324 F. Supp. 3d 887
W.D. Ky.2018Background
- Boling (Plaintiff) obtained four litigation-funding loans (total principal $30,000) from Cambridge Management Group and Prospect Funding (Defendant), secured by his prospective personal-injury recovery; agreements deferred repayment until settlement and charged 4.9% monthly interest/fees.
- Plaintiff sued for a declaratory judgment in federal court seeking a ruling that Kentucky law governs and that the loan agreements are void under Kentucky champerty and usury law; this Court later held Kentucky law applied and declared the loan agreements unenforceable but permitted equitable claims to proceed.
- Prospect counterclaimed for breach of contract, breach of implied duty of good faith and fair dealing, negligent misrepresentation, conversion, and alternatively asserted equitable claims (unjust enrichment/restitution and promissory estoppel) to recover principal and fees.
- Both parties moved for summary judgment on the counterclaims; Boling also sought sanctions and attorneys’ fees under 28 U.S.C. § 1927 for allegedly vexatious duplicative New Jersey litigation by Prospect.
- The Court granted Prospect summary judgment on unjust enrichment and promissory estoppel (awarding $30,000 principal plus $4,425 costs), and granted Boling summary judgment on negligent misrepresentation, conversion, and breach of the implied covenant; the § 1927 fee request was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Availability of restitution/unjust enrichment when contract is illegal | Boling: restitution barred where contract consideration was illegal; Cougler/Varner justify denying restitution | Prospect: contracts unenforceable but not obviously illegal; equity permits restitution to avoid disproportionate forfeiture | Court: restitution available here; granted summary judgment to Prospect on unjust enrichment (recover principal + fees) |
| Unclean hands defense to equitable relief | Boling: Prospect violated champerty and filed multiple suits, so unclean hands bars restitution | Prospect: conduct not fraudulent/unconscionable; filings were legitimate and some preceded forum rulings | Court: unclean hands inapplicable; Prospect not barred from restitution |
| Promissory estoppel | Boling: equitable claims barred by illegality/unclean hands | Prospect: Plaintiff promised repayment; reliance and injustice justify enforcement | Court: promissory estoppel applies; Boling must pay $30,000 + $4,625 in fees (award combined with unjust enrichment relief) |
| Negligent misrepresentation, conversion, and breach of implied covenant | Boling: these claims fail as a matter of law | Prospect: seeks recovery on tort/contract-based claims | Court: summary judgment for Boling on negligent misrepresentation (no evidence of lack of reasonable care), conversion (remedy duplicative of equitable recovery), and breach of implied duty (no enforceable contract) |
| § 1927 sanctions for vexatious litigation | Boling: Prospect multiplied proceedings via multiple NJ suits and should pay fees | Prospect: suits were reasonable given arbitration clauses and timing; not vexatious | Court: denied Boling’s request for fees under § 1927; conduct not sufficiently unreasonable or vexatious |
Key Cases Cited
- Cougler v. Fackler, 510 S.W.2d 16 (Ky. 1974) (illegal-consideration rule; restitution analysis where illegality of consideration is at issue)
- Rose v. Ackerson, 374 S.W.3d 339 (Ky. Ct. App. 2012) (unjust enrichment as basis for restitution)
- Jones v. Sparks, 297 S.W.3d 73 (Ky. Ct. App. 2009) (elements of unjust enrichment in Kentucky)
- Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575 (Ky. 2004) (adoption of Restatement (Second) of Torts § 552 for negligent misrepresentation)
- Mullins v. Picklesimer, 317 S.W.3d 569 (Ky. 2010) (unclean hands doctrine and its discretionary application)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary-judgment standard regarding scintilla of evidence)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment and party’s burden to show absence of evidence)