J&J Marotti, Inc. v. Tom Papachristou

ca00-74

DIVISION IV

NOT DESIGNATED FOR PUBLICATION

ARKANSAS COURT OF APPEALS

JUDGE JOHN F. STROUD, JR.

CA00-74

December 20, 2000

J&J MAROTTI, INC. AN APPEAL FROM CRITTENDEN COUNTY

APPELLANT/CROSS-APPELLEE CHANCERY COURT

NO. E-96-1044

V.

HONORABLE RALPH WILSON,

TOM PAPACHRISTOU CHANCELLOR

APPELLEE/CROSS-APPELLANT

REVERSED AND DISMISSED ON DIRECT

APPEAL; AFFIRMED ON CROSS-APPEAL

J&J Marotti, Inc., has appealed from a judgment of $10,856 for appellee Tom Papachristou that was based upon a claim of unjust enrichment. From the mid-to-late 1980's until 1995, appellee used an airstrip on a ten-acre tract of land in Crittenden County belonging to D&J, Inc., in the operation of his agricultural crop-dusting business. D&J, a farming corporation, was owned by Daniel Marotti (deceased at the time of trial) and Johnny Marotti. Daniel's nephews, Joe Marotti and Johnny Marotti II, the principal shareholders of appellant J&J Marotti, Inc., and the Marottis farmed together in a partnership. Appellee's use of the land in question was with Daniel's consent. Daniel also consented to appellee's making improvements on the land in the late 1980s, when appellee graded and graveled the airstrip. In 1990, appellee had asphalt put down on the airstrip. Daniel testified bydeposition, before his death, that appellee orally agreed to lease the property for $750 to $1,000 per year but never actually paid any rent. In 1990, Daniel orally agreed to sell the

land to appellee for $15,000, but they did not establish a down payment or a closing date, and they did not put their agreement in writing. According to Daniel, appellee promised to bring him the purchase money many times but never did so.

In 1993, appellee, who was in terrible financial shape, sold the assets of his business, Mid-South Aviation, to Omni Holding and Development. Omni agreed to assume Mid-South's debts, and appellee undertook the duties of general manager for Omni. Also in 1993, appellee hired Razorback Concrete to construct concrete pads at the ends of the airstrip's runway for about $15,360 and to perform similar work at another airstrip near Marion. Appellee owned neither airstrip. Appellee also hired Drummond Asphalt to lay asphalt at the Marotti airstrip at a cost of approximately $28,600 and to do additional work at the Marion airstrip. The Marottis neither asked that these improvements be made nor expressly authorized appellee to make them. They were, however, aware that appellee was making the improvements and apparently acquiesced in their construction.

Appellee did not pay for the 1993 improvements. Drummond Asphalt filed a materialmen's lien against D&J's property, and it sued D&J and appellee for the balance owed on the work it did at both airstrips. Of the total $51,528 claimed, $28,600 represented the cost of the work Drummond performed on D&J's property. Razorback Concrete sued appellee for $48,436 for its work on both airstrips; the amount it claimed for the work performed on D&J's property was $15,360.

According to appellee, in late 1995 Daniel told appellee that, if appellee would obtain a release of the lien, pay the purchase price, and pay the attorney's fees that D&J had incurred in defending Drummond's lien, D&J would convey the property to appellee. Appellee then paid Drummond $15,000, promised to pay it $1,000 until the entire debt was paid, and paid $3,000 to D&J's attorney. Appellee made two additional payments of $1,000 to Drummond, thus paying it a total of $17,000. On January 26, 1996, Joe and Johnny Marotti II entered into an agreement to pay Drummond $25,000 over a five-year period in return for a release of its materialmen's lien.

Appellee tendered the purchase price for the ten-acre tract on February 1, 1996, to Daniel and Joe, who refused to accept it. That same day, D&J gave appellant an option to purchase the property; on March 21, 1996, D&J conveyed it to appellant. In fact, appellant was formed for the purpose of taking title to the property. After appellee learned that D&J had conveyed the property to appellant, he made no further payments to Drummond. On September 18, 1998, Drummond obtained judgment against appellee for $24,528, after giving appellee credit for $10,000 that Joe and Johnny Marotti II had paid it and for the $17,000 that appellee had paid. Appellant leased the property to another crop duster for $6,000 per year and continued to pay $5,000 per year to Drummond pursuant to their agreement.

Omni sued D&J, appellant, Joe Marotti, and Johnny Marotti II for specific performance of the agreement to sell the property, and appellee intervened to request restitution for unjust enrichment. The chancellor dismissed Omni's claim, finding appellee to be the real party in interest. He denied specific performance to appellee, because appelleemade no effort to pay the purchase price until after Drummond had obtained a lien and filed suit and because, from 1990 on, appellee did not get permission to make the improvements and knew that he might be ousted from the property. The chancellor stated: "I don't find D&J's conveyance to J&J Marotti to be illegal, fraudulent, inequitable, improper, or unethical under the circumstances. This was a prudent business judgment. I find the reasons given for this conveyance to be reasonable."

In a letter opinion dated April 26, 1999, the chancellor awarded appellee the amount of his actual expenditures (although he rejected a substantial amount of claimed expenses), less appellant's payments and anticipated payments to Drummond, for his claim of unjust enrichment. He explained:

In this case, I am granting Papachristou his actual expenditures which I find from a preponderance of the evidence to be as follows:

$1,500 paid to Curtis Armstrong for initial grading

$2,000 paid to John Peeples, III, Pico Trucking (highway shaving)

$17,000 paid to Drummond Asphalt

$16,000 paid to Razorback Concrete on its judgment after levy and execution on Papachristou's airplane.

Total restitutionary damages is $36,500.00, less the $25,000 Defendants paid or to be paid to Drummond to release the lien, netting $11,500.00

He noted that the Marottis had made none of the improvements and that their property had increased in value from "almost nothing to around $100,000." He went on to explain that he had not included appellee's payment to appellant's lawyer in the award because appellee had caused the lien to be filed and that, because of appellee's failure to pay his debt toDrummond, Joe and Johnny Marotti II had obligated themselves to pay Drummond $25,000 over a five-year period. He stated:

Assuming the value of this property is now worth $100,000-$125,000, it is not inequitable for them to pay an additional $11,500, representing the amount of Papachristou's outstanding expenses in making these improvements under these facts; less this $25,000 obligation of Defendants to Drummond.

In sum, Defendants are not getting something for nothing. On the other hand, Papachristou used this property for about eight years without paying for its use. He paid no rent, made no down payment. Evidently, another crop dusting service thinks it is fair to pay $6,000 per year for this property. However, there was no evidence presented at trial as to the annual rental value of this property during the time Papachristou occupied it. In any event, in balancing the equities of this case, I believe $11,500 is a fair, equitable, and reasonable sum for Defendants to pay to Papachristou.

In the amended order and judgment filed June 24, 1999, the chancellor reduced appellee's award by $644 from $11,500 to $10,856 without further explanation.

Appellant does not dispute the chancellor's finding that the property is now worth at least $100,000 or any other findings of fact. Instead, it argues that the chancellor incorrectly applied the doctrine of unjust enrichment to the facts of this case. It points to the facts that appellee made the improvements after 1990 without the Marottis' permission, that appellee knew that he could be ousted from the property at any time, and that he did not expect anyone other than himself to be liable for the cost of the improvements. Appellant also stresses the chancellor's finding that all defendants acted properly.

Unjust enrichment is the principle that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution for property or benefits received, retained, or appropriated, whether requested or not, where it is just and equitable that such restitution be made. Adkinson v. Kilgore, 62 Ark. App. 247,970 S.W.2d 327 (1998). The phrase "unjust enrichment" does not describe a theory of recovery, but an effect - the result of a failure to make restitution under circumstances where it is equitable to do so. Sparks Regional Medical Ctr. v. Blatt, 55 Ark. App. 311, 935 S.W.2d 304 (1996). To find unjust enrichment, a party must have received something of value to which he was not entitled and which he should restore. Id. However, there must be some operative act, intent, or situation to make the enrichment unjust and compensable. Id. It is not necessary, in order to create an obligation to make restitution, that the party unjustly enriched should have been guilty of any wrongful act. Frigillana v. Frigillana, 266 Ark. 296, 584 S.W.2d 30 (1979); Malone v. Hines, 36 Ark. App. 254, 822 S.W.2d 394 (1992). Even an innocent party who has been unjustly enriched may be compelled to surrender the fruits to another more deserving party. Smith v. Whitener, 42 Ark. App. 225, 856 S.W.2d 328 (1993). The remedy is neither given nor withheld automatically, but is awarded as a matter of judgment. Friends of Children, Inc. v. Marcus, 46 Ark. App. 57, 876 S.W.2d 603 (1994). We do not find in this case that an award of unjust enrichment to appellee was clearly erroneous, which is our standard of review in appeals from chancery court. Hodges v. Cannon, 68 Ark. App. 170, 5 S.W.3d 89 (1999).

Appellant argues that the chancellor should have applied the doctrine of unclean hands to prevent appellee from obtaining any recovery. This issue is directly related to the question of whether appellant's enrichment, under the facts of this case, is unjust. The clean-hands maxim bars relief to those guilty of improper conduct in the matter as to which they seek relief. Merchants & Planters Bank & Trust Co. v. Massey, 302 Ark. 421, 790 S.W.2d 889 (1990). Equity will not intervene on behalf of a plaintiff whose conduct in connectionwith the same matter has been unconscientious or unjust. Cardinal Freight Carriers, Inc. v. J.B. Hunt Transp. Servs., Inc., 336 Ark. 143, 987 S.W.2d 642 (1999). The doctrine of unclean hands has traditionally not been used to punish the complainant nor to favor the defendant, but has been applied in the interest of the public and to protect the court and defendant by not allowing the complainant to use the court's powers to bring about an inequitable result. Estate of Houston v. Houston, 31 Ark. App. 218, 792 S.W.2d 342 (1990). In determining whether the clean-hands doctrine should be applied, the equities must be weighed. Id. It is within the chancellor's discretion as to whether the interests of equity and justice require application of the doctrine. Grable v. Grable, 307 Ark. 410, 821 S.W.2d 16 (1991); Lucas v. Grant, 61 Ark. App. 29, 962 S.W.2d 388 (1998). In the present case, appellee expected to be able to purchase the property and to receive the benefits of owning the airstrip he built. Additionally, the Marottis were aware of appellee's improvements to the property and did not attempt to prevent their completion. Therefore, we cannot say that the chancellor abused his broad discretion in refusing to apply the doctrine of unclean hands to preclude an award of restitution to appellee.

Appellant also argues that the chancellor erred in his calculation of the award, if such an award was warranted. Applying the measure of recovery utilized by the chancellor, we must agree with appellant that only 56% of the $17,000 in payments that appellee actually made to Drummond and only 32% of the $16,000 payment that appellee actually made to Razorback benefitted appellant's airstrip. The resultant calculations would be $9,520 to Drummond and $5,120 to Razorback for work on the airstrip involved in this case. Certainly, appellant cannot be charged with expenses relating to the Marion airstrip. Therefore, the amount of expenses recoverable by appellee must be reduced by $18,360 as follows:

Drummond Razorback Restitutionary

Damages

$17,000 $16,000 $ 7,480

- 9,520 - 5,120 +10,880

$ 7,480 $10,880 $18,360

Subtracting $18,360 from the restitutionary damages of $36,500 set by the chancellor, leaves $18,140 as the corrected amount of damages. When the $25,000 the Marottis paid to Drummond to release the lien is subtracted from $18,140, a negative number is obtained. We think the chancellor's reduction of the award by $644 in the amended order from the award contained in his letter opinion, which was attached and incorporated into the amended order, did not change the basis for his decision. Accordingly, the judgment for appellee must be vacated.

For his cross-appeal, appellee argues that the chancellor erroneously based the award of restitution on his actual expenses, instead of on the amount by which his improvements increased the property's value and, therefore, benefitted appellant. Because appellee failed to make this argument at trial, we need not reach it on appeal. Rainey v. Hartness, 339 Ark. 293, 5 S.W.3d 410 (1999).

Reversed and dismissed on direct appeal; affirmed on cross-appeal.

Jennings and Bird, JJ., agree.