A publisher pays a hefty advance to an author who just wrote a bestselling novel. They hope to lock down the next book, trusting it will be a profitable investment. However, the author never quite gets around to writing the book. Deadlines come and go, and it becomes obvious the work won’t get done. When the publishing company demands its money back, the author claims he has spent it and cannot return it. In this case, the publishing house has grounds to file an unjust enrichment claim.
Unjust enrichment occurs when one party benefits at the expense of another in a manner deemed unjust by the legal system. It involves an understanding between the parties that a service or good is not being provided gratuitously, but the understanding has not been reduced to a formal contract. For example, a teenager mows her neighbor’s lawn for the summer with the tacit understanding that she will be paid at the end of the season. She could file an unjust enrichment claim if the neighbor refuses to pay.
This blog post will provide details about the legal doctrine of unjust enrichment and how it impacts contract law. By going into depth about the history, case law, and legal remedies involved with the concept, readers will gain a deeper understanding of how the legal system understands just relationships between two parties.
What is Unjust Enrichment?
Contractual relationships, both formal and informal, are part of the human experience. Businesses can only exist through the many agreements that happen every day. Employees are paid a salary for coming to work. Contractors receive payment for their labor. These kinds of exchanges are fundamental to a functioning society.
Unjust enrichment is a legal concept where one party is enriched at the expense of another in circumstances deemed unjust by the law. The doctrine aims to prevent one party from unfairly benefiting from the efforts, services, or property of another without providing compensation.
Unjust Enrichment, Breach of Contract, and Fraud
Unjust enrichment is an underlying concept of contract law. However, a claim of unjust enrichment can usually only be brought if the parties failed to memorialize their agreement in a formal, written contract. Plaintiffs can make this claim regarding informal understandings and quasi-contracts that are found in day-to-day relations.
The concept differs from fraud because fraud entails intentional deception for personal gain. In contrast, unjust enrichment may be the result of an oversight or unpredictable circumstances. This legal idea focuses purely on the fairness of the benefit received and the detriment suffered.
An Ancient Legal Concept
Fairness is a fundamental concept that shapes all human societies, so unjust enrichment has evolved over centuries within common law systems. Its roots can be traced back to principles of equity in Roman law, which aimed to provide remedies in situations where legal rights were not adequately addressed by contracts.
Key Elements of an Unjust Enrichment Claim
Enrichment
The defendant must have received a benefit or gain for a case to qualify as unjust enrichment. Such enrichment includes
- Financial gain
- Acquisition of property
- Free or discounted services
At the Expense of the Plaintiff
The enrichment in question must have come at the expense or loss of the plaintiff. For example, if a contractor works on a project based on a verbal promise of payment and is not paid, the contract’s unpaid work corresponds to the property owner’s gain.
Unjust
The enrichment is considered unjust if it lacks a legal basis or fairness. The court will look at several factors to decide whether the enrichment is unjust such as whether there was reasonable expectation of compensation, whether the benefit was conferred involuntarily, and the nature of the relationship between the parties.
Case Law on Unjust Enrichment
Moses v Macferlan (1760)
Moses v Macferlan is an English case that is a cornerstone in the development of the doctrine of unjust enrichment in common law. The judge’s (Lord Mansfield) decision articulated that unjust enrichment occurs when one party is enriched at another’s expense in circumstances that the law considers unjust. The case also established that a claim for money had and received can be used to recover funds when there is no actual contract, but where equity demands restitution.
Bright v Boyd (1841)
Bright v Boyd is an American property law case decided by Justice Joseph Story. The case involved a dispute where Boyd made substantial improvements to land he believed he owned but was later found to belong to Bright. Boyd sought compensation for his improvements. This case set an important precedent for equitable relief, ensuring that those who improve property under a mistaken belief of ownership can be compensated for their contributions.
Recent Developments in Unjust Enrichment Law
The legal system must adapt to new situations and technologies. The current definitions of enrichment, quasi-contracts, and fair restitution are based on the 1987 update, The Restatement (Third) of Restitution and Unjust Enrichment. This document maintains the traditional definition of unjust enrichment but better integrates common law concepts like quasi-contracts into the restitution framework.
Disgorgement as a Remedy
The Restatement (Third) emphasizes that remedies for unjust enrichment are not limited to direct benefits transferred from one party to another. If the defendant profited from the wrongful conduct, they must also disgorge the profits made even if the plaintiff did not suffer a direct loss. This idea has strong implications in the financial sector, where an advisor might profit from a breach of duty while still preventing loss in a client’s account.
Non-Financial Benefits
The Restatement clarifies that benefits conferred other than money can also give rise to restitution claims, addressing complex situations like services rendered or improvements made under a mistaken belief of entitlement. These concepts were present in the Common Law, but the Restatement (Third) offers more definition.
Illegal Contracts
The latest Restatement simplifies the rules concerning restitution claims arising from illegal contracts, allowing recovery if it does not frustrate the policy of the underlying prohibition.
Current Examples of Unjust Enrichment
Modern notable examples of unjust enrichment claims are much more complicated than property improvements and missed payments. The global nature of modern commerce and advances in science have affected how people can profit in a variety of relationships.
Liu v. Securities and Exchange Commission
This 2020 Supreme Court case stems from an international investment arrangement. Charles C. Liu and Xin Wang solicited investments from Chinese nationals for a cancer treatment center project, promising that the investments would qualify the investors for EB-5 visas. However, the SEC discovered that the couple misappropriated the funds, using a significant portion for personal expenses and transferring large sums to overseas accounts owned by Liu and Wang. The SEC sued under the Securities Act of 1933.
The Supreme Court upheld the decision of the district court ordering a $26 million disgorgement. An important implication of the decision is that disgorgement should be treated as a remedy to unjust enrichment as opposed to a legal penalty.
Lacks v Thermo Fisher Scientific
Henrietta Lacks, an African American woman, had her cervical cancer cells taken without her knowledge or consent in 1951 at Johns Hopkins Hospital. These cells, known as HeLa cells, were unique because they could rapidly replicate and have been used extensively in medical research, leading to numerous scientific breakthroughs. In October 2021, the descendants of Henrietta Lacks filed a lawsuit against Thermo Fisher Scientific, arguing that the company had unjustly profited from the use of HeLa cells without compensating the Lacks family.
The family claims that Thermo Fisher’s continued commercialization of HeLa cells constitutes ongoing unjust enrichment. The defendant argued that Maryland law requires such claims to be filed within three years of the benefit being conferred. The case was resolved through a confidential settlement in 2023.
Filing an Unjust Enrichment Claim
The process of filing an unjust enrichment claim begins with seeking the advice of a knowledgeable attorney. This initial consultation is important because the attorney can assess whether the circumstances of the case meet the legal standards for unjust enrichment and provide guidance on the appropriate legal strategies.
Once the decision is made to proceed, the next step involves identifying the key elements of the claim. The plaintiff must demonstrate that the defendant received a benefit, that this benefit came at the plaintiff’s expense, and that the circumstances around this benefit are unjust.
After filing the claim and serving the defendant, the discovery process follows, where both parties exchange relevant information and evidence. This phase is designed to uncover all pertinent facts and prepare both sides for trial. Discovery can involve depositions, interrogatories, and requests for documents, allowing each party to gather detailed information to support their case.
Often, there is an opportunity for settlement negotiations in unjust enrichment cases. Both parties may attempt to resolve the dispute out of court through negotiation or mediation. If they settle, the terms are documented in a settlement agreement, concluding the case. Otherwise, the case will proceed to trial.
Burden of Proof
Throughout this process, the burden of proof rests with the plaintiff. They must provide clear and convincing evidence that the defendant was unjustly enriched at their expense. Courts typically apply the “preponderance of the evidence” standard in civil cases, meaning the plaintiff must show that it is more likely than not that the unjust enrichment occurred.
Tips on Preparing for an Unjust Enrichment Claim
Assembling the burden of proof for this type of case requires careful preparation.
- Plaintiffs should maintain records of all transactions and communications related to the claim.
- Engaging legal and financial professionals can be beneficial in compiling and presenting evidence effectively.
- Timeliness is crucial, as claims must be filed within the statute of limitations, which varies by jurisdiction but generally requires prompt action.
Defenses Against Unjust Enrichment Claims
Common defenses against unjust enrichment focus on the relationship between the two parties, the nature of the benefit, and whether the benefit was unjust.
Voluntary Transfer
A common defense against a claim of unjust enrichment under a quasi-contract is that a benefit was given voluntarily without the expectation of repayment. The defendant will argue that they saw the benefit as a gift or incentive.
Change of Position
A change of position defense argues that, since the receipt of the benefit, the defendant’s position has shifted in such a way that requiring restitution would be unfair. This defense goes along with the idea that unjust enrichment decisions are remedies to inequity rather than penalties.
Equitable Defenses
The defendant may argue that the plaintiff received some sort of benefit from the transaction, so retention of the benefit is not unjust.
Statute of Limitations
The statute of limitations on unjust enrichment claims varies by jurisdiction, limiting how much time can pass between the reception of a benefit and the filing of a case.
Preventing Unjust Enrichment Claims
Unjust enrichment claims often arise due to differing understandings of the expectations of a financial relationship and a lack of clarity around agreements. Preventing the need for an unjust enrichment claim often comes down to establishing a culture of fair conduct and transparency. Some best practices to reduce the risk include:
Written Contracts
Contracts should clearly outline the terms and conditions of any exchange, including the nature of the services or goods provided, payment terms, and the responsibilities of each party.
Clear Communication
Ensuring that all parties are aware of and agree to the terms of a transaction can prevent confusion later on. Any changes or modifications to the agreement should be communicated promptly and documented in writing.
Detailed Recordkeeping
Detailed records provide evidence of the terms agreed upon and can be invaluable in resolving disputes if they arise.
Informed Consent
Ensure all parties involved in an exchange of service give their informed consent, meaning they fully understand and agree to the terms and implications of the agreement.
Regular Review
Periodic review of contracts and business practices can assess whether the terms of agreements are still relevant and fair.
The concept of unjust enrichment prevents one party from unjustly benefiting at another’s expense. If you believe you have grounds for an unjust enrichment claim, the expert business attorneys at Landsman Saldinger Carroll are prepared to help with mediation, settlement, or trial services. In such cases, our primary goal is to make certain our clients are treated fairly and receive the appropriate legal remedy.
