotiate and establish the parameters of the partnership agreement. The case is Foreman-Daitch v. Groupon, Inc., Case No. No. 15 L 7926 (Ill. App. 1st Dist. September 3, 2019) (non-precedential). In that case, the plaintiff — Martha-Jane Foreman-Daitch — alleged that she entered into a partnership with Groupon to expand Groupon into the travel business. According to Foreman-Daitch, she met with one of the founders of Groupon in early 2010 and pitched the idea of partnering with Groupon to create an offshoot called “Travelon.” Supposedly, the response was: This is a “great idea. Get this done.”
After that, Foreman-Daitch began working on the idea, making contacts with various people that she knew in the travel industry. A few months later, March 2010, she made efforts to make her relationship with Groupon “concrete.” Those efforts were rebuffed by Groupon and, then, in the summer of 2011, Groupon started on offshoot called “Groupon Getaways.” Foreman-Daitch’s “Travelon” never launched. In 2015, Foreman-Daitch sued Groupon claiming that they had formed a partnership in early 2010. Foreman-Daitch alleged breach of the partnership agreement, breach of implied/oral contract, and other claims. Groupon defended the case by presenting facts showing that no partnership had been agreed to between Groupon and Foreman-Daitch.
At the trial level, Groupon was successful. On appeal, Groupon was again successful. The appellate court agreed that, even if there was an agreement to form a partnership in January 2010, that agreement-to-agree was not the partnership agreement itself. The court relied heavily on the fact that in March 2010, Foreman-Daitch made efforts to formalize her “partnership” with Groupon. However, Groupon did not respond favorably to her efforts. By April 2010, Foreman-Daitch stopped sending emails and correspondence to travel companies and, basically, stopped working on the “Travelon” idea. Further, she made no mention of her “partnership” with Groupon on tax returns or financial statements filed during the relevant time period. Finally, Groupon’s effort to enter the travel industry did not launch until more than a year later in July 2011. Taken together, the court held that Foreman-Daitch had no evidence that could legally support a claim for partnership. Dismissal of her claims was affirmed.
Legal lesson: If you believe you have a partnership, hire experienced counsel and get the partnership agreement in writing.
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For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard’s law practice is focused on corporate, securities, contract, and intellectual property law for small and medium businesses in the San Diego area. Like us on Facebook.