CONTRACT NOT TO DISCLOSE EXTRAMARITAL AFFAIR

Is a plaintiff's attempt to enforce an agreement to keep silent about an extramarital affair in exchange for money illegal? We have heard about similar cases in the news and in this recent matter, the Southern District of New York addresses the issue. NOTE: The decision has the name changed to Plaintiff and Defendant as a curtesy to counsel of one of the parties and is posted here as modified by said counsel.

NAME DELETED AS CURTESY, Plaintiff, v. NAME DELETED AS CURTESY, Defendant., No. 19 Civ. 1546 (PAE),  United States District Court, S.D. New York, January 21, 2020:

"Defendant argues that Plaintiff's breach of contract claim is independently deficient because the agreement that Plaintiff posits would be illegal. Illegal agreements "are, as a general rule, unenforceable" in a breach of contract action. Lloyd Capital Corp. v. Pat Henchar, Inc., 80 N.Y.2d 124, 127 (1992). "It is the settled law of [New York] (and probably every other State) that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object." State v. Freeman, 298 N.Y. 268, 271 (1948).

Here, Defendant argues that the agreement alleged by the Complaint is illegal because, on the facts pled, it is the product of extortion by Plaintiff. See Def. Mem. at 11. Under New York law, a person commits extortion if she compels or induces another to transfer property to her by instilling in that person a fear that if the property is not delivered, the actor or someone working with her will "[e]xpose a secret or publicize an asserted fact, whether true or false, tending to subject some person to hatred, contempt or ridicule." N.Y. Penal Law § 155.05(2)(e)(v). Attempted extortion is also a crime. See id. § 110.00. In cases involving contracts found to be extortionate, New York courts have dismissed claims of breach, on the grounds that such contracts are illegal and unenforceable. See Yao v. Bult, 666 N.Y.S.2d 159, 160 (1st Dep't 1997).

Critically here, an element of extortion is a threat, from the person seeking the property, that she will expose the controversial secret or fact. See People v. Dioguardi, 8 N.Y.2d 260, 269 (1960); see also N.Y. Penal Law § 155.05(2)(e)(v). Such a threat can be implied, as opposed to explicit. See Kraft Gen. Foods, Inc. v. Cattell, 18 F. Supp. 2d 280, 285 (S.D.N.Y. 1998); People v. Kacer, 448 N.Y.S.2d 1002, 1007 (Sup. Ct., N.Y. County 1982).

The parties disagree about whether the Complaint and attached exhibits demonstrate that Plaintiff threatened Defendant, as required to find extortion. Defendant argues that the Complaint and the accompanying Demand Letter support such a threat: In his framing, Plaintiff demanded $500,000 from him, implying that she might otherwise disclose their longstanding affair and the child's paternity. See Def. Mem. at 11; Def. Reply at 5 (citing Demand Ltr. at 3). As Defendant notes, Plaintiff, after the child learned about Defendant's likely paternity, wrote: "You thought. . . no one would find out and there never would be consequences." Sept. 17, 2018 Ltr. at 1. Plaintiff counters that, based on the Complaint and the documents attached to it, the condition that Plaintiff remain silent was introduced by Defendant, and that, viewing the pleadings in the light most favorable to Plaintiff, she did not threaten, explicitly or implicitly, to disclose these damaging facts. See Pl. Mem. at 7-8.

The Court regards this question as close. Favoring Defendant's reading, New York courts have held that agreements involving payments to induce a party to stay silent regarding sexual relationships and other intimate information bespeak extortion and are hence void for illegality. In Yao, for example, the plaintiff, a lawyer who had had an intimate relationship with a wealthy financial executive, threatened to expose that the executive was gay and that he had previously been in a relationship with an individual with AIDS. See Matter of Yao, 680 N.Y.S.2d 546, 547 (1st Dep't 1998) (per curiam); Matter of Yao, 661 N.Y.S.2d 199, 200 (1st Dep't 1997) (per curiam).^[6] The plaintiff alleged that he and the executive had entered into an oral agreement in which the executive promised to pay the plaintiff $10,000 per month, in exchange for the plaintiff's promise not to publicize that personal information. See Matter of Yao, 680 N.Y.S.2d at 547; Matter of Yao, 661 N.Y.S.2d at 200. After making the first payment, the executive stopped paying, and the plaintiff sued for breach of contract. Matter of Yao, 661 N.Y.S.2d at 200. The First Department affirmed the dismissal of the breach of contract claim, because the contract was extortionate. Yao, 666 N.Y.S.2d at 160.

As Defendant notes, the agreement alleged by Plaintiff contains similar terms to that in Yao. In the Demand Letter sent to Defendant's attorney, Plaintiff's attorney described the agreement as follows: "Ms. Plaintiff promised not to contact [Defendant] or [his] family or divulge the true nature of [their] relationship and the paternity of her daughter in exchange for [his] promise to pay her $500,000. [He] accepted that offer by agreeing to pay; thereafter a valid contract was formed." Demand Ltr. at 3. This statement is consistent with Plaintiff's having—at least implicitly— threatened that, if she were not paid, she would expose her sexual relationship with Defendant and Defendant's out-of-wedlock paternity of the child, both of which constitute "secret[s]" that would tend to subject Defendant to "hatred, contempt or ridicule." N.Y. Penal Law § 155.05(2)(e)(v).

At the same time, Plaintiff cites to allegations in the Complaint and attached exhibits that, although not establishing that Defendant, unprompted, demanded Plaintiff's silence as a condition on which he would pay her, are at least consistent with that series of events.^[7] On this reading, while the terms of Plaintiff and Defendant's agreement parallel those held void as extortionate in Yao, the non-disclosure condition was Defendant's impetus exclusively.

In the end, the Court is mindful that on a motion to dismiss, the pleadings must be read in the light most favorable to the plaintiff. A court must be wary of drawing factual inferences for a defendant that, even if rational, are arguable. See Edrei v. Maguire, 892 F.3d 525, 539 (2d Cir. 2018) ("Perhaps this is an inference that a factfinder might ultimately make, but at this stage we must draw all inferences in favor of the plaintiffs, not the defendants."). Defendant has not cited case law under which an agreement to pay another not to publicize damaging secrets would necessarily be extortionate and illegal where the facts show neither an express or implied threat of disclosure by the person promising silence. And the Court is unprepared, on the pleadings, which leave less than pellucid the parties' full course of communications, to hold that Plaintiff necessarily threatened disclosure of Defendant's embarrassing secrets so as to have committed extortion. The Complaint and the communications attached to it do not contain an express threat by Plaintiff to this effect. And while these are consistent with an implied such threat, they do not unambiguously reveal that Plaintiff, in seeking money, implied that she otherwise might disclose these secrets.

To be sure, Defendant's claim that Plaintiff implied such a threat, prompting his insistence on such a condition, is quite plausible. A finder of fact, upon hearing the principals' testimony and reviewing the documentary evidence, including the Demand Letter, might well so conclude. But that reading—that Plaintiff introduced the threat of disclosure—is not the only plausible one. Plaintiff's alternative theory is not inconceivable. She posits that, after the child learned of Defendant's apparent paternity, Plaintiff did no more than ask for money from Defendant, and that it was Defendant who, newly fearful of disclosure now that there was no longer a secret to be kept from the child, on his own initiative demanded a vow of silence from Plaintiff as a condition for paying her. On that reading, Plaintiff's acquiescence to that condition, without more, would not constitute extortion on her part. See Andrea Doreen Ltd. v. Bldg. Material Local Union, 299 F. Supp. 2d 129, 156 (E.D.N.Y. 2004) (no extortion because no threat); cf. People v. Flynn, 475 N.Y.S.2d 334, 338 (Sup. Ct., N.Y. County 1984) (larceny by trick and false pretenses charges, N.Y. Penal Law § 155.05(2)(a), not viable where evidence did not "rise to the level of even an implied threat").

Were Plaintiff's breach of contract claim not blocked by the Statute of Frauds, the decisive question as to whether the contract was the product of extortion and hence inherently illegal—whether Plaintiff expressly or impliedly threatened disclosure of Defendant's secrets— would have been tested in discovery. Defendant's claim that the agreement with Plaintiff, if any, was the product of a threat of disclosure would then have been assessed on a full record of the parties' communications, and resolved, at summary judgment or at trial. However, because the breach of contract claim is independently deficient, there is no occasion to undertake such discovery.

The Court, accordingly, dismisses Plaintiff's breach of contract, but only on the first ground urged by Defendant: that the agreement Plaintiff alleges is barred by the Statute of Frauds."