Delaware Court of Chancery Finds Oral Agreement to Form a Joint Venture Enforceable
In Leonard F. Iacono Sr. et al. v. Estate of Joseph M. Capano et al, C.A. No. 11841-VCL (Del. Ch. June 29, 2020), the Delaware Court of Chancery denied the defendants’ motion for summary judgment because the evidence, construed in favor of the Plaintiffs, could support a finding that an enforceable oral agreement to form a joint venture existed between the parties.
Leonard Iacono (the “Plaintiff”) and the late Joseph M. Capano (the “Defendant”) were close friends and real estate developers. Capano successfully bid on Phases 1 and 2 of a commercial development in Middletown, Delaware. Phase 3 of the project involved the purchase and development of additional property. The Plaintiff and Defendant discussed bidding on Phase 3 together and in June, 2015 met at a country club to play golf and discuss the project. The Plaintiff testified that he and the Defendant orally agreed that they would pursue Phase 3 together and were going to be 50/50 partners in the acquisition and development. He further testified that they agreed a limited liability company (“LLC”) would be formed to own the property and that the Defendant would circulate a draft LLC agreement. Both Plaintiff and Defendant later told their associates about their agreement to acquire Phase 3 together. Shortly thereafter, the Defendant caused one of his real estate companies to submit a bid to acquire Phase 3. Defendant circulated a first draft of an LLC Agreement that reflected a 50/50 arrangement from an economics perspective but gave the Defendant control over the entity. Plaintiff rejected this draft and had his lawyer draft an entirely new agreement. Over the phone, both parties agreed that they would be equal in every respect. Shortly after receiving Plaintiff’s draft, Defendant unexpectedly died. His widow, and executrix, decided to pursue Phase 3, caused their company to execute a formal agreement to purchase Phase 3, and continued to negotiate with the Plaintiff. While Plaintiff’s team began to seek financing and conducted due diligence related to the project, Defendant’s widow and team began to dislike and distrust Plaintiff. The parties exchanged several drafts of the LLC agreement and met in person but relations grew increasingly tense and eventually discussions terminated. In negotiating the LLC Agreement, the Defendant’s attorneys continued to propose terms very favorable to the Defendant and to reject Plaintiffs concerns.
When Defendant’s team closed on Phase 3, the Plaintiff filed a complaint to enforce the oral contract. Defendant filed for summary judgment arguing that no contract was formed because the parties did not agree on all material terms. The Court found that the two material terms were ownership and control and, as to both, the parties agreed they would be equal in all respects. The Court took into account the parties’ longstanding relationship, history of dealing and the nature of the agreement and concluded that the at very least, the parties agreed to the general structure of the joint venture and committed to negotiate in good faith over the terms of the LLC agreement.
The Court denied the motion for summary judgment finding that the evidence could support the existence of an oral agreement to form a 50/50 joint venture to acquire Phase 3.