News & Noteworthy

Authored - NJ Contract Law Update - Quasi-Contract Claims
Clark Alpert Explores the Minuto v. Genesis Decision
JUNE 27, 2012 | Windels Marx - Commercial Litigation

Earlier articles in this series addressed aspects of the covenant of good faith ('Whitman v. Herbert -Covenant of Good Faith', April 23, 2012) and fraud in the factum ('Difficulties in Contracting Away Misrepresentations' May 2, 2012). In Minuto v. Genesis Advisory Services, Inc., 2012 WL 1085807 (D.N.J. March 29, 2012), the Court addressed related issues of quasi-contract or contract-substitute claims.

Contract Law & Business Torts

There is an obvious intersection between contract law and business torts. The same fact pattern may very well give rise to claims encompassing both concepts, either cumulatively or in the alternative. When I refer to "contract law" (in this broad division of claim types between contract and tort), I am including quasi-contract claims, or what sometimes are referred to as "contract-substitute" claims, which parties often plead in order to provide relief under certain circumstances where there is an "imperfect" contract; these include promissory estoppel, unjust enrichment, and the like. As can be seen in Minuto, some tort issues such as "fraud in the factum" are also closely related to contract issues.

To clarify, a party faced with what is ostensibly a contract claim often attempts to sue not only on the contract but also (cumulatively or alternatively) on other legal theories: either directly arising from the contract or in substitution for the contract; or involving torts either relating to or arising from the contract or its performance. The presence of both contract and tort claims can be considered a "hybrid setting".

Minuto v. Genesis

In Minuto, the Court upheld almost all of the plaintiff's claims (as against a motion to dismiss) in such a hybrid setting. Plaintiff Minuto specifically pled the following Counts: fraud in the factum1; breach of contract; breach of the implied covenant of good faith and fair dealing; intentional interference with prospective economic advantage; defamation; and unjust enrichment.

The basic facts alleged were these: Minuto was hired to start a hedge fund. Minuto used his personal relationships with certain large banks to arrange for those banks to utilize the hedge fund for certain IPO offerings. This included establishing a difficult-to-obtain relationship with Goldman Sachs.

Minuto alleged that he was responsible for participation in an IPO offering on Hospital Corporation of America that yielded the fund a $1,120,000 gross profit, of which Minuto was entitled to 40%2. Minuto's detailed allegations reflect what he portrayed as the defendants' efforts to short-change him or to deduct amounts to which Minuto believed he was entitled. When Minuto refused to acquiesce to these alleged demands, he claims he was fired for that reason--and that the firing was accompanied by profanities, and followed by disparagement of Minuto to his business contacts.

Assessing the fairly typical array of contract/quasi-contract and business-tort claims set forth above, the Court first held (as to fraud in the factum) that there was no showing of fraudulent intent ab initio, although Minuto could attempt to amend his Complaint to better plead the Count; and that the contract claim for a 40% share stated a valid claim. The claim for violation of the covenant of good faith was also upheld; "Defendants' ill motives and purpose to destroy Minuto's reasonable expectations" were demonstrated by detailed allegations of repetitive maneuvers and/or threats to have Minuto reduce his compensation.

Two of the Counts involved defendants' post-termination contact with Minuto's business contacts (brokers); but details were apparently not known to plaintiff. Of the two claims, intentional interference with prospective economic advantage was upheld, because detailed specificity was not required by 'the law of pleadings' on an interference claim; whereas under defamation law, more specificity was required, dooming the defamation count.

Perhaps most interestingly, the Court ruled that in addition to the contract claim, the claim for unjust enrichment would also survive the motion to dismiss. The Court recited the test of Cameco, Inc. v. Gedicke, 299 N.J.Super. 203 (App.Div. 1997), that such a claim could be made out if (1) there was an expectation of remuneration, and (2) "the failure of remuneration enriched [the] defendant beyond its contractual rights". The Court held that because Minuto ostensibly was entitled to $480,000, but received only a portion of that amount, a claim of unjust enrichment was stated.

Ordinarily, a claim of unjust enrichment is permissible only when there is no express contract. See, e.g., Ross v. Annunziata, 2012 WL 653840 at *9 (N.J.App.Div. February 29, 2012)3. In other words, if the contract is enforced, that enforcement--and the resultant damages award--would be sufficient to make the plaintiff whole, without further resort to unjust-enrichment principles. However, at the pleadings stage, where the contract itself was denied by defendants, the Minuto Court's decision to allow both claims to persist was certainly appropriate, even if a different rationale for doing so could be envisioned.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1As to later-arising fraud (apparently not implicated in Minuto), see Alpert, Guide to New Jersey Contract Law, pp. 304 to 321 (2d Ed. 2011).

2 It is unclear how many of the factual assertions were supported by writing (or how clearly); including the 40% claim.

3 See also Saccomanno v. Honeywell Intl., 2010 WL 3720283 at *1 (N.J.App.Div. 2010); Unger v. Westside Pictures, Inc., 2005 WL 2447907 at *1 (N.J.App.Div. 2005).


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