August 2012 Archives

Unjust Enrichment Claim Fails Because of the Lack of a Relationship Among Parties

August 29, 2012

Even without a written contract, equity and fairness can sometimes provide for an enforceable oral agreement between two parties. One such basis is called "unjust enrichment." This approach allows for a party's recovery based on fairness, where one party confers a benefit on another without a written agreement, compensation may be permitted to avoid the recipient from being unjustly enriched.. One of the requirements for this to work is that the parties must have some relationship between them. The extent of that relationship is the subject of a case before New York State's highest court, the Court of Appeals, which recently decided that even where one party clearly benefits from another, and is aware that it received those benefits from the other, the lack of a direct relationship between the two defeats the provider's recovery from the recipient.

In Georgia Malone & Co., Inc. v. Rieder, Malone & Co. provided brokerage and property information to parties considering the purchase of real estate in exchange for a set fee plus a percentage of the sales proceeds. In this case, CenterRock Realty hired Malone to investigate a particular property. CenterRock agreed to keep the information provided by Malone confidential. CenterRock opted not to buy the property, but sold Malone's property and research information to Rosewood Realty Group without informing Malone. Rosewood eventually found a buyer for the property, using and benefitting from Malone's work, and earned a fee. Malone did not receive its percentage fee from the sale.

Malone sued Rosewood and CenterRock, alleging that they were both unjustly enriched by Malone. The trial court dismissed the unjust enrichment claim, but on appeal to the Appellate Division, the State's intermediary appellate court, it was reinstated against CenterRock. The Appellate Division, in a split decision, found that the relationship between Malone and Rosewood was "too attenuated" to provide the necessary connection between the two even though Rosewood benefitted from Malone's information.

Malone appealed higher, to the Court of Appeals, arguing that because Rosewood knew it was using Malone's work-product, and because "Rosewood unfairly profited at Malone's expense by collecting a commission on the sale of the properties," Rosewood was liable to Malone. The Court of Appeals disagreed and affirmed the Appellate Court's decision, finding that although an unjust enrichment claim was grounded in "'an obligation imposed by equity to prevent injustice[] in the absence of an actual agreement between the parties'" the relationship between the parties must support "a relationship or connection between [them] that is not 'too attenuated.'" Rosewood's relationship with Malone here was "too attenuated" to allow recovery "because they simply had no dealings with each other." That Rosewood knew the materials it had purchased from CenterRock were prepared by Malone did not, standing alone, create a relationship between them. Finding differently, held the court, would add an unreasonable level of complexity to any commercial transaction, requiring each party to research what parties had earlier agreed to with others, which could create liability for parties that are only tangentially involved in the transaction.

Because this decision seemed at odds with prior decisions of the Court of Appeals involving similar facts, the court felt it necessary to discuss those prior cases which found a sufficient relationship based only on the parties knowledge of each other. Ultimately, the court differentiated this case from the earlier cases because (i) Malone did not claim that it had a relationship with Rosewood, and it did not, and (ii) because Rosewood paid CenterRock for Malone's materials so that Rosewood paid something for what it received so that it was not truly unjustly enriched.

In a strongly worded dissent, two justices argued that Rosewood's knowledge of Malone's work was sufficient to establish the requisite relationship to support liability, especially under a theory grounded on fairness. Adopting the majority's approach would force parties pursuing an unjust enrichment claim to show a much closer relationship, which should not be necessary under this theory of recovery. The dissent felt that "[t]he majority ruling would appear to simply condone willful ignorance."

While Malone's arguments in this case did not persuade the majority of the Court of Appeals, unjust enrichment and similar claims are often asserted where there is no written agreement between the parties. Often, a party is unaware that recovery can be pursued without a written agreement in place, based on an oral representation or unjust enrichment-type claims. In light of this decision, and especially in today's virtual marketplace, a thorough examination of the facts and innovative application of the law, can be necessary to achieve success.

Court Requires Identification of Trade Secrets

August 23, 2012

Plaintiff sells software to the financial industry. It sued a former employee and his new employer for stealing plaintiff's secret computer source code. The issue before the court centered on whether or not plaintiff had to specifically identify the secret information that it claimed its former employee had stolen. Defendants maintained that identification was necessary so that the exact information allegedly stolen could be examined to determine whether or not it was a true secret or just general knowledge that the employee had learned. Plaintiff argued that the information was secret and defendant's employment allowed him to learn those secrets while at plainitff and use that information at his new employer.

The court held that defendants did not need to guess the secrets plaintiff claimed were stolen, so that plaintiff had to identify them. This allowed defendants to examine the information and argue that some or all were not true secrets. Additionally, without this disclosure, it would be impossible to discern which of plaintiff's secrets the new employer was using and concerning which plaintiff could legitimately object.

Trademark Claims for Gripe-Site Falls Flat

August 20, 2012

Despite the uniform reaction of courts, trademark holders insist on filing lawsuits over gripe-sites. As discussed here in the past, websites that are created for the sole reason of complaining about a service or product, and which incorporate a trademark in doing so, are not guilty of trademark infringement. In Devere Group GMBH v. Opinion Corp. d/b/a, was sued by a Swiss consulting company because the site hosted a number of sub-domains that hosted public complaints about the company. The company sought damages for trademark infringement, among other claims.

Although the court determined that the consulting company had established its trademark, it had failed to establish any infringement by the gripe-site. The court agreed with the gripe-site that no reasonable consumer, "'even the dimmest Internet user'" would believe that the comments posted to the gripe-site were sponsored by the consulting company. This was especially true here, where the complaints could never be seen as an endorsement of the services protected by the trademark or endorsed by the company, and the gripe-site did not compete with the company's website for viewers.

For the most part, the court's outcome should be the same for a complaint website that was less obvious in identifying its purpose. The line is crossed, however, where the complaint website has a commercial purpose or seeks to benefit from the protected trademark. In that case, judges look at the relationship with a more critical eye, to understand the purpose of the complaint website, and are more reluctant to dismiss an infringement complaint.