The Meaning of “Unjust” Remains in Dispute – Westchester Women’s Bar Association Newsletter, October 2011
By: Virginia K. Trunkes
Unjust enrichment is a concept familiar to commercial litigators (and to those who recall their Contract Law basics) as somewhat of a “fallback” cause of action. It may be applicable when there is no existing contract, express or implied, between the parties, but where “equity and good conscience” obligate the defendant to compensate the plaintiff for the value of what was provided to thedefendant. Miller v Schloss, 218 N.Y. 400 (1916). The term is used interchangeably with “quasi contract,” or “implied contract in law,” to describe a legal obligation imposed in order to prevent, simply, a party’s unjust enrichment. Parsa v State of New York, 64 N.Y.2d 143, 148 (1984).
By its very nature, the tort is difficult to pinpoint: one need not have engaged in fraud, undue influence, duress, or any type of overt conduct which already has its own corresponding cause of action. Rather, the entire premise of an unjust enrichment claim is that the accused party is benefitting from the product or services of another under circumstances by which it would be wholly unfair for the recipient to retain without compensation. This principle is fundamental to law generally, i.e., to balance the equities in response to human behavior. So where is the line drawn for imposing damages based upon retention of a benefit for which the recipient had not contracted?
This past summer, the Appellate Division, First Department, grappled with that very issue in Georgia Malone & Co., Inc. v. Ralph Rieder, __A.D.3d __, 926 N.Y.S.2d 494 (1st Dep’t 2011). To be sure, the jurisprudence of quasi-contracts is historic and prolific, tracing back to Blackstone’s Commentaries (2 Bl. Com. 443 [1766] [attempting to demarcate the line between genuine contracts and quasi-contracts]). The term “quasi” itself stems from Roman usage. See Sir Henry Sumner Maine, ANCIENT LAW, 4th Ed., 343-36 (1870). Yet, in 2011, in a 3-2 decision, learned jurists of a highly-esteemed court could not agree on what exactly constitutes the unjustness sufficient to expose one to liability for a quasi-contract.
In Georgia Malone & Co., the majority agreed to reinstate the unjust enrichment claim which had been dismissed by the motion court as against only two defendants, whereas the minority believed that by not including the additional defendants, the majority was “ignor[ing] clear Court of Appeals precedent …” How can this be? Were prior cases unclear? Did prior cases omit discussion of a particular element of the cause of action? Have the ethics of human behavior deteriorated so dramatically that the cause of action needs to be broadened?
Actually, confusion regarding quasicontracts existed even within Blackstone’s Commentaries. See Hertzog v. Hertzog, 29 Pa. St. 465, 467 (1857). The source of the confusion seems to be the fact that the cause of action owes its existence to the law of remedies, wherein equity judges attempted to adapt existing remedies to new rights. The judges found that the remedies of breach of contract more closely fit a claim of unjust enrichment than those of the commission of torts, even though a “quasi-contract,” by definition, does not contain the features of a contract. See Keener, “Quasi-Contract, Its Nature and Scope,” 7 Harv. L. Rev. 57, 66-67 (1893).
Perhaps that helps explain why in 2011, the Appellate Division Justices wrestle with what “equity and good conscience” requires. In Georgia Malone & Co., the plaintiff contracted to provide defendant CenterRock Realty, LLC (“CenterRock”) with confidential information to be used in CenterRock’s decision to purchase a group of buildings, and to collect a commission fee of 1.25% of the sale price of the property. CenterRock utilized the information and entered into a contract of sale, but alas, on the final day of the due diligence period, it terminated the transaction. The complaint alleged that CenterRock, defendant Ralph Rieder (CenterRock’s managing member), and its officer defendant Elie Rieder sold the confidential information to a fellow brokerage and its broker in exchange for $150,000, and that the brokerage then sold this information to its client, which purchased the property, and the brokerage and the broker received a sizeable commission.
The issue relating to quasi-contract centered on whether the defendants Ralph and Elie, as well as four other defendants – the brokerage, its broker, an affiliate of CenterRock and the attorney for CenterRock, could be held liable for benefitting from the sale of property and the $150,000 receivedfrom selling the confidential information. The majority determined that the unjust enrichment claim was properly interposed against Ralph and Elie based on the plaintiff’s allegations that Ralph personally affirmed his, CenterRock’s and Elie’s interest in completing the transaction and assured the plaintiff that it would receive its commission even if the deal was not completed. Id, 497. Where as a result of these assurances, the plaintiff continued to collect and provide those defendants with the confidential information, the Court found that the plaintiff “sufficiently pleaded that there was direct contact and a relationship with Ralph and Elie that could have caused reliance or inducement.” Id, 497-98. As for the remainder of the defendants, the majority noted that the complaint did not allege that they knew that the plaintiff had not been paid. Id,498.
In contrast, the minority determined that the unjust enrichment claim should also have been sustained as against the brokerage, its broker, CenterRock’s affiliate and the transactional attorney. The minority reasoned that it was sufficient that the allegations provided that those defendants “knew at all times that they were using information that had been wrongfully obtained by the individuals that sold it to them.” Id, 499. The minority urged that the majority’s requirement of “reliance” and “inducement” ignored ample precedent that “awareness” alone is a sufficient basis on which to state a claim of unjust enrichment. Id, 503. Among other things, the minority added that the majority’s decision would wrongfully eliminate a quasicontract claim based on mistake, and “virtually collapses the distinction between claims for quantum meruit and those for unjust enrichment.” Id, 504, fn. 5.
Only several months ago, the Court of Appeals addressed the parameters of unjust enrichment in Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.2d 173 (Feb.2011). That decision was cited heavily by both the majority and minority in Georgia Malone & Co. In light of the 3-2 split, we should expect to see more discussion on the topic by our highest Court in the near future.