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
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
[6] See, e.g., Sure-Shock Elec., Inc. v. Diamond
Lofts Venture, LLC, 259 P.3d 546 (Colo.App.Div.4 2011).
[12] See, e.g., Land Title Insurance Corporation
v. Ameriquest Mortgage Company, 207 P.3d 141 (Colo. 2009).
[15] See, Salzman v. Bachrach, 996 P.2d 1253
(Colo. 2000);
Sterenbuch v. Goss, 266 P.3d 428
(Colo.App.Div. 1 2011).
[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.
[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).
[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.
[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).
[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).
[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).
[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).
[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.