Focus On Contract Law

Sharp  Thinking

No. 204   Perspectives on Developments in the Law from Sharp-Hundley, P.C.   January 2022

Four New Cases Address Equitable Remedies

By John T. Hundley, Sharp Thinking Editor

As 2021 drew to a close, a spate of cases addressed the question of what equitable remedies are available in contractual contexts.  These cases are the focus of this month’s Sharp Thinking.

No Quantum Meruit Where Contract Is Illegal . . .

“Where the underlying contract is unenforceable as a matter of public policy, the plaintiff will not

be aided in circumventing the contract by recovering under the equitable theory of quantum meruit.”

So declared the Appellate Court’s First District in Kane v. Option Care Enterp., Inc., 2021 IL App (1st) 200666.

In Kane, an attorney and his client signed a contingent-fee agreement to perform services which the court determined constituted lobbying.  When his claim for his fee in contract was set aside due to the no-contingency-fee provisions of the Lobbyist Registration Act (25 ILCS 170/8), he sought recovery under quantum meruit. 

“The statute in Kane’s relationship with Option Care is unequivocal and without limitation,” the court said.  “Contingency fees for lobbying services are prohibited, without exception.  Allowing quantum meruit recovery for contingent fee lobbying services would undercut the clear purpose of the statute: to prevent even the temptation of corruption polluting governmental action.”

Accordingly, judgment for the defendant was affirmed.

. . . Or At Least Where It Violates Public Policy

The ink hardly was dry on Kane (and in fact the opinion had not yet become final) when a panel of the same district confronted an attempt to use equitable remedies when the contract failed because of an inadvertent illegality.

In Seiden Law Group, P.C. v. Segal, 2021 IL App (1st) 200877, the plaintiff law firm attempted to enter into a written contingency fee agreement with the defendant client but inadvertently failed to fill in the percentage attorney fee that would apply to any recovery.  Midstream, the client fired the firm.  The firm sued for quantum meruit and unjust enrichment after the client recovered with successor counsel.

The appellate panel relied upon Illinois Rule of Professional Conduct 1.5(c) in finding the contract unenforceable.  But see Sharp Thinking No. 202 (November 2021) (Rules of Professional Conduct do not provide a basis for decision in court cases).  Rule 1.5(c) requires that a contingency agreement “state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal.”  The panel said the “omission of the percentage recovery render[ed] the agreement unenforceable from its onset.”

However, the court noted “there is not a scintilla of evidence in the record that Seiden Law’s omission of the percentage recovery from its engagement agreement was anything but an innocuous oversight”.  This fact, it said, was significant for public policy purposes.  “Seiden Law’s violation of Rule 1.5(c) did not render its engagement agreement unenforceable as a matter of public policy, and Seiden Law is entitled to pursue compensation under the principles of quantum meruit.”

That didn’t necessarily mean that the plaintiff would recover what it sought.  Noting that plaintiff had been unsuccessful in its efforts while representing defendant, the court said that the trial court “will determine [the recovery] after considering several factors, including the benefit the attorney’s work has conferred upon the client.”

No Unjust Enrichment If Contract Applies

We’ve noted in prior issues of Sharp Thinking the rule that the equitable doctrine of quantum meruit cannot be relied upon where there is an applicable contract.  See No. 170 (July 2019); compare No. 184 (July 2020).  See also Kane v. Option Care Enterp., Inc., 2021 IL App (1st) 200666, discussed earlier in this newsletter.  What, however, of the equitable doctrine of unjust enrichment?

Two of the new cases hold that unjust enrichment cannot be relied upon when there is an applicable contract.  See Pepper Constr. Co. v. Palmolive Tower Condos., LLC, 2021 IL App (1st) 200753; Marshallah, Inc. v. West Bend Mut. Ins. Co., 20 F.4th 311 (7th Cir. 2021).

In Pepper, a claimant construction sub-contractor had contracts with the prime contractor but claimed the prime contractor had received from the owner payments which it had not properly turned over to the sub-contractor.  After a lengthy opinion determining which contractual provisions applied to the suit, the appellate panel dealt with the unjust enrichment argument.

“Unjust enrichment is an equitable remedy based on a contract implied in law,” the panel noted.  “A party cannot assert a claim on a contract implied in law if an express contract exists between the parties concerning the same subject matter.”

“Quasi-contract is not a means for shifting a risk one has assumed under contract,” the panel said, concluding that “unjust enrichment was not available as a matter of law”.

In Marshallah, a policyholder claimed the insurer was enriched unjustly when the policy was interpreted not to cover COVID-19-related risks which the insured believed were included in the premiums collected.  The court said a “claim for unjust enrichment is based upon an implied contract; where there is a specific contract that governs the relationship of the parties, the doctrine has no application.”

It said “no implied contract can exist where an express one governs because no equitable remedy – restitution based on unjust enrichment – can lie where a legal one – contractual damages – is available.”  Because the policyholder did not allege the policy was invalid, the court said the unjust enrichment theory could not apply.