Sometimes, in the heat of a new project or business opportunity, slowing down to make a written agreement seems boring, unnecessary, and even adversarial. When everything is going well, the parties can feel that reducing it to writing means they don’t trust each other. But an interesting, recent case illustrates exactly how important it is to “get it in writing” — and offers a lesson to confirm what each side expects in order to avoid a substantial misunderstanding.
In Dorfman and RenJolt Inc. v. Reffkin and Urban Compass (Appellate Division of N.Y., 1st Dep’t), the plaintiffs alleged that the defendants stole a business model and software that plaintiff Dorfman had created.
Defendant Reffkin is the founder of Urban Compass, which occupies the same niche as Dorfman’s RentJolt: engaging the real estate rental market using cutting-edge data and novel algorithms. The heart of the dispute centers around an ill-fated partnership between Dorfman and Reffkin that began with a non-disclosure agreement (NDA). Dorfman provided his technology to help develop defendants’ company, but the NDA contemplated the parties’ entering into a “definitive agreement” later on. (“Later! Later! Can’t you see I’m busy?”). Reffkin proceeded to integrate the technology into Urban Compass and secured funding from heavyweights such as Goldman Sachs.
Urban Compass then rose in value to $360 million.
When Dorfman sought to enforce the NDA he had made with Reffkin, Reffkin offered him a lesser salary and a little equity, which Dorfman considered “insulting.” Dorfmann did not allege that he was promised anything different, but apparently expected to be treated fairly. Reffkin, in contrast, didn’t have to be fair. After all, they hadn’t entered into a “definitive agreement,” and Reffkin had everything he needed from Dorfman already. Reffkin might have figured that a written contract would only work to his detriment, so he could accept Dorfman’s contributions and did not care that they hadn’t reduced any commitment to writing.
Dorfman filed suit, defendants’ moved to dismiss the case so that they would not have to answer the complaint. The trial court dismissed a few claims but sustained the most important ones from a damages perspective: quantum merit and unjust enrichment.
Defendants, unhappy with the result, appealed to the Appellate Division, which sustained the trial court’s ruling with a relatively minor modification.
The lower court had said that what Dorfman was really trying to do was get credit as a broker for a deal that became very valuable. And a broker’s agreement has to be in writing under the Statute of Frauds. But on appeal, Dorfman’s attorneys succeeded in arguing that he wasn’t merely seeking a broker’s commission, he was seeking compensation for providing things that were in addition to any kind of negotiating. He wanted compensation for his technology, business plan, and improvements to Reffkin’s software app. And that’s a lot different from negotiating a contract with Goldman Sachs, and merely acting as a broker.
The moral of the story is simple: Even when you think you’re in a position of strength (here, Reffkin after Dorfman let the proverbial cat out of the bag), a contract might limit someone’s potential claims against you. Get it in writing. Without a clear understanding, reduced to tedious detail and signed by the parties, Dorfman was vulnerable to remaining uncompensated and Reffkin was vulnerable to a lawsuit. And as the appellate court’s ruling clearly demonstrates, sometimes a determined plaintiff won’t go away quietly.
