Hess v. MARKET INV. CO., LLC

Citations: 917 So. 2d 140; 2005 Ala. LEXIS 94; 2005 WL 1415339Docket: 1031713

Court: Supreme Court of Alabama; June 17, 2005; Alabama; State Supreme Court

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Gene E. Hess appealed a summary judgment favoring The Market Investment Company, LLC, Market Investment, 2011 Corporation, and George Herscu in a case regarding an alleged oral contract between Hess and 2011 Corporation. Herscu, the majority shareholder and CEO of 2011 Corporation, approached Hess while he was assisting Rice Development in training a new CFO. Hess claims they agreed he would serve as an independent contractor for 2011 Corporation, seeking new development or acquisition opportunities, for a monthly fee of $5,000, plus expenses and a 20% equity participation in any resulting projects, mirroring an existing arrangement between 2011 Corporation and the Rice brothers.

After starting his consulting role, Hess and Herscu identified the Magnolia Place shopping center as a potential investment. Hess conducted due diligence and initiated arrangements for 2011 Corporation to purchase the property. However, shortly after a mortgage foreclosure sale on December 12, 2002, Herscu instructed involved parties to cease communication with Hess and subsequently formed Market Investment, which acquired Magnolia Place on January 23, 2003. Hess was excluded from ownership in Market Investment and did not receive any profits from the property. He filed a notice of lis pendens concerning Magnolia Place on February 5, 2003.

On February 18, 2003, Hess initiated legal action against the defendants in Baldwin Circuit Court, alleging breach of contract, fraud, and fraudulent concealment, while seeking enforcement of a lien indicated by a lis pendens. Hess claimed a 20 percent ownership interest in Magnolia Place based on his agreement with 2011 Corporation and Herscu. On March 26, 2004, the defendants sought summary judgment, arguing that any contract for land interests must comply with the Statute of Frauds under Ala. Code 1975, § 8-9-2(5). Hess countered, asserting that the agreement was an employment contract exempt from the Statute of Frauds. The trial court granted summary judgment in favor of the defendants on June 28, 2004, prompting Hess to appeal.

The appellate court reviews summary judgments de novo, determining whether a genuine issue of material fact exists and if the movant is entitled to judgment as a matter of law, considering evidence in favor of the nonmovant. Once the movant establishes a prima facie case for summary judgment, the burden shifts to the nonmovant to present "substantial evidence" indicating a genuine issue of material fact.

Hess's appeal centers on the argument that the oral contract with Herscu and 2011 Corporation does not fall under the Statute of Frauds. Although he mentioned he "memorialized" the contract through writing, he did not assert on appeal that this writing complied with the Statute of Frauds, effectively waiving that argument. The defendants argued that enforcing the oral contract would require Market Investment to transfer a 20 percent interest in Magnolia Place to Hess. Despite conflicting statements regarding the nature of his claims, Hess consistently asserted an interest in Magnolia Place and sought compensation in the form of equity participation in property, which he argued in his briefs. The relevant provision of Alabama's Statute of Frauds states that agreements regarding interests in land are void unless written and signed by the party to be charged or their authorized representative.

Every contract for the sale of land or any interest therein, excluding leases of one year or less, falls under the Statute of Frauds as per Ala. Code 1975, 8-9-2(5). This statute has been applied to oral contracts involving interests in partnerships that convey land. Key Alabama case law, including Wilson v. Southside Shopping Ctr., Inc. and others, affirms that consideration for such interests typically involves cash, but can also include services. The plaintiff, Hess, argues his agreement with the defendants was an employment contract, not a sale, and that his equity participation served as compensation rather than a purchase. The court must decide if a contract conveying an interest in land as "compensation" differs legally from a "sale" under the Statute of Frauds. Hess relies on Byrd v. Bentley, where an oral agreement for a business interest was deemed an employment contract, exempt from the statute, due to the lack of supporting Alabama case law for the defendants' position. The court notes the absence of Alabama precedent on whether land transactions can be classified as "compensation" rather than "sales," suggesting the potential applicability of Byrd's rationale to this case.

Two key reasons support applying the reasoning from Byrd to the current case. First, despite addressing a different subsection of the Statute of Frauds, Byrd pertains to the same statute at issue here. Second, Byrd distinguishes between "sales" of securities and "employment contracts" related to acquiring securities, reinforcing Hess's argument that this distinction is significant. The defendants do not adequately counter Hess's claim that the oral contract constitutes an employment agreement offering compensation through an interest in land, merely referencing case law on partnerships involving land sales as relevant precedent. They assert that Hess, as an "independent contractor consultant," is more similar to a partner than an employee, raising a genuine issue of material fact unsuitable for summary judgment. Since the oral contract intended to convey an interest in Magnolia Place as compensation for Hess's services rather than as a sale, it is deemed outside the Statute of Frauds and enforceable. The judgment of the trial court is reversed, and the case is remanded for further proceedings.