Opinion
No. 105.
Argued May 4, 2010.
Decided June 3, 2010.
APPEAL, by permission of the Court of Appeals, from a judgment of the Supreme Court, Nassau County (Ira B. Warshawsky, J.), entered January 16, 2009. The Supreme Court awarded plaintiff $925,000 for attorney's fees, costs and interest, in addition to a principal amount of damages previously awarded. The appeal brings up for review a prior nonfinal order of the Appellate Division of the Supreme Court in the Second Judicial Department, entered October 7, 2008 and two prior nonfinal orders of the Appellate Division of the Supreme Court in the Second Judicial Department, entered November 21, 2005. The Appellate Division order entered October 7, 2008 had affirmed a judgment of that Supreme Court, entered after a nonjury trial, awarding plaintiff damages in the principal sum of $754,825. The first of the Appellate Division orders entered November 21, 2005 had dismissed defendants' appeal from so much of an order of that Supreme Court as denied their motion for leave to amend the answer to include certain counterclaims, and had affirmed an order of that Supreme Court granting reargument of that prior order and, upon reargument, adhering to the determination denying in part the motion for leave to amend the answer ( 23 AD3d 522); the second had affirmed an order and an amended order of that Supreme Court denying defendants' motion to renew their motion to amend the answer to include certain counterclaims ( 23 AD3d 523).
Defendant ProHealth Ambulatory Surgery Center, Inc. (hereinafter PASC), operated an ambulatory surgery center, and entered into a written agreement with plaintiff, employing him as Director of Anesthesiology and Medical Director. The agreement provided for various compensation and severance pay should plaintiff be terminated without "just cause," as defined in the agreement. Plaintiff, alleging that he was improperly terminated, commenced this action to recover compensation and severance pay. Defendants moved for summary judgment dismissing the complaint on the ground that the agreement was illegal and unenforceable. The motion was based on a prior determination that a provision of the agreement which stated that PASC would share in fees earned for anesthesia services performed outside of its ambulatory surgical center was illegal and unenforceable because it violated PASC's certificate of operation, which limited PASC's authority to provide medical services to its surgical center only ( see Glassman v ProHealth Ambulatory Surgery Ctr., Inc., 23 AD3d 522). Defendants argued that the illegal and unenforceable provision tainted the entire agreement and rendered it wholly unenforceable. Supreme Court denied the motion, severed the illegal and unenforceable provision of the agreement, and found, after a nonjury trial, that plaintiff had been terminated without just cause and awarded damages.
The Appellate Division noted that where an agreement consisted of both unlawful and lawful objectives, a court may sever the illegal aspects of an agreement and enforce the legal ones, so long as the illegal aspects were incidental to the legal aspects and not the main objective of the agreement. The Court concluded that the main and lawful objectives of the parties' agreement, as established by its plain terms, were for plaintiff to develop and administer an on-site anesthesia practice, to provide anesthesia services, and to coordinate the operating and recovery room staff, and the operating room staff and schedule.
Glassman v Pro Health Ambulatory Surgery Ctr., Inc., 55 AD3d 538, reversed.
Rivkin Radler LLP, Uniondale ( Evan H. Krinick, Cheryl F. Korman, David A. Manko, Stuart M. Bodoff and Benjamin P. Malerba, III, of counsel), and Friedman Kaplan Seller Adelman LLP, New York City, for appellants.
Littler Mendelson, P.C., New York City ( David M. Wirtz, Barbara A. Gross and Meredith L. Bronfman of counsel), for respondent.
Susan C. Waltman, New York City, for Greater New York Hospital Association, amicus curiae.
Greenberg Traurig, LLP, Albany Cynthia E. Neidl of counsel), and Greenberg Traurig, LLP, New York City ( Francis J. Serbaroli of counsel), for New York State Association of Ambulatory Surgery Centers, Inc., amicus curiae.
Before: Chief Judge LIPPMAN and Judges CIPARICK, GRAFFEO, READ, SMITH, PIGOTT and JONES concur in memorandum.
OPINION OF THE COURT
The judgment appealed from and the October 2008 order of the Appellate Division brought up for review should be reversed, with costs, and the matter remitted to Supreme Court for further proceedings in accordance with this memorandum.
Even assuming that the provision of the employment contract allowing defendant to collect fees emanating from plaintiffs off-site anesthesiology services is inconsistent with 10 NYCRR 401.2 (b), which provides that "[a]n operating certificate shall be used only by the established operator for the designated site of operation," we conclude that the provision is merely malum prohibitum and, therefore, enforceable in this breach of contract action ( see Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 127-128; see also Charlebois v Weller Assoc, 72 NY2d 587). Forfeitures by operation of law are disfavored, and allowing parties to escape their contractual obligations, freely entered into, "is especially inappropriate where there are regulatory sanctions and statutory penalties in place to redress violations of the law" ( Lloyd Capital Corp., 80 NY2d at 128).
Here, Public Health Law § 2806 (1) (a) authorizes the Department of Health to revoke, suspend, limit or annul an ambulatory surgery center's operating certificate where it "has failed to comply with the provisions of this article or rules and regulations promulgated thereunder." Additionally, the State Board for Professional Medical Conduct has the power to impose sanctions for fee-splitting arrangements that violate statutory prescriptions ( see Education Law § 6530; § 6531; see also Public Health Law §§ 230, 230-a). Neither agency has been involved in this matter, nor has plaintiff identified an overarching public policy that mandates voiding the contract ( see generally Albany Med. Coll. v McShane, 66 NY2d 982, rearg denied 67 NY2d 757). For this reason, Supreme Court shall consider whether defendant is entitled, under the terms of the agreement, to a setoff derived from the funds, if any, held by plaintiff, against the amount of recovery in this case. We see no reason to disturb the remaining conclusions of the courts below.
Judgment appealed from and the October 2008 Appellate Division order brought up for review reversed, etc.