By Carissa Danesi, Esq.
As a general rule, Courts will not enforce an illegal contract. Most recently, the Second Department in Advanced Dental of Ardsley, PLLC v. Brown refused to enforce an asset purchase agreement (“APA”) because it required fee-splitting in violation of Education Law § 6509-a and 6530(19). Under New York State law, a physician is prohibited from allowing any person, including another licensed healthcare provider, to share in the fees for professional services “unless they are a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee.” This prohibition also includes “any arrangement or agreement whereby the amount received inpayment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice…”
In Advanced Dental, the seller sought to enforce the APA for the assets of a dental practice against the buyer. The agreement, in part, required the buyer to pay the seller based on a percentage of the future revenue of the practice. The seller sued the buyerunder the APA for failure to pay the purchase price. The Court dismissed the claims as it was determined the APA payment mechanism constituted fee-splitting and therefore was illegal and unenforceable.
The Court refused to “extend its aid to either party involved in the illegal contract… and determined to leave them where their own actions placed them.” Ultimately, this left the seller with no recourse to recover the value of its practice.
Healthcare providers need to be aware of the state and federal regulatory requirements that place restrictions on your freedom to contract when entering into agreements. Doing so may be the difference between receiving the value of your practice versus receiving nothing at all. The attorneys at Weiss Zarett Brofman Sonnenklar and Levy P.C. have the experience in advising health care clients with respect to these regulatory requirements. As well as negotiating and drafting contracts and prosecuting and defending lawsuits.
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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