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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.
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