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Friday, August 19, 2005

Malum Prohibitum in Gotham

110pxusnycslDoes a violation of the New York City Charter provisions restricting post-employment activities make a contract malum probitum? In a case of first impression, a New York appellate court held that public policy precluded a former New York City employee from recovering damages for breach of a contract that was made in violation of these provisions.

An architect who was employed by the New York City Board Education reviewed and approved a building site in the Bronx for lease and conversion to a school.  The architect approved the site despite the opinion of one of his colleagues that it was not a viable space for conversion to a school -- mainly because of its close proximity to a major highway.  Shortly after approving the site, the architect quit his $46,000 a year job with the City and founded his own construction management business, RAC.  Within two months, RAC obtained a lucrative $300,000 contract with the building owner to manage the project of converting the Bronx site to a school.

Turns out, this was a flagrant violation of the New York City Charter, which prohibits former City employees from receiving compensation in connection with any matter in which they were personally and substantially involved as a City employee.

When the violations of the City charter came to light, the building owner terminated RAC’s services at the direction of the Board of Education and the Inspector General’s Office. What did the architect do?  He turned around and sued the Board of Education and the building site owner to recover damages for breach of contract.  Even though the trial court determined that the architect’s actions were in violation of the New York City Charter, it allowed him to recover over $125,000 in contract damages.

A New York appellate court reversed, concluding that, “under the circumstances of this case, it is against public policy to permit the plaintiffs to enforce the subject contract and to profit from their wrongdoing."

R.A.C. Group, Inc. v. Bd. of Educ., 2005 N.Y. App. Div. LEXIS 8073  (July 22, 2005).

[Meredith R. Miller]

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