Pauwels v. Bank of New York Mellon Corporation

Background

Pauwels’s sole surviving claim is for unjust enrichment against The Bank of New York Mellon Corporation and The Bank of New York Mellon, referred to together as BNYM. Pauwels developed a financial model consisting of twelve spreadsheets for BNYM’s tax-equity investments in wind-energy projects. He used the model to advise BNYM about proposed investments and to monitor investments BNYM pursued.

Pauwels stopped performing monitoring work for BNYM in September 2016, and Deloitte replaced him in that work. The parties disputed how extensively Deloitte used Pauwels’s model when developing its own monitoring tool, although BNYM admitted that Deloitte referred to Pauwels’s spreadsheets when customizing that tool for BNYM’s investments. Pauwels alleged that BNYM benefited from the use of his model and avoided paying Deloitte to develop a model from the beginning.

The parties had no written contract, but BNYM consistently paid Pauwels hourly. The Second Circuit had previously affirmed dismissal of Pauwels’s trade-secret claims while recognizing a genuine dispute about whether the parties’ oral or implied contract governed BNYM’s use of the spreadsheets.

Damages Theory

Pauwels initially sought the benefit BNYM allegedly received, including the savings from not paying Deloitte to create a new model. During further briefing, he narrowed his request. He no longer sought BNYM’s avoided payments to Deloitte or restitution of specific property. Instead, he sought only the intrinsic value of the Pauwels Model when he alleged BNYM wrongfully took it.

The court held that New York law barred the original theory seeking BNYM’s avoided third-party costs. Under the New York Court of Appeals’ decision in E.J. Brooks Co. v. Cambridge Security Seals, an unjust-enrichment plaintiff generally may recover only a benefit to which the plaintiff had a prior right. Pauwels did not allege that he had a prior right to payments BNYM would otherwise have made to Deloitte.

The court concluded that Brooks did not bar Pauwels’s revised request for the value of the model itself. The court therefore addressed whether that revised remedy was legal or equitable, because that distinction determines whether the Seventh Amendment provides a jury-trial right.

Legal Standard

The Seventh Amendment preserves the right to a jury in civil actions seeking relief historically available in courts of law. In determining whether that right exists, the court applied the two-part test from Granfinanciera, S.A. v. Nordberg and Tull v. United States: first, compare the claim to actions brought in 18th-century English courts; second, examine whether the remedy sought is legal or equitable. The second inquiry carries greater weight. Doubts are resolved in favor of a jury trial.

Because the claim arose under state law in a diversity case, the court looked to New York law to identify the claim and available remedies, but used federal law to classify the claim and remedy as legal or equitable.

Court’s Analysis

The court found that Pauwels’s unjust-enrichment claim was most similar to a historical legal, quasi-contractual claim. Such claims were brought in courts of law to obtain a money judgment for a benefit received by the defendant, even though they sometimes used fairness-based language.

The court then distinguished between legal and equitable restitution. A request to recover specific funds or property, often through a constructive trust or equitable lien, is generally equitable. An accounting or recovery of profits traceable to a defendant’s use of particular property is also generally equitable. By contrast, a request imposing personal liability for a sum of money measured by the value of a benefit received is legal relief.

The court characterized Pauwels’s revised request as monetary restitution rather than traditional compensatory damages, because it was based on BNYM’s alleged gain rather than Pauwels’s loss. But the court held that monetary restitution is not always equitable. Because Pauwels sought a money judgment equal to the value of the model, without tracing profits or seeking a constructive trust over particular property, the remedy was legal.

Ruling and Disposition

The court held that Pauwels’s claim was analogous to a historical action at law and that the remedy he now seeks is legal. It therefore held that Pauwels has a right to try his remaining unjust-enrichment claim before a jury.

The court directed the Clerk of Court to terminate the pending motions at Dkt. 186 and Dkt. 188. The opinion resolved the trial-format issue, not the ultimate merits of Pauwels’s unjust-enrichment claim.