Malum Prohibitum in Gotham

Does a violation of the New York City Charter provisionsrestricting post-employment activities make a contract malum probitum? In a case of first impression, a New Yorkappellate court held that public policy precluded a former New York Cityemployee from recovering damages for breach of a contract that was made inviolation of these provisions.

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

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

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

A New York appellate court reversed, concluding that, “underthe circumstances of this case, it is against public policy to permit theplaintiffs 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. LEXIS8073  (July 22, 2005).

[Meredith R. Miller]