Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: July 3, 2019

Conviction Relating to Bribery of Defendant Does Not Bar Suit as a Matter of Law

On June 17, 2019, Justice Schecter of the New York County Commercial Division issued a decision in Adelhardt Constr. Corp. v. Citicorp N. Am., Inc., 2019 NY Slip Op. 31774(U), holding that a conviction relating to the bribery of the defendant did not bar a suit as a matter of law, explaining:

The seminal case governing when commercial bribery may be raised as an absolute defense to non-payment of a previously performed contract is McConnell v Commonwealth Pictures Corp. (7 NY2d 465 [ 1960]). McConnell begins with the premise, grounded in public policy, that a party to an illegal contract cannot ask a court of law to help carry out an illegal object and if the money plaintiff sues for was the fruit of an admitted crime no court should be required to serve as paymaster of the wages of crime. The Court of Appeals, however, was concerned that this rule could be used unjustly to allow a party to accept the fruits of a contract and then attempt to escape responsibility for payment based on any small illegality in the performance of an otherwise lawful contract, resulting in a windfall. The Court therefore emphasized that it is not every minor wrongdoing that will insulate the other party from liability for work done or good furnished. There must at least be a direct connection between the illegal transaction and the obligation sued upon.

Additionally, the Court held that the qualitative nature of the illegality must be sufficiently severe to warrant forfeiture, announcing that a party will be denied recovery even on a contract valid on its face, if it appears that it has resorted to gravely immoral and illegal conduct in accomplishing its performance. The and is critical. The Court of Appeals later explained that the gravely immoral prong is satisfied only when the illegality is inherently wrong, and not merely malum prohibitum by statute. These requirements exist to prevent parties from attempting to use the illegality defense as a sword for personal gain rather than a shield for the public good.

Citibank contends that ACC engaged in commercial bribery and that such illegal conduct definitively bars this action. It has not met its burden of demonstrating that dismissal is mandated by CPLR 321 l(a)(l) or (7) based on illegality. In the AC, ACC pleads that it performed millions of dollars worth of work for Citibank before it engaged in any illegal conduct. ACC further alleges that Cassisi, acting as Citibank’s agent, threatened to stiff ACC unless it performed additional work for him. ACC plausibly claims that it was extorted. While Citibank contends that ACC should have reported Cassisi to his superiors or called the police, it is understandable, under the facts pleaded, why rational commercial actors may not necessarily follow those aspirational courses of action. It is conceivable, under the facts alleged, that ACC was concerned that calling the police on Citibank would have a negative impact on a business relationship spanning more than half a century under circumstances where it was allegedly already owed millions of dollars that were unpaid.

Even considering the admissions in ACC’s plea agreement–in which the DA expressly contemplated that ACC may be owed money for legitimate construction services–and analyzing them along with the wrongs admitted by Citibank’s own employee, it is far from clear that ACC should be wholesale barred from any and all compensation for the entirety of the work it performed over years under the contracts. The issue is not whether ACC would be able to assert duress (and in fact it has no interest in invoking a doctrine that would allow it to avoid performing the contract), but rather, whether Citibank established that ACC’s conduct was sufficiently immoral to allow it to be entirely free of any payment obligation despite having obtained the benefit of ACC’s work. Here, Citibank did not conclusively establish as a matter of law (as it is required to do on a 3211 motion) that ACC’s conduct was gravely immoral so as to completely bar damages.

To be sure, ACC is not alleged to have bribed anyone to procure the initial contracts. ACC had been working with Citibank for more than half a century, long before Cassisi came into the picture in 2012. Nor is there any allegation that ACC ever provided substandard services but was given leeway because of bribes. The notion that ACC needed to bribe Citibank to procure work seems less likely than the need to get paid on millions of dollars of outstanding invoices and maintaining its decades-long relationship with Citibank. Citibank, which employed wrongdoers involved in the transactions, cannot take the moral high ground and escape paying for all services without any further inquiry.

Significantly, this case does not implicate concerns about public harm or the integrity of publicly-bid contracts, which would more readily justify automatic forfeiture even if inequitable.

Here, there was a private wrong that Cassisi inflicted on his in pari delicto employer and plaintiff played a part. Plaintiff pled guilty and admitted facts related to forging business records–not necessarily a malum in se offense. On this record, moreover, the extent of the wrong is uncertain. ACC’s forgery plea involved $442,000 of restitution; yet, it claims to be owed over $4 million for services accepted by Citibank. It is unclear that the bulk of the services provided bore any relationship to the forged documents. Additionally, Cassisi’s bribe-receiving plea and his admission that he accepted money from various contracting companies does not have any preclusive or binding effect on plaintiff. In the end, based on the documentary evidence, the court is not convinced that ACC engaged in the requisite grossly immoral conduct so as to bar any recovery. If discovery reveals that ACC was complicit in Cassisi’s wrongdoing in a manner involving far more moral turpitude than portrayed in the AC, it is possible that Citibank might be able to establish an illegality defense at summary judgment or trial. But on this motion to dismiss, there is insufficient documentary proof that the nature of ACC’s illegal conduct was so gravely immoral to justify precluding its ability to recover the millions of dollars it claims to be owed for the construction work it performed for Citibank.

(Internal quotations and citations omitted).

This decision relies on two common-sense propositions, although they are propositions that sometimes conflict: the courts will not enforce an illegal contract and the courts are reluctant to apply rules such as this one in ways that create an injustice. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a contract is enforceable.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

View posts