Krolick v. Sloane

Background

Jordan Krolick and Tound & Drowth, LLC sued Alex Sloane and Matthew Perelman over an alleged oral agreement to form a franchise holding company in the quick-service-restaurant industry. Krolick alleged that he would provide advice, expertise, and assistance with franchise acquisitions in exchange for a 3% success fee that would be converted into an equity interest in the business.

The parties first entered a written two-week advisory arrangement concerning a potential Yum! Brands transaction. Sloane paid Krolick $4,000 for that work, but the transaction did not occur. Plaintiffs then alleged that the parties formed a later business arrangement through conversations and other exchanges that were not specifically identified in the amended complaint and were not memorialized in a written contract.

Plaintiffs alleged that Krolick performed extensive work relating to the acquisition of approximately 23 Burger King restaurants in North Carolina. They further alleged that, after the acquisition, the defendants told Krolick, “You have Equity! Equity! Equity!” Plaintiffs claimed that Krolick continued providing services but was not compensated for five months of work on the Burger King transaction, apart from payment for a one-day site visit. Plaintiffs also alleged that they worked on a Starbucks opportunity and received $20,000 for that work.

Court’s Analysis

The court applied New York law because the parties’ briefs assumed that New York law governed the claims. On the motion to dismiss, the court treated the complaint’s factual allegations as true but did not accept legal conclusions presented as facts.

The court dismissed the breach-of-contract claim because the alleged oral agreement lacked definite material terms. In particular, the complaint did not clearly explain what Krolick had agreed to do in exchange for the equity. The court held that the parties therefore had not shown a sufficiently definite meeting of the minds. For the same reason, the court dismissed the unilateral-contract claim, which depended on specific acts Krolick was required to perform, and the implied-contract claim, because an implied-in-fact contract must satisfy the same basic requirements as an express contract.

The court dismissed the fraud claim under the heightened pleading requirements for fraud. The alleged statements before the Burger King closing were promises about future conduct rather than statements of present fact. The later statement that Krolick had equity could potentially support a fraud claim, but the complaint did not provide facts creating a strong inference that the defendants intended to deceive Krolick when they made the statement.

The court also dismissed the negligent-misrepresentation claim. The alleged pre-closing statements were promises about future conduct, not actionable factual misrepresentations. As to the later statements, the plaintiffs did not adequately allege the required special relationship imposing a duty to provide accurate information. The court noted that Krolick, rather than the defendants, was alleged to possess specialized expertise.

The court allowed the unjust-enrichment and quantum-meruit claims to proceed. Unjust enrichment is a claim that a defendant unfairly received a benefit at the plaintiff’s expense, while quantum meruit seeks the reasonable value of services provided. The court found that plaintiffs plausibly alleged that the defendants benefited from Krolick’s services, that the services were provided at plaintiffs’ expense, and that restitution might be required by fairness. The court also stated that any eventual quantum-meruit recovery would be based on the reasonable value of the services, not the alleged 3% equity benefit.

Ruling

Judge Ronnie Abrams granted in part and denied in part the defendants’ motion to dismiss. The court granted the motion as to the claims for breach of contract, breach of an implied contract, fraud, and negligent misrepresentation, and dismissed those claims with prejudice. The court denied the motion as to the claims for unjust enrichment and quantum meruit. The court also ordered the parties to appear for a telephonic status conference and to submit a revised case-management plan.