Opinion ID: 3002730
Heading Depth: 2
Heading Rank: 2

Heading: Quantum Meruit and Unjust Enrichment Under

Text: Wisconsin Law With that preliminary question resolved, we come to the heart of this appeal, which requires a close analysis of quantum meruit, unjust enrichment, and the difference between implied-in-fact and implied-in-law contracts under Wisconsin law. We note for starters that Wisconsin caselaw in this area can be confusing; the nomenclature and elements of proof are sometimes mixed up, leading to misconceptions about the nature and requirements of these discrete causes of action.2 This has produced considerable confusion in this case. We think it helpful, therefore, to restate some first principles. 2 Compare Watts v. Watts, 405 N.W.2d 303, 313 (Wis. 1987) (“Because no express or implied in fact agreement exists between the parties, recovery based upon unjust enrichment is sometimes referred to as ‘quasi contract,’ or contract ‘implied in law’ rather than ‘implied in fact.’ ”), with Ramsey v. Ellis, 484 N.W.2d 331, 333 (Wis. 1992) (“[R]ecovery in quantum meruit is based upon an implied contract to pay reasonable compensation for services rendered. No contract is implied in an action for unjust enrichment.”). Nos. 08-1067 & 08-1689 13 Generally speaking, if the parties have made an enforceable contract and there is no ground for rescission, then breach-of-contract principles will govern the dispute. In the absence of an enforceable contract, however, a plaintiff may turn to quasi-contractual theories of relief. Watts v. Watts, 405 N.W.2d 303, 313 (Wis. 1987); Arjay Inv. Co. v. Kohlmetz, 101 N.W.2d 700, 702 (Wis. 1960). Unjust enrichment and quantum meruit are two such actions. Though related in theory and residing in the domain of contract law under the heading of quasi-contract, each of these claims has its own distinct elements of proof and measure of damages. Ramsey v. Ellis, 484 N.W.2d 331, 333 (Wis. 1992) (“[Q]uantum meruit is a distinct cause of action from an action for unjust enrichment, with distinct elements and a distinct measure of damages.”).
In Wisconsin unjust enrichment is a legal cause of action governed by equitable principles. The action is “grounded on the moral principle that one who has received a benefit has a duty to make restitution where retaining such a benefit would be unjust.” Watts, 405 N.W.2d at 313. To prevail on an unjust-enrichment claim, a plaintiff must prove three elements: “(1) a benefit conferred upon the defendant by the plaintiff, (2) appreciation by the defendant of the fact of such benefit, and (3) acceptance and retention by the defendant of the benefit, under circumstances such that it would be inequitable to retain the 14 Nos. 08-1067 & 08-1689 benefit without payment of the value thereof.” 3 Seegers v. Sprague, 236 N.W.2d 227, 230 (Wis. 1975) (internal quotation marks omitted); accord Ramsey, 484 N.W.2d at 333. The measure of damages under unjust enrichment is limited to the value of the benefit conferred on the defendant; any costs the plaintiff may have incurred are generally irrelevant. Mgmt. Computer Servs., Inc. v. Hawkins, 557 N.W.2d 67, 79-80 (Wis. 1996). The value of the benefit may be calculated based on the prevailing price of plaintiff’s services as long as those services benefited the defendant. See, e.g., Shulse v. City of Mayville, 271 N.W. 643, 647 (Wis. 3 We note an apparent anomaly in Wisconsin law. As phrased, the third element of unjust enrichment appears to require an equitable determination by the court. In the famous case of Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267 (Wis. 1965), which recognized a cause of action for promissory estoppel, the Wisconsin Supreme Court described a similar equitable element in that quasi-contractual claim: “[T]he third requirement, that the remedy can only be invoked where necessary to avoid injustice, is one that involves a policy decision by the court. Such a policy decision necessarily embraces an element of discretion.” Id. at 275. In practice, however, Wisconsin courts give all three elements of the unjust enrichment claim to the jury. See W IS . JURY I NSTRUCTION -C IVIL 3028 (“Contracts implied in law (Unjust Enrichment)”) (instructing the jury that “it must be established that as between the parties it would be unjust and unconscionable for the recipient to retain the benefit without paying the reasonable value thereof”). Here, the court was the fact finder. In any event, the standard of review on this element of the claim is either abuse of discretion or clear error, and both are deferential standards. We reach the same result under either. Nos. 08-1067 & 08-1689 15 1937) (“In ordinary [unjust-enrichment] cases, particularly those involving money and service, the amount of the plaintiff’s recovery is the amount of money advanced or the reasonable value of the services rendered but, if the service is rendered upon some project which is of no value or benefit to the city or the city only partially benefits, the city is liable only to the extent of the benefits received.”).
Like unjust enrichment, quantum meruit is a legal cause of action grounded in equitable principles. Tri-State Home Improvement Co. v. Mansavage, 253 N.W.2d 474, 479 (Wis. 1977). Unlike under unjust enrichment, however, a plaintiff can recover under quantum meruit even if he confers no benefit on the defendant. See, e.g., Barnes v. Lozoff, 123 N.W.2d 543 (Wis. 1963) (allowing recovery for architect who created blueprints that were valueless to the defendant because defendant did not own some of the land at issue in the blueprints). Under quantum meruit, damages are “measured by the reasonable value of the plaintiff’s services,” Ramsey, 484 N.W.2d at 334, and calculated at “the customary rate of pay for such work in the community at the time the work was performed.” Mead v. Ringling, 64 N.W.2d 222, 225 (Wis. 1954). To take advantage of the more liberal recovery rule of quantum meruit, a plaintiff must prove two elements, both relating to the parties’ course of conduct. As explained by the Wisconsin Supreme Court in Ramsey, to recover under quantum meruit, the plaintiff must prove that “the defendant requested the [plaintiff’s] services” and “the plaintiff 16 Nos. 08-1067 & 08-1689 expected reasonable compensation” for the services. 484 N.W.2d at 333. Ramsey’s second element is potentially problematic as phrased. We have not found any Wisconsin case denying recovery under quantum meruit because the plaintiff expected unreasonable compensation. This makes sense. Suppose a defendant asks a plaintiff to paint his house and the plaintiff complies, expecting compensation. Suppose further that the plaintiff expected an unreasonable rate of compensation—say, $100,000, when the house is small and the painting services are worth far less. That the plaintiff subjectively expected “unreasonable compensation” rather than “reasonable compensation” should not necessarily defeat recovery under quantum meruit, properly understood. Rather, the outcome in this hypothetical case should be an award of damages for the plaintiff, albeit it at a lower rate based on the community standard. We suspect what the Ramsey court meant was that the plaintiff must reasonably expect compensation, not that he must expect reasonable compensation. See 26 R ICHARD A. L ORD , W ILLISTON ON C ONTRACTS § 68:1, at 24 (4th ed. 2007) [hereinafter W ILLISTON] (“The courts have generally allowed quasicontractual recovery for services rendered when a party confers a benefit with a reasonable expectation of payment.”). Furthermore, we must not lose sight of the fact that quantum meruit is rooted in equity. If equity does not lie with the plaintiff, he will not recover under quantum meruit. As the leading contracts treatise puts it: Although the remedy of quantum meruit was devel- oped as part of the common law of contracts to avoid Nos. 08-1067 & 08-1689 17 unjust enrichment under a contract implied by law, equitable considerations influence the determination of whether recovery is warranted in a given case. The duty to pay arises not from the intent of the parties but from the law of natural justice and equity. 26 W ILLISTON § 68:1, at 25 (footnote omitted); see also Seegers, 236 N.W.2d at 230-31 (“Respondent’s desire to call their action quantum meruit . . . does not avoid the clear decisional law that regards unjust enrichment as an element necessary for recovery in these circumstances.”). There are at least two ways to conceptualize the equity underpinnings of quantum meruit. One is to treat equity as another element of liability, as some states have. See, e.g., Amend v. 485 Props., 627 S.E.2d 565, 567 (Ga. 2006) (“[T]he essential elements [of quantum meruit] are: (1) the performance of valuable services; (2) accepted by the recipient or at his request; (3) the failure to compensate the provider would be unjust; and (4) the provider expected compensation at the time services were rendered.”). Another is to treat equity as absorbed under Ramsey’s (slightly tweaked) requirement that a plaintiff must reasonably expect compensation; if equity does not lie on the plaintiff’s side under the circumstances, his expectation of compensation is necessarily unreasonable. Under either approach, the result is the same. Several of Wisconsin’s quantum-meruit cases involve women who provided household services to unrelated decedents and then sued their estates after the decedents’ deaths. E.g., Brooks v. Steffes (In re Estate of Steffes), 290 N.W.2d 697 (Wis. 1980); Gename v. Benson, 153 N.W.2d 571 18 Nos. 08-1067 & 08-1689 (Wis. 1967); Schroeder v. Estate of Voss (In re Estate of Voss), 121 N.W.2d 744 (Wis. 1963). In these cases, the guiding equitable principle is apparent: If the plaintiff expected to provide these services gratuitously, she should not recover; if she expected to provide them for a fee, she should recover.4 Based on this line of cases, Lindquist suggests that there is recovery in quantum meruit under Wisconsin law whenever a plaintiff does not render the services 4 Because it is sometimes difficult to establish whether a plaintiff expected payment, Wisconsin cases have allowed for a rebuttable presumption of payment in some instances. In the cited cases, for example, the court would presume that a plaintiff expected to be paid when she performed household services to an unrelated man. E.g., Gename, 153 N.W.2d at 574 (“The circumstances and the relationship of the parties are such that these services were not rendered gratuitously. Therefore, the general rule of a presumption of compensation is applicable.”). A defendant could rebut the presumption by showing, for example, that the plaintiff waited too long to claim payment, suggesting that she did not expect to be paid for her services. E.g., Wallin v. Fraipont (In re St. Germain’s Estate), 17 N.W.2d 582 (Wis. 1945) (no recovery when plaintiff waited four years before requesting payment). The use of presumptions in these cases is unsurprising because presumptions are employed where it is difficult to prove the existence of a fact. In the case at hand, the parties and the district court focused too heavily on presumptions and unnecessarily complicated the analysis. There is no need for a presumption where, as here, there is direct and circumstantial evidence about Lindquist’s expectation of payment. Nos. 08-1067 & 08-1689 19 gratuitiously. We think this argument goes too far. In the cited cases, the courts considered the underlying domestic factual setting. In that context, under ordinary circumstances, it is reasonable to believe that the plaintiffs either expected to be paid or did not expect to be paid; the services are either gratuitous or not, and there is little room for a middle ground. This generalization does not necessarily apply across the board or so easily translate to the commercial sphere where the negotiations of sophisticated parties focus on contingencies and other complex considerations. An example highlights our concern about extending the “gratuitous” factor outside the domestic context in which it usually appears. Imagine that a client asks a lawyer to represent her in litigation. The lawyer agrees to accept the case on a contingent-fee basis but demands 70% of the verdict. The client accepts the contingent-fee arrangement but balks at the 70% figure. They battle back and forth without agreeing on percentage. The two decide nevertheless that the lawyer will represent the client. The case goes to trial, and the client loses. Under Lindquist’s theory of quantum meruit, because the legal services were not performed gratuitously, the lawyer prevails in a quantum-meruit action against the client. The inequity of this result is readily apparent. Contingent-fee payments are well established in legal practice, and under any conceivable understanding, the lawyer would have recovered nothing when his client lost. In the language of quantum meruit, the lawyer reasonably expected compensation, but only if he won the case; he did 20 Nos. 08-1067 & 08-1689 not expect compensation—or his expectation of compensation was unreasonable—if he lost. Now suppose the lawyer had won the case and he seeks to collect under quantum meruit. The court equitably supplies a price term, looking to the parties’ negotiations, the percentage other lawyers collect in the community for similar work, the prevailing ethical standards in the profession, and the like. Cf. Tonn v. Reuter, 95 N.W.2d 261 (Wis. 1959) (providing payment to lawyer with contingent-fee contract who is discharged without cause prior to occurrence of contingency). In this example, if courts were to pay a lawyer under quantum meruit when he wins and when he loses, the lawyer will be grossly overcompensated. He is better off, or as well off, in either state of the world because he did not enter into the contract. This result in effect requires the client, perhaps too poor to have paid the lawyer by the hour, to supply insurance against a risk the two parties appreciated when they formed their relationship. Furthermore, such a result twists incentives. Ex ante the lawyer now prefers not to contract and is more indifferent to his client’s success, undermining a key rationale for contingency arrangements—whether for a lawyer, as in this hypothetical, or a general manager, as in our case. The only fair and administrable rule is to let the lawyer take the bad with the good. If the contingency does not materialize, the lawyer should lose on the quantum-meruit action. See Liss v. Studeny, 879 N.E.2d 676, 681-83 (Mass. 2008) (holding that quantum-meruit claim does not accrue where lawyer and client entered a contingent-fee contract and contingency does not occur). Nos. 08-1067 & 08-1689 21 This is not to suggest that the lawyer necessarily cannot recover under quantum meruit when the contingency does not materialize. Suppose the client frustrates the lawyer’s ability to win the case or fires the lawyer on the eve of a winnable trial. The result will depend on the facts and circumstances of each case. The trial court is generally in the best position to consider the facts and weigh the equities, and appellate courts should generally affirm when convinced that the correct equitable considerations have been regarded. Nevertheless, it should be clear from this discussion that the parties’ failed negotiations are relevant under quantum meruit—and, of course, under unjust enrichment, whose elements expressly include equity—because they can show, perhaps decisively, what the plaintiff expected when he rendered services. They may also show whether any expectation of compensation was reasonable.
Before we apply these principles to this case, we pause to clarify some terminology that often creates confusion in this area of the law. As we have noted, quantum meruit and unjust enrichment are quasi-contract actions (obligations imposed by law in the absence of a contract). Ramsey, 484 N.W.2d at 333. Wisconsin cases sometimes refer to quantum meruit as a contract “implied by law.” E.g., id. (“Recovery in quantum meruit is allowed . . . on the basis of a contract implied by law . . . .”); Gename, 153 N.W.2d at 574 (same). The Wisconsin Supreme Court distinguishes quantum meruit/contracts implied by law from unjust 22 Nos. 08-1067 & 08-1689 enrichment, where there is no implied contract at all. Ramsey, 484 N.W.2d at 333 (“No contract is implied in an action for unjust enrichment.”). Contra W IS. JURY INSTRUCTION-C IVIL 3028 (“Contracts implied in law (Unjust Enrichment)”). This distinction makes sense because there need not be any prior relationship between the plaintiff and defendant for recovery under an unjust-enrichment claim. (Suppose, for example, the plaintiff mistakenly builds a house on the wrong plot of land resulting in a windfall for the defendant, who advantageously happens to own that plot of land.) Wisconsin also recognizes contracts “implied in fact,” but a “quasi-contract or contract implied-in-law differs markedly from a contract implied-in-fact.” Stromsted v. St. Michael Hosp. of Franciscan Sisters (In re Estate of Stromsted), 299 N.W.2d 226, 228 n.1 (Wis. 1980). In contrast to quantum meruit, an implied-in-fact contract is governed by general contract principles. In Theuerkauf, 306 N.W.2d at 657, the Wisconsin Supreme Court explained that a contract implied in fact . . . requires, the same as an express contract, the element of mutual meeting of minds and of intention to contract. The two species differ only in methods of proof. One is established by proof of expression of intention, the other by proof of circumstances from which the intention is implied as matter of fact. Id. (quoting Wojahn v. Nat’l Union Bank, 129 N.W. 1068, 1077 (Wis. 1911) (internal quotation marks omitted)); accord 1 W ILLISTON § 1.5, at 31 (“[A]n implied-in-fact contract arises from mutual agreement and intent to promise, when Nos. 08-1067 & 08-1689 23 the agreement and promise have simply not been ex- pressed in words.”). Thus, Wisconsin recognizes two types of “implied contracts,” but only implied-in-fact contracts rely on contract-formation and breach principles. Compounding the confusion that arises from this linguistic similarity, some Wisconsin cases on quantum meruit invoke impliedin-fact contract cases to describe when a presumption of expected compensation arises. See, e.g., Steffes, 290 N.W.2d at 702 (citing Wojahn, 129 N.W. at 1077, an implied-in-fact contract case). But given the authoritative clarification of quantum meruit in Ramsey, as well as the strong words in Stromsted, we are convinced that the Wisconsin Supreme Court considers quantum-meruit actions to be conceptually separate from contracts implied in fact.