Bubba Gump reminds us that quasi-contract is not an equitable claim and is not available where a real contract exists
When lawyers bring lawsuits alleging a breach of contract, they often include claims for unjust enrichment. As the Court of Special Appeals recently explained, however, those efforts are often doomed to failure. In AAC HP Realty, LLC v. Bubba Gump Shrimp Co. Restaurants, Inc., __ Md. App. __ (Oct. 31, 2019), in an opinion authored by Judge Kevin Arthur, the Court reminded the bar of two points that pertain to unjust enrichment. The first is “the general rule that unjust enrichment is unavailable when the parties have an enforceable contract.” Slip Op. at 5. And the second is that an unjust enrichment claim seeking a money judgment is not an equitable claim (despite a widespread mistaken belief to the contrary), but is instead a quasi-contractual claim that is an action at law. Id. at 8 n.5.
Bubba Gump is a seafood restaurant in Baltimore’s Harborplace. It leases space from AAC, pursuant to a lease that obligates Bubba Gump to pay monthly rent, “without deduction or set-off.” Id. at 2. The lease requires AAC to maintain the common areas, which the lease calls “Joint Use Areas,” and to keep those areas in “good order and repair.” It also requires Bubba Gump to pay “Joint Use and Operating Expenses” as part of “the fixed monthly rent, as opposed to paying a lower monthly rent and separate common-area maintenance charge.” Id. (footnote omitted). Bubba Gump views “those payments as advance payments in exchange for the landlord’s commitment to maintain the common areas.” Id. The lease gives AAC discretion to “appropriate any portion of the monthly rent toward the expenses of maintaining the Joint Use Areas.” Id.
Shortly after opening the restaurant, “Bubba Gump observed that the landlord was not maintaining the property in good order and repair.” Id. at 3. Ultimately, Bubba Gump sued AAC, asserting claims for breach of contract and unjust enrichment. Id. at 4.[i] During the course of a six-day bench trial that focused on the poor condition of the property, Bubba Gump claimed lost profits of about $2,500,000 due to AAC’s failure to maintain the common areas. The trial court agreed with Bubba Gump, finding “that AAC had breached its obligations to keep the common areas in good order and repair and to police and protect Harborplace,” and awarding Bubba Gump damages for the money it spent for security costs due to AAC’s breach, and also awarding attorneys’ fees pursuant to a prevailing party provision in the lease. Id. “The court, however, declined to award lost profits, because ‘too many uncertain changing conditions and a multitude of factors’ prevented Bubba Gump from proving the damages with reasonable certainty.” Id.
Although the court denied Bubba Gump’s claim for lost profits, it nonetheless awarded “Bubba Gump $1,096,270.51 as an ‘equitable rent reduction’ under the unjust enrichment claim in the amended complaint.” Id. The circuit court acknowledged that precludes an award for unjust enrichment is generally unavailable when the parties have an enforceable contract, but concluded that the case fell within one of the exceptions to that rule:
In awarding the ‘equitable rent reduction,’ the court acknowledged the general rule that unjust enrichment is unavailable when the parties have an enforceable contract, but it cited County Commissioners of Caroline County v. J. Roland Dashiell & Sons, Inc., 358 Md. 83 (2000), for the proposition that a claim for unjust enrichment may lie when there is evidence of fraud or bad faith, or when an express contract does not fully address the subject matter. The court reasoned that AAC had acted in bad faith in failing to maintain Harborplace in good order and repair and that the lease does not fully address the remedy for breach of AAC’s obligation to maintain the property.
Id. at 5 (footnote omitted).
After acknowledging that the notion of unjust enrichment “is notoriously difficult to define,” id. at 7 (internal quotation marks omitted) (quoting Hill v. Cross Country Settlements, LLC, 402 Md. 281, 295 (2007) (quoting Daniel Friedmann, Restitution of Benefits Obtained Through the Appropriation of Property or the Commission of a Wrong, 80 Colum. L. Rev. 504, 504 (1980)), the Court discussed the parameters of the doctrine, fundamentals underlying it, and the rationale for it. The Court observed “that Bubba Gump’s claim for unjust enrichment is, by all accounts, a quasi-contract claim.” Id. at 7. The Court explained that a “quasi-contract” is a legal fiction, created at common law, that allows a “contractual remedy in cases where, in fact, there is no contract, but where circumstances are such that justice warrants a recovery as though there had been a promise.” Id. (internal quotation marks omitted) (quoting County Comm’rs of Caroline Cty., 358 Md. at 94) (quoting Black’s Law Dictionary 324 (6th ed. 1990)). In short, a quasi-contract is an obligation created by law, based on principles of justice and equity, to prevent unjust enrichment that would result if a party receives something that he should not keep. Id. at 7-8.
Because quasi-contract is an obligation created at law to prevent unjust enrichment where no contract exists, the claim is not available if a contract exists. Pointing to its decision in Mass Transit Admin. v. Granite Constr. Co., 57 Md. App. 766 (1984), the Court said that it had long recognized that “‘no quasi-contractual claim can arise when a contract exists between the parties concerning the same subject matter on which the quasi-contractual claim rests.’” Slip Op. at 8 (internal quotation marks omitted) (quoting Mass Transit Admin., 57 Md. App. at 776 (quoting Indus. Lift Truck Serv. Corp., 432 N.E.2d 999, 1002 (Ill. App. Ct. 1982)). The Court also cited its decision in Mass Transit Admin. for another point, one which is frequently ignored or misunderstood–i.e. although unjust enrichment rests upon notions of fairness and equity, quasi-contract is an action at law that provides a restitutionary remedy:
Bubba Gump asserts that its claim for unjust enrichment is equitable in nature. To the contrary, “[a]lthough quasi-contract is often described as ‘equitable’ and indeed recovery in restitution is based upon notions of justice and fairness, ‘this refers merely to the way in which a case should be approached, since it is clear that the action is at law and the relief given is a simple money judgment.;” Mass Transit Admin. v. Granite Constr. Co., 57 Md. App. 766, 775 (1984) (quoting George E. Palmer, The Law of Restitution § 1.2 (1978)).
Slip Op. at 8.
The Court noted that the “Court of Appeals has listed four potential exceptions to the prevailing rule barring unjust enrichment when an enforceable contract exists,” but also noted, “[n]o reported decision applying Maryland law has ever upheld a judgment based on any of these exceptions.” Id. at 9. Those four exceptions apply where (1) there is fraud or bad faith; (2) a breach of contract or a mutual recission of the contract; (3) recission is warranted; or (4) the contract does not fully address the subject matter. Id. (citing County Comm’rs of Caroline Cty., 358 Md. at 100; Janusz v. Gilliam, 404 Md. 524, 537 (2008)). The circuit court relied on two of those exceptions in allowing Bubba Gump to recover in quasi-contract, but the Court of Special Appeals held that the circuit court’s reliance was in error.
The circuit court first relied on the fraud or bad faith exception, determining “that AAC’s failure to comply with its obligation to keep the property in good order amounted to bad faith.” Id. at 9-10. To establish the bad faith or fraud exception, however, “Bubba Gump needed evidence of bad faith or fraud in the formation of the contract, as opposed to the performance of the contract.” Id. at 10 (emphasis added). Bad faith breach of contract does not satisfy the exception.
The court also concluded that the lease did not “fully address the remedy for AAC’s breach of its obligation to keep the property in good order and repair,” but that conclusion was also erroneous. Id. at 10. The parties’ “lease not only addressed AAC’s obligation to maintain the common areas in good order and repair, but Bubba Gump pursued and received relief under the lease for AAC’s material breach of that obligation.” Id. at 10-11. It sought quasi-contractual relief “only because it failed in its obligation to demonstrate its right to the contractual remedy of lost profits as a result of AAC’s breach.” Id. at 11.
In an effort to salvage its claim, Bubba Gump pointed to a part of the lease that provides that the parties’ rights and remedies are cumulative; that exercise of one right or remedy does not exclude the right to exercise others; and that rights and remedies “may be exercised and enforced concurrently, whenever and as often as desirable.” Id. at 12. The Court rejected Bubba Gump’s reliance on that provision, however, because the provision “simply says that if Bubba Gump has multiple remedies, the exercise of one does not preclude the exercise of another, and vice versa.” Id. It “does not confer any remedies on Bubba Gump,” and it “certainly does not give Bubba Gump the right to assert a quasi-contractual claim for unjust enrichment even though the lease fully addresses the consequences of the landlord’s breach.” Id.
The opinion in this case serves as a useful primer on some basic concepts underlying unjust enrichment and an action for quasi-contract. Although it garners only a footnote, the court’s reminder that an action seeking a money judgment for unjust enrichment is not an equitable action remedy is particularly useful. Many lawyers, and some judges, labor under the misperception that the claim is an equitable one. This opinion can help correct that mistaken belief. Plus, the opinion drives home the point that parties may rely on quasi-contract when no express contract exists, but when there is a contract covering a subject, the parties’ rights and remedies are controlled by the provisions of that contract and reliance on quasi-contract. The law will not imply a quasi-contractual obligation if a real contractual obligation exists.
[i] It also brought claims for breach of the covenant if quiet enjoyment, specific performance, and declaratory relief.