If a sophisticated party engages in a transaction and obtains an uncompensated gain, California’s Second Appellate District recently outlined the circumstances under which such a party can be subject to an unjust enrichment claim. In Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc., Case No. B282702, the court held that the plaintiff’s unjust enrichment claim could proceed because the complaint alleged sufficient facts that (1) the defendants knew or had reason to know of the plaintiff’s contractual right to compensation, (2) the defendants benefited from the plaintiff’s work, and (3) the defendants’ retention of those benefits without payment to the plaintiff was unjust.
In concluding that the unjust enrichment claim could proceed, the court noted that the defendants were sophisticated parties who were alleged to have conducted “thorough due diligence” that would have covered the subject matter of the plaintiff’s work and the benefit from the plaintiff’s work that would accrue to the defendants if the transaction was completed. Additionally, industry practice provided for certain documents to be given to the defendants about the contemplated transaction that would have given them inquiry notice about the work of the plaintiff—who was a third-party to the contemplated transaction. Lastly, when defendants completed the contemplated transaction, they received the benefit of the plaintiff’s work, but the plaintiff was not paid the compensation that a party (not the defendants) had agreed to pay the plaintiff for its work.
For companies that might find themselves in position of the defendants, this decision means that if a company is contemplating a transaction and learns in the process of the transaction that it will benefit from the work of a third-party that is not being compensated, then the company will need to assess if the transaction will create exposure to an unjust enrichment claim. For third parties that find themselves in the position of the plaintiff, this decision provides a potential vehicle to pursue compensation.
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