Unjust Enrichment – For When the Handshake Deal Goes Bad

An imploded business arrangement for importing and then selling Christmas decorations sets the stage for the Northern District’s (IL) analysis of a slew of signature commercial litigation issues in Sunny Handicraft, Inc. v. Envision This!, LLC, 2015 WL 231108. 

While the case only involves a ruling on a 12(b)(6) pleadings motion, it’s still post-worthy for its discussion of some important and recurring issues that arise in breach of contract lawsuits.

The plaintiff ornament maker entered into an agreement with defendants – a buyer (“Buyer”) and end-retailer (“Retailer”) of the decorations, respectively – for about $3.5M worth of Christmas-themed merchandise. Plaintiff sued when the defendants failed to pay.

The Buyer, for its part, counter-sued the plaintiff to recoup unpaid advertising costs and miscellaneous shipping charges. The Retailer moved to dismiss several complaint counts and the plaintiff moved to dismiss the purchaser defendant’s counterclaims.

Granting the Retailer’s motion to dismiss the unjust enrichment count, the court pronounced that unjust enrichment  is a ‘quasi-contract’ theory where a court implies a contract in order to prevent unjust results. 

An unjust enrichment plaintiff must allege that defendant has unjustly retained a benefit to the plaintiff’s detriment and that retention violates fundamental principles of equity, justice and good conscience.

But a party can’t claim unjust enrichment where an express contract governs the parties’ relationship. A plaintiff can, however, plead unjust enrichment as an alternative theory to a breach of contract claim as long as the plaintiff doesn’t incorporate the express contract allegations into its unjust enrichment ones.

Generally, a court will not impose unjust enrichment liability against a third party that receives a benefit from the plaintiff’s agreement with another party. So, if x and y have a contract, x normally won’t be able to sue z just because z happens to benefit from x’s services. 

The only time a third party can be liable for unjust enrichment is where the plaintiff can show that the plaintiff had a reasonable expectation of being paid by the third party. *4.

The court granted the Retailer’s motion to dismiss the plaintiff’s unjust enrichment claim and denied the plaintiff’s motion to dismiss the Buyer’s unjust enrichment counterclaim.  On the former claim, the plaintiff failed to allege any conduct by the Seller that would lead plaintiff to have a reasonable expectation of being paid by the Seller.

Plaintiff’s conclusory allegation that the Retailer “was aware” that Plaintiff expected payment was too bare to survive dismissal.  The plaintiff was required to plead specific conduct by the Retailer that could lead plaintiff to reasonably expect payment.

The court did allow the Buyer’s unjust enrichment counterclaim to proceed.  The Buyer pled unjust enrichment in the alternative to its breach of contract count and alleged that it conferred a measurable benefit – marketing services and paid shipping expenses – on the plaintiff and that the plaintiff’s retention of the Buyer’s services without paying for them was unfair.

Afterwords:

– Unjust enrichment is viable alternative claim even where there is an express contract that governs;

– A plaintiff can implicate a third party in an unjust enrichment case where he can offer evidence or plead facts that demonstrate the plaintiff had a reasonable expectation of being paid by the third party.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.

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