Clark Office v. MCM Capital Partners

CLARK OFFICE BUILDING, LLC v. MCM CAPITAL PARTNERS, LLLP, ET. AL., NO. 544, SEPTEMBER TERM, 2019. Opinion filed on January 21, 2021, by Deborah S. Eyler UNJUST ENRICHMENT - RESTITUTION - QUASI-CONTRACT – CLAIM AGAINST STRANGER TO CONTRACT FOR RESTITUTION BASED ON UNJUST ENRICHMENT FOR MONEY NOT PAID BY CONTRACTING PARTY - SECTION 25, RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT (2011). For three months, Tenant failed to pay rent under commercial lease, and allowed Occupants to use at least part of the premises, for free.

Tenant and Occupants vacated the premises and Tenant surrendered the premises to Clark, the lessor. Clark sued Tenant for breach of contract for unpaid rent for the remainder of the lease term, which included the period that Occupants occupied the premises, and sued Occupant for unjust enrichment, seeking to recover the benefit to Occupants of its use and occupancy of the premises for three months. In a bench trial, Clark recovered against Tenant on the contract claim, but lost primarily on legal grounds on the unjust enrichment claim against Occupants. Clark appealed verdict in favor of Occupants.

Tenant did not appeal. Held: Judgment affirmed. Trial court incorrectly ruled that, as a matter of law, a party to a contract (Clark) cannot recover restitution for unjust enrichment against a non- party to the contract (Occupants) that was benefitted by the other party’s (Tenant’s) breach of the contract when the subject matter of the contract and the unjust enrichment claim are the same (payment for use of premises). Nevertheless, Clark could not recover restitution against Occupants, as a matter of law, for two reasons: 1) any enrichment enjoyed by Occupants was conferred upon them by Tenant, not Clark; and 2) any such enrichment was not unjust because, among other reasons, Clark was able to pursue and obtain a judgment against Tenant for the same value of the premises during the same time that Occupants used them.

Circuit Court for Montgomery County Case No. 445762-V REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 544 September Term, 2019 ______________________________________ CLARK OFFICE BUILDING, LLC v. MCM CAPITAL PARTNERS, LLLP, ET AL. ______________________________________ Reed, Gould, Eyler, Deborah S., (Senior Judge, Specially Assigned), JJ. ______________________________________ Opinion by Eyler, Deborah S., J. ______________________________________ Filed: January 29, 2021 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2021-01-29 13:17-05:00 Suzanne C. Johnson, Clerk In the Circuit Court for Montgomery County, Clark Office Buildings, LLC (“Clark”), the appellant, sued MCM Capital Partners, LLLP (“Tenant”) for breach of a commercial lease and sued MCM Capital, LLC and Alta Realty Company, LLC (“Occupants”), the appellees, for unjust enrichment, on the ground that, without its knowledge, they occupied the leased premises for part of the time that Tenant failed to pay rent. After a bench trial, the court granted judgment to Clark against Tenant for breach of lease and entered judgment in favor of Occupants on the unjust enrichment claim. Clark has appealed, challenging the judgment in Occupants’ favor. 1 We shall affirm.

FACTS AND PROCEEDINGS The trial took place on January 16, 2019. Clark, Tenant, and Occupants all participated and were represented by counsel. The following facts were adduced. On August 27, 2014, Clark, owner of an office building at 7500 Old Georgetown Road, in Bethesda, executed a written lease (“Lease”) with Tenant for 19,492 square feet of office space, known as Suite 1300 (“the Premises”).

The Lease term was for five years, from February 1, 2015 through January 31, 2020. Tenant was required to pay a monthly base sum and other specified amounts as rent, due on the first day of each month. 1 Tenant did not appeal the judgment against it. Beginning on January 1, 2018, Tenant failed to pay its rent under the Lease. The next month, in telephone and email communications with Clark, Tenant stated that it was experiencing financial problems but was in the process of working out an arrangement that would resolve them.

Clark held off issuing a notice of default under the Lease. Without Clark’s knowledge, during January, February, and March of 2018, Tenant allowed Occupants to occupy a portion of the Premises. 2 Although the Lease required Clark’s consent for Tenant to assign or sublease the Premises, Tenant did not request or obtain it. There was no writing associated with Occupants’ use and occupancy of the Premises and no evidence that Occupants paid Tenant (or anyone) for their use and occupancy of the Premises. Around March 25, 2018, Clark learned through an agent that Tenant had vacated the Premises, which were empty.

Clark contacted Tenant, which told Clark it was surrendering the Premises. On March 27, 2018, Clark issued a notice of default demanding Tenant pay the rent remaining for the balance of the Lease term. Tenant did not do so. Clark investigated the situation and learned that Occupants had been using at least a portion of the Premises to operate their business and that Occupants had registered the Premises as their place of business. 3 2 Exactly how much of the Premises Occupants occupied was disputed.

In motions prior to trial, Clark asserted that the principals in Tenant’s business 3 also were running Occupants’ business. There was no evidence introduced at trial about such a relationship, however, nor was there any claim based on piercing the corporate veil. -2- Clark adduced evidence that it had acted to mitigate damages, without success. Counsel for Tenant acknowledged that Tenant had defaulted under the Lease and that Tenant had vacated the premises by March 31, 2018, and focused Tenant’s defense on damages. Occupants presented evidence that they had used no more than 25% of the Premises.

Occupants filed a motion for judgment on the ground that Clark did not have a legally viable claim for unjust enrichment, based on quasi-contract, for the rental value of the Premises for the period of their occupancy, because Clark and Tenant had an express contract (the Lease), that covered the same subject matter (rent for use and occupancy of the Premises). The court denied the motion. That same legal argument was repeated by counsel for Occupants in closing. Tenants’ counsel argued that the Lease did not require it to pay rent for the remainder of the Lease term as damages, and that if it did, the provision was unenforceable as a penalty.

On March 7, 2019, the court entered a memorandum opinion and order. The court found Tenant liable to Clark for $748,914.31 for breaching the Lease by non-payment of rent from January 1, 2018 through January 2019 and awarded $20,428.89 in attorneys’ fees to Clark. On Clark’s unjust enrichment claim against Occupants, the court ruled that Clark could not recover restitution for their use and occupancy of the Premises from January 1, 2018 through March 31, 2018 because the Lease between Clark and Tenant covered the same subject matter. The court further ruled that, even if that were not so, -3- Occupants were subtenants and as such were not in privity with Clark; therefore, they could not be liable to Clark for damages for their use and occupancy of the Premises.

After judgments were entered, and a motion to amend was denied, Clark noted a timely appeal, presenting the following questions for review: I. Did the express, written Lease between Appellant and Tenant bar Appellant’s quasi-contract claim against Occupants for Occupants’ beneficial use and occupancy of the Premises?

II

Was the trial court clearly erroneous in finding Occupants to be subtenants of Tenant? As noted, we shall affirm the judgment of the trial court. STANDARD OF REVIEW On appellate review of an action tried to the court, this Court “review[s] the case on both the law and the evidence” and “will not set aside the judgment of the trial court on the evidence unless clearly erroneous, . . . giv[ing] due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8-131(c). A trial court’s findings are not clearly erroneous if “any competent material evidence exists in support of the trial court’s factual findings[.]” Webb v. Nowak, 433 Md. 666, 678 (2013) (citations omitted). “[A]n appellate court may affirm a trial court’s decision on any ground adequately shown by the record even though the ground was not relied upon by the trial court or the parties.” YIVO Inst. for Jewish Research v. Zaleski, 386 Md. 654, 663 (2005) (citations omitted). -4- DISCUSSION I. Clark’s sole claim against Occupants was entitled, “Quantum Meruit/Quasi- Contract Against Occupants (Restitution).” “Quantum meruit,” which means “as much as deserved[,]” can refer either to an implied-in-fact contract or an implied-in-law contract.

Mogavero v. Silverstein, 142 Md. App. 259, 274 (2002) (quoting Black’s Law Dictionary 1243 (6th ed. 1990)). An implied-in-fact contract “is an agreement which legitimately can be inferred from intention of the parties as evidenced by the circumstances and the ordinary course of dealing and the common understanding of men.” Md. Cas. Co. v. Blackstone Int’l Ltd., 442 Md. 685, 706 (2015) (quoting Cnty. Comm’rs of Caroline Cnty. v. J. Roland Dashiell & Sons, Inc., 358 Md. 83, 94 (2000) (additional citations omitted)).

It is an actual contract. By contrast, an implied-in-law contract, otherwise known as a quasi-contract or, when described as a claim, unjust enrichment, is not a contract at all, but a “legal fiction.” Dashiell, 358 Md. at 94 (quoting Black’s Law Dictionary 324). It was “invented by common law courts to permit recovery by 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.; see also AAC HP Realty, LLC v. Bubba Gump Shrimp Co. Rests., Inc., 243 Md. App. 62 , 70 (2019) (same); Alts. Unlimited v. New Baltimore City Bd. of Sch.

Comm’rs, 155 Md. App. 415, 480 (2002) (same); Mogavero, 142 Md. App. at 275 (quasi-contract is a “rule of law that requires restitution to the -5- plaintiff of something that came into defendant’s hands but belongs to the plaintiff in some sense” (citation omitted)). Recovery in quasi-contract takes the form of an action for restitution based on unjust enrichment. Mogavero, 142 Md. App. at 276 . Unjust enrichment first was established as an independent basis of liability in the common law in Restatement of Restitution (1937) (“First Restatement”).

See Douglas Laycock, The Scope and Significance of Restitution, 67 Tex. L. Rev. 1277 , 1278 (1989) (“The [First] Restatement legitimated three insights: that a seemingly great variety of specific rules serve a common purpose, that these rules can be thought of as a single body of law under the name ‘restitution,’ and that these rules support a general principle that unjust enrichment must be disgorged. This was a major accomplishment; it created the field.”). “A person who receives a benefit by reason of an infringement of another person’s interest, or of loss suffered by the other, owes restitution to him in the manner and amount necessary to prevent unjust enrichment.” Berry & Gould, P.A. v. Berry, 360 Md. 142, 151 (2000) (quoting Restatement (Second) of Restitution § 1 at 8-9 (Tentative Draft No. 1 (1983)). In Hill v. Cross Country Settlements, LLC, 402 Md. 281 (2007), the Court of Appeals enumerated the elements of a claim for unjust enrichment/restitution as follows: 1) A benefit conferred upon the defendant by the plaintiff; 2) An appreciation or knowledge by the defendant of the benefit; and 3) The acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without the payment of its value. -6- Id. at 295 (citations omitted).

These elements were derived from Williston on Contracts § 1479 (3rd ed. 1970). See Everhart v. Miles, 47 Md. App. 131, 136 (1980). The measure of damages for unjust enrichment is the gain to the defendant not the loss to the plaintiff. Mogavero, 142 Md. App. at 276 (citation omitted).

This is because “‘[t]he restitution claim. . . is not aimed at compensating the plaintiff but at forcing the defendant to disgorge benefits that it would be unjust for him to keep.’” Hill, 402 Md. at 296 (quoting Mass Transit Admin. v. Granite Constr. Co., 57 Md. App. 766, 775 (1984)). In Dashiell, the Court of Appeals held that it is “‘settled law in Maryland, and elsewhere, that a claim for unjust enrichment may not be brought where the subject matter of the claim is covered by an express contract between the parties.’” 358 Md. at 96 (quoting FLF, Inc. v. World Publ’ns, Inc., 999 F. Supp. 640, 642 (D. Md. 1998)). In that case, Caroline County had contracted with Dashiell, a construction company, to build improvements to a local detention center.

After the County refused to pay delay costs Dashiell had incurred, Dashiell sued it for unjust enrichment based on quasi-contract. 4 The court granted summary judgment for the County on the ground that the claim was precluded by the express contract between the parties on the same subject matter. Affirming the judgment, the Court of Appeals stated, “[t]he contract [between the County and Dashiell] defined the entire relationship of the parties with respect to its general subject matter. [Dashiell] is now attempting, via a theory of unjust enrichment, Dashiell also sued for breach of contract, but that claim was dismissed because it 4 was untimely under the terms of the parties’ express contract. -7- to get . . . damages . . ., even though its contract with the County specifically covers this subject matter.” 358 Md. at 101 . The Court criticized Dashiell’s unjust enrichment claim as “a unilateral attempt to amend the agreement in a manner that the law does not allow.” Id. It explained that the well-established principle that a party to a contract that covers a subject matter cannot pursue recovery under quasi-contract based on the same subject matter “‘holds the contract parties to their agreement and prevents a party who made a bad business decision from asking the court to restore his expectations.’” Id.

(quoting Prodromos v. Poulos, 560 N.E.2d 942, 948 (Ill. App. Ct. 1990)); see also Martz v. Day Dev. Co., L.C., 416 F. Supp. 3d 517 , 526 (D. Md. 2019) (“‘The general rule [under Maryland law] is 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’”) (quoting Granite Constr. Co., 57 Md. App. at 776 (cleaned up)). 5 Clark contends the trial court erred by applying this principle to preclude its unjust enrichment claim against Occupants.

It asserts that the principle only applies when the parties to the unjust enrichment claim also are parties to the express contract, as was the case in Dashiell, and has no application when the unjust enrichment claim is between a party to the express contract and a stranger to that contract, even if the subject matter of the claim and the express contract are the same. It maintains that because Occupants were not parties to the Lease, it could sue them for unjust enrichment for the value of the 5 Martz is pending on appeal in the Fourth Circuit. -8- benefit of their use and occupancy of the Premises for three months, regardless of the existence of the Lease. Occupants respond that the principle stated in Dashiell applies not only when one party to an express contract sues the other party for unjust enrichment but also when the subject matter of the express contract and the unjust enrichment claim are the same, even if the parties to the suit are not the same as the parties to the contract. Therefore, Clark could not sue them for unjust enrichment because the Lease covered the payment of rent for use and occupancy of the Premises during the time Occupants were there, even though the Lease was between Clark and Tenant and Occupants were not a party to it.

As explained above, in Dashiell, the context of the Court’s holding that a party to an express contract cannot bring an unjust enrichment claim based on the same subject matter as the contract was that the parties to the express contract and the parties to the unjust enrichment claim were the same. Here, they are not. Clark was a party to the Lease, which governed payment for the use and occupancy of the Premises, but the Occupants were not. In its memorandum opinion in this case, however, the trial court applied the principle in Dashiell, citing Glynn v. Impact Science & Technology, Inc., 807 F. Supp. 2d 391, 441 (D. Md. 2011), aff’d, 710 F.3d 209 (4th Cir. 2013).

Clark asserts that Glynn does not support that position; the Occupants assert that it does. Clark is correct that Glynn is no different than Dashiell with respect to this issue. A departed employee (Glynn) sued his former employer (IST) for numerous causes of action. The parties’ relationship was governed by Glynn’s written employment contract, which contained provisions that survived his departure from IST.

In a counterclaim, IST -9- sought restitution on the ground that Glynn had been unjustly enriched by payments he received from a company he had worked with during his employment. The court granted summary judgment on the ground that the employment contract between the parties precluded IST’s unjust enrichment claim. Because the parties to the employment contract and the parties to the unjust enrichment claim were the same, Glynn is of no help in resolving the issue before us. Clark maintains that landlord tenant cases from the New York Appellate Division and a Fourth Circuit case applying Virginia law support its position that it could proceed with an unjust enrichment claim against Occupants because they were not parties to the Lease. 6 In the New York cases, the Appellate Division has held that a lessor may sue a non-party to the lease for the value of the non-party’s use and occupancy of the premises.

For instance, in Carlyle, LLC v. Beekman Garage LLC, 19 N.Y.S.3d 520 (N.Y. App. Div. 2015), the owner of a parking garage leased it to a tenant, who in turn allowed a third party to use and occupy it. When the tenant failed to pay its rent, the owner sued the occupant, alleging that it had been unjustly enriched. After the trial court denied the occupant’s motion to dismiss, the occupant took an interlocutory appeal. 7 Affirming, the Appellate Division held that the owner’s claim against the occupant was not precluded by 6 Clark also cites a Colorado trial court opinion that is unpublished and merely refers to the New York cases. 7 Under New York law, the denial of a motion to dismiss is appealable. -10- the express contract (the lease) covering the same subject matter (rental of the parking garage) because any obligation of the occupant would not arise from the lease, to which it was not a party, but “‘upon the theory of quantum meruit, and is imposed by law for the purpose of bringing about justice without reference to the intention of the parties.’” Id. at 522 (quoting Eighteen Assocs. v. Nanjim Leasing Corp., 683 N.Y.S.2d 291 , 292 (N.Y. App. Div. 1999)); see also Gateway I Group v. Park Ave. Physicians, P.C., 877 N.Y.S.2d 95 (N.Y. App. Div. 2009) (“because there was no contract in place between the corporate appellants and the plaintiff governing the subject matter, the corporate appellants’ contention that the plaintiff is precluded from recovering unpaid rent on a quantum meruit basis is without merit”).

These New York Appellate Division opinions are not persuasive. They do not address whether claims of this sort can satisfy the elements of an action for unjust enrichment/restitution. (According to the court in Ministers, Elders and Deacons of Reformed Protestant Dutch Church of City of New York v. 19 Broadway, Inc., 579 N.Y.S.2d 543 (N.Y. Civ. Ct. 1991), a suit by an owner against two subtenants, who used and occupied the property during ten years of litigation that began when the primary tenant did not renew its lease, a claim for use and occupancy is based in part on a New York statute allowing recovery of a judgment for use and occupancy for a period in which rent was due but not paid.) The cases simply refer to the form of quantum meruit that is a contract implied-in-law without analyzing the elements of unjust enrichment or -11- how they were satisfied. 8 We have not found appellate cases from other jurisdictions that have followed them.

By contrast, in Lincoln Land Company, LLC v. LP Broadband, Inc., 408 P.3d 465 (Idaho 2017), the court held, in a similar circumstance, that the plaintiff could not prevail on an unjust enrichment claim because it could not prove one of the elements – that the benefit the defendant received was conferred upon it by the plaintiff. In that case, Lincoln leased a grain silo to General Mills, which in turn sublet the rooftop to LP Broadband, for $50 a month. Even though the lease between Lincoln and General Mills prohibited subleases without Lincoln’s consent, General Mills did not seek or obtain Lincoln’s consent to sublease the rooftop to LP. When Lincoln learned what General Mills was doing, it sued LP for unjust enrichment, to recover the restitution benefit LP had received.

The trial court granted summary judgment to LP on the ground that, on the undisputed material facts, the benefit LP had enjoyed was not conferred upon it by Lincoln (the lessor) but by General Mills (the tenant). The Supreme Court of Idaho agreed and affirmed. It reasoned that, as lessor, Lincoln’s interest in the leased premises was limited to the right to retake the premises at the end of the lease term. As such, Lincoln had no ability to confer a possessory interest in the property upon LP (or anyone other than General Mills) and, by performing its contract with General Mills, could not have conferred and did not confer the benefit of 8 Indeed, the cases do not seem consistent with the holding of the New York Court of Appeals in Georgia Malone & Co., Inc., v. Rieder, 973 N.E.2d 743 (N.Y. 2012), regarding unjust enrichment claims in three-party situations, as we shall discuss below. -12- use and occupancy of the premises upon LP.

Rather, General Mills, having the right to use and occupy the premises under the lease, conferred the benefit of subleasing the rooftop upon LP, even though it did so in violation of the terms of the lease. On that set of facts, Lincoln could not prove that it had conferred the benefit in question upon LP; in Idaho, as in Maryland, conferral of the benefit by the plaintiff upon the defendant is an essential element of a claim for unjust enrichment. In addition to the New York cases, Clark cites Raymond, Colesar, Glaspy & Huss, P.C. v. Allied Capital Corp., 961 F.2d 489, 493 (4th Cir. 1992) (applying Virginia law), to support its position. There, Allied, an investment capital company, asked Raymond, an accounting firm, to perform an audit of CAR, a small company Allied had invested in.

For six months, Raymond performed the auditing work and submitted monthly bills to CAR, which CAR paid. Before Raymond finished the audit but after it had performed more work, CAR declared bankruptcy. Raymond sought relief in the bankruptcy court, unsuccessfully, and then sued Allied for breach of express contract and for quasi- contract, to recover what it was owed for the auditing work. A jury returned a verdict in favor of Allied on the express contract claim and against Allied on the quasi-contract claim, awarding Raymond approximately $135,000 dollars.

On appeal, Allied argued that the trial court had erred by declining to instruct the jurors that if they determined that there was an express contract for