Unjust Enrichment Claims in Colorado

Unjust Enrichment is an equitable claim requiring different analysis for judicial enforcement depending on the legal context in which the claim is brought. These claims offer a basis for recovering damages where claims at law fail. Often misunderstood by attorneys and courts, unjust enrichment claims are asserted in a wide variety of cases.

Unjust enrichment claims can be found in actions involving a promissory note,[1] asset distribution,[2] breach of contract,[3] breach of fiduciary duty,[4] claims against assets of failed banks,[5] construction claims,[6] contingency fee disputes,[7] conversion,[8] diminution of land value,[9] illegal contracts,[10] insurance coverage issues,[11] real property foreclosures,[12] and trespass.[13]

This article discusses the evolution of unjust enrichment claims in Colorado, how these claims are analyzed by Colorado courts, the differing treatment afforded these claims depending on the legal context in which they are brought, and the confusion associated with unjust enrichment claims by attorneys and the legal system alike.

What is an Unjust Enrichment Claim?

Unjust Enrichment is an equitable doctrine.[14] It is based on principles normally associated with restitution.[15] The claim allows courts to award damages to an aggrieved party on the basis of justice and equity.[16] There is no requirement of a promise or privity (e.g., contract) between the parties.[17] Unjust enrichment claims are sometimes the only viable means for recovering damages. For example, plaintiffs in construction cases who fail to perfect their lien rights and are unable to prove the existence of a contractual relationship with the defendant can effectively utilize an unjust enrichment claim as an alternative to unsustainable legal claims. That is not to say unjust enrichment claims should only be asserted as a last resort. These powerful and versatile claims are oftentimes brought in conjunction with breach of contract claims as well as a variety of other claims at law.[18] In fact, trial courts in Colorado have awarded damages for claims of breach of contract and unjust enrichment asserted in the same case.[19]      

The Restatement of Restitution § 1 (1937) articulates the generally accepted elements of an unjust enrichment claim. They are: 1) that a benefit was conferred on the defendant by the plaintiff, 2) that the benefit was appreciated by the defendant, and 3) that the benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be retained without payment of its value. Prior to 1998, these elements formed the analytical basis for assessing unjust enrichment claims in Colorado. However, flaws in this test, particularly with regard to the second and third prongs, prompted the Colorado Supreme Court to clarify and restate the test for recovery under an unjust enrichment theory.

The DCB Decision

In DCB Const. Co., Inc. v. Central City Development Co.,[20] the Colorado Supreme Court addressed the question of whether a landlord/owner (Central City Development Co. -  “CCDC”) is liable, under a theory of unjust enrichment, for tenant finish construction costs when the tenant defaults. In affirming the judgment of the Court of Appeals (reversing the trial court’s ruling) and turning the claim on its ear for future plaintiffs to ponder, the Court held that for the enrichment to the landlord to be unjust and therefore actionable, the contractor (DCB Construction Co., Inc. – “DCB”) must show some improper, deceitful, or misleading conduct by the landlord/owner.[21] In affirming the Court of Appeals’ decision, the Supreme Court found no such conduct, thereby preventing the contractor from recovering on an unjust enrichment claim against the building owner.

This holding represents a significant departure from the second and third prongs of the test articulated in the Restatement of Restitution § 1 (1937) and previous Colorado decisions.[22] The DCB Court pointed out the second prong of the test calls for the defendant to “appreciate” the benefit, i.e., to have knowledge of or acquiesce to the remodeling work.[23] The Court clarified that the second prong “really speaks to the question of whether the materials and/or services received are of value to the defendant.”[24] The Court then discussed the third prong noting it requires defendant to “accept” the benefit.[25] The Court stated, “this requirement is rarely meaningful because in many cases the defendant is unable to stop plaintiff from conferring the benefit at issue and/or cannot return it…. Hence ‘acceptance’ should be weighed with other factors only in situations where a defendant was in a position, and should reasonably have been expected, to prevent the benefit from being conferred.”[26]

As a result of the confusion and flaws associated with the “old” test, the Colorado Supreme Court in DCB restated the test for recovery under a theory of unjust enrichment as: 1) at plaintiff’s expense, 2) defendant received a benefit, 3) under circumstances that would make it unjust for the defendant to retain the benefit without paying.[27] 

Applying the “new” test in the context of tenant finish construction, the Court found the first two prongs of the test were satisfied by DCB because it had performed construction work on CCDC’s building without receiving full payment and the building is worth more than it was before DCB’s work. However, regarding the third prong the Court explained “[t]he notion of what is or is not ‘unjust’ is an inherently malleable and unpredictable standard [that requires] the law [to] be sufficiently predictable so that appropriate parties can adequately calculate and make adjustments for the risks they face.”[28] The Court’s solution for satisfying its mandate of sufficient predictability was defining the term “unjust” to require not only a loss to the plaintiff but also some conduct or action on the part of the defendant, over and above mere involvement, which is misleading, deceitful or improper.[29] Thus, DCB failed to satisfy the third prong of the test as a matter of law.[30]

The DCB Court did not discuss the possible inherent complexity of proving wrongful activity in its decision to infuse “sufficient predictability” into the unjust enrichment scheme.

Beyond DCB

Because unjust enrichment claims can be utilized in a variety of legal contexts, Colorado courts have been left with the task of determining the applicability of the DCB decision to non-construction cases in which unjust enrichment claims are asserted, as well as ascertaining when a defendant has engaged in the type of wrongful conduct necessary to satisfy the third prong of the new test.[31] The third prong consideration of whether the enrichment was unjust has created difficult questions for trial and appellate courts.[32]

In Lewis v. Lewis,[33] the Colorado Supreme Court considered an unjust enrichment claim brought by one close family member against the others for damages allegedly sustained in a real estate transaction. The court indicated they were “quick to note” in the DCB case that the requirement of “malfeasance” is specific to a contractor’s claim that the landlord was unjustly enriched and did not extend to all unjust enrichment cases,[34] despite the fact that no where in the text of DCB did the court explicitly limit its holding to the specific facts of the case, nor did they mention the word “malfeasance” in their decision. Nevertheless, the court considered whether or not its previous analysis of the third prong was applicable to claims arising out of a close family relationship. In holding that malfeasance was not required to satisfy the third prong, the court focused on the confidential relationship between the parties wherein the parties “drop their guard” and assume that each party is acting fairly. The court also found the parties’ mutuality of purpose in agreeing to treat the real property as a gift, also eliminated the need to find impropriety in the transaction.[35]

Subsequent decisions by the Colorado Court of Appeals not involving construction issues have (Ciccarelli v. Guaranty Bank)[36] and have not (Ameriquest Mortgage Co. v. Land Title Ins. Corp.)[37] required evidence of wrongdoing to satisfy the third prong of the unjust enrichment test.

Six months following the Lewis decision, the Court of Appeals in Redd Iron, Inc. v. International Sales and Service Corporation,[38] addressed the propriety of an unjust enrichment claim in the context of a construction claim different that that analyzed in DCB. The plaintiff in Redd Iron provided labor and materials for a portion of the steel work on a construction project under a subcontract with the general contractor. The trial court entered summary judgment against Redd Iron on its claims for breach of contract, foreclosure of a mechanics’ lien, and an adjudication of the rights of all parties claiming an interest in defendant, International Sales’, property. However, after considering Redd Iron’s argument that DCB did not apply and that defendants were liable because they received a benefit at Redd’s expense, the trial court granted Redd Iron’s motion for judgment on the pleadings simply stating, “DCB … is not applicable in this case”. [39]

In vacating the trial court’s decision, the Court of Appeals noted, “Unjust Enrichment is a form of quasi-contract or contract implied in law”. [40]  Citing Robinson v. Colorado State Lottery Division, 179 P.3d 998 (Colo.2008) and DCB, the Court reiterated the three-prong test for recovering under an unjust enrichment theory stating, “It is the third prong of the … test – namely, whether the enrichment of the defendant was unjust – that creates difficult questions for the trial courts.” [41] Recognizing that divisions of the Court of Appeals have reached differing conclusions regarding the applicability of DCB’s “improper conduct” requirement in other contexts, the Redd Iron Court concluded “the [Colorado] [S]upreme [C]ourt has now made clear that the “particularized analysis” of DCB, which requires a showing of malfeasance in order to establish the third unjust enrichment prong, was intended to apply specifically to claims against a landlord by a party working at the tenant’s behest, and that malfeasance need not invariably be shown to establish unjust enrichment”.[42]

In concluding that a subcontractor seeking recovery from a property owner or general contractor on an unjust enrichment theory must establish some basis for finding injustice beyond simple facts that the owner or general contractor benefited from services the subcontractor provided and the subcontractor was not paid for its work to satisfy the third prong, the Court in Redd Iron noted that the DCB holding is not limited to disputes between landlords and parties who contracted with their tenants.[43] The Court ultimately determined that an analysis of the third prong required a “highly fact-intensive inquiry”,[44] consequently vacated the judgment, and directed the trial court to hear additional evidence to determine if all of the elements of unjust enrichment were established.

Other Jurisdictions

Colorado is one of a minority of jurisdictions that require a finding of malfeasance to establish an unjust enrichment claim. Courts in at least six other jurisdictions have adopted the “malfeasance” requirement in DCB or a similar standard.[45] At least one jurisdiction, Alabama, requires a showing of “unconscionable conduct” by the enriched party to enforce an unjust enrichment claim,[46] while other jurisdictions have no heightened standard at all.[47]

Limitations Period for Unjust Enrichment Claims

Equitable claims are technically subject to an equitable laches analysis rather than a legal statute of limitations test.[48] Nevertheless, a court will usually grant or withhold relief by analogy to the statute of limitations relating to legal actions of like character.[49] Some Colorado courts have labeled unjust enrichment as a form of quasi-contract or contract implied in law[50] while others have dismissed this notion reasoning that recovery is not based on the existence of any contract.[51] Notwithstanding this contradiction, Colorado courts ordinarily assess the time within which to assert such a claim under the three-year statute of limitations for contract actions.[52]

A claim of unjust enrichment accrues when a person discovers, or through the exercise of reasonable diligence should discover, that all of the elements of the claim are present.[53]

Given that unjust enrichment claims can be asserted in a wide variety of actions, Practitioners should not necessarily assume the three-year limitations period will apply to their particular case. The Colorado Court of Appeals has applied the six-year statute of limitations to an unjust enrichment claim where the analogous claim was breach of contract and the debt was sufficiently determinable for purposes of invoking the longer period.[54]  

Conclusion

Colorado is somewhat unique in its treatment of unjust enrichment claims in that the existence of malfeasance is generally required to satisfy all elements of the claim. While situations exist in which Colorado courts might enforce an unjust enrichment claim absent a showing of malfeasance, practitioners considering such claims, particularly in construction contexts, should be weary of any factual scenario that does not include improper conduct by the enriched party.

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[1] See, e.g., Vessels v. Hickerson, 2012 COA 28, 11CA0317 (COCA).

[2] See, e.g., LeFond v. Sweeney, 2012 COA 27, 10CA2005 (COCA).

[3] See, e.g., Planning Partners International, LLC v. QED, Inc., 10CA1848 (COCA).

[4] 1 Palmer, §2.1 at 50.

[5] See, e.g., Thomas v. F.D.I.C., 255 P.3d 1073 (Colo. 2011).

[6] See, e.g., Sure-Shock Elec., Inc. v. Diamond Lofts Venture, LLC, 259 P.3d 546 (Colo.App.Div.4 2011).

[7] See, e.g., Berra v. Springer and Steinberg, P.C., 251 P.3d 567 (Colo.App.Div.3 2010).

[8] 1 Palmer, §2.1 at 50.

[9] See, e.g., Jackson v. Unocal Corp., 262 P.3d 874 (Colo. 2011).

[10] See, e.g., Griffin v. Capital Securities of America, Inc., 09CA1659 (COCA).

[11] See, e.g., Kissleman v. American Mutual Insurance Company, 10CA1453 (COCA).

[12] See, e.g., Land Title Insurance Corporation v. Ameriquest Mortgage Company, 207 P.3d 141 (Colo. 2009).

[13] 1 Palmer, §2.1 at 50.

[14] Ninth District Production Credit Association v. Ed Duggan, Inc., 821 P.2d 788 (Colo. 1991).

[15] See, Salzman v. Bachrach, 996 P.2d 1253 (Colo. 2000); Sterenbuch v. Goss, 266 P.3d 428 (Colo.App.Div. 1 2011).

[16] Valley Realty and Investment Co. v. McMillan, 160 Colo. 109, 414 P.2d 486 (Colo. 1966).

[17] Id.

[18] E.g., Boatright v. Derr, 919 P.2d 221 (Colo. 1996). Purely equitable cases continue to be tried without a jury, while cases at law are constitutionally entitled to a jury. American Family Mutual Insurance Co. v. DeWitt, 218 P.3d 318, 322 (Colo. 2009). Thus, cases involving an equitable claim of unjust enrichment can render the presence of a jury inappropriate. Id.

[19] Boatright, supra.

[20] DCB Const. Co., Inc. v. Central City Development Co., 965 P.2d 115 (Colo. 1998).

[21] Id. at 117.

[22] E.g., Dove Valley Business Park Associates, Ltd. v. Board of County Commissioners of Arapahoe County, 923 P.2d 395 (Colo.App. 1995), aff’d, 945 P.2d 242 (Colo. 1997).

[23] DCB Const. Co., Inc. v. Central City Development Co., 965 P.2d 115, 119 (Colo. 1998).

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 119, 120.

[28] Id. at 120.

[29] Id. at 121, 122. 

[30] See id. at 123. In Chief Justice Mullarkey’s dissent, joined by Justice Scott, she referred to the majority opinion as 1) creating a new requirement for an unjust enrichment claim in the context of the case, 2) contrary to existing Colorado law, and 3) a change in the law which is unwise. Id. at 123. Chief Justice Mullarky stressed that the majority opinion placed a restriction on unjust enrichment claims which should not exist because of the many situations where wrongful conduct falls short but are so unjust that the claim should lie. Id. at 124.

[31] As was suggested in DCB, the first two prongs of the test are oftentimes relatively easy to satisfy as compared to the third prong. See also, Lewis v. Lewis, 189 P.2d 1134 (Colo. 2008) (satisfaction of the first two prongs were not analyzed or questioned).

[32] Lewis v. Lewis, 189 P.2d 1134, 1142 (Colo. 2008); Redd Iron, Inc. v. International Sales and Service Corporation, 200 P.3d 1133, 1136.

[33] 189 P.3d 1134 (Colo. 2008)

[34] Id. at 1142.

[35] Id. at 1142, 1143. To add further disorder to the issue, three dissenting Justices noted that they could find no reported cases in Colorado or any other jurisdiction that recognized a “mutual purpose of the parties” theory of unjust enrichment. They opined this was because the focus of unjust enrichment is not on the intent of the parties, but rather on the benefit conferred by the plaintiff that is unjustly retained by the defendant. Id. at 1145, citing, Saltzman v. Bachrach, 996 P.2d 1263 (Colo. 2000). The dissent called the majority opinion “a fundamental misunderstanding of the law of unjust enrichment.” Lewis v. Lewis, 189 P.3d 1134, 1145 (Colo. 2008).

[36] 99 P.3d 85 (Colo.App.2004).

[37] 216 P.3d 597 (Colo.App. Div. 2 2007), rev’d on other grounds, Land Title Ins. Corp. v. Ameriquest Mortgage Co., 207 P.3d 141 (Colo. 2009).

[38] 200 P.3d 1133 (Colo.App. Div. 5 2008).

[39] Id. at 1135.

[40] Id. at 1136.

[41] Id.

[42] Id. at 1138.

[43] Id.

[44] Id. at 1140.

[45] Wang Electric, Inc. v. Smoke Tree Resort, LLC,07312 AZAPP, 1CA-CV11-0387 (Ariz. Ct. App 2012); NationalEmployment Service Corp.v. Olsen Staffing Service, Inc., 145 N.H. 158, 761 A.2d 401 (N.H.2000); Hays Mechanical, Inc. v. First Industrial, L.P.,  812 N.E.2d 419 (Ill. App. 1 Dist. 2004); Randolph V. Peterson, Inc. v. J.R. Simplot Co., 239 Mont. 1, 778 P.2d 879 (Mont.1989); Haggard Drilling, Inc. v. Greene, 195 Neb. 136, 236 N.W.2d 841 (Neb.1975); Burlington Northern R. Co. v. Southwestern Elec. Power Co., 925 S.W.2d 92 (Tex.App.1996).

[46] Mantiply v. Mantiply, 951 So.2d 638 (Ala.2006).

[47] E.g., Frigillana v. Frigillana, 266 Ark. 296, 584 S.W.2d 30 (Ark.1979); Porter v. Hu, 169 P.3d 994 (Hawai’i App. 2007); Temple University Hospital, Inc. v. Healthcare Management Alternatives, Inc., 832 A.2d 501 (Pa.Super. 2003); Jacoby v. Jacoby, 100 P.3d 852 (Wyo. 2004).

[48] Sterenbuch, supra at 437.

[49] See, Id.

[50] Id.

[51] Portercare Adventist Health System v. Lego, 09CA0900 (COCA)

[52] E.g., Sterenbach, supra at 437; See, §13-80-101(1)(a), C.R.S. 2012.

[53] Id. (citing Hannon v. Melat, Pressman & Higbie, LLP, 09CA0788(COCA)

[54] Interbank Investments, LLC v. Vail Valley Consolidated Water District, 12 P.3d 1224 (Colo.App. 2000); See, §13-80-103.5(1)(a), C.R.S. 2012.