Not All Misconduct Can Support an In Pari Delicto Defense

On January 21, 2020, the First Department issued a decision in U-Trend N.Y. Inv. L.P. v. US Suite LLC, 2020 NY Slip Op. 00383, holding that not all misconduct can support an in pari delicto defense, explaining:

In its reply brief, Aura invokes in pari delicto. However, it is not every minor wrongdoing in the course of contract performance that will insulate the other party from liability. U-Trend did not engage in commercial bribery or similar conduct or other activities forbidden by law.

(Internal quotations and citations omitted).

This does not come up often, but this case reminds us that the courts will not enforce an illegal contract or an agreement where each party has engaged in misconduct. As this decision shows, this rule applies only where the misconduct is serious. 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.