To form a partnership, the parties must actually join together to carry on a business venture, and not merely agree to form a partnership. This distinction was decisive in the Illinois appellate court unpublished decision in Foreman-Daitch v. Groupon, Inc., 2019 IL App (1st) 182012-U.
In Foreman-Daitch, plaintiff Martha-Jane Foreman-Daitch was a social acquaintance with Eric Lefkofsky, one of the founders of Groupon. In January 2010, she met with Lefkofsky and Darren Schwartz, Groupon’s head of sales, to discuss her desire to “partner” with Groupon to create “Travelon,” a new section of Groupon’s website where it would sell prepackaged travel deals. Id. ¶ 7. According to Foreman-Daitch, Lefkofsky told Schwartz, “She has a great idea. Get this done. She knows everybody.” Id.
Thereafter, Foreman-Daitch sent emails to various travel industry contacts indicating she was “working with” Groupon to develop a similar site for travel. Id. ¶ 9. In March 2010, Foreman-Daitch admitted that she “wanted to make the relationship concrete” with Groupon, but Groupon provided no favorable response to that desire. Id. ¶ 12. In July 2011, Groupon launched Groupon Getaways, offering discounted travel deals with its partner Expedia.
Foreman-Daitch sued Groupon in August 2015 for breach of partnership agreement, breach of implied contract, unjust enrichment and other claims. The circuit court granted Groupon’s motion to dismiss some of her claims, and its motion for summary judgment regarding the remaining claims. The Illinois Appellate Court affirmed. Its discussion regarding partnerships is interesting for closely held company practitioners and principals.
The court emphasized that a partnership is a contractual relationship that “must stem from mutual consent of the alleged partners.” Id. ¶ 20. The burden of proving a partnership is on the party asserting it -- here, Foreman-Daitch. In determining the existence of the partnership, Illinois courts consider how the alleged partners dealt with each other, how they dealt with others, whether they advertised using a firm name and whether they shared profits.
The appellate court found that while Groupon asked Foreman-Daitch to meet with travel industry contacts and Foreman-Daitch indicated she was “working” with Groupon, Groupon never held itself out as a partner with Foreman-Daitch, never filed a partnership certificate and never shared profits. While the court acknowledged that Lefkofsky told Schwartz to “get this done” after Foreman-Daitch indicated she wanted to “partner” with Groupon, Foreman-Daitch thereafter sought “to make the relationship concrete.” Id. ¶ 21-22.
The court held that this implicitly acknowledged that the parties had not agreed to form a partnership as of that time. Indeed, while the court could infer that Lefkofsky intended to start the process of forming a partnership when he indicated his desire to “get this done,” “the mere agreement to form a partnership does not itself create a partnership. Rather, a partnership only arises when the parties actually join together to carry on a venture for their common benefit.” Id. ¶ 22 (quoting Kennedy v. Miller, 221 Ill. App. 3d 514, 521 (2nd Dist. 1991)).
Foreman-Daitch conceded that there was no written agreement or discussion of how profits and losses would be split, how to account for disproportionate capital contributions or how percentage ownership would be split. The court held: “The absence of a meeting of the minds relating to such critical terms leads irresistibly to the conclusion that the parties did not have the intent necessary to create a partnership.” Foreman-Daitch, 2019 IL App (1st) 182012-U, ¶ 22 (quoting McCorkle v. Tyler Reporting Co., 159 Ill. App. 3d 62, 69 (1st Dist. 1987)). For the same reason, the court rejected Foreman-Daitch’s alternative theory that there was a joint venture, which is a form of partnership relating to a large transaction or project. The evidence required to demonstrate a joint venture is the same, and did not exist for the same reasons.
The lesson for principals and practitioners is that -- just like in any situation involving contracts -- a written document would have gone a long way to proving a partnership for Foreman-Daitch. By the same token, a communication explicitly disavowing such a partnership may have assisted Groupon in avoiding a lawsuit on the basis of partnership theories altogether. It is always advisable to put these sorts of details in writing to assist in avoiding disputes in the future.
At Novack and Macey, we have extensive experience advising shareholders involved in closely held company disputes, as well as advising companies on how to avoid disputes in the first place. For more information about our services, please contact John Haarlow at 312.419.6900 or email@example.com.