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Current Developments in the Commercial Divisions of the
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Posted: June 12, 2014

Claim Dismissed Based on In Pari Delicto Doctrine

On June 4, 2014, the Second Department issued a decision in Burgers Bar Five Towns, LLC v. Burger Holdings Corp., 2014 NY Slip Op. 03970, affirming the dismissal of a Franchise Sales Act claim based on the doctrine of in pari delicto.

In Burgers Bar, the plaintiff sued the defendant “inter alia, to recover damages for violation of the Franchise Sales Act (General Business Law § 680 et seq.) and breach of contract.” The trial court found the defendant liable for breach of contract but dismissed the plaintiff’s Franchise Sales Act claim “based on the doctrine of in pari delicto.” The defendant appealed and the plaintiff cross-appealed. The Second Department affirmed the dismissal of the Franchise Sales Act claim, explaining:

Contrary to the plaintiff’s contention on its cross appeal, the Supreme Court correctly dismissed the cause of action alleging violation of the Franchise Sales Act, based on the doctrine of in pari delicto. The doctrine of in pari delicto mandates that the courts will not intercede to resolve a dispute between two wrongdoers. The doctrine survives because it serves important public policy purposes. First, denying judicial relief to an admitted wrongdoer deters illegality. Second, in pari delicto avoids entangling courts in disputes between wrongdoers. The evidence established that the plaintiff knew that the defendants were offering to sell what amounted to a franchise as defined by General Business Law § 681(3), to multiple persons at the same time that the plaintiff and the defendants entered into their agreement, and that the plaintiff was both aware of and complicit in the defendants’ violation of the Franchise Sales Act. Under the circumstances, the court properly applied the doctrine of in pari delicto, not to favor the defendant, but as a matter of public policy.

(Internal quotations and citations omitted).

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