Georgia Malone & Co. v. Rieder

Chief Judge Lippman (dissenting).

We have established that “[t]he essential inquiry in any action for unjust enrichment. . . is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered” (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 [2011] [internal quotation marks and citation omitted]). It is apparent that equity and good conscience do not permit Rosewood to retain the benefits of Malone’s diligent work, and that plaintiff has adequately pleaded that Rosewood was unjustly enriched. Therefore, I respectfully dissent.

The allegations of this complaint are sufficient to state a cause *520of action that Rosewood cannot retain the sales commission it received by using Malone’s work product. According to the pleadings, Malone performed the services and due diligence necessary to equip a buyer to negotiate and to execute the purchase of the commercial properties. Rosewood then profited by using the fruits of Malone’s labor and transmitting the diligence materials to a different buyer, netting Rosewood a hefty commission while Malone never received compensation for its work. Furthermore, Rosewood had an appreciation and awareness that the diligence materials were drafted by Malone, as alleged in the complaint.1 Rosewood knew that it was receiving a benefit from Malone, its competitor in the New York real estate brokerage market, because it was evident from the materials themselves. In an affidavit in opposition to Rosewood’s motion to dismiss, Georgia Malone stated, “[A]ll of the [due diligence] materials either were printed on plaintiff’s letterhead or contained other information linking them to plaintiff’ (emphasis omitted). Evaluating Malone’s unjust enrichment claim under the “broad considerations of equity and justice” (Paramount Film Distrib. Corp. v State of New York, 30 NY2d 415, 421 [1972]), it is only fair to allow Malone’s claim against Rosewood to proceed at this early stage in the litigation. At the motion to dismiss stage under CPLR 3211, “the pleading is to be afforded a liberal construction,” and we “accord plaintiffs the benefit of every possible favorable inference” (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). The majority’s intimation that Rosewood believed Malone had been compensated by the Rieders for its services and that Rosewood is a good-faith purchaser for value inappropriately draws inferences in favor of defendants in the context of a CPLR 3211 motion to dismiss.

In addition to requiring proof that defendant was inequitably enriched at plaintiff’s expense, we held in Sperry v Crompton Corp. (8 NY3d 204, 215-216 [2007]) that there needs to be some nexus between the plaintiff and defendant, and the “connection” between the party conferring the benefit and the enriched party cannot be “too attenuated.” Disregarding the equitable concerns at hand, the majority rules on the basis that Malone’s connection to Rosewood does not satisfy the standard of Sperry. The majority now requires plaintiffs pleading unjust enrichment to *521have a “sufficient relationship” with defendant, involving “dealings with each other” (see majority op at 513, 518). Requiring a relationship of mutual dealing where the plaintiff confers a benefit on the unjustly enriched party treads too close to requiring privity, which this Court expressly disclaimed in Sperry and Mandarin Trading. Our holdings in Sperry and Mandarin Trading never required that there be direct contact or a close relationship between the parties.

In Mandarin Trading, we indicated that “an awareness” by defendant of plaintiffs existence was sufficient for an unjust enrichment claim (16 NY3d at 182). The language describing the connection between Mandarin Trading and Wildenstein as not a “relationship . . . causing] reliance or inducement” was merely for illustrative purposes and was dicta alluding back to how Mandarin also failed to meet the standard for negligent misrepresentation (id.). It was not a statement of the standard for unjust enrichment actions,2 and the majority here likewise correctly refrains from applying the heightened reliance/ inducement standard. Rather, our holding in Mandarin Trading was that the connection between the defendant, who was not aware of plaintiffs existence, was “too attenuated” under Sperry. In Mandarin Trading, the appraisal letter drafted by Wildenstein was not addressed to Mandarin Trading, and there was no information about how the letter reached plaintiffs hands. Also the plaintiff did not plead that Wildenstein was aware that Mandarin existed. The connection between the parties here by contrast was made out because Rosewood was aware that it was profiting from its competitor’s work. Williston on Contracts § 68:5 is instructive here, stating that an unjustly *522enriched party must have “an appreciation or knowledge ... of the benefit” and have accepted or retained the benefit inequitably without payment for its value (26 Lord, Williston on Contracts § 68:5 [4th ed]). The Court here is dealing with an equitable concept and should not propagate a standard that gives an impregnable defense to a party allegedly dealing in misappropriated property.3

This Court’s precedent on unjust enrichment has never required that there be a close relationship or dealings between the parties. We stated in Simonds v Simonds (45 NY2d 233, 242 [1978], quoting Miller v Schloss, 218 NY 400, 407 [1916]) that “[u]njust enrichment, however, does not require the performance of any wrongful act by the one enriched .... Innocent parties may frequently be unjustly enriched. What is required, generally, is that a party hold property ‘under such circumstances that in equity and good conscience he ought not to retain it.’ ” In Simonds, plaintiff prevailed in an action against her ex-husband’s second wife and daughter for a portion of her ex-husband’s life insurance proceeds. We determined that though defendants had not acted wrongly and had no dealings with the plaintiff, they were still unjustly enriched as beneficiaries of the insurance policies (Simonds, 45 NY2d at 242-243). Nowhere in Simonds did we require defendant to have procured the unjust benefit or that there be contact between plaintiff and defendant. The majority attempts to distinguish Simonds on the basis that the defendant in Simonds did not pay for the insurance proceeds it received whereas Rosewood “appear[ed]” to be a good-faith purchaser for value of the diligence materials (majority op at 519). Drawing every inference in favor of plaintiff, Rosewood could not have been a good-faith purchaser because it had notice from Malone’s letterhead that the diligence materials did not belong to CenterRock and the Rieders. The requirement that defendant not be a gratuitous donee is only applicable in the context of constructive trusts, and more importantly, it is not relevant to the connection between the plaintiff and defendant. The fact that the defendant in Simonds did not pay for life insurance does not change the fact that she had no relationship with plaintiff. As we stated in Simonds, “to evolve formalisms narrowing the broad scope of equity is to defeat its essential purpose” (45 NY2d at 239).

*523In Bradkin v Leverton (26 NY2d 192 [1970]), we found a viable unjust enrichment claim where there were no direct dealings between plaintiff and defendant. “[T]he defendant received a benefit from the plaintiff’s services under circumstances which, in justice, preclude him from denying an obligation to pay for them” {id. at 197). The defendant in Bradkin knowingly used plaintiff’s contacts without paying for them, similar to Rosewood’s alleged use of Malone’s due diligence materials.

The majority’s policy concerns are unfounded. A ruling that Rosewood was unjustly enriched here would not impede commercial transactions or create an excessive burden on contracting parties. If a business partner conveys information whose source is clearly the company’s direct competitor, the company can inquire about the circumstances of the transmission of the information. Since Malone’s name was allegedly printed on the due diligence materials themselves and Malone obviously had an interest in obtaining the sales commission, Rosewood should have known that the materials were suspect. The majority ruling would appear to simply condone willful ignorance.

For these reasons, I would modify the Appellate Division order to reinstate the unjust enrichment claims against Rosewood and Jungreis.

Judges Ciparick, Read, Smith and Jones concur with Judge Graffeo; Chief Judge Lippman dissents in a separate opinion in which Judge Pigott concurs.

Order affirmed, etc.

. Paragraph 86 of the complaint states, “Rosewood and Jungreis 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.”

. Only plaintiffs pleading a quantum meruit theory of unjust enrichment are required to show that they performed services for the defendants or at the defendant’s behest (see Monex Fin. Servs., Ltd. v Dynamic Currency Conversion, Inc., 62 AD3d 675, 676 [2d Dept 2009]). A claim of quantum meruit requires the plaintiff to allege that services were performed for defendant in good faith, that defendant accepted the services, an expectation of compensation arose, and the reasonable value of the services rendered (AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 19 [2d Dept 2008]). The rule espoused in Kagan v K-Tel Entertainment (172 AD2d 375, 376 [1st Dept 1991]), which required that services resulting in unjust enrichment be performed at the “behest” of defendant, is not the correct standard for unjust enrichment. Kagan cited an action for quantum meruit in support of its “behest” requirement (Kagan, 172 AD2d at 376), and as noted by the dissent below, “limiting unjust enrichment claims to those where the benefit was conferred at the behest of the defendant . . . virtually collapses the distinction between claims for quantum meruit and those for unjust enrichment” (86 AD3d 406, 416 n 5 [1st Dept 2011]).

. The majority acknowledges that “Malone’s alleged loss of compensation for preparation of the due diligence reports certainly appears unfair” (see majority op at 519).