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Boling v. Prospect Funding Holdings, LLC

United States District Court, W.D. Kentucky, Bowling Green Division

May 25, 2018



          Greg N. Stivers, United States District Court Judge

         This 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 PART.


         The 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 follows:

         Plaintiff 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 period.[1] (Compl. Exs. A-D, DN 1-1 to 1-4). As this Court has previously noted, the transactions can be summarized as follows:

Date of Agreement


Amount of Loan & Fees

October 2009


$10, 000.00 plus fees of $1, 075.00 plus additional costs

March 2010


$5, 000.00 plus fees of $525.00 plus additional costs

May 2012


$5, 000.00 plus fees of $1, 025.00 plus additional costs

April 2013


$10, 000.00 plus fees of $1, 800.00 plus additional costs

(See Mem. Op. & Order 2, DN 31; Berlin Aff. ¶¶ 10, 15, 20-21).

         The 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).

         After 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.[2](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. ¶¶ 49-57).

         This 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).

         Not 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 adjudication.


         This Court has subject-matter jurisdiction of this matter based upon diversity jurisdiction. See 28 U.S.C. § 1332.


         A. Defendant's Counterclaims

         The 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 252.

         1. Restitution/Unjust Enrichment

         Restitution 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).

         Defendant 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.

         a. Availability of Restitution/Unjust Enrichment

         Plaintiff 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).

         The 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.

         On 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 ‚Äúprohibits [that] remedy, or the purpose ...

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