Reisenfeld & Co. v. The Network Group Inc.

• Decision Date: 23 October 2001
• Docket Number: No. 00-3883,00-3883
• Citation: 277 F.3d 856
• Parties: (6th Cir. 2002) Reisenfeld & Co., Plaintiff-Appellant, v. The Network Group, Inc.; Builders Square, Inc.; K Mart Corp., Defendants-Appellees. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 856

277 F.3d 856 (6th Cir. 2002)

Reisenfeld & Co., Plaintiff-Appellant, v. The Network Group, Inc.; Builders Square, Inc.; K Mart Corp., Defendants-Appellees.

No. 00-3883

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: October 23, 2001

Decided and Filed: January 18, 2002

Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 97-02368--David S. Perelman, Magistrate Judge. [Copyrighted Material Omitted] Richard S. Koblentz (argued and briefed), Danielle M.F. Swisher (briefed), Koblentz & Koblentz, Cleveland, Ohio, for Plaintiff-Appellant.

Davide M. Spotts, Ashtabula, OH, Stephen M. Bales (argued and briefed), Ziegler, Metzger & Miller, Cleveland, Ohio, Edward S. Hubbard (briefed), Coats, Rose, Yale, Ryman & Lee, Houston, Texas, for Defendants-Appellees.

Before: BOGGS and GILMAN, Circuit Judges; and QUIST, District Judge.^*

OPINION

BOGGS, Circuit Judge.

Reisenfeld & Company appeals a grant of summary judgment in favor of defendants Builders Square, Inc. and its parent company, K Mart Corporation (together "BSI"), in a breach of contract case brought under Ohio law. Reisenfeld argues on appeal that the district court erred in holding that Reisenfeld could not sue BSI for payment of a broker's commission on either a quasi-contract or a third-party beneficiary theory. Upon review, we agree with the trial court that Reisenfeld can not sue BSI on a third-party beneficiary theory; however, Reisenfeld can sue on a quasi-contract theory. Accordingly, we affirm the trial court's decision with respect to Reisenfeld's third-party beneficiary claim but vacate and remand the decision with respect to the quasi-contract claim.

I

Beginning in 1989, BSI contracted with the Network Group ("Network"), a commercial real estate broker, to assist BSI in either selling or subleasing closed K Mart stores. During the course of the relationship between BSI and Network, several such properties in the Toledo, Ohio area were put on the market for subleasing. In April 1994, BSI and Network entered into a "commercial listing agreement" under which Network agreed to act as broker for a number of BSI properties, including the Ohio properties at issue here.

In June 1994, Network entered into a commission agreement with Reisenfeld, an Ohio licensed real estate broker that represented Dick's Clothing & Sporting Goods ("Dick's"), which eventually subleased two stores in Ohio from BSI. The commission agreement between Network and Reisenfeld stated that if a deal was concluded between Dick's and BSI, Network would pay Reisenfeld a commission of $1 per square foot.

In November 1994, Dick's and BSI executed assignment and assumption agreements for the Ohio properties. Pursuant to the agreements, Dick's subleased (and presumably continues to sublease) the Ohio properties from BSI. In the agreements, BSI stated that it would pay a commission to Network and that Network would pay a portion of that commission to Reisenfeld "pursuant to a separate written agreement between Network and Reisenfeld." There was no agreement between BSI and Reisenfeld.

Throughout this time, Network's sole shareholder, Mark Aronds, was defrauding BSI in various ways. Though it appears that Aronds did not directly take money from BSI, he defrauded the company by taking commissions from both sides in some of the subleases and accepting below-market subleases on BSI's behalf. Aronds was convicted of several criminal charges stemming from his actions. As a result, the district court ordered Network to disgorge any commissions received from BSI and relieved BSI of the duty to pay any additional commissions owed to Network.

In August 1997, Reisenfeld sued in Ohio state court, alleging non-payment of $160,320 in commissions due from the Dick's/BSI sublease. In addition to suing Network as the party from whom the commission was immediately due, Reisenfeld also sued BSI, alleging that it was jointly and severally liable along with Network for the commission. The case was removed to federal district court based on diversity of citizenship. The district court granted summary judgment to Reisenfeld against Network and summary judgment to BSI against Reisenfeld. Unable to collect from Network, Reisenfeld filed a timely appeal to this court, arguing that the district court erred in granting summary judgment to BSI.

II Reisenfeld's Quasi-Contract Claim

Reisenfeld claims on appeal that the district court erred in holding that Reisenfeld could not seek payment from BSI on a theory of quasi-contract. A contract implied-in-law, or "quasi-contract" is not a true contract, but instead a liability imposed by courts in order to prevent unjust enrichment. See Vargo v. Clark, 716 N.E.2d 238, 242 (Ohio Ct. App. 1998). As a major treatise explains, "[a] quasi-contractual obligation is one that is created by the law for reasons of justice, without any expression of assent and sometimes even against a clear expression of dissent." 1 Arthur Linton Corbin, Corbin on Contracts 1.20 (1993).

Under Ohio law, there are three elements for a quasi-contract claim. There must be: (1) a benefit conferred by the plaintiff upon the defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment. See Telephone Mgmt. Corp. v. Goodyear Tire & Rubber Co., 32 F. Supp. 2d. 960, 972 (N.D. Ohio 1998); Hambleton v. R.G. Barry Corp., 465 N.E.2d 1298, 1302 (Ohio 1984) (per curiam).

There is no disagreement as to the first two requirements. It is clear that Reisenfeld's work as broker benefited BSI and that BSI was aware of the work Reisenfeld was doing. The disagreement rests on the third requirement - whether it would be unjust for BSI to retain the benefit it received without paying Reisenfeld for it.

Defining a given situation as either just or unjust is subjective and not necessarily open to a clear and decisive answer; as one court explained, "[t]he notion of what is or is not 'unjust' is an inherently malleable and unpredictable standard." DCB Constr. Co. v. Central City Dev. Co., 965 P.2d 115, 120 (Colo. 1998).

The district court in the present case adopted the reasoning of a Washington state case, which held that a benefited third party is not liable under a theory of unjust enrichment in the absence of acquiescence to the contract, or misdeeds on the part of the third party concerning the performance of the complaining party. See Farwest Steel Corp. v. Mainline Metal Works, Inc., 741 P.2d 58 (Wash. Ct. App. 1987). Accordingly, the district court held that Reisenfeld could not sue BSI for payment under an unjust enrichment theory where Reisenfeld had contracted with Network for payment and BSI had not acted improperly.

Some courts have held, as the district court in this case did, that for the circumstances to be unjust such that the benefited third party should be made to pay the providing party, the benefited party must have acted improperly in some way. For example, in a case cited by the district court, the Colorado Supreme Court held that where a contractor was hired and not paid by a lessee, the contractor had to show that the landlord engaged in some form of improper, deceitful, or misleading conduct before he could sue the landlord for payment under an unjust enrichment theory. See DCB Constr. Co., 965 P.2d at 122.

However, under Ohio law, there is no such requirement. As the Ohio Court of Appeals recently noted, "the grounds for a claim of unjust enrichment are not that narrow. Unjust enrichment also results from a failure to make restitution where it is equitable to do so. That may arise when a person has passively received a benefit which it would be unconscionable for him to retain." Cosby v. Cosby, 750 N.E.2d 1207, 1213 (Ohio Ct. App. 2001) (citations omitted). Cf. Restatement of Restitution: Quasi Contracts and Constructive Trusts 1 (1937) ("A person who has been unjustly enriched at the expense of another is required to make restitution to the other.").

Therefore, Reisenfeld is not necessarily precluded from seeking payment from BSI under a quasi-contract theory merely because there is no allegation that BSI acted improperly toward Reisenfeld. However, no case law directly addresses the situation we are faced with here - where a sub-broker is seeking payment directly from a property owner when the property owner has not paid the broker and the broker has not paid the sub-broker. Given that the particular fact pattern of a property owner, broker and sub-broker has not been widely dealt with, it is instructive to look at analogous situations on which there is case law. One such situation is that of a subcontractor suing a property owner for payment not received from a contractor. This is similar to the present case in that the benefited third party has contracted with one party for the provision of a service and that party has in turn contracted with another party to provide all or part of that service.

Unreported Ohio Court of Appeals cases support the proposition that, in the contractor/subcontractor context, when the subcontractor is not paid by the contractor and the owner has not paid the contractor for the aspect of the job at issue, the subcontractor can look to the owner for payment under a theory of unjust enrichment. Ross-Co Redi Mix Co. v. Steveco, Inc., No. 95CA3, 1996 WL 54174, at *3 (Ohio Ct. App. Feb. 6, 1996); see also Brower Prods. Inc. v. Musilli, Nos. 98CA58; 98CA59, 1999 WL 317122, at *2 (Ohio Ct. App. May 21, 1999); Steel Quest, Inc. v. City Mark Constr. Servs., NO. C-960994, 1997 WL 674614, at *2 (Ohio Ct. App. Oct. 31, 1997) (citing Ross-Co). Further, another Ohio case, in dicta, supports the proposition that non-payment by the owner would make payment on an unjust enrichment theory appropriate. In discussing what it called "the best-case scenario for recognizing the unjust enrichment claim...