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The Court Will Not Grant You Your Relief When First You Practice To Deceive

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  • Posted on: Oct 19 2018

Sir Walter Scott’s[1] original line is infinitely better (“O, what a tangled web we weave when first we practise to deceive!”) than this Blog title, which, nonetheless helps to illustrate the instant topic – Courts will not assist litigants in enforcing illegal contracts.

Stone v. Freeman, 298 N.Y. 268 (1948), is a case involving commissions for the sale of clothing.  The Stone plaintiff was a broker who sued for “his commissions earned in arranging a sale by defendant, who is a [vendor] of clothing.”  The parties agreed that defendant vendor would pay plaintiff broker “commissions” based on broker’s agreement that those “commissions” would be divided with the purchaser’s buying agent.  Some, but not all, of the “commissions” were paid to broker, but broker failed to pay all the agreed upon sums to buying agent.  Vendor counterclaimed for the return of the portion of the commissions that, pursuant to the parties’ agreement, were to be, but were not, delivered to the purchaser’s buying agent.  The Stone trial and appellate courts both held that vendor’s counterclaims were valid, and that he was entitled to the return of that portion of broker’s commission that was to be paid to purchasing agent.

The Court of Appeals in Stone reversed the two lower courts and dismissed vendor’s counterclaims, finding that the agreement between broker and vendor was a conspiracy to violate a section of the Penal Law that made it a crime to pay a “commission or bonus” to a purchasing agent.  In so doing, the Court held that “[i]t is the settled law of this State (and probably every other State) that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose.  For no court should be required to serve as paymaster of the wages of crime, or referee between thieves [citations omitted].”

The plaintiff in Bonilla v. Rotter, 36 A.D.3d 534 (1st Dep’t 2007), was a suspended lawyer and defendants were lawyers that assumed Bonilla’s cases during his suspension.  Bonilla claimed that he was owed money from defendants for his work as an “investigator,” in which role Bonilla was to receive a fee for cases referred to defendants.  The Bonilla Court found that the parties’ agreement to split fees was proscribed by Judiciary Law § 491 and, accordingly, the “agreement is illegal and plaintiff is foreclosed from seeking the assistance of the courts in enforcing it [citations omitted].”

The Court in Valenza v. Emmelle Coutier, Inc., 288 A.D.2d 114 (1st Dep’t 2001), dismissed plaintiff’s claim for intentional infliction of emotional distress against her former employer.  In so doing, the Court recognized that plaintiff failed to report her income to the IRS because she was being paid “off-the-books,” pursuant to an “illegal contract.”  Because plaintiff’s emotional distress claim “require[d] proof of the illegal contract [it] cannot be enforced.”

In Parpal Restaurant, Inc. v. Robert Martin Co., 258 A.D.2d 572 (2nd Dep’t 1999), plaintiff, a subtenant sought a permanent injunction preventing the widening of streets abutting plaintiff’s premises.  After recognizing that “no right of action can spring out of an illegal contract,” the Second Department affirmed the dismissal of plaintiff’s complaint because the affidavit of plaintiff’s president demonstrated that “as a matter of law…[the] sublease of the subject premises was created for the purpose of improper tax avoidance [and, because] the contract was illegal, [plaintiff was] preclud[ed from] any right of action arising from such an unlawful undertaking [citations omitted].”

Consistent with the authorities discussed herein, in Linchitz Practice Management, Inc., v. Daat Medical Management, LLC (October 1 7, 2018), the Second Department affirmed the dismissal of plaintiff’s complaint and, in so doing, reaffirmed the principle that illegal contracts will not be enforced.   The plaintiff in Linchitz sold its assets and its interest in its lease to defendant.  Defendant delivered a promissory note to plaintiff for part of the purchase price.

The Linchitz plaintiff commenced action to recover the balance due on the note and for costs and attorney’s fees pursuant to the terms of the note.  Supreme court denied plaintiff’s motion for summary judgment on its first and second causes of action and granted to plaintiff summary judgment dismissing defendant’s counterclaims.  However, upon “searching the record” supreme court awarded defendant summary judgment dismissing plaintiff’s first and second cause of action.

The Second Department, in affirming supreme court, found, as did supreme court, that “the evidence submitted by the parties in connection with the motion for summary judgment established, prima facie, that the agreement and promissory note were a pretext for an unlawful fee-splitting arrangement in violation of the Education Law because they circumvented New York’s prohibition on physicians splitting fees with nonphysicians [citations omitted].”

[1] No, this is not a Shakespeare quote.

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