Partners, members or shareholders typically have the same goals at the onset, but over time, differing priorities often become apparent. Some owners jockey for power, making self-interested financial moves or trying to induce other owners to give up their stake in the business. Some owners may accumulate more control and more money, leaving minority owners disadvantaged and sometimes divested of money or other property, while still locked into their fiduciary duties not to compete.
When events like these occur, the minority owner may have remedies available, including a claim for unjust enrichment. The Illinois Supreme Court has held that to bring such a claim, “a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff’s detriment, and that the defendant’s retention of the benefit violates the fundamental principles of justice, equity, and good conscience.” Unjust enrichment claims sometimes provide a remedy when monetary damages are unavailable or would be insufficient to produce a fair outcome.
The availability of an unjust enrichment claim depends on the facts of the case. The most commonly asserted claim is that majority owners or directors received profits from the business and did not share them proportionally with minority owners. The same may be claimed regarding funds received through other means, such as interest and dividends from investments. The minority owner may also seek compensation for the value of services contributed to the business, known as a quantum meruit claim.
An unjust enrichment claim is typically brought in situations where there is no contractual cause of action available. This means either that there is no agreement between the owners governing the sharing of profits and other business assets, or that the subject matter of the claim is not covered by an existing agreement. The existence of an applicable agreement can be a cause of litigation in itself. In addition, unjust enrichment claims can proceed, despite the existence of a contract, if the claim is based on a tort, such as fraud.
When a business owner prevails in an unjust enrichment claim, the court may order an equitable accounting to determine the extent of the loss involved. In appropriate cases, the court may declare a constructive trust, ordering that the possessor of ill-gotten property transfer it to its rightful owner. The court may also appoint a receiver to prevent majority owners or directors from covering up mismanagement or fraudulently transferring assets. The receiver essentially runs the company until the litigation is concluded.
Unjust enrichment claims are complex and require a high degree of specialized proof. The attorneys of Schwartz & Kanyock, LLC in Chicago have decades of experience in Illinois equity control litigation, including unjust enrichment claims. Call Tom Kanyock at 312-436-1442 or contact us online to schedule a consultation.