United States District Court, W.D. Kentucky, Bowling Green Division
MEMORANDUM OPINION AND ORDER
N. Stivers, United States District Court Judge
matter is before the Court on Plaintiff's Third Motion
for Summary Judgment with Motion for Attorneys' Fees and
Sanctions Pursuant to 28 U.S.C. § 1927 (DN 93) and
Defendant's Second Cross-Motion for Summary Judgment (DN
96). For the reasons discussed below, both motions are
GRANTED IN PART and DENIED IN
OF FACTS AND CLAIMS
pending motions center on Defendant Prospect Funding
Holdings, LLC's (“Defendant”) efforts to
recoup monies it loaned to Plaintiff Christopher Boling
(“Plaintiff”). (See, e.g., Def.'s
Mem. Law Opp'n Pl.'s Third Mot. Summ. J. Supp.
Def's Second Cross-Mot. Summ. J. 1-7, DN 96 [hereinafter
Def.'s Mem. Supp. Mot.]). The relevant facts are as
filed a personal injury lawsuit and, he used the prospective
recovery from that suit as collateral to obtain and secure
loans from Cambridge Management Group, LLC
(“CMG”) and Defendant over a four-year
(Compl. Exs. A-D, DN 1-1 to 1-4). As this Court has
previously noted, the transactions can be summarized as
Date of Agreement
Amount of Loan & Fees
$10, 000.00 plus fees of $1, 075.00 plus additional
$5, 000.00 plus fees of $525.00 plus additional
$5, 000.00 plus fees of $1, 025.00 plus additional
$10, 000.00 plus fees of $1, 800.00 plus additional
(See Mem. Op. & Order 2, DN 31; Berlin Aff.
¶¶ 10, 15, 20-21).
loan agreements governing the transactions provided that
Plaintiff would not become obligated to pay off the loans
until he obtained a favorable settlement in his personal
injury action. (Compl. Exs. A-D, F, DN 1-1 to 1-4, 1-6). The
agreements further stated that each loan accrued interest at
a rate of 4.9% per month, and that any disputes arising from:
(1) the fust two agreements were to be governed by New Jersey
law and resolved via arbitration; (2) the third agreement was
to be litigated in courts located in Hennepin Comity,
Minneapolis, Minnesota; and (3) the fourth agreement would be
litigated in New York County, New York. (Compl. Exs. A-D, F).
Plaintiff obtained a favorable settlement in his personal
injury action. Defendant notified him that he owed $340,
304.00, thereby prompting him to file a declaratory judgment
action in this Court. (Compl. ¶¶ 43, 45, DN 1).
Specifically, Plaintiff sought a judgment declaring that: (1)
Kentucky law governed his action, and (2) the loan agreements
were void pursuant to Kentucky's prohibition on champerty
and usurious interest rates. (Compl. ¶¶ 1-40).
Defendant raised several counterclaims in response to the
Complaint. In particular, it alleged that Plaintiffs failure
to pay off the loans amoimted to: a breach of contract, a
breach of the implied duty of good faith and fair dealing,
negligent misrepresentation, and conversion.(Def.'s Countercl.
¶¶ 44-48, 58-74). Defendant also asserted that, in
the event the loan agreements were held unenforceable, it
would be entitled to equitable relief-i.e., recoupment of the
$30, 000.00 it loaned to Plaintiff plus $4, 625.00 in
fees-pursuant to principles of unjust enrichment and
promissory estoppel. (Def.'s Countercl. ¶¶
Court ultimately issued two judgments in Plaintiff's
favor. In the first, this Court held that Kentucky law
governed the interpretation and enforcement of the loan
agreements. (Mem. Op. & Order 10-14, DN 31). In the
second, this Court found the loan agreements unenforceable
due to Kentucky's prohibition on champerty and usurious
interest rates, but nonetheless reasoned that Defendant could
pursue its equitable claims in order to recoup the funds that
it loaned to Plaintiff. (Mem. Op. & Order 4-13, 16, DN
83). This Court also held that Defendant could pursue its
claims for breach of the implied duty of good faith and fair
dealing, negligent misrepresentation, and conversion. (Mem.
Op. & Order 4-13, 16, DN 83).
long after this Court entered its two judgments, Plaintiff
and Defendant filed competing motions for summary judgment on
Defendant's counterclaims. (See Pl.'s Mem.
Supp. Third Mot. Summ. J. Mot. Att'ys' Fees &
Sanctions, DN 93-1 [hereinafter Pl.'s Mem. Supp. Mot.];
Def.'s Mem. Supp. Mot.). Plaintiff argued in his motion
that Defendant's counterclaims fail as a matter of law,
and that Defendant's “gamesmanship” through
the course of this litigation entitles him to sanctions and
fees pursuant to 28 U.S.C. § 1927. (Pl.'s Mem. Supp.
Mot. 4-16). Defendant asserted that it is entitled to
judgment as a matter of law on each of its counterclaims, and
that Plaintiff's motion for sanctions is meritless.
(Def.'s Mem. Supp. Mot. 1-23). The motions are ripe for
Court has subject-matter jurisdiction of this matter based
upon diversity jurisdiction. See 28 U.S.C. §
parties move for summary judgment on Defendant's
remaining counterclaims. Summary judgment is appropriate when
“the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment
as a matter of law.” Fed.R.Civ.P. 56(a). “[A]
party moving for summary judgment may satisfy its burden [of
showing] that there are no genuine issues of material fact
simply ‘by pointing out to the court that the
[non-moving party], having had sufficient opportunity for
discovery, has no evidence to support an essential element of
his or her case.'” Minadeo v. ICI Paints,
398 F.3d 751, 761 (6th Cir. 2005) (quoting Street v. J.C.
Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.
1989)). After the movant shows “that there is an
absence of evidence to support the nonmoving party's
case, ” the non-moving party must identify specific
facts that can be established by admissible evidence, which
create a genuine issue for trial. See Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). While
the Court must view the evidence in a light most favorable to
the non-moving party, the non-moving party “must do
more than simply show that there is some metaphysical doubt
as to the material facts.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
“The mere existence of a scintilla of evidence in
support of the plaintiff's position [is] insufficient;
there must be evidence on which the jury could reasonably
find for the plaintiff.” Anderson, 477 U.S. at
is an equitable remedy that requires a party that has
received benefits under an unenforceable agreement return
said benefits to prevent unjust enrichment. See Rose v.
Ackerson, 374 S.W.3d 339, 343 (Ky. 2012)
(“[U]njust enrichment ‘is applicable as a basis
of restitution to prevent one person from keeping money or
benefits [obtained under an agreement that] belong to
another.'” (quoting Haeberle v. St. Paul Fire
& Marine Ins. Co., 769 S.W.2d 64, 67 (Ky. App.
1989))); see also See Sigmon v. Appalachian Coal Props.,
Inc., 400 Fed.Appx. 43, 50 (6th Cir. 2010) (citation
omitted). To prevail on an unjust enrichment claim, the party
seeking restitution must prove: “(1) [a] benefit
conferred upon [another at the claimant's] expense; (2) a
resulting appreciation of benefit by [the other]; and (3)
inequitable retention of benefit without payment for its
value.” Jones v. Sparks, 297 S.W.3d 73, 78
(Ky. 2009) (citation omitted).
claims that the undisputed facts show that it is entitled to
recoup the principal that it loaned to Plaintiff pursuant to
the doctrine of unjust enrichment. (Def.'s Mem. Supp.
Mot. 1-2). Quite simply, Defendant contends that Plaintiff
obtained a benefit at its expense-i.e., retention of the $30,
000.00 Defendant loaned to him plus the costs associated with
the loan that Plaintiff never repaid-and that Plaintiff's
continued retention of said benefit is unjust. (Def.'s
Mem. Supp. Mot. 1-2; Berlin Aff. ¶¶ 28-29).
Plaintiff appears to concede that Defendant has satisfied the
elements of an unjust enrichment claim, but argues that
Defendant's claim should nonetheless be denied for two
reasons. First, Plaintiff contends that restitution is not
available as a remedy to recoup benefits conferred under an
illegal (as opposed to merely
unenforceable) contract. (Pl.'s Reply Supp.
Third Mot. Summ. J. & Resp. Def.'s Second Cross-Mot.
Summ. J. 2-8, DN 100 [hereinafter Pl.'s Reply]). Second,
Plaintiff asserts that the doctrine of unclean hands bars
Defendant's restitution request. (Pl.'s Mem. Supp.
Mot. 9-11). The Court will address each argument separately.
Availability of Restitution/Unjust Enrichment
contends that Defendant cannot seek restitution of the
benefits it conferred under the loan agreements because those
agreements are illegal. (Pl.'s Reply 2-8). The gist of
Plaintiff's position is: (1) Kentucky law holds that a
party to an illegal contract may not seek restitution of
benefits conferred pursuant thereto; and (2) the loan
agreements are illegal (as opposed to only unenforceable)
because they provided for the exchange of illegal
consideration: namely, the proceeds of Plaintiff's
personal injury litigation. (Pl.'s Reply 2-8). Plaintiff
relies on two cases in support of his position: Cougler
v. Fackler, 510 S.W.2d 16 (Ky. 1974), and Varner v.
Kingfish Capital Partners I, LP, No. 2016-CA-001415-MR,
2017 WL 5952867 (Ky. App. Dec. 1, 2017).
decision in Cougler arises from a most unusual, and
somewhat salacious, set of facts. The defendant-a known
prostitute-wanted to purchase a house, so the plaintiff (one
of the defendant's recurring customers) entered into an
oral agreement with her under which he promised to make the
down payment on the house in her name in exchange for the
house's deed. Cougler, 510 S.W.2d at 18. When
the defendant refused to confer the deed, the plaintiff
brought suit seeking recoupment of the down payment, and, at
trial, the defendant testified that she provided the
plaintiff with sexual favors in consideration for the down
payment. Id. The trial court ruled in favor of the
plaintiff. Id. at 17.
appeal, the Kentucky's highest court concluded that the
defendant's entitlement to restitution turned on the
question whether sexual favors constituted any part of the
consideration for the bargain. Id. at 19. Citing to
Section 355 of the Restatement (First) of Contracts, the
court reasoned that if an illegal act (i.e., sexual favors)
formed part of the consideration for the agreement, then the
agreement was illegal and the plaintiff could not
seek restitution as a remedy. Id. at 18-19. On the
other hand, the court noted that if the bargain was legal but
unenforceable under the statute of frauds as an oral
agreement involving the exchange of land, then “the
remedy of restitution to prevent unjust enrichment”
would be available unless the statute of
frauds “prohibits [that] remedy, or the purpose ...