Every so often a case comes along that reads less like a business dispute and more like a cautionary tale about the perils arising out of unwritten deals among friends. As we’ve written about before, these cases can be brutal to defend, particularly where the pleadings just robust enough to survive a motion to dismiss, dragging the parties through years of costly litigation before the truth is sorted out.

But in today’s case, Tesla v Pelinkovic, we are treated to the cautionary tale without the long litigation road: both the District Court and the Second Circuit concluded that not only does plaintiff’s Second Amended Complaint (SAC) fail to plead the existence of a partnership or joint venture, amendment would be “futile,” warranting dismissal with prejudice.

The Crypto Investment

Plaintiff Matthew Tesla, an experienced cryptocurrency investor, approached Defendant Doug Pelinkovic, Tesla’s Brazilian Jiu-Jitsu instructor, to discuss a potential crypto partnership. The two shared a close personal relationship for years, and previously invested in an energy bar business venture together (which ultimately failed).

According to Tesla, between December 2020 and February 2021—during the post-COVID crypto boom—the two had “one or more” telephone calls to discuss the potential partnership, the terms of which were as follows:

• Pelinkovic contributes all of the “initial” investment capital—between $3 million and $5 million;
• Tesla contributes his “knowledge and expertise” in the cryptocurrency space, identifying investments, setting up accounts, and guiding strategy.

When Pelinkovic expressed concern about losing money, Tesla agreed to “backstop any losses” to “allay Pelinkovic’s fears.”

Pelinkovic purportedly agreed to the proposal with an, “I’m in! I’m in!”

Tesla claims he performed under the terms of that agreement. He advised on early investments, helped establish exchange accounts, and even traveled to New York to assist with setting up “cold storage” for the cryptocurrency assets.

Three years later, in September 2024—coincidentally (or not?) during another spike in the crypto markets—Tesla resurfaced to dissolve the partnership, demand an accounting, and seek his share of the profits from the now “terminated” venture. Pelinkovic refused.

Litigation followed.

District Court Finds Tesla Fails to Plead the Existence of a Joint Venture

The action was first commenced in New York State Court, Bronx County, Commercial Division in November 2024, and removed to federal court later that month, where it landed on the desk of Judge Valerie Caproni in the Southern District of New York.

Judge Caproni granted Pelinkovic’s motion to dismiss the SAC in its entirety.

The analysis begins with well-settled legal principles: Under New York law, a joint venture is treated as a partnership for a limited purpose. To allege the existence of a partnership, a plaintiff must plead:

• The parties’ sharing of profits and losses;
• The parties’ joint control and management of the business;
• The contribution by each party of property, financial resources, effort, skill, or knowledge to the business; and
• The parties’ intention to be partners.

Similarly, citing Dinaco Inc. v Time Warner Inc, in order for a plaintiff to allege the existence of a joint venture, they must plead sufficient facts showing:

• Two or more persons entered into a specific agreement to carry on an enterprise for profit;
• They intended to be joint venturers;
• Each made a contribution of property, financial, skill, knowledge, or effort;
• Each had some degree of joint control over the venture; and
• There was a provision for sharing profits and losses.

The Court zeroed in on the intent requirement: “The ultimate inquiry . . . is whether the parties have so joined their property, interests, skills, and risks [that] their contributions have become one and their commingled properties and interests have been made subject to each of the others’ actions on the trust and inducement that each would act for their joint benefit.”

Judge Caproni noted that the intent question “necessarily overlaps” with the other elements of partnership or joint venture, such as joint contributions and an agreement to share profits and losses, because those elements “shed light on the type of relationship the parties intended to form.”

The Court determined: “The SAC falls far short of alleging facts from which the Court can plausibly infer an intent to form a partnership or joint venture.”

First, the Court found “remarkable” that Tesla did not contribute any capital at all to the investment endeavor, let alone allege any commingled property or interests (citing Brodsky v Stadlen, an oft-cited New York partnership case on the profit / loss sharing element, including here and here). Pelinkovic contributed all of the capital. Tesla contributed none.

While sweat equity can suffice in some cases, the Court found that the dearth of details surrounding Tesla’s contributions—apparently limited to initial advice and early technical assistance—did not suggest co-ownership. Rather, the lack of factual allegations “undermine the obvious inference that Plaintiff’s costless assistance was an act of friendship, not partnership.”

Nor was Judge Caproni convinced that Tesla’s offer to “backstop” losses was sufficient to demonstrate an agreement to share profits and losses. It was unclear to the Court what exactly Tesla meant by “backstop,” and at best, could attribute nothing more to it than a “conclusory assertion that Plaintiff and Pelinkovic had an unmaterialized agreement to share losses (or maybe for Plaintiff to absorb all of the losses).”

Finally, Tesla’s pleading lacked any allegation of joint management and control over the investment, “further dooming Plaintiff’s partnership / joint venture claim.” The SAC was silent as to any actions Tesla took toward the claimed venture in the three years between the initial set up of the exchange accounts (2021) and demanding an accounting and his share of profits (2024).

“Put more bluntly, Pelinkovic provided all of the money and controlled all of the accounts, and Plaintiff provided advice.”

No partnership. No joint venture.

Tesla appealed (see Tesla’s brief here and Pelinkovic’s brief here)

Second Circuit Emphatically Affirms

Adopting the District Court’s reasoning in its entirety, Second Circuit affirmed in a summary order.

Beat by beat, the panel walked through the District Court’s analysis, finding that Tesla failed to plead the existence of a joint venture where: Tesla made no capital contributions whatsoever; the parties did not exercise joint control or management over the investment; and there was no agreement between the parties to share profits or losses.

No Joint Venture, No Case: Dismissal with Prejudice

Once the District Court (as affirmed by the Second Circuit) determined there was no partnership, the rest of the SAC unraveled quickly.

The District Court swiftly disposed of the claims sounding in breach of fiduciary duty (no fiduciary relationship, and if anything, the fiduciary obligations flowed in the opposite direction, with Tesla as the experienced investor, and Pelinkovic as the novice); promissory estoppel (lack of a “clear and unambiguous promise”); unjust enrichment (duplicative); and fraudulent transfer (no debtor-creditor relationship).

Notably, both courts found the allegations to be so deficient that the SAC warranted dismissal with prejudice—a relatively uncommon outcome at such an early stage of the action.

The Second Circuit, in particular, had strong words for Tesla, holding “amendment of the complaint would be futile” and noting that “[Tesla] does not identify any particular facts . . . nor does he adequately explain how he could overcome the pleading defects in the complaint.”

I agree that additional facts concerning the interpersonal power dynamics in the world of Brazilian Jiu-Jutsu or further efforts Tesla expended in setting up the investments (as offered in Tesla’s appellate brief), fail to get him over the pleading hurdle.

But buried in a pair of footnotes in the Second Circuit’s summary order was an interesting little toehold:  The court noted that Tesla attempted to rectify his pleading defect concerning the loss-sharing element by contending that he “took all the risk and bore all the costs” and agreed to backstop losses incurred “up to $5,000,000” to “make Pelinkovic whole.” The panel ultimately disregarded those “additional facts” because they were not specifically alleged in the SAC, and even if they were, they are “inconsistent with the allegation that Pelinkovic put up all of the capital and still do not plausibly allege that the parties had an agreement to share profits and losses.”

As I read it, this doesn’t address the loss-sharing element head on, but deftly pivots to say that these additional facts would not have satisfied the profit-and-loss sharing element.

The court also notes in a second footnote that Tesla proposed, and the court rejected, an “alternative simple contract theory” despite not having pled a breach of contract claim.

So, would pleading these additional facts (as opposed to more details about the BJJ community) have been enough to salvage Tesla’s partnership and joint venture claims? Is there a universe in which a breach of contract claim might have been sustained where in exchange for guaranteeing losses incurred up to $5,000,000, the parties agreed to share profits in the crypto investments (i.e., reframed as a bargained-for contractual entitlement)?

Here, the answer is probably still no given the balance of the pleading deficiencies, not least of which includes the utter lack of any credible allegation that the parties agreed to share profits, period.

That said, it is worth noting that all of this could have been avoided with a written contract (presuming that such a venture even existed in the first place), which, as we’ve seen in recent cases, can weave around the default provisions of New York’s partnership law including the loss-sharing requirement.

The Wheels of Justice Turn Slowly… Except When They Don’t

As a final aside from the practitioner’s perspective, those of us who practice regularly in New York State Court recognize that due to the volume of the court’s docket, the wheels of justice can turn slowly. Sometimes very slowly.

One wonders whether Tesla anticipated a similar trajectory (and timing) when he first filed in state court. In that vein, Pelinkovic’s smartest move might have been his motion to remove to federal court (something not typically available to business divorce litigants unless, as here, the parties reside in different states), which produced a very different result from the long-lingering oral partnership / joint venture cases that have appeared on this blog—see Gedula 26, LLC v Lightstone Acquisitions III LLC (11 years); Hammond v Smith (8 years); Kefalas v Pappas (4 years)—a prompt dismissal, affirmed on appeal, with no opportunity to replead, all of which was buttoned up within a speedy 18 months.

* * *

H/t (and congrats) to Nicholas R. Caputo, Esq. at Sichenzia Ross Ference Carmel LLP, representing defendant-appellees, who alerted us to these decisions.