Psychoanalytic Center, Inc. v. Burns, 46 N.Y.2d 1002 (1979)
An arbitration award calculating damages based on a prior fee allocation between a psychotherapist and a treatment center does not constitute illegal fee-splitting and is enforceable, provided it arises from a breach of contract and not a voluntary, prospective fee-splitting arrangement.
Summary
This case addresses the enforceability of an arbitration award in a dispute between a psychoanalytic center and a psychotherapist who formerly worked there. The arbitrator determined that the psychotherapist breached an agreement not to treat the center’s clients after his departure and awarded damages based on the fees he received from those clients, mirroring the parties’ prior fee allocation. The New York Court of Appeals held that this award did not constitute illegal fee-splitting and was enforceable because it was a damage calculation arising from a breach of contract, not a prearranged agreement to split fees prospectively.
Facts
The Psychoanalytic Center, Inc. and Robert Burns, a psychotherapist, had an agreement under which Burns worked at the center. The agreement contained a clause that, upon termination of his association with the center, Burns would not treat any of the center’s clients. Burns discontinued his association with the center and subsequently treated clients of the center, allegedly in violation of the agreement.
Procedural History
The dispute was submitted to arbitration. The arbitrator found that Burns had breached the agreement. The arbitrator then made an award of damages to the Psychoanalytic Center. The damages were calculated based on the fees Burns received for treating the center’s clients, using the same allocation formula that was in place when Burns was associated with the center. The Supreme Court confirmed the arbitration award. The Appellate Division reversed, finding the award constituted illegal fee-splitting. The Psychoanalytic Center appealed to the New York Court of Appeals.
Issue(s)
Whether an arbitration award that calculates damages for breach of contract based on a prior fee allocation between a psychotherapist and a treatment center constitutes illegal fee-splitting that violates public policy and regulations prohibiting such practices.
Holding
No, because the arbitration award was a computation of damages resulting from a breach of contract and not a voluntary, prospective agreement to divide professional income in a manner that could compromise professional responsibility.
Court’s Reasoning
The Court of Appeals reasoned that the regulation prohibiting fee-splitting (specifically, regulation 72.2 (subd [a], pars [4], [5]) of the Commissioner of Education) aims to prevent voluntary, prospective arrangements for dividing professional income that might threaten a professional’s responsibility to clients. The court emphasized that the arbitration award in this case was not such an arrangement. Instead, it was a calculation of damages resulting from Burns’s breach of contract. The court stated, “What are prohibited by the regulation are certain voluntary prospective arrangements for the division of professional income in circumstances where such a practice might threaten or impair the discharge of professional responsibility to clients. There is nothing of that here.” The court distinguished between an agreement to split fees in advance and a calculation of damages after a breach, even if that calculation mirrors the parties’ prior fee arrangement. The court noted that the computation of damages “is not invalidated because it was predicated on the parties’ own prior division of client revenue or the circumstance of the precise arithmetic parallel thereto.” The court found no violation of public policy and reinstated the Supreme Court’s judgment confirming the arbitration award.