Opinion ID: 178029
Heading Depth: 3
Heading Rank: 3

Heading: Whether Public Policy Demands Relief for OCA

Text: [E]ven where the parties are in pari delicto relief will sometimes be granted if public policy demands it. Lewis, 199 S.W.2d at 151. Determining whether the policy against assisting a wrongdoer outweighs the policy against permitting unjust enrichment ... depends upon the peculiar facts and the equities of the case, and the answer usually given is that which it is thought will better serve public policy. Id. [I]t is not the purpose of this rule of law to benefit or punish either of the parties.... Norman, 363 S.W.2d at 178. It is true that as between parties in pari delicto relief will be granted if public policy demands it. In such cases the guilt of the respective parties is not considered by the court, which looks only to the higher right of the public; the guilty party to whom relief is granted being only the instrument by which the public is served. The relief is granted to discourage such transactions by others. Wright v. Wight & Wight, 229 S.W. 881, 882 (Tex. Civ.App.1921). The focus of the public policy exception to the rule general prohibiting recovery by parties to illegal contracts is properly on the public's interest, not the parties'. We therefore look to whether the higher right of the public will be best served by allowing OCA to recover and ask whether such relief would discourage such transactions by others. Id. OCA asserts that three factors weigh in favor of allowing it relief based upon the public policy exception: (1) Packard's heightened duty under the Texas Administrative Code; (2) Packard's status as a wrongdoer; and (3) the fact OCA acquired its interest in the Packard contract pursuant to an order of the bankruptcy court. We find these reasons unpersuasive. The higher public right at the center of this case is the public's interest in the prevention of the unlicensed practice of dentistry. Indeed, the very reason this contract was deemed illegal is because its terms allowed OCA to engage in the illegal practice of dentistry. In re OCA, 552 F.3d at 423-24. OCA fails to explain how the public interest of preventing the unlicensed practice of dentistry is best served by allowing it, a corporation that engaged in the unlicensed practice of dentistry, to recover monies it paid in order to do so. We have previously disposed of OCA's argument as to Packard's heightened duty under the Texas Administrative Code. That Packard is also a fellow wrongdoer and may have violated his duties as a dentist during the course of the OCA-Packard relationship is of no consequence to determining whether the public's interest would be furthered in allowing OCA to recover. Nor is OCA's argument as to the bankruptcy court's alleged approval of the contract persuasive. The record reflects that OCA acquired an interest in the Apple-Packard contract pursuant to the bankruptcy court's June 1, 2000 order. The BSA found illegal by this court in In re OCA was entered into by the parties on September 29, 2000. The BSA is altogether separate from the bankruptcy proceedings, having been entered into post-bankruptcy for the purposes of superseding the Apple-Packard contract. Even assuming, arguendo, that OCA is correct that the Bankruptcy Judge believed the contract to be legal, the bankruptcy court could only have opined on the Apple -Packard contract before it, and not the OCA -Packard that was not entered into for another five months. Allowing OCA to recover might provide a disincentive for dentists to enter into these types of affiliation agreements, thereby discouraging such transactions by others. Wright, 229 S.W. at 882. But the risk of such transactions by others has already been significantly diminished by In re OCA, which declared these types of affiliation arrangements to be illegal under Texas law. Underscoring this point is OCA's repeated insistence that it believed the Packard-OCA contract to be legal when it entered into the agreement. After In re OCA, there is little risk that future sophisticated parties like Packard and OCA will harbor allegedly erroneous subjective beliefs as to the legality of affiliation agreements between dentists and corporations. Furthermore, any disincentive to future dentists must be counterbalanced against the increased incentives to future corporations if OCA is allowed to recover. A corporation like OCA would be far more likely to enter into potentially illegal agreements if it could be confident that courts would aid [it] to recover or reinvest [it] with any title or interest which [it], in consideration of such unlawful contract, has vested in its business partner. Beer, 31 S.W. at 806. We cannot say that allowing OCA to recover would discourage future transactions by others. Finally, the public policy exception to the general prohibition requires us to determine whether the policy against assisting a wrongdoer outweighs the policy against permitting unjust enrichment. We note that the wrong here is the unlicensed practice of dentistry. Under the peculiar facts and equities of the case, we find a situation in which one of two parties, in pari delicto and substantially equally guilty of the wrong, has allegedly been unjustly enriched at the expense of the other. We hold that allowing that party, OCA, to recover from Packard would not serve the higher public right by discouraging future illegal arrangements like the one before us. Therefore, we cannot say that public policy demands [OCA's recovery]. Lewis, 199 S.W.2d at 151. We agree with the district court that this exception is inapplicable. We are cognizant that this holding may permit Packard to be unjustly enriched at OCA's expense, [10] but hold that the policy against permitting unjust enrichment does not outweigh the policy against courts assisting a wrongdoer based upon the peculiar facts and equities of this case.