Reversing course: a critique of the Court of Appeals new rules for unjust enrichment and criminal legal malpractice actions.

• Author: Carlisle, Jay C., II
• Position: New York

1. INTRODUCTION

   This article will discuss recent developments by the Court of Appeals on the doctrine of unjust enrichment and on the elimination of non-pecuniary damages in criminal legal malpractice actions. Specifically, the article will examine the cases of Georgia Malone & Co. v. Ralph Rieder (1) and Dombrowski v. Bulson. (2)

   In Georgia Malone, a divided Court of Appeals held that a plaintiffs unjust enrichment claim could be dismissed as a matter of law at an early pleading stage. (3) The five-judge majority adopted a heightened pleading requirement, which ignores almost one hundred years of established precedent (4) and relies on unfounded policy justifications. (5) The majority's opinion disregards the equitable concerns involved and creates a mandatory pleading rule requiring a connection between the plaintiff and the defendant. (6) The court's new rule is contrary to the remedy of unjust enrichment. (7)

   In Dombrowski, a unanimous Court of Appeals held a client could not seek damages for loss of liberty and emotional distress in a criminal legal malpractice action against his attorney. (8) The Dombrowski opinion is based on a faulty analysis and unproven policy rationales. (9) Also, the opinion is not in step with modern principles of law permitting recovery of non-pecuniary damages in such actions. (10) Finally, a decision to immunize defense counsel from non-pecuniary damages in criminal legal malpractice actions should be made by the legislature and not by the Court of Appeals. (11)

   The Georgia Malone and Dombrowski decisions demonstrate the Court of Appeals' willingness to dismiss civil claims at the pleading stage for speculative policy justifications not included in the evidentiary record. (12) These decisions are unfortunate departures from established case law and frustrate the letter and spirit of the liberal pleading requirements in the CPLR. (13)

2. BACKGROUND--UNJUST ENRICHMENT

   "The 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 [by the plaintiffs] to be recovered." (14) For almost one hundred years, since its holding in Miller v. Schloss, (15) the Court of Appeals has asked if a benefit has been "conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant ... and whether the defendant's conduct was tortious or fraudulent." (16) The court's focus has been on an equity and good conscience test, (17) which, at the pleading stage, must be afforded a liberal construction with every favorable inference being given to the plaintiff. (18)

   The Court of Appeals has long recognized there is a class of cases "where the law prescribes the rights and liabilities of persons who have not in reality entered into any contract at all with one another." (19) These relationships are constructive contracts based on the equitable principle that one should not be allowed to enrich oneself unjustly at the expense of another, so an obligation is created by law in the absence of an agreement. (20)

   Thus in Bradkin v. Leverton, (21) the Court of Appeals reversed the unjust enrichment dismissals of lower courts. (22) Quoting Miller v. Schloss, Chief Judge Stanley Fuld stated: "[a] quasi or constructive contract rests upon the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another." (23) Chief Judge Fuld concluded that "[a]lthough there was no agreement between them, express or implied, the defendant received a benefit from the plaintiffs services under circumstances which, in justice, preclude him from denying an obligation to pay for them." (24) Chief Judge Fuld did not rely on or analyze the relationship between the parties in terms of a connection or awareness standard. (25)

   Similarly, in Paramount Film Distributing Corp. v. State of New York, (26) a divided court, speaking through Chief Judge Charles D. Breitel, reversed the lower court's finding of unjust enrichment because the defendant had not "received any benefit, let alone unjust enrichment." (27) Chief Judge Breitel did not rely on or analyze the relations between the parties in terms of a connection or awareness standard. Instead, he examined the record to determine if the defendant received a benefit and, if so, whether it was against equity and good conscience to permit the defendant to retain what the plaintiff sought to recover. (28)

   In Simonds v. Simonds, (29) a unanimous Court of Appeals affirmed the appellate division's imposition of a constructive trust on certain life insurance proceeds when a former spouse had breached a provision in a separation agreement. (30) The court, speaking through Chief Judge Breitel, defined equitable notions of unjust enrichment as emerging from the rigidity of early common law and being based heavily on Roman law. (31) Chief Judge Breitel explained, "[e]quity arose to soften the impact of legal formalisms; to evolve formalisms narrowing the broad scope of equity is to defeat its essential purpose." (32) He concluded that a constructive trust was necessary:

   The conclusion is an application of the general rule that equity regards as done that which should have been done. Thus, if an insured, upon lapse or cancellation of insurance, followed by replacement with new insurance, has a contractual obligation to designate a particular person as beneficiary, equity will consider the obligee as a beneficiary. (33) The Court of Appeals made it clear that the unjust enrichment doctrine does not require the performance of any wrongful act by the party enriched. The court stated that "[i]nnocent 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." (34) Chief Judge Breitel also stressed that courts, in their application of the doctrine of unjust enrichment, should not look to cases that "rely heavily on formalisms and too little on basic equitable principles, long established in Anglo-American law and in this State." (35) He concluded, quoting Chief Judge Benjamin Nathan Cardozo: "[t]he equity of the transaction must shape the measure of relief." (36)

3. RECENT DECISIONS

   In Goldman v. Metropolitan Life Insurance Co., (37) the Court of Appeals affirmed the order of the appellate division and dismissed plaintiffs complaints. (38) The Goldman (and Franco) plaintiffs had brought a putative class action for breach of contract and unjust enrichment. (39) The court noted that "[l]ike the Goldman and Franco plaintiffs, Katz argues that the insurance contract was breached and that the defendant was unjustly enriched" (40) but concluded, "[h]ere, in each case, there was no unjust enrichment because the matter is controlled by contract." (41) Thus, "[g]iven that the disputed terms and conditions fall entirely within the insurance contract, there is no valid claim for unjust enrichment." (42)

   In Sperry v. Crompton Corp., (43) the Court of Appeals affirmed the appellate division's dismissal of plaintiffs unjust enrichment claim. (44) The main issue before the court was whether treble damages relief was available to a class action plaintiff or barred by the application of CPLR section 901(b). (45) The court, speaking though Judge Graffeo, held it was not, and then addressed the secondary issue of whether the plaintiffs unjust enrichment class action claim was properly dismissed by the courts below. (46)

   The Court of Appeals stated, "[t]he essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered." (47) The court held "that a plaintiff need not be in privity with the defendant to state a claim for unjust enrichment" (48) but concluded the "claim does not lie under the circumstances of this case" (49) because "the connection between the [parties] ... is simply too attenuated to support such a claim." (50) The court did not explain, analyze or elaborate the meaning of "too attenuated" which suggests the term is dicta, particularly when immediately followed by a reference to the primary issue before the court. However, the court did state that "in this situation it is not appropriate to substitute unjust enrichment to avoid the statutory limitations on the cause of action created by the Legislature."(51) Obviously the court's analysis of plaintiffs unjust enrichment class action claim was in the context of a class action. (52)

   The Sperry Court's unsupported reference to an attenuated "connection between the purchaser of tires and the producers of chemicals used in the rubber-making process" does not warrant a general finding that unjust enrichment claims require a pleading to allege a "connection" between the parties. (53) None of the pre-Sperry opinions, including supporting citations to Aristotle, Pomeroy, Chief Judges Benjamin Cardozo, Stanley Fuld, and Charles Brietel, explicitly or implicitly rely on a party "connection" as a prerequisite to the maintenance of an unjust enrichment action. (54) Their focus is on the equity and good conscience rule, which the Sperry court admits is "[t]he essential inquiry in any action for unjust enrichment." (55)

   In IDT Corp. v. Morgan Stanley Dean Witter & Co. (56) the Court of Appeals reversed the appellate division and held that plaintiff's unjust enrichment action failed to state a cause of action. (57) The court, speaking though Judge Pigott, relied on its decision several years earlier in Goldman v. Metropolitan Life Insurance Co., stating that '"[t]he theory of unjust enrichment lies as a quasi-contract claim.' It is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned." (58) The court went on to conclude the plaintiff's action for unjust enrichment arose...