Clark Office Building, LLC v. MCM Capital Partners, LLLP, et al. (Ct. of Special Appeals))

Filed: January 29, 2021.

Opinion: Deborah S. Eyler

Holdings:

(1)  Landlord cannot maintain unjust enrichment claim against an unauthorized occupant of the leased premises because landlord did not confer a benefit on the occupant, a required by Maryland law, and the occupant was not unjustly enriched where landlord had a valid contract claim against the tenant for rent during time occupant possessed the premises.

(2) Landlord could not recover against unauthorized occupants of premises because occupants either had oral subcontract with tenant or were trespassers and were thus not in privity with landlord.

Facts:

Clark Office Building, LLC (“Landlord”) leased office space to MCM Capital Partners, LLLP (“Tenant”) for a term of five years, from February 1, 2015 through January 31, 2020. Beginning on January 1, 2018, Tenant failed to pay its monthly rent under the Lease. Landlord did not immediately issue a notice of default to Tenant due to assurances from Tenant that it was working on paying rent.

Without Landlord’s knowledge, and in violation of lease provisions, Tenant allowed MCM Capital, LLC and Alta Realty Company, LLC (“Occupants”) to occupy a portion of the premises rent free. Occupants were in possession of a portion of the premises from January to March of 2018. Around March 23, 2018, Landlord discovered Occupants and contacted Tenant who notified Landlord that it was surrendering the premises.

Landlord sued Tenant for breach of contract to recover unpaid rent and obtained a judgment for unpaid rent from January 2018 through January 2019. Landlord also sued Occupants for unjust enrichment for the value of rent for January to March of 2018. The Circuit Court ruled that Landlord could not recover restitution for Occupant’s use of the premises because the lease between Landlord and Tenant covered the same subject matter. The Circuit Court further ruled that, even if that were not so, Occupants were subtenants and were not in privity with Landlord; therefore, they could not be liable to Clarke for damage for their use and occupancy of the premises. 

Analysis:

The Court of Special Appeals held that the Landlord could not seek restitution from the Occupants because Landlord’s contract with Tenants, on which judgment had already been obtained, covered the same subject as the unjust enrichment claim against Occupants and, additionally, that there was no privity between Landlord and Occupants to justify recovery of unpaid rent.

The bulk of the Court’s analysis focused on when a stranger to a contract who receives a benefit from a party’s performance on a contract with a third party may be liable for unjust enrichment to the extent of the benefit retained.  To prevail on an unjust enrichment claim, the plaintiff must show: (1) a benefit conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without payment of its value.

The Court noted that it is “settled law in Maryland, and elsewhere, that a claim for unjust enrichment may not be brought where the subject matter of the claim is covered by an express contract between the parties.” Thus, even if the elements of unjust enrichment are met, a party is not liable for unjust enrichment where a contract covers the subject matter of the claim. While this statement is generally true, the court explained that it is an overly broad statement of the law. The Court held that this bar on an unjust enrichment claim only exists where the party to the contract is not prevented from recovering against the other party to the contract. Where there is nothing preventing such recovery, it would not be unjust for the stranger to retain the benefit without payment.

The Court found that the Landlord could not establish a claim for unjust enrichment because it did not confer a benefit onto the occupant. The landlord had already transferred the right of occupancy to the Tenant, and therefore Landlord could not have transferred any rights of possession to the Occupant. Indeed, only the Tenant can transfer the right of occupancy during the term of the lease, subject, of course, to the lease provisions. The Landlord did not exercise its right to possess the premises until after the Occupants had moved into, and subsequently vacated, the premises. As a result, the Landlord did not have the ability to confer the benefit of possession onto the Occupants because the Tenant had the sole right under the lease to possess the premises.

Even if the elements of unjust enrichment were met, the Landlord was nevertheless prevented from recovering because the evidence showed that the Occupants’ retention of the benefit was not unjust. As noted above, where valid contract covers the subject of a claim, a claim for restitution cannot stand. This remains true even where a benefit is conferred on a stranger to the actual contract. This rule, however, is contingent on the contracting party not being prevented from recovering against the other party to the contract, as noted above.

By way of example, the Court discussed Raymond, Colesar, Glaspy & Huss, P.C. v. Allied Capital Corp, 961 F.2d 486 (4^th Cir. 1992) (applying Virginia law). There, the defendant, an investment capital company, asked plaintiff to audit a company that defendant was looking to invest in, a company named CAR. CAR contracted with plaintiff to obtain the audit but went bankrupt prior to completion of the audit. The plaintiff sued defendant on a quasi-contract theory for payment for its services rendered to CAR. The Raymond court affirmed a judgment against the defendant and awarded plaintiff the cost of services rendered to CAR as damages.

The Court in this case viewed the Raymond decision as a prime example of where the original party to the contract was prevented from obtaining judgement against the other party to the contract – i.e. due to bankruptcy. The Court stated that where the insolvency of the original contracting party or some other statute prevents recovery, an unjust enrichment claim may be maintained against the stranger to a contract. The facts of this case, however, showed no such impediment. Indeed, the Landlord had already recovered against the Tenant for unpaid rent for the months the Occupants possessed the premises. In such a case, the retention of a benefit by the Occupant was not unjust, thus preventing the unjust enrichment claim.

Finally, the court affirmed the trial court’s alternative ruling that the landlord could not recover because it was not in privity with Occupants. The evidence showed that the Tenant and Occupants entered into an oral contract to sublease the property. Under Maryland Law, a sublessee is not in privity of estate or contract with the original lessor, and thus, there was no legal relationship between the Landlord and the Occupants to form a basis of recovery.

The full opinion is available in PDF