Emond Plumbing & Heating, Inc. v. BankNewport
105 A.3d 85
| R.I. | 2014Background
- AIDG Properties bought commercial property and obtained first- and second-mortgage loans from BankNewport to acquire and renovate the building; loans were personally guaranteed by related parties.
- ABC was general contractor; Emond (HVAC) and Tecta (roofing) were subcontractors who performed work and submitted monthly payment applications through ABC to AIDG.
- BankNewport inspected work, approved disbursements, and on February 4, 2011 deposited $497,327.66 to AIDG to cover November–December pay requests; five days later it reversed/set off that deposit after the borrower’s principal was arrested, declared an event of default, and accelerated the loans.
- BankNewport foreclosed, purchased the property at sale, recorded the deed, and retained the improved property as its headquarters; Emond and Tecta remained unpaid for substantial work and filed unjust-enrichment claims in Superior Court.
- The Superior Court granted BankNewport’s motion for summary judgment finding no unjust enrichment; plaintiffs appealed. The Supreme Court affirmed on the ground that, given no contractual relationship or allegations of lender misconduct, it was not inequitable for the secured creditor to retain the improved collateral.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether subcontractors may recover from lender under unjust enrichment for unpaid improvements when lender forecloses and keeps improved property | Emond/Tecta: They conferred a benefit (improvements), lender appreciated and retained benefit by foreclosing and keeping property; unjust to let lender keep benefit without payment | BankNewport: No contractual relationship; lender did not receive or appreciate benefit prior to foreclosure; no misconduct or misrepresentation; secured-creditor rights permit setoff and foreclosure | Held for BankNewport: Even assuming benefit and appreciation, it was not inequitable to retain the property absent misconduct or direct dealings with subcontractors |
| Whether lender’s reversal/setoff of disbursement and foreclosure supports unjust-enrichment liability | Plaintiffs: Reversal deprived them of funds that had been approved for payment, making retention unjust | BankNewport: Reversal exercised clear contractual default/setoff rights after material adverse change; funds were applied consistent with loan documents | Held: Bank acted within contractual rights; no equitable basis for recovery by subcontractors |
| Applicability of unjust-enrichment doctrine despite secured-creditor priority | Plaintiffs: Priority should not allow a creditor to be unjustly enriched when improvements were made for benefit of collateral | BankNewport: Imposing liability would nullify secured-creditor priority and upset lending expectations | Held: Secured-creditor status and absence of lender misconduct weigh against finding unjust enrichment |
| Whether prior case law (e.g., lender-liability where lender misled subcontractors) mandates recovery here | Plaintiffs: Analogous precedents where lenders induced work or misapplied funds support recovery | BankNewport: Those cases involve lender misconduct or direct payments; facts here differ | Held: Distinguishing cases where lender misled or directly paid; absent such misconduct, unjust-enrichment claims fail |
Key Cases Cited
- Narragansett Elec. Co. v. Carbone, 898 A.2d 87 (R.I. 2006) (elements and equitable focus of unjust-enrichment doctrine)
- Dellagrotta v. Dellagrotta, 873 A.2d 101 (R.I. 2005) (third prong—inequity—is most important in unjust-enrichment analysis)
- R & B Electric Co. v. Amco Constr. Co., 471 A.2d 1351 (R.I. 1984) (conferring a benefit on landowner by subcontractor is not alone sufficient for unjust enrichment)
- Providence Steel & Iron Co. v. Flammand, 413 A.2d 487 (R.I. 1980) (lender held liable where landowner used funds earmarked for subcontractor for other projects — distinguishable on facts)
- Rhode Island Hosp. Trust Co. v. Rhode Island Covering Co., 190 A.2d 219 (R.I. 1963) (bank not unjustly enriched when benefit derived from status as secured creditor)
- Sola v. Leighton, 45 A.3d 502 (R.I. 2012) (summary-judgment standard; de novo appellate review)