Principles of Unjust Enrichment and Constructive Trust are Explained by Illinois Appellate Court

In a landlord-tenant case that included a bankruptcy, the Illinois Appellate Court weighed in on the law of unjust enrichment and constructive trust. The case involved the payments on a commercial lease, a bankruptcy and the legal principles.

The commercial lease tenant — Montgomery Ward — had filed for bankruptcy protection in 1997. Montgomery Ward had defaulted on its lease that same year. A proof of claim was filed and approved for the commercial landlord, DiMucci LLC. DiMucci defaulted on its loan from GALIC. GALIC filed a motion in the bankruptcy court in the case seeking an assignment of DiMucci’s claim against Montgomery Ward. The court allowed the assignment of the allowed bankruptcy claim of $640,000 for the default in lease payments.

In February 2001, the check in the amount of the assignment — $638,537.50 —  was received by DiMucci LLC, which was supposed to deliver the payment of $640,000 to its lender, GALIC. Instead, DiMucci LLC pocketed the check. The lender’s insurer, National Union, then filed a state court action against the landlord’s officer to recover the $640,000. The trial judge granted summary judgment for the plaintiff on its unjust enrichment and constructive trust counts. The defendant, landlord officer, appealed.

On appeal, the court focused on the importance of the stipulation the landlord signed in the bankruptcy case. The court rejected the landlord’s argument that its attorney in the bankruptcy case lacked authority to stipulate that the landlord would assign its $640,000 claim to the plaintiff’s insurer-lender.

The court stated that a stipulation is considered a judicial admission that cannot be contradicted by a party. But it is considered a judicial admission only in a case in which it is filed. In a later case, the earlier stipulation is an evidentiary admission that can be explained away.

In order to undo or remake a stipulation that has been entered by a lawyer, a party must make it clear that the stipulated issue was in fact false. In this case, since the landlord was unable to meet the elevated burden of invalidating the stipulation, the appeals panel held the landlord to the terms of the stipulation and ruled that it should have turned over the $640,000 to the plaintiff as stipulated.

The court also examined the plaintiff’s claim of unjust enrichment. Unjust enrichment requires the plaintiff to show the defendant retained a benefit to plaintiff’s detriment and that the retention of the benefit violated basic principles of fairness.

It must be shown by the plaintiff in order to prove up a claim of unjust enrichment that:

1. The benefit should have been given to the plaintiff but was mistakenly given to the defendant.

2. The defendant obtained a benefit from the third party by way of wrongful conduct.

3. Where the plaintiff has a better claim to the benefit then does the defendant.

In this case, the bankruptcy court agent paid the landlord’s agent by mistake when the payment should have gone to the plaintiff pursuant to the stipulation. The court rejected the defendant’s claim that he wasn’t liable under the Illinois Limited Liability Company Act, which immunizes LLC members from company obligations. The defendant is a member of DiMucci LLC.
805 ILCS 180/10-10.

Since the plaintiff sued the landlord’s officer in his individual capacity for his own wrongful conduct, that is depositing the check in his own personal account, the LLC Act did not protect the defendant from unjust enrichment liability.

The Illinois Appellate Court for the 1st District then affirmed the trial court’s imposition of the constructive trust related to the $640,000 draft. A constructive trust is an equitable remedy applied to correct unjust enrichment. A constructive trust is generally created where there is fraudulent conduct by a defendant, a breach of fiduciary duty or when duress, coercion or mistake is present.

While a defendant’s wrongful conduct is required for a court to impose a constructive trust, that is not always the case. The important question is whether it is unfair to permit a party to keep possession of the property based on wrongful conduct or if it were under a mistaken proposition.

Here, the defendant chose not to offer any evidence other than his own affidavit to dispute the fact that he wrongfully deposited money that should have gone to a plaintiff. The court noted that under Supreme Court Rule 191, self-serving and conclusory affidavits are not enough to defeat summary judgment.

This case stands for the proposition that an attorney’s agreement by stipulation binds the party that the attorney represents. In a case like this where the client objected to the stipulated facts, the burden to undo that stipulation is an uphill battle and difficult burden at that.

National Union Fire Insurance Co. v. DiMucci, 2015 IL App (1st) 122725.

Kreisman Law Offices has been handling commercial litigation, business disputes, real estate-related litigation and probate litigation for individuals, families and businesses for more than 40 years in and around Chicago, Cook County and its surrounding areas including, Cicero, Joliet, Waukegan, Kenilworth, Evanston, Chicago (Rogers Park, Andersonville, Rose Hill, West Ridge, Clybourn Corridor, Lincoln Park, Wicker Park, Humboldt Park, Garfield Park, Austin), Deerfield, Northbrook and Bolingbrook, Ill.

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