## Facts

- Rivergate Corporation served as general contractor on a Manhattan construction project and subcontracted with X.L.O. Concrete Corp. to construct the concrete superstructure and fills.
- The parties executed a written subcontract on May 12, 1983, for approximately $16.3 million, later adjusted to $16,544,125.07.
- X.L.O. completed the work and sought $844,125.07 as the unpaid contract balance.
- Rivergate refused to pay, asserting the subcontract was tied to an illegal bid-rigging and extortion scheme known as the “Club,” involving organized crime influence over which firms could obtain large Manhattan concrete jobs and requiring a 2% “labor peace” payment.
- X.L.O. had joined the Club in 1981 and, after the job was allocated within the scheme, negotiated the subcontract directly with Rivergate.
- Rivergate negotiated with knowledge of the Club’s existence and rules, but later invoked the Donnelly Act (N.Y. Gen. Bus. Law § 340) to argue the contract was unenforceable.

## Issues

1. Whether a Donnelly Act antitrust-illegality defense renders unenforceable, as a matter of law, a facially lawful construction subcontract that was allegedly procured within an unlawful market-allocation and bid-rigging scheme.
2. Whether summary judgment for the defendant is proper where factual disputes remain about the contract’s relationship to the alleged antitrust violations and the consequences of enforcement.

## Decision

- The New York Court of Appeals affirmed the order reinstating X.L.O.’s complaint.
- The court held Rivergate was not entitled to summary judgment on its Donnelly Act illegality defense.
- The court concluded material issues of fact existed as to whether the subcontract was so integrally related to the illegal scheme that enforcing it would effectively compel or further antitrust violations.
- The matter was left for further proceedings, with the antitrust defense not resolved as a matter of law on the record presented.

## Legal Principles

- A contract that is legal on its face and does not require unlawful conduct in its performance is not automatically unenforceable merely because it arose from, or was influenced by, an antitrust conspiracy.
- Antitrust illegality defenses in contract actions are generally disfavored and are limited to situations where contract enforcement would require performance of the conduct prohibited by the antitrust statute.
- Courts distinguish between (a) contracts where the contracted-for performance is itself the illegal anticompetitive conduct and (b) contracts that are only ancillary to unlawful activity; only the former category is more likely to be barred from enforcement as a matter of law.
- When the record leaves unresolved whether enforcement would advance the unlawful scheme, whether the price was affected by anticompetitive practices, and whether nonpayment would produce inequitable forfeiture or unjust enrichment, summary judgment on illegality is improper.

## Conclusion

The court refused to treat the Donnelly Act illegality defense as an automatic bar to enforcing a standard construction subcontract allegedly connected to a broader bid-rigging scheme, holding that unresolved factual and equitable questions required further litigation rather than summary judgment.


X.L.O. Concrete Corp. v. Rivergate Corp., 83 N.Y.2d 513 (N.Y. 1994)