Opinion ID: 794393
Heading Depth: 4
Heading Rank: 3

Heading: The Doctrine of Illegality Misapplied

Text: 33 The District Court determined that the NYPHRM rate structure was not part of any implied-in-fact contract. First, the District Court noted that it had not been provided any authority . . . for the proposition that [a court] should read the rates of the statute into an implied[-in-fact] contract where both parties were clearly not performing according to the statute. Second, the District Court found that the NYPHRM clearly gave [the Hospitals] the right to demand higher rates of reimbursement, but it did not create a new implied[-in-fact] contract because the parties did not agree to the terms. The District Court therefore determined that the implied-in-fact contracts contained payment terms rendered illegal by the passage of [the] NYPHRM and analogized them to illegal contracts that could not be enforced by any party. 34 But this analogy is misplaced. The contracts at issue were not illegal in their subject matter or in their purpose. Cf. Stone v. Freeman, 298 N.Y. 268, 271, 82 N.E.2d 571 (N.Y.1948) (It is the settled law of this State (and probably of every other 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. (citations omitted)). Instead, as with the CHAs, these are otherwise legitimate contracts that have been abrogated in part by a statute. In such cases, New York courts enforce those portions of the contracts that are not abrogated and apply the relevant statute to those abrogated portions. In Metropolitan Life Ins. Co. v. Conway, 252 N.Y. 449, 169 N.E. 642 (1930), for example, Chief Justice Cardozo, writing for the Court of Appeals, held that where an insurance policy rider was not approved by the New York Superintendent of Insurance, as required by New York Insurance Law, the rider is not invalid ipso facto unless in conflict with the provisions exacted by the statute. It is invalid even then to the extent of the conflict, and no farther. The statute reads itself into the contract, and displaces inconsistent terms.  Id. at 451-52, 169 N.E. 642 (emphasis added). Accordingly, the NYPHRM provides the relevant rates of reimbursement for these implied-in-fact contracts. 35