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Advocate’s View: Court dismisses unjust enrichment claim

Mary Jo S. Korona

Unjust enrichment claims are frequently asserted in actions involving disputed contracts. This strategy evolved in response to the long-standing legal principle that a party to a contract cannot obtain recovery for unjust enrichment unless the contract is unenforceable. In cases involving rescindment of a written contract or allegation of fraud in the inducement, unjust enrichment may be a party’s only opportunity for recovery.

The potency of an unjust enrichment claim against a third (non-contracting) party has, until now, been unsettled. The recent Court of Appeals decision in Georgia Malone & Co. v. Ralph Rieder and Rosewood Realty Group, Inc. (June 28) establishes that the efficacy of such a claim depends upon the proponent’s ability to assert facts establishing a “sufficient connection” between the plaintiff and the third party.

Failure to plead such facts will result in dismissal of the claim, even in cases that present highly sophisticated commercial transactions and savvy players who wind up being handsomely enriched at the plaintiff’s expense.

Malone involved a down-state real estate transaction that was consummated on the basis of due diligence work performed by plaintiff Georgia Malone & Company. At issue was a brokerage commission of $875,000. After the first deal fell through, Rosewood Realty Group acquired the due diligence information from the party who refused to compensate Malone, in exchange for $150,000.

Rosewood, in turn, used the due diligence information to broker a sale that yielded it a commission of $500,000. Malone, which had not received any compensation for the due diligence work, sued the entity with which it had originally contracted and it also asserted an unjust enrichment claim against Rosewood, as a third (non-contracting) party.

A divided Court of Appeals affirmed dismissal of Malone’s unjust enrichment claim against Rosewood, notwithstanding an allegation that the non-contracting party (Rosewood) “knew at all times that Malone had performed the aforementioned work, labor and services and had supplied the aforesaid information with the expectation that Malone would be compensated therefor in the event that an agreement was reached to purchase the property.” The court found that this allegation did not establish the “sufficient connection” needed to sustain an unjust enrichment claim against a third party.

What facts will satisfy the court’s prescriptive of a “sufficient connection”? The answer lies in the degree of attenuation. In a lengthy decision, the Malone court acknowledged that the proponent need not plead privity; however the claim will not survive a motion to dismiss unless there are allegations of a “relationship” based upon “dealings with each other.”

Malone establishes a difficult pleading burden for unjust enrichment claims in commercial actions. Malone directs that such claims should be dismissed if the plaintiff’s “relationship” allegations “impose a burdensome obligation in commercial transactions.” An unacceptable burden includes the requirement to “probe” underlying relationships.

The Malone court found that the third party’s alleged “awareness” of the plaintiff’s work and right to compensation was not sufficient to establish a “relationship,” even though the loss of compensation for the due diligence work “certainly appears unfair.”

Upon reading the decision, you may be tempted to conclude that asserting an unjust enrichment claim in a commercial case has become an exercise in futility. That conclusion was reached by the court’s chief judge, whose lengthy dissent declared that the majority departed from unjust enrichment precedent in favor of a rule that “appears to condone willful ignorance.” (“This court’s precedent on unjust enrichment has never required that there be a close relationship or dealings between the parties.”)

In declaring the majority’s “policy concerns to be unfounded,” the dissent urges courts and litigants to focus on the equities presented by the “realities” of the particular commercial transaction at bar.

Many legal commenters suggest that the lively debates created by the chief judge’s propensity for authoring dissenting opinions are helpful to practitioners and the lower courts. In the case of unjust enrichment claims, the Malone majority and dissenting opinions will likely encourage an increase in pre-answer motion practice that invites lower courts either to consider expert affidavits concerning the “realities” presented by the particular commercial transaction at bar, or take judicial notice of such matters.

If you represent the proponent of an unjust enrichment claim, you might postpone assertion of a third-party claim, mindful that unjust enrichment claims are subject to a six year statute of limitations, in favor of conducting discovery that produces information useful in establishing a “relationship” sound enough to support an unjust enrichment claim.

Mary Jo S. Korona is a founding partner in the law firm of Leclair Korona Giordano Cole LLP. She concentrates her litigation practice in commercial matters in state and federal courts.

3 comments

  1. what about unjust courts in mortgage forged cases. No one is doing anything about that. Laws are changing but the courts are not. The court system is one of the problems. The procedure to try and prove you have a case to sue, is up to one judge, who do not realty want the case, Lawyers how do not understand the case, statue of limitation after years being in the case, and Banks knowing all the tricks. The Banks are willing to pay there lawyers more then the house is worth, rather then let the truth come out. If you go for an appeal with the pallet court and win the reversal You go back to the same judge. The Banks last trick will be a summary judgement, and most judges will give it to the bank. This closes the case and you have lost the right to a jury trail. Proof of 20 laws they went against dose not mine a thing. Where is the justice.
    I know this for fact, because this is what happened to me.
    1.A letter from my county Attorney General( 2006, we can not help you, get a private lawyer.)
    2.All the documents was forged (hand writing examiner)
    3. My so call hand writing on the DEED of Transfer and the Settlement document was misspelt.
    4.No power of Attorney.
    5. Husband’s death certificate was not the original with the state seal.
    6. Notary lost his state license and disappeared.
    7.Apprasiser lost license for misconduct for 45 days.
    8.State investigation side I was defrauded.
    9.Settelement document was not legal document of HUD document.
    10. All documents was signed on the same day (Friday January 27, 2006, in another part of the state. Even the mortgage for the so call new owner.)
    11.Check for my mortgage company was signed six days after the mortgage was given to the so call new owner.
    12.The so call new owner tried to remortgage, and seal the house.
    13.So call new owner credit report had 38 defaults, a score of 600 and was dated Dec. 24, 2005.
    14.So call new owner’s fax was from a bank he worked at or was a part owner in his area, which had to do with a real estate school and reverse mortgage.
    15.Appraisers map came from same school.
    16.So call new owner, appraiser and notary lived next to one another, a few miles away from the Title Ins. Agency, and the Banks Settlement lawyer.
    17.The so call broker/buyer (had no license)and made a commission on the deal.
    18. The Banks documents came from the so call new owners Bank fraud unite, with four difference address’s for the so call new owner.
    19.The so call new owner broke into my home and tried to evict me (the police let him go and said it was a civil matter.
    20.There was no promise from me for any one to pay off my mortgage.
    21.The so call new owner tried to claim damage on this house after sandy hurricane ( there was no damage).
    22.The Bank I tried to get the reverse mortgage (bank of New York) Wrote a letter a few months after my house was stolen why I did not get the mortgage.
    23. The so call new owners Bank ( AIG) claims the owner has disappeared on them, and I.
    The Bank AIG asked for a summary judgement for equable subrogation and the judge gave it to them, to get ride of case.
    I’m 70 years old and is about to become homeless. Is this justice.

  2. jacques magloire

    I need representation for an unjust enrichment case. i have been victimized in a commercial foreclosure case. The creditors are poised to reap a great deal of profit from a proper that i have spent close to $500,000 rehabilitating.
    Please help.

    JM

  3. You might want to try contacting the Lawyer Referral Services at the Monroe County Bar Association, (585) 402-7186. We are a newspaper and cannot offer any legal advice.

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