California Legal Brief

The Rule of Clarke v. Yu is that oral or implied joint venture agreements are subject to the statute of frauds if the agreement, by its terms, cannot be performed within a year from its making, under circumstances where the joint venture's purpose involves activities that cannot possibly be completed within one year.

Appeal from judgment after summary judgment in Superior Court, San Diego County.

Plaintiffs Appellants were CHange Pharma, Inc. and John Clarke — the venture capitalist and company seeking to develop and commercialize C-H activation technology who claimed an oral joint venture agreement with the scientists.

Defendants Respondents were Jin-Quan Yu and Benjamin Cravatt — the Scripps Research Institute scientists who developed C-H activation technology and allegedly agreed to form a joint venture with Clarke.

The suit sounded in breach of joint venture agreement, breach of fiduciary duty, promissory estoppel, and quantum meruit. The parties had previously worked together on other successful biotech companies but disagreed over the amount of initial funding needed for CHange, with Clarke offering $4 million while Yu expected $10 million initially and ultimately obtained funding from other sources.

The procedural result leading to the Appeal: The trial court granted summary judgment on all claims, ruling that the joint venture claims were barred by the statute of frauds because the agreement could not be performed within one year, there was no mutual assent to essential terms, and the parties agreed to memorialize any agreement in writing.

The key question(s) on Appeal: 1. Whether oral or implied joint venture agreements are categorically exempt from the statute of frauds 2. Whether the alleged joint venture could be performed within one year 3. Whether the remaining claims for breach of fiduciary duty, promissory estoppel, and quantum meruit could survive

The Appellate Court held that oral and implied joint venture agreements are subject to the statute of frauds if the agreement cannot be performed within one year, and that developing and commercializing C-H activation technology could not possibly be completed within one year based on uncontroverted expert testimony, making all joint venture claims unenforceable and causing derivative fiduciary duty claims to fail.

The case is inapplicable when the joint venture's purpose could genuinely be performed within one year from making the agreement, when there is corroborated evidence that the specific technology or business objective can be developed and commercialized within one year, or when the joint venture agreement is properly memorialized in writing.

The case leaves open whether different types of joint ventures with shorter performance periods would be exempt from the statute of frauds, the specific standards for what constitutes "development" versus mere "creation" of a company for statute of frauds purposes, and whether partial performance could remove the statute of frauds bar in joint venture contexts.