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By: Thomas H. Welby Gregory J. Spaun Published: November 2019

Appellate Court Permits Unjust Enrichment Claim Against Corporate Principal to Survive

Unjust enrichment is a legal theory of recovery holding that no person should be allowed to unfairly profit at another’s expense without making restitution or compensation to the other person. The concept of unjust enrichment is often used in construction litigation as an alternative to breach of contract, when contract turns out to be invalid, or when there is no adequate remedy at law. However, in the recent case of Georgica Builders Ltd. v 136 Bishops Lane, LLC, an appellate court permitted a contractor to assert such a claim directly against a corporate principal, opening up another potential avenue to contractors for recovery.

Background

In October of 2015, Georgica Builders, Ltd., as contractor, and 136 Bishops Lane, LLC, as owner, entered into a contract for Georgica to construct a home on Bishops Lane’s property. Josh Guberman was a principal of Bishops Lane, and he signed the contract on behalf of the LLC.

In March of 2016, Bishops Lane failed to make a required monthly payment under the construction contract, and the following month Georgica filed a mechanic’s lien against the property. That September, Georgica sued Bishop’s Lane to foreclose the mechanic’s lien, for breach of contract, to recover an account stated, and to recover for unjust enrichment. Guberman was also named as a defendant on all four claims. Guberman moved to dismiss the lawsuit as against him, arguing that he was not a party to the contract.

Decision

The motion court granted part of Guberman’s motion, finding that lien foreclosure, breach of contract, and account stated claims cannot be maintained against someone who wasn’t a party to the construction contract. However, the court declined to dismiss the unjust enrichment claim as against him. In doing so, the court cited to well settled case law that unjust enrichment is a quasi-contractual theory and, therefore, strict privity of contract is not required. Additionally, the court noted that there was a connection between Guberman and Bishops Lane sufficient to induce reliance on the part of the contractor. Therefore, Georgica was able to plead facts which, if proven, would establish that it would be against equity and good conscience to permit Guberman’s LLC to retain the benefits of Georgica’s work.

The appellate court upheld the motion court’s order, holding that issue finding, and not issue determination, was the function of the motion court at this early stage of the lawsuit. Therefore, the appellate court held, Georgica was entitled, at the initial stage, to have its claim live to see another day.

Comment

While Georgica will ultimately have to prove that Guberman, himself, was enriched at Georgica’s expense, and that it is against equity and good conscience to permit Guberman to retain the benefits of Georgica’s work, the decision in this case shows how courts, in some circumstances, will permit the assertion of a claim directly against a corporate principal. Clearly, since the determinative factor seems to have been that the construction undertaken by the LLC was for Guberman’s home, this will be a powerful tool for home construction contractors. However, if courts permit these claims to be asserted in other circumstances where there is a sufficient connection between the individual and the construction—such as where a closely held corporation builds a strip mall—this can be a powerful tool for the industry, in general.

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