By Thomas Michael and Rena Andoh
The New York Court of Appeals recently clarified the standards required for a party to succeed on an unjust enrichment claim. The term unjust enrichment, also known as a quasi-contract or an implied contract, is meant to apply where there is no contract between parties, but one party is unfairly benefiting from the efforts of the other without providing compensation. A point of contention in recent New York case law has been the degree of contact necessary between two parties in order for unjust enrichment to apply.
In Georgia Malone & Co. v. Rieder, 132, 2012 NY Slip Op 05200 (N.Y. June 28, 2012), Judge Victoria Graffeo, writing for a 5-2 majority, held that for a plaintiff to succeed on an unjust enrichment cause of action the plaintiff must establish not only a connection with the defendant, but that they had dealings together. The case arose from a Manhattan real estate deal, where Plaintiff Georgia Malone & Co. (“Malone”) contracted with CenterRock Realty, LLC (“CenterRock”) and its managing partner Ralph Rieder (“Rieder”) to provide due diligence materials relating to properties that CenterRock intended to purchase. CenterRock agreed to keep the diligence materials confidential and to provide Malone with commission based on the total purchase price. CenterRock proceeded to pull out of the deal without paying Malone, and instead sold the diligence materials to competing broker Rosewood Realty (“Rosewood”), who then found another buyer for the same properties. The Supreme Court of New York, Commercial Division (Bransten, J.) dismissed Malone’s unjust enrichment claims against all defendants, but permitted the breach of contract claim against CenterRock to proceed. Malone appealed to the First Department, which reinstated the unjust enrichment claims against Rieder in a 3-2 decision. On appeal to the Court of Appeals, Malone sought to reinstate its unjust enrichment claim against Rosewood, but the Court found that the relationship between the parties was too attenuated.
Judge Graffeo explained that the “awareness” standard discussed in Mandarin Trading Ltd. v. Wildenstein, 16 NY3d 173, 182 (2011), which required that an unjust enrichment claim include allegations that would “indicate a relationship between the parties, or at least an awareness by the defendant of the plaintiff’s existence”, does not mean that mere knowledge of another entity’s existence is sufficient to support an unjust enrichment cause of action. In this case Rosewood conducted arms-length business with CenterRock, and therefore should not be held liable for unjust enrichment simply because it knew Malone had prepared the materials. Judge Graffeo stated that extending the rule in the manner suggested by Malone “would require parties to probe underlying relationships between the businesses with whom they contract and other entities tangentially involved but with whom they have no direct connection. This would impose a burdensome obligation in commercial transactions.”
As a result of Georgia Malone, to survive a motion to dismiss on a claim for unjust enrichment, a plaintiff must allege: (i) a direct relationship with the defendant; (ii) that the defendant was enriched at the plaintiff’s expense; and (iii) that it is against equity and good conscience to permit the other party to retain the benefits.