In today’s featured case, the plaintiff construction firm contracted with a vacation resort operator in the Bahamas partly owned by a Marriott hotel subsidiary. When the resort breached the contract, the plaintiff sued and won a $7.5M default judgment in a Bahamas court. When that judgment proved uncollectable, the plaintiff sued to enforce the judgment in Florida state court against Marriott – arguing it was responsible for the judgment since it was part of a joint venture that owned the resort company. The jury ruled in favor of the plaintiff and against Marriott who then appealed.
Reversing the judgment, the Florida appeals court first noted that under Florida law, a joint venture is an association of persons or legal entities to carry out a single enterprise for profit.
In addition to proving the single enterprise for profit, the joint venture plaintiff must demonstrate (i) a community of interest in the performance of the common purpose, (ii) joint control or right to control the venture; (iii) a joint proprietary interest in the subject matter of the venture; (4) the right to share in the profits; and (5) a duty to share in any losses that may be sustained.
All elements must be established. If only one is absent, there’s no joint venture – even if the parties intended to form a joint venture from the outset.
The formation of a corporation almost always signals there is no joint venture. This is because joint ventures generally follow partnership law which follows a different set of rules than do corporations. So, by definition, corporate shareholders cannot be joint venturers by definition.
Otherwise, a plaintiff could “have it both ways” and claim that a given business entity was both a corporation and a joint venture. This would defeat the liability-limiting function of the corporate form.
A hallmark of joint control in a joint venture context is mutual agency: the ability of one joint venturer to bind another concerning the venture’s subject matter. The reverse is also true: where one party cannot bind the other, there is no joint venture.
Here, none of the alleged joint venturers had legal authority to bind the others within the scope of the joint venture. The plaintiff failed to offer any evidence of joint control over either the subject of the venture or the other venturers’ conduct.
There was also no proof that one joint venture participant could bind the others. Since Marriott was only a minority shareholder in the resort enterprise, the court found it didn’t exercise enough control over the defaulted resort to subject it (Marriott) to liability for the resort’s breach of contract.
The court also ruled in Marriott’s favor on the plaintiff’s fraudulent inducement claim premised on Marriott’s failure to disclose the resort’s precarious economic status in order to entice the plaintiff to contract with the resort.
Under Florida law, a fraud in the inducement claim predicated on a failure to disclose material information requires a plaintiff to prove a defendant had a duty to disclose information. A duty to disclose can be found (1) where there is a fiduciary duty among parties; or (2) where a party partially discloses certain facts such that he should have to divulge the rest of the related facts known to it.
Here, neither situation applied. Marriott owed no fiduciary duty to the plaintiff and didn’t transmit incomplete information to the plaintiff that could saddle the hotel chain with a duty to disclose.
A big economic victory for Marriott. Clearly the plaintiff was trying to fasten liability to a deep-pocketed defendant several layers removed from the breaching party. The case shows how strictly some courts will scrutinize a joint venture claim. If there is no joint control or mutual agency, there is no joint venture. Period.
The case also solidifies business tort axiom that a fraudulent inducement by silence claim will only prevail if there is a duty to disclose – which almost always requires the finding of a fiduciary relationship. In situations like here, where there is a high-dollar contract between sophisticated commercial entities, it will usually be impossible to prove a fiduciary relationship.
Source: Marriott International, Inc. v. American Bridge Bahamas, Ltd., 2015 WL 8936529