Friday, July 19, 2013

Unjust Enrichment as a legal theory (updated in 2015)


UNJUST ENRICHMENT AS A THEORY OF RECOVERY 
   
    Is it a viable cause of action for collection of a debt? 
   
Unjust enrichment seemingly refers to reprehensible and abusive conduct that accrues to someone’s financial advantage, but it is also the name of a legal theory that provides an equitable remedy for it occurrence, either prospectively or retrospectively. The typical remedy is in the form of restitution of the money to which the defendant  -- the party that was "enriched" -- was not entitled.  
    
The unjust enrichment theory is an equitable theory of recovery that is incompatible with a contractual relationship, and therefore not available when the parties’ dispute is governed by an express contract

When this theory appears as theory of recovery in a debt collection suit involving a credit card debt, it can and should be attacked on the ground that it does not apply in that context, and is simply not available as a matter of law regardless of the quality of the financial records or any other evidentiary issue.
  
UNJUST ENRICHMENT AS A CAUSE OF ACTION UNDER TEXAS LAW
  
There is some disagreement as to whether unjust enrichment even amounts to a “cause of action” in its own right, -- in the legal sense of the term. What contributes to the confusion is the fact that it rests on prior judicial decisions, and is discussed in connection with other theories such as quantum meruit, which likewise can be said to afford the plaintiff a remedy for unjust enrichment, albeit deriving from the failure to pay for valuable services. In other words, there are other causes of action that share the underlying purpose of preventing unjust enrichment.
 
The Texas courts of appeals' decisions involving claims of unjust enrichment are not consistent. Also see the theory of “money had and received” and quantum meruit.
    
There is another uncertainty also. A lawsuit premised on unjust enrichment may be subject to the two-year limitations period, rather than four-your period that applies to debt claims generally, as well as to quantum meruit. --> Statute of limitations defense.
 
It can be argued, at least in some factual contexts, that the money at issue in an unjust enrichment claim, is not in the nature of a debt, at least not debt as it is normally defined. 
 
Additionally, the theory may not even be viable if asserted independently of any other legal theory, but how this matter gets decided by the trial court may depend on where in the state the case is being litigated.    
  
TEXAS COURT OF APPEALS ARE SPLIT ON VIABILITY OF UNJUST ENRICHMENT THEORY - SUPREME COURT COULD RESOLVE THE CONFLICT, BUT WILL IT?
 
The First Court of Appeals in Houston stated in 2008 that unjust enrichment is a viable legal theory in its own right, but also said that it had not been pleaded in that case. See Pepi Corporation v Galliford, 254 S.W.3d 457 (Tex.App. - Houston [1st Dist.] 2008).

Excerpt from Pepi Corp. v Galliford re unjust enrichment theory
  
In 2014, a litigant in Forth Worth who had renovated and improved a house he believed he owned that the bank later foreclosed on, cited the appellate case from Houston to support his claim against the bank, but the Fort Worth Court of Appeals rejected it, pointing to its own prior decisions on the issue. See Davis v OneWest Bank N.A. No. 02-14-00264-CV. (Tex. App. - Fort Worth, April 9, 2015)(unjust enrichment not an independent cause of action). 

The viability of unjust enrichment as an independent cause of action is now pending in the Texas Supreme Court, a petition for review in the case from Fort Worth having been filed in May 20, 2015. For current status, see Supreme Court docket under No. 15-0381.


PFR on issue of whether unjust enrichment is an independent cause of action. Davis v OneWest Bank N.A. (Tex. App. - Fort Worth, April 9, 2015 pet filed)
Texas Supreme Court asked to decide: Is unjust enrichment an independent cause of action?



The uncertain nature of the unjust enrichment theory, and its inconsistent treatment by the courts of appeals, has attracted the attention of legal scholars also.

See, e.g., George P. Roach, Unjust Enrichment in Texas: Is it a Floor Wax or Dessert Topping?,
65 Baylor Law Review 153 (2013); David Dittfurth, Restitution in Texas: Civil Liability for Unjust Enrichment, 54 S. Tex. L. Rev. 225, 238 (2012).

Roach, George P., Unjust Enrichment in Texas: Is it a Floor Wax or Dessert Topping?, 65 Baylor Law Review 153 (2013)
George P. Roach Law Review Article on Unjust Enrichment Theory under Texas Law
in Baylor Law Review (Table of Contents)

NATURE OF UNJUST ENRICHMENT AND EQUITABLE REMEDY FOR IT 

Unjust enrichment occurs when the person sought to be charged has wrongfully secured a benefit or has passively received one which it would be unconscionable to retain.  A person is unjustly enriched when he obtains such a benefit by fraud, duress, or the taking of an undue advantage. 

The unjust enrichment doctrine applies principles of restitution to disputes where there is no actual contract and is grounded in principles of equity. 

ONE OR THE OTHER: THE EXPRESS CONTRACT DEFENSE 

The doctrine of unjust enrichment applies the principles of restitution to disputes that are not governed by a contract between the parties. Therefore, when a contract addresses the matter at issue, the theory is not available under the general principle that the presence of a contract precludes relief premised on an equitable theory. --> Express contract preclusion of equitable theories and claims  
 
Generally, when a valid, express contract covers the subject matter of the parties' dispute, there can be no recovery under a quasi-contract theory, such as money had and received.  The courts reason that parties should be bound by their express agreements, and when a valid agreement already addresses the matter, recovery under an equitable theory is generally inconsistent with the express terms of the agreement.  

ADDITIONAL CASELAW CLIP ON UNJUST ENRICHMENT CLAIM WITH CITES 


Dallas Court of Appeals does not recognize unjust enrichment as cause of action

Unjust enrichment cause of action in Texas (caselaw snippet) 
 Merryman v. JPMorgan Chase & Co., U.S. Dist. Court, ND Tex. (Jan 16, 2013)
Excerpt from US District Court Opinion Order with cites on Texas unjust enrichment cases


EDITORIAL NOTE: This blog post was last updated on 6/2/2015. Material on the court-of-appeals split on UNJUST ENRICHMENT as an independent theory of recovery under Texas common law, and currently-pending case in the Texas Supreme Court, was added at that time.







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