Jury to decide who is on hook for $207K loss

Listen to this article

Where two companies were both victimized by a fraudster, resulting in a $207,000 loss suffered by one of the companies, a jury will decide which one failed to act reasonably in preventing the fraud and who, if either, was most at fault for enabling the fraud.

Background

The LCF Group Inc. purchases future receivables of businesses that are seeking capital. On June 8, 2022, LCF entered into a Merchant Cash Advance, or MCA, Agreement with whom it believed to be Piedmont Power Sports Inc. Under the MCA Agreement’s terms, LCF was to purchase $497,000 of Piedmont’s future receivables for $350,000, to be repaid at a rate of $13,148.15 per week.

On June 10, 2022, LCF deposited $349,570.00 to Piedmont’s Truist operating account. Jack Rickett, the majority owner of Piedmont, testified that at that time, he believed the $349,570.00 deposit was from another lender, minus fees

On June 13, 2022, at 2:00 a.m., LCF deducted the first payment of $13,148.15 from Piedmont’s Truist operating account. Shortly thereafter, Rickett claims he first became suspicious of fraudulent activity. He was unable, however, to stop the transfer of $207,216.21 to the fraudster.

In mid-September 2022, Rickett wired LCF $129,205.34, which was the amount remaining from LCF’s $349,570.00 deposit to Piedmont. In late September 2022, LCF filed this complaint. Under its remaining unjust enrichment/quantum meruit claim, LCF seeks to recover $207,216.51 from Piedmont. The parties have filed cross motions for summary judgment.

Quantum meruit

The Supreme Court of Virginia has clarified that when a “defendant has not requested the plaintiff’s services, a plaintiff’s claim is for unjust enrichment.” Here, the record undisputedly shows that Piedmont did not request LCF’s services rather an individual posing as Rickett fraudulently contracted with LCF. As such, LCF’s quantum merit claim fails as a matter of law.

Unjust enrichment

LCF must establish the following elements to succeed on its unjust enrichment claim: (1) a benefit conferred on the defendant by the plaintiff; (2) knowledge on the part of the defendant of the conferring or the benefit and (3) acceptance or retention of the benefit by the defendant in circumstances that render it inequitable for the defendant to retain the benefit without paying for value.

Here, the record undisputedly shows that LCF conferred a benefit upon Piedmont when it deposited $349,570.00 to Piedmont’s operating account and that Piedmont knew it had received this benefit. However, a jury, not the court, will need to weigh the evidence and draw inferences regarding whether the benefit was accepted or retained under circumstances making it inequitable for Piedmont to retain the benefit without payment for its value.

Ultimately, the record contains genuine disputes on who should bear the loss. As such, a jury will need to weigh the parties’ evidence and draw inferences to determine whether Piedmont or LCF — or both— failed to act reasonably in preventing the fraud and who, if either, was most at fault for enabling the fraud.

Leave to amend

Piedmont asserts that LCF’s unjust enrichment claim is barred by the doctrine of unclean hands. But it failed to assert this as an affirmative defense in its answer to LCF’s complaint and now moves for leave to amend its answer to add the defense.

Piedmont’s motion comes after the close of discovery and close to when trial is scheduled. LCF did not have notice that its litigation tactics in another court proceeding would be part of this litigation. As a result, such an amendment would change the nature of the litigation and be prejudicial to LCF.

Piedmont claims that LCF acted negligently in failing to confirm the identity of the fraudster, but LCF claims the same about Piedmont. As such, under the facts of this case, it would be inequitable to allow Piedmont the ability to assert an unclean hands defense against LCF when it too failed to discover the fraud before it suffered a loss.

Cross motions for summary judgment denied. Defendant’s motion to amend denied.

The LCF Group Inc. v. Piedmont Power Sports Inc., Case No. 3:22-cv-00057, Aug. 21, 2023. WDVA at Charlottesville (Moon). VLW 023-3-508. 18 pp.