XLO Concrete Corp. v. Rivergate Corp.

Appellate Division of the Supreme Court of New York, First Department · Contracts

ContractsIllegalityAntitrust defenseCounterclaimsRecoupmentcollateral illegalityantitrust defenseDonnelly Act

Facts

XLO, a concrete subcontractor, entered into a written contract with Rivergate, the general contractor, to construct the concrete superstructure of a Manhattan project for an adjusted price of $16,544,125.07. XLO alleged it performed the contracted work and was still owed $844,125.07. The project had been allocated to XLO through the "Club," an arrangement organized by the Commission of La Cosa Nostra under which designated contractors on projects over $2 million paid 2% of the contract price in exchange for "labor peace," and both XLO and Rivergate negotiated the contract with knowledge of the Club and its rules. Rivergate argued the contract was unenforceable because it was connected to an arrangement violating state and federal antitrust law.

Issue

Whether Rivergate could avoid paying XLO under the construction contract by asserting that the contract was illegal because XLO obtained the project through an anticompetitive arrangement known as the Club. Also, whether Rivergate's antitrust counterclaims, though otherwise time-barred, could be asserted to the extent they arose from the same transaction as XLO's claims.

Rule

Under the Sherman and Donnelly Acts, an illegal combination in restraint of trade is void, but not every contract made by a participant in that combination is therefore void. The determinative question is whether the alleged illegality is collateral to the contract sought to be enforced—specifically, whether the contract can be proved without reference to the illegal arrangement and constitutes an intelligible economic transaction in itself. If enforcing the contract would not enforce the precise conduct made unlawful by the antitrust statutes, courts should not permit an antitrust defense that would allow a party to retain the other party's goods or services without paying for them.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Harbor Steel Supply, a fabricator in Buffalo, sold structural beams to Adler Masonry under a written purchase order for a hospital project in Rochester. Adler accepted delivery and used the beams, but refused to pay the final invoice after learning that North Harbor had belonged to a regional cartel that secretly divided large public projects among member suppliers.

If North Harbor sues for the unpaid contract price, which is the best result?

Explanation. The majority rule is that not every contract entered into by a participant in an unlawful antitrust arrangement is void. The key question is whether the illegality is collateral to the contract sued upon: can the contract be proved without reference to the unlawful arrangement, and does it stand as an intelligible economic transaction in itself? Here, a standard sale of beams that were delivered and used can be enforced without asking the court to enforce the cartel's allocation scheme. The defense should not be allowed where it would let the buyer keep goods without paying. (Derived from XLO Concrete Corp. v. Rivergate Corp. (n.d.).)