The Second Department Refuses To Enforce An Illegal Contract
As discussed in our prior BLOG “Courts Will Not Assist An Effort To Enforce An Illegal Contract,” New York courts will not aid in the enforcement of a contract when the subject matter is illegal. For example, in Bonilla v. Rotter, 36 A.D.3d 534 (1st Dept. 2007), the plaintiff was a suspended attorney. The Defendants assumed responsibility for the plaintiff’s cases during the suspension. The plaintiff claimed that he had an agreement with the defendant to provide services as an “investigator” pursuant to which he would, using his contacts at various hospitals, contact injured individuals and “encourage” them to use the defendants’ personal injury firm. In exchange, the plaintiff would receive a $2,500 fee for each referred case that was settled. The motion court denied the defendants’ motion to dismiss. The First Department reversed, finding that the agreement that the plaintiff sought to enforce was “one between a nonlawyer and an attorney to split legal fees which is proscribed by Judiciary Law § 491 [and a]ccordingly, … is illegal and plaintiff is foreclosed from seeking the assistance of the courts in enforcing it.” Bonilla, 36 A.D.3d at 535 (citations omitted). To support its holding, the Bonilla Court reiterated that “[i]t is the settled law of this State that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose.” Id. (citations, internal quotation marks and ellipses omitted; hyperlink added).
The plaintiff in Sabia v. Mattituck Inlet Marina and Shipyard, 24 A.D.3d 178 (1st Dept. 2005),[1] previously sold a boat he owned (the “First Boat”) to defendant Boat Broker. When the plaintiff found a replacement boat (the “Second Boat”) at defendant Mattituck (a boat seller), he structured the transaction as a purchase from Boat Broker (instead of Mattituck) to avoid sales tax on the “trade-in” value of the First Boat. Thereafter, the plaintiff sued, inter alia, Mattituck for, inter alia, breach of contract alleging that the Second Boat was defective. The First Department reversed the motion court’s denial of summary judgment because “the contract for the purchase of the boat was illegal” because “the deal was documented in a fictional manner for the purpose of improper tax avoidance [and] no right of action can arise from an illegal contract”. Sabia, 24 A.D.3d at 179 (citation omitted). Accordingly, the plaintiff was “barred, as a matter of law, from suing on the alleged agreement for the purchase of the boat.” Id. (citation omitted). See also Valenza v. Emmelle Coutier, Inc., 288 A.D.2d 114 (1st Dept. 2001) (employees action for intentional infliction of emotional distress against the defendant employer dismissed because the plaintiff, who failed to report her income to the IRS, was being paid “off the books” “pursuant to an illegal contract”); see also Carmine v. Murphy, 285 N.Y.413, 416 (1941) (plaintiff cannot recover the unpaid balance on the sale of alcoholic beverages because he did not possess the required license to sell alcoholic beverages and, thus, the sales contract was illegal and “no right of action can spring” therefrom); Advanced Dental of Ardsley, PLLC v. Brown, 229 A.D.3d 589 (2d Dept. 2024) (asset purchase agreement for dental practice found to be unenforceable illegal fee splitting arrangement in violation of the Education Law).
Topical to today’s BLOG and the GLP-1 craze is Roberts v. Puopolo M.D., P.C., 24 CIV. 8162 (LGS), 2025 WL 2773007 (S.D.N.Y. Sept. 25, 2025).[2] The plaintiff in Roberts was employed by the defendant physician as COO until he was “de facto” terminated. Roberts, 2025 WL 2773007 at *2. While employed, however, the plaintiff was treated by the defendant physician with GLP-1s for weight loss. The Plaintiff experienced rapid weight loss and developed side effects that, according to two of the plaintiff’s physicians, resulted from the defendant’s “depart[ure] from the standard of care” regarding the prescribed GLP-1 regimen. Plaintiff ultimately signed a separation agreement with his employer that provided for severance and additional payments for “transition services fees”. Significantly, the agreement also contained a broad release.
The plaintiff subsequently sued the defendant physician for, inter alia, malpractice. In response, the defendant moved for summary judgment based on the release. In opposition to the motion, the plaintiff argued, inter alia, that the release was unenforceable because the separation agreement was actually a medical malpractice settlement designed to circumvent the mandatory reporting requirements for such settlements under federal and state law. The Plaintiff’s motion was denied because “the current record cannot resolve whether the Agreement[] operated, in effect, as malpractice settlements structured to evade mandatory reporting, discovery is warranted.” Id. at 6. The Court noted that if “Plaintiff[] can show that the Agreement[ was], in effect, [a] medical malpractice settlement[] that circumvented reporting requirements, the release[] may be unenforceable. Id. at 6.
Against this backdrop, we discuss Compensation Guidance, Inc. v. Aspro Plumbing, Inc., a case decided by the Appellate Division, Second Department, on September 2, 2026.[3] The plaintiff in Compensation is a “consultant specializing in obtaining credits, refunds, and reduced premiums on workers' compensation policies and past audits.” The plaintiff entered into a contract with defendant pursuant to which the plaintiff was “‘to obtain refunds on workers compensation premiums’ the defendants paid in exchange for the plaintiff ‘receiving a fixed percentage of the savings obtained’ on a contingency basis.” The plaintiff commenced an action for breach of contract and unjust enrichment after the defendant stopped making payments under the agreement.
The plaintiff moved for summary judgment and the defendant cross-moved to dismiss the complaint pursuant to CPLR 3211(a)(7). The motion court denied the motion and granted the cross-motion. The Second Department affirmed, holding that the agreement was an illegal contract because the plaintiff was an unlicensed insurance consultant. In so doing, the Court stated:
Insurance Law § 2102 provides that "[u]nless licensed as an insurance agent, insurance broker or insurance consultant, no person, firm, association or corporation shall in this state identify or hold himself [or herself] or itself out to be an insurance advisor, insurance consultant or insurance counselor." "It is impermissible for a person, firm, association or corporation to hold itself out as an insurance consultant, receive any fee for examining policies, or make recommendations with regard to insurance in New York without being licensed as an agent, broker or consultant, even though employed by a company that is itself licensed" (Ops Gen Counsel NY Ins Dept No. 07-03-04 [Mar. 2007], 2007 WL 1119254, * 1; see Insurance Law §§ 2102, 2107).
Here, the factual allegations and inferences to be drawn from the complaint do not allow for an enforceable right of recovery, as it is undisputed that the plaintiff, Compensation Guidance, Inc., was not licensed by the State of New York at the time it allegedly provided services. Accordingly, the plaintiff is not legally permitted to receive any fee for examining policies and, therefore, the alleged contract was unenforceable. [Some citations omitted; hyperlinks added.]
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
[1] Eds. Note: while at a different law firm, the writer of this article was counsel to Mattituck Inlet Marina and Shipyard, Inc. (“Mattituck”) in Sabia.
[2] The factual recitation of Roberts is simplified for editorial purposes.
[3] The factual recitation of Compensation is simplified for editorial purposes.
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