Jeremias v. Toms Capital LLC
Fiduciary Duties in Partnerships and

Joint Ventures


Frequently, two or more people will combine their financial resources, efforts, skill, and knowledge in furtherance of some business enterprise and in the hope of generating a profit. These co-venturers may choose not to form a corporation or limited-liability company, but instead operate along less formal lines.  They may choose to bind themselves to some sort of formal written agreement, or they may instead proceed with little more than a handshake and a set of mutual assumptions and understandings.  In these circumstances, such businesspeople—intentionally or not—may have established an arrangement that qualifies as a joint venture or a partnership under New York law.  Fiduciary duty questions have arisen in joint ventures and partnerships perhaps since as long as those arrangements have been legally recognized, and a recent decision of the Appellate Division, First Department, offers an illuminating glimpse into how courts assess the nature and scope of the fiduciary duties owed by joint venturers or co-partners.

In Jeremias v. Toms Capital LLC, 204 A.D.3d 498 (1st Dep’t 2022), a case involving the development of a valuable parcel of real estate in Manhattan’s Meatpacking District (the “Property”), the court upheld a fiduciary-duty claim asserted by the plaintiff, a real-estate developer, against the defendants, with whom the plaintiff alleged he had reached an agreement to jointly develop the Property.

Before getting into the specifics of the case, a brief review of the legal definitions of “joint venture” and “partnership” will help set the stage.

At the most basic level, a partnership “is an association of two or more persons to carry on as co-owners a business for profit.”  Czernicki v. Lawniczak, 74 A.D.3d 1121, 1124 (2d Dep’t 2010).  Partners do not always memorialize their partnership in a written agreement.  “When there is no written partnership agreement between the parties, the court must determine whether a partnership in fact existed from the conduct, intention, and relationship between the parties.”  Id.  “Factors to be considered in determining the existence of a partnership include (1) sharing of profits, (2) sharing of losses, (3) ownership of partnership assets, (4) joint management and control, (5) joint liability to creditors, (6) intention of the parties, (7) compensation, (8) contribution of capital, and (9) loans to the organization.”  Id.  

Joint ventures are similar to partnerships, and as one court has opined:  “A joint venture is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership.”  Schultz v. Sayada, 133 A.D.3d 1015, 1016 (3d Dep’t 2015).  The elements of a joint venture include:  “[1] an agreement manifesting the intent of the parties to be associated as joint venturers, [2] a contribution by the coventurers to the joint undertaking (i.e., a combination of property, financial resources, effort, skill or knowledge), [3] some degree of joint proprietorship and control over the enterprise, and [4] a provision for the sharing of profits and losses.”  Id.

The parties’ dispute in Jeremias arose from “various negotiations and transactions relating to the purchase and potential development of” the Property.  Jeremias v. Toms Capital LLC, 2021 WL 4264000, at *1 (Sup. Ct. N.Y. Co. Sept. 17, 2021).  The Property has been described as an “undervalued warehouse” adjacent to the townhome of billionaire businessman Noam Gottesman (“Gottesman”), one of the defendants in the case.  Id.  The plaintiff, developer Harry Jeremias (“Jeremias”), sued Gottesman and his company, TOMS Capital LLC (“Toms Capital”). 

In Jeremias’s Amended Complaint, he asserted a breach of fiduciary duty claim against TOMS Capital alleging as follows:

  • TOMS Capital and Jeremias intended to form a partnership to develop the Property, entered into a joint-venture agreement, and committed to entering into a more formal agreement, although “a formal document was never executed;”
  • Nonetheless, the parties “frequently used the word ‘partnership’ to describe their relationship;”
  • TOMS Capital thus owed Jeremias fiduciary duties “[a]s a member of the partnership,” and breached those duties by engaging in a host of alleged misconduct, including shutting Jeremias and/or his affiliates out of the development of the Property, selling the Property without Jeremias’s knowledge or consent, “applying fees and costs against” proceeds generated by the development of the Property “that were never agreed upon,” and engaging in “self-dealing,” among other things.

Jeremias thus alleged precisely the sort of partnership that can exist in the absence of a formal, written partnership agreement.  And that partnership was the basis for Jeremias’s claim that TOMS Capital owed Jeremias fiduciary duties and breached those duties.

The lower court gave short shrift to Jeremias’s fiduciary-duty claim, and dismissed it at the summary-judgment stage.  However, the Appellate Division reversed and reinstated the claim.  In so doing, the appellate court held as follows:

The breach of fiduciary duty claim should also be reinstated. Defendants argue that plaintiff cannot establish the existence of any partnership or joint venture (the premise for the fiduciary duty claim), contending that he would not share in any losses because he was not an equity investor in the project. However, there are issues of fact as to whether this was a situation in which there was no reasonable expectation of loss, thus falling under the exception to the general requirement that partners and joint venturers must agree to share in losses as well as profits . . . . Further, contrary to defendants’ contention, even to the extent the agreement gave them sole control over all decisions of the development company with respect to the property’s development, it did not give them license to self-deal.

Jeremias, 204 A.D.3d at 500. 

This decision was a significant victory for Jeremias.  As articulated above, one of the elements of a joint venture or partnership is some indication that the parties agreed to share profits and losses.  Here, TOMS Capital apparently attacked Jeremias’s fiduciary-duty claim on the basis that Jeremias was not an equity investor in the project to develop the Property and therefore could not share in any losses.  In other words, TOMS Capital argued that no fiduciary obligation existed because the relationship giving rise to such an obligation—a partnership or joint venture—did not exist in the first place. 

The appellate court completely rejected this argument.  Relying on its own prior precedent, the court held that there is a legal exception to the rule that joint venturers or partners must agree to share profits and losses where no reasonable expectation of loss exists.  That is, the court held that it was conceivable that there was no expectation that the parties would lose money in developing the Property.  On that basis, the court reinstated Jeremias’s fiduciary-duty claim against TOMS Capital.  Based on a review of the court’s docket, it appears that this case will now head to trial unless the parties reach a settlement first.

An especially interesting aspect of this case is the apparent reason why the court held that it was conceivable that the parties had no reasonable expectation of loss.  As Jeremias’s attorneys argued to the appellate court, the project to develop the Property—again, a valuable piece of real estate in lower Manhattan—was less “volatile and speculative” than other markets, such as the “oil and natural gas industry.”  (Jeremias Reply Brief at 7-8.)  That aspect of this case, Jeremias’s lawyers successfully argued, distinguished it from other cases involving more volatile industries, such as Lebedev v. Blavatnik, 193 A.D.3d 175 (1st Dep’t 2021).  In Lebedev, the same appellate court recently held that “a commodity such as oil is inherently volatile,” and that “[g]iven the ever-changing, and often unanticipated, vagaries which can affect that particular market, such as political unrest, climate, economic downturns and global pandemics, plaintiff did not meet his burden” of establishing that there was no reasonable expectation of loss in connection with a multi-billion-dollar transaction involving the sale of a Russian state-owned oil company.  Id. at 176.

In sum, the Jeremias case should put those engaged in relatively less formal business relationships on guard that they may owe their business associates fiduciary duties.  Just because joint venturers or partners lack a written agreement memorializing their business arrangement does not necessarily free them from traditional fiduciary duties—even where they have not agreed to share in the profits and losses.  And as Jeremias shows, the failure to fulfill one’s fiduciary duties may result in a years-long, expensive litigation in multiple courts that ends only in a full-blown trial.