Loiselle v. Cosas Management Group (CA1 4/20/10)

There are one or two subplots but this was published to talk about unjust enrichment.

Loiselle’s employee convinced him to lend money to defendant CMG: $25,000, to be repaid in one week along with a $10,000 “loan fee.” Sounds like a Nigerian email but Loiselle was apparently shocked, shocked to find out that it was a scam. The employee owed CMG money and used the $25,000 to reduce his debt and to convince CMG to loan him $21,000 more. He then committed suicide. Loiselle asked for his money back; CMG refused; Loiselle sued for unjust enrichment. The trial court ordered CMG to return the $25,000. CMG appealed.

The Court of Appeals agreed that CMG had been “unjustly” enriched even though it hadn’t done anything wrong. It was enough that Loiselle had made a “mistake.” A mistaken person “is not precluded from maintaining an action for restitution merely because the benefit was conferred due to his lack of care,” quotes the court from the Restatement, its only reference to Loiselle’s evident lack of foresight or common sense. The court also points out that the employee purported to act as CMG’s agent, which the Restatement may say means something in equity even though (the court does not point out) there was no apparently agency at law.

CMG’s fall-back position was that a subsequent change of circumstance – namely, loaning the employee another $21,000 – made repayment of the full amount inequitable. The Court of Appeals, after five pages of parsing the Restatement and some cases, allowed as how that might be so. It remanded to let CMG try to prove that various sections of the Restatement might let it keep $21,000 of the $25,000 (but only if it also shows that it can’t get the money from the employee’s estate, a requirement the court said did not bind Loiselle).

So, a legitimate creditor must repay money innocently received in order to protect a rank speculator from loss.

In recent decades the Restatement has come off the rails but trusty old things like the 1937 Restatement of Restitution that this court used are wonderful guides. The problem is that even in those days the professors were inclined to treat equity as if it were law, creating ever-finer rules and sub-rules so that any case could be decided by reading their book. It is possible, among all those trees, to lose the forest. This is not so much the appellate court’s fault; it isn’t in the business of second-guessing the details of equitable rulings (not in normal civil cases, anyway). But its too bad that the Court of Appeals played along, taking a microscope to Restatement paragraphs rather than pointing out that the touchstone of equity is, well, equity.