Reported / Citable
Background
Venture capitalist John Clarke had previously co-founded biotech companies with chemists Jin-Quan Yu and Benjamin Cravatt of The Scripps Research Institute. In late 2021 and early 2022, the parties discussed launching a new company, CHange Pharma, Inc., to develop and commercialize Yu’s carbon-hydrogen bond activation, or C-H activation, chemistry. The plan envisioned the company as a long-term platform of pharmaceutical innovations rather than a single-product venture.
The parties exchanged emails and worked together on early-stage tasks: Clarke prosecuted a patent application, prepared business and technical plans, arranged meetings and travel, and identified potential business partners and real estate. As discussions progressed, however, the parties disagreed about the size and structure of the initial funding. Yu and Cravatt eventually obtained funding from other sources and proceeded without Clarke or his partner, CHange.
Clarke and CHange sued Yu and Cravatt in San Diego County, asserting claims for breach of an oral or implied joint venture agreement, breach of fiduciary duty, promissory estoppel, and quantum meruit. The trial court granted summary judgment in favor of Yu and Cravatt on all claims. Plaintiffs appealed.
The Court’s Holding
The Fourth District Court of Appeal, Division One, affirmed. The court’s published holding addresses the application of the statute of frauds to oral and implied joint venture agreements. Civil Code section 1624, subdivision (a)(1) requires that any agreement that by its terms cannot be performed within one year from its making must be in writing and signed by the party to be charged. The court held that this requirement applies equally to oral or implied joint venture agreements; nothing in the statute or the case law categorically exempts joint ventures.
Applying that rule, the court found the alleged joint venture agreement here unenforceable. Clarke himself testified that the purpose of the venture was to develop and commercialize Yu’s C-H activation technology. Yu, Cravatt, and another scientist familiar with the technology submitted declarations explaining that developing the technology necessarily takes more than a year. Clarke’s self-serving and uncorroborated declaration that CHange could have developed the technology in less than a year was insufficient to create a triable issue of fact, particularly given his lack of relevant scientific expertise. The breach of fiduciary duty claim depended on the existence of an enforceable joint venture and fell with it.
On the promissory estoppel claim, the court held that the alleged promises were either unenforceable, not supported by the bargain involved, or not clear and unambiguous. Statements about working together to make the company a “biggest success” were preliminary discussions, not the kind of clear and definite promise required for promissory estoppel. On the quantum meruit claim, the court held that the plaintiff must have rendered services with the expectation that the defendants would pay for them. Clarke conceded that he expected to be compensated through his ownership interest in CHange, not by direct payment from Yu or Cravatt, which defeated the claim as a matter of law.
Key Takeaways
- Civil Code section 1624 applies to oral and implied joint venture agreements that, by their terms, cannot be performed within one year from their making.
- Self-serving declarations by a party that contradict expert and other evidence about the time required to perform a venture do not create a triable issue of fact on the one-year question.
- Breach of fiduciary duty claims premised on an unenforceable joint venture agreement fail along with the underlying agreement.
- Promissory estoppel requires a clear, unambiguous promise; preliminary statements of enthusiasm or intent generally are not enough.
- Quantum meruit recovery requires services rendered with an expectation of payment from the defendant; expecting equity in a planned new company is not the same as expecting payment from a counterparty.
Why It Matters
This decision is an important guide for venture capitalists, scientists, and other startup founders in California. Many early-stage discussions about new companies begin informally, with handshake agreements and email exchanges. The opinion makes clear that those informal arrangements cannot bypass the statute of frauds when the venture inherently requires more than a year to perform. Founders should put long-term joint venture commitments in writing.
The opinion also provides useful guidance for litigators handling failed-startup disputes. Plaintiffs should carefully consider whether their alleged contract, fiduciary duty, promissory estoppel, and quantum meruit claims can survive summary judgment when the only evidence of agreement is informal correspondence. Defendants in such cases now have a clear template for moving for summary judgment based on the one-year rule and the structural elements of equitable claims.