Restitution — The Art Of Recovery

John G. Cameron, Jr.

Because it can provide an aggrieved party with both a claim and a remedy when more traditional recourse is unavailable, restitution is an important arrow in the quiver of a litigating attorney.

John G. Cameron, Jr. is a partner with the Grand R Dick- inson Wright PLLC. His practice encompasses representation of mortgage lenders and develop- THE GREAT BODY of Anglo-American civil common law ers, drafting construction contracts, negotiating is often thought of as being derived principally from two major commercial leases, and other real estate transactions. He has been listed in Best Lawyers in concepts — tort and contract. Tort law provides a rem- America in the areas of real estate and construc- edy for injury or harm proximately caused when a duty tion law since 1993 and 2003 respectively and as a is breached or a right is violated by a perpetrator acting Top Super Lawyer in Michigan Super Lawyers since without consent. Recoverable damages are measured by 2006. He is a member of The American Law Insti- the extent of the foreseeable loss or injury. Contract law, tute, The American College of Real Estate Law- yers, the State Bar of Michigan Professional Ethics which rests upon a consensual arrangement between two Committee, and the State Bar of Michigan Land or more parties, provides a remedy in the case of a party’s Title Standards Committee. He has written and failure to perform as agreed. Once again, the focus is on spoken extensively on real estate-related topics the loss. Contract damages may be imposed at law (com- and is author of the ALI-ABA book, A Practitioner’s Guide to Construction Law. (For more information, pensatory, incidental, and consequential) or by agreement go to www.ali-aba.org/B803K). He can be reached of the parties (liquidated). But beyond these two fault- and at [email protected] damages-based doctrines lies a vast neverland — where

tortious conduct or compensable contract damage nor, of- ten, even fault. Here lies the law of restitution. Its focus is

THE LAW OF RESTITUTION • But what is the law of res- titution? It is not, as sometimes believed, a disconnected

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series of ad hoc cases in which courts provide some with Beatty v. Googenheim Exploration Co., 122 N.E. sort of restoration on the basis of fairness under 378 (N.Y. 1919). the circumstances, but instead a long-established, coherent body of law concerned with benefits re- The foregoing examples present relatively sim- ple fact patterns. But two United States Supreme ceived under circumstances that do not justify Court cases that validate the use of restitution to them. The concept seems to have arisen from Lord justify recovery from the federal government, in- Mansfield’s statement in Moses v. Macferlan, 2 Burr. volve more extraordinary circumstances. In one 1005, 1012, 97 Eng. Rep. 676, 681 (K. B. 1760): of them, United States v. Winstar Corp., 518 U.S. 839 “In one word, the gist of this kind of action is, that (1996), enactment of a statute resulted in a cogni- the defendant, upon the circumstances of the case, zable restitution claim and in the other, Mobil Oil is obliged by the ties of natural justice and equity to Exploration & Producing Southeast, Inc. v United States, refund the money.” Consider the following: 530 U.S. 604 (2000), repudiated claims by the gov- ernment warranted the same result. Can restitution be a two-edged sword? Perhaps. Consider restitu- • Your client is induced to pay an obligation she tion in the context of a failed Ponzi scheme. Victims does not owe as the result of threatened crimi- who “lost everything” may have a claim in restitu- nal prosecution against a relative. As the pay- tion against the estate of the perpetrator, voluntary ment was made under duress, restitution pro- though their entry into the scheme may have been, vides a remedy. See Meylink v. Minnehaha Co-Op so long as they were unaware of its nature. On the Oil Co, 283 N.W. 161 (S.D. 1938); other hand, the very estate from which restitution is • Your client, a physician, performs emergency sought may itself be subject to enlargement through surgery on an accident victim who is lying un- a restitution claim against those who profited, albeit conscious. Your client bills the victim his usual unknowingly, from the illegal scheme. See generally S. Levmore, Rethinking Ponzi-Scheme Remedies In and Out and customary charge for the services rendered, of Bankruptcy, Conference on Restitution and Unjust and the victim refuses to pay. Your client may Enrichment (Boston University/American Law In- recover in restitution. See Cotnam v. Wisdom, 104 stitute, September 16-17, 2011). S.W. 164 (Ark. 1907); Thus, restitution is a flexible but predictable • Your client, who believes she owns a home, is doctrine whose application may be simple or com- dispossessed following an ejectment action. An plex. A typical formulation is along these general appellate court reverses the judgment. Restitu- lines: “To establish a claim for unjust enrichment, tion would provide a remedy. Your client is enti- the plaintiff must prove three elements: (1) the tled in restitution to recover both the home and plaintiff conferred a benefit upon the defendant; the value of her opponent’s interim use and oc- (2) the defendant had an appreciation or knowl- edge of the benefit; and (3) the defendant accepted cupancy. See Lytle v. Payette-Oregon Slope Irr. Dist., or retained the benefit under circumstances mak- 152 P.2d 934 (Or. 1944); ing it inequitable for the defendant to retain the • A valid claim of restitution can be enforced benefit without payment of its value.” See Buckett v. through the imposition of an equitable lien or Jante, 767 N.W.2d 376, 380 (Wis. Ct. App. 2009); a constructive trust. Compare Campbell v. Superior Hegel v. Brunswick Corp., No. 09-C-882, 2010 U.S. Court, 34 Cal. Rptr. 3d 68 (Cal. Ct. App. 2005) Dist. LEXIS 82257, at *12-13 (E.D. Wis. July 20,

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2010); and Schira v. Sit, No. 09-cv-447-wmc, 2010 tive because, unlike the thought that it is somewhat U.S. Dist. LEXIS 56783, at *11 (W.D. Wis. June 9, based on fairness in the abstract, “the justification 2010). But such formulations have been said to lend in question is not moral, but legal.” Id. a “specious precision” to the analysis that can lead The Restatement, which is an excellent refer- to “serious errors.” Restatement Third, Restitution ence source for practitioners and academicians and Unjust Enrichment (hereinafter the “Restate- alike, presents the subject matter in a manner con- ment”) §1 at p. 8. ducive to research. Rather than dividing it up by ju- How, then, can a litigator properly analyze the risdiction, forms of action or methods of pleading, prospects of a claim in restitution? What resources Professor Kull chose to organize the text by “basis are available to assist? There are several: of liability.” Andrew Kull, explaining the organi- zation of the Restatement during presentation to • Goff & Jones, Law of Restitution (7th ed. 2007); American Law Institute on May 17, 2011. By doing • Maddaugh & McCamus, Law of Restitution so, he enables the reader to easily locate and review (Loose-leaf ed. 2008); the particular liability theory that may apply to the • Gergen, What Renders Enrichment Unjust?, 79 Tex. facts presented or alternatively, to permit an easy L. Rev. 1927 (2001); scan of the various liability theories in hopes one • S. Levmore, Explaining Restitution, 71 Va. L. Rev. can be found that will apply. 65 (1985); Consider a sample provision. Section 7 of the • Linzer, Rough Justice: A Theory of Restitution and Restatement, Mistaken Performance of Another’s Obliga- Reliance, Contracts and Torts [2001] Wisc. L. Rev. tion, provides: “Mistaken performance of another’s 695; obligation gives the performing party a claim in res- • Sherwin, Restitution and Equity, An Analysis of the titution against the obligor to the extent of the ben- Principle of Unjust Enrichment, 79 Tex. L. Rev. efit mistakenly conferred on the obligor.” This black 2083 (2001); letter statement is followed by a four--part com- • Perhaps the most useful is the American Law ment, including 13 “fact pattern” examples, and Institute’s Restatement. This two-volume set a five-part reporter’s note that includes citations to contains a wealth of both legalistic and practical approximately 40 cases and secondary sources. The information — ranging from the development explanation, sample fact patterns, and cases cited of the doctrine to its application, complete with will be of particular value to the researcher. a cogent explanation of each principle. In its entirety, the Restatement contains four parts. Part I, Chapter 1, sets forth the general prin- Professor Kull begins this definitive work with ciples of restitution and unjust enrichment, intro- a comprehensive, albeit somewhat academic, intro- ducing the topic and noting the limitations that duction to the concept of restitution. He carefully exist to its application. Part I also defines wrongful explains the basis for liability in restitution: “the gain and notes that recovery in restitution may be at receipt of a benefit whose retention without pay- law or in equity. ment would result in the unjust enrichment of the Part II, Liability In Restitution, contains five chap- defendant at the expense of the claimant.” Restate- ters. Chapter 2 addresses transfers subject to avoid- ment §1 at p. 3. He notes that the emphasis is on ance, such as benefits conferred by mistake, pay- the unjustness of the benefit — what Professor Kull ment of money not due, mistaken performance, characterizes as “unjustified enrichment.” Restate- restitution that may be available on account of ment §1 at p. 5. Application of the doctrine is objec- things like fraud and misrepresentation, duress, un-

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due influence, incapacity and lack of authority, and throughout the United States and beyond in the transfers under legal compulsion. nearly 90 years since the inception of the American Chapter 3 of Part II pertains to unrequested Law Institute. As might be expected with any major intervention, such as emergency intervention, in- work addressing a complicated and evolving body demnity and contribution, equitable subrogation, of law, not every position taken by Professor Kull in and self-interested intervention, including protec- the Restatement is free from controversy. For exam- tion of one’s own property, unmarried cohabitants, ple, the “slayer” rule set forth in section 45, which and common funds. Chapter 4 pertains to restitu- provides essentially that a person who kills another tion in contract and considers, among other topics, and as a result becomes entitled to a benefit will not unenforceable contracts, illegal contracts, incapac- be allowed to retain that benefit, is somewhat differ- ity, and, interestingly, restitution to a party in de- ent than that set forth in the Uniform Probate Code fault. Chapter 4 also considers the circumstances of (“UPC”). The UPC rule, in fact, may result in the a strategic or opportunistic breach. For a detailed slayer retaining some of the benefit. Hence, a judge explanation of Chapter 4, see A. Kull, Rescission and in a state that has adopted the Uniform Probate Restitution, 6 (Bus. Law. 569 [2005-2006]). Code may be unable to adopt the principle set forth Chapter 5 of Part II deals with restitution for in section 45 of the Restatement. See D. Rendle- wrongs, such as benefits acquired by tort or other man, Restating Restitution: The Restatement Process and breach of duty, as well as the slayer rule and wrong- Its Critics, 65 Washington & Lee Law Review, Issue ful interference with a donative transfer. Chapter 6 3 (Summer 2008). of Part II deals with benefits incurred by a third Likewise, section 28 of the Restatement seems person, payment to a person in respect of a claim- to adopt the rule of Marvin v. Marvin, 557 P.2d 106 ant’s property, and payment to a person as to which (Cal. 1976), in which a couple that was not formal- the claimant has a better right. ly married but cohabited ultimately split up. The Part III, Chapter 7, sets forth various remedies, plaintiff claimed that she agreed to “give up her among them, restitution via money judgment and lucrative career as an entertainer [and] singer” in restitution via rights in identifiable property — re- order to “devote her full time to defendant…as a scission and restitution, constructive trusts, equita- companion, homemaker, housekeeper and cook,” ble liens, and tracing into or through a commingled and in return, that the defendant agreed to “pro- fund. vide for all of plaintiff ’s financial support and needs Part IV, Chapter 8, sets forth the various defens- for the rest of her life,” was awarded a substantial es to restitution. These include a recipient who is portion of her former partner’s assets. The ALI not unjustly enriched (not all enrichment is unjusti- Principles of the Law of Family Dissolution Project fied and not all enrichment will lead to restitution), would treat such a breakup as if the parties were in equitable disqualification (unclean hands), bona fact married to one another. The Restatement ap- fide purchasers, bona fide payees, value, notice and proach may result in a “less generous” result than limitations of actions, and laches. The text also in- would be called for by the principles of family disso- cludes a table of cases, a table of statutes and an lution. Professor Emily Sherwin, in her article Love, index. Money and Justice: Restitution Between Cohabitants, 77 U. Future supplements will set forth citations to the Colo. L. Rev. 711, 718 (2006), argues that Section cases citing or adopting the position of the Restate- 28 violates the principles set forth in section 2 of the ment on one or more topics. (ALI Restatements Restatement — restitution should not be available have been cited in myriad cases in myriad courts to one who could have made a contract and elected

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not to. In this regard, see Featherstone v. Sternhoff, 226 CONCLUSION • Restitution is an important weapon Mich. App. 584; 575 N.W.2d 6 (1997). for lawyers whose clients have suffered an uncom- Professor Emily Sherwin is disappointed with the provisions of Section 60 of the Restatement, pensated wrong. The Restatement fills the void that which pertain to priorities in bankruptcy. She be- exists when unjustified enrichment is compensable lieves that here the Restatement “should have en- gaged more aggressively in law reform” and that under neither tort nor contract law. It sets forth an in insolvency cases, claimants under a constructive elusive doctrine with clarity and exposes the doc- trust should not be afforded priority, but are instead trine’s eccentricities. The Restatement enhances a “just a species of creditors, with no special ‘equity’ on their side.” E. Sherwin, Why “Omegas Group” Was lawyer’s ability to discern and assert a restitution Right: An Essay on the Legal Status of Equitable Rights, claim and then prevail on it. These volumes belong Conference on Restitution and Unjust Enrichment (Boston University/American Law Institute, Sep- on the bookshelf of any lawyer who has or may in tember 16-17, 2011). the future have a client needing an equitable rem- In the main, however, these quarrels are pica- edy in the face of an unjustified wrong. They are yune compared to the magnitude and value of the Restatement. certainly on mine.

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