Opinion ID: 182383
Heading Depth: 2
Heading Rank: 4

Heading: The Award of Unjust Enrichment Damages to Greystone

Text: In order to succeed on a claim for unjust enrichment under New York law, a plaintiff must prove that (1) defendant was enriched, (2) at plaintiff's expense, and (3) equity and good conscience militate against permitting defendant to retain what plaintiff is seeking to recover, Briarpatch Ltd. v. Phoenix Pictures, Inc., 373 F.3d 296, 306 (2d Cir.2004), cert. denied, 544 U.S. 949, 125 S.Ct. 1704, 161 L.Ed.2d 525 (2005); see, e.g., Nordwind v. Rowland, 584 F.3d 420, 434 (2d Cir.2009); Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir.2000). In the present case, the district court ruled that Props was unjustly enriched by its receipt of the GBMI Order Book for SS08 upon the termination of the agreements with Greystone and GBMI, reasoning that Greystone had taken a security interest in all of GBMI's assets, including the Order Book, and stating that the Distribution Agreement did not give Props the right to receive the GBMI Order Book upon the Distribution Agreement's termination, see Diesel, 2009 WL 2514033, at . We disagree because Diesel had a contractual right to receive the SS08 Order Book at the relevant time, and that right was superior to Greystone's security interest. In general, when the question is the priority between a secured creditor and [a person] whose interests in the collateral preceded it, a first in time, first in right rule applies. Septembertide Publishing, B.V. v. Stein & Day, Inc., 884 F.2d 675, 682 (2d Cir. 1989) ( Septembertide ); Fallon v. Wall Street Clearing Co., 182 A.D.2d 245, 249, 586 N.Y.S.2d 953, 956 (1st Dep't 1992) ( Fallon ). It has always been the law in New York that an assignee stands in the shoes of its assignor and takes subject to those liabilities of its assignor that were in existence prior to the assignment; and, thus, in taking a security interest in its assignor's property, [the assignee] cannot claim rights in the property that were not the assignor's to give. Septembertide, 884 F.2d at 682. A later-in-time assignee can have priority over a claimant whose right was created earlier only if the later assignee was a bona fide purchaser. Fallon, 182 A.D.2d at 249, 586 N.Y.S.2d at 956. But that status cannot be attained where the transferee takes with knowledge of an adverse claim; and [a]n `adverse claim' is not limited strictly to an adverse ownership interest, but rather could include, in this context, any transfer with knowledge of violation of an agreement. Id. Thus, when a creditor takes a security interest in collateral to which it knows a third party has even an unperfected contract right, it takes that security interest subject to [those] pre-existing liabilities, and the acquired interest [i]s secured only to the extent that [the assignor] had an unencumbered, transferable interest. Id.; see, e.g., Septembertide, 884 F.2d at 677, 681-82 (creditor who acquired a security interest in all of the debtor's contract rights and accounts was not entitled to proceeds that an earlier contract had assigned to a third party). In the present case, the pertinent Distribution Agreement was entered into in 2005. Defining Props as the Company and GBMI as the Distributor, that agreement provided that within 15 (fifteen) days from the end of each Sales campaign the Distributor shall communicate to the Company the list of the Sales Outlets and the relevant orders collected, i.e., the GBMI Order Book for that selling season. The district court found that the SS08 sales campaign had ended as of the termination of the Distribution Agreement[s]. Diesel, 2009 WL 2514033, at . Greystone acquired its security interest in GBMI's assets when it entered into the LSA in 2006, and it is undisputed that Greystone had knowledge of the Distribution Agreements at that time. The LSA made express reference to the TPA among Greystone, GBMI, and Props; and the TPA made express reference to the 2005 Distribution Agreement. As the preexisting Props Distribution Agreement entitled Props to receive GBMI's records of customers and orders for Props products at the end of each sales campaign, Greystone's later-acquired security interest in GBMI's assets was subordinate to Diesel's right to receive the Order Book at the close of each such campaign. The district court instead described Props as having purloin[ed] Greystone's collateral, id. at , noting the apparent glee reflected by Props e-mails referring to Props's receipt of the Order Book as `Christmas' coming `early,' and noting testimonial and documentary evidence that Props made efforts to conceal its possession of the Order Book. Id. at . The court suggested that Props had no right to the SS08 Order Book because it had timed its termination of the Distribution Agreement to coincide with the end of the sales campaign, see id. at . But the district court did not findnor does Greystone contend, and nothing in the record suggeststhat Props did not have the right to terminate the Distribution Agreement when it did. And as the provision in that agreement giving Props the right to receive GBMI's customer and order records at the end of each sales campaign was unambiguous, extrinsic evidence, such as Props's reaction to receiving the Order Book following the Distribution Agreement's termination, was inadmissible to vary the plain meaning of the contract provision. In sum, because (a) the Distribution Agreement gave Props the right, at the end of the SS08 sales campaign, to receive GBMI's list of sales outlets and orders for Props shoes, (b) termination of the Distribution Agreement coincided with the end of that sales campaign, (c) Diesel's contract right existed prior to the creation of Greystone's security interest in GBMI assets, and (d) Greystone was aware of the existence of the Distribution Agreement when it entered into the LSA, Props did not receive the Order Book at Greystone's expense, and equity and good conscience did not militate against allowing Props to enjoy the benefit of its bargained-for contract right. The district court should have dismissed Greystone's counterclaim.