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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 27, 2018

Plaintiff Denied Summary Judgment on Note Because of Question of Fact Regarding Whether Note Was Part of an Illegal Fee-Splitting Agreement

On October 17, 2018, the Second Department issued a decision in Linchitz Practice Mgt., Inc. v. Daat Med. Mgt., LLC, 2018 NY Slip Op. 06891, affirming the denial of summary judgment on a note because of questions of fact regarding whether the note was part of an illegal fee-splitting agreement, explaining:

We agree with the Supreme Court’s determination to deny those branches of the plaintiff’s motion which were for summary judgment on the causes of action to recover the balance due on the promissory note and for an award of costs and attorney’s fees, and, upon searching the record, to award the defendants summary judgment dismissing those causes of action. Contrary to the plaintiff’s contentions, the evidence submitted by the parties in connection with the motion for summary judgment established, prima facie, that the agreement and the 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. It is the settled law of this State (and probably of every other State) that a party to an illegal contract cannot ask a court of law to help him or her carry out his or her illegal object, nor can such a person plead or prove in any court a case in which he or she, as a basis for his or her claim, must show forth his or her illegal purpose. Where the parties’ arrangement is illegal the law will not extend its aid to either of the parties or listen to their complaints against each other, but will leave them where their own acts have placed them.

(Internal quotations and citations omitted).

This does not come up often, but this case reminds us that the court’s will not enforce an illegal contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted in Commercial, Contracts
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