Michael O’Donnell, Kevin Hakansson, Thomas J. Persico and Kori Pruett | Riker Danzig
Introduction
In February 2024, the New Jersey Appellate Division affirmed a trial court’s decision on a motion to dismiss rejecting a property owner’s unjust enrichment claims. The claims related to costly improvements made while the trial court’s order vacating final judgment in a tax foreclosure was on appeal. The decision was reversed, vesting title in the tax certificate holder. This decision reminds us that under the doctrine of unjust enrichment, there must be an expectation of compensation from the party against whom relief is sought. Adar Aleph, LLC v. TDJP Props., LLC, No. A-1727-22, 2024 N.J. Super. Unpub. LEXIS 245 (Super. Ct. App. Div. Feb. 16, 2024).
Background
Adar Aleph (“Adar”) owned property in Barnegat, New Jersey. After he failed to pay his taxes, Barnegat Township sold a tax sale certificate on Adar’s property to TDJP Properties (“TDJP”). TDJP eventually moved forward with a foreclosure action on the property, on which Adar defaulted. After failing to redeem the tax sale certificate, judgment for foreclosure was entered.
The property that TDJP acquired was in disarray, with no working utilities and significant interior and exterior damage. TDJP began to repair the property. However, Adar moved to vacate the final judgment, which was granted contingent on “payment of reasonable costs and fees.” Adar then redeemed the tax sale certificate and regained title to the property. TDJP appealed this decision.
Even though the appeal was pending, Adar began to repair the dilapidated home, improving the roof, floors, kitchen, and plumbing system, among other improvements. Adar allegedly made over $93,000 in improvements, increasing the property’s value.
In April 2022, the Appellate Division reversed the Chancery Judge’s order, vacating the final judgment and revested title to TDJP.
Adar then filed suit, seeking damages under the doctrine of unjust enrichment for the improvements undertaken while TDJP’s appeal was still pending. TDJP moved to dismiss for failure to state a claim. The motion judge granted TDJP’s motion to dismiss, citing Wilmington Sav. Fund Soc’y, FSB for Pretium Mortg. Acquisition Tr. v. Daw, 469 N.J. Super. 437, 265 A.3d 178 (Super. Ct. App. Div. 2021).
Appeal
On appeal, Adar argued that the motion judge’s reliance on Wilmington Savings was misplaced as that case was a mortgage foreclosure rather than tax sale foreclosure.
The Appellate Division held that Wilmington Savings was on point. Although that case dealt with a mortgage foreclosure, and the case at hand is a tax sale foreclosure, the motion judge was referring to the Court’s analysis of the duty of implied covenant of good faith and fair dealing. In Wilmington Savings, the Appellate Division held that “the homeowner’s quantum meruit and unjust enrichment claims for repair costs were precluded under the parties’ mortgage contract because no ‘equitable basis to warrant’ reimbursement existed. Id. at 460-61.” While the motion judge was curt, the Appellate Division found that the judge intended to convey that Adar failed to allege an equitable basis for relief as Adar sought recovery based on a quasi-contract or a contract implied-in-law, which was not asserted.
Unjust enrichment occurs when an opposing party receives a benefit without payment, and retaining that benefit would be unjust. (Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 110, 922 A.2d 710 (2007)). To succeed on a claim of unjust enrichment based on a quasi-contract, the plaintiff needs to show that it expected remuneration from the other party and that the failure to remunerate enriched the other party beyond its contractual rights. (Thieme v. Aucoin-Thieme, 227 N.J. 269, 288, 151 A.3d 545 (2016)) (quoting Iliadis, 191 N.J. at 110).
Here, Adar could not have reasonably expected remuneration for TDJP. He never communicated with TDJP that he was making improvements while TDJP’s appeal was pending. Adar recklessly made costly improvements without knowing whether he would retain the Property. Adar accepted the risk and, thus, cannot be granted relief. The Court modified the motion judge’s order to be dismissed without prejudice.
Takeaways
This case provides an excellent analysis of an unjust enrichment claim and the perils of a party to take action while an appeal is still pending.
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