Solutions Express v. Ashley Furniture Industries, Inc.

Background

In 2015, Ashley and BCN Telecom Inc. entered into an agreement under which BCN acted as Ashley’s agent for acquiring telecommunications services. BCN was the carrier of record, while other carriers, including Verizon, provided the underlying services. Technology Opportunity Group, Ltd. acted as BCN’s master agent, and Solutions Express Ltd. did business as Solex. Neither plaintiff provided the telecommunications services to Ashley or paid the outside carrier.

In October 2016, a foreign third party hacked Ashley’s telephone lines and used telecommunications services provided by Verizon. The parties’ statements of undisputed facts agreed that Verizon charged BCN, and BCN charged Ashley, $126,433.89. The agreement stated that Ashley was solely responsible for use of its telephone lines, including unauthorized or fraudulent use, and was not relieved of its payment obligation because of fraudulent use. BCN paid Verizon in full through a combination of payment and credit.

In later transactions, Fusion acquired certain customer contracts and then acquired BCN’s accounts receivable, including Ashley’s receivable. The plaintiffs and Fusion also entered into a guaranty. Under that guaranty, if a receivable remained unpaid after 120 days, the plaintiffs would guarantee payment subject to the agreement’s terms, and Fusion could offset the amount against money it owed the plaintiffs. If Fusion later collected the receivable, it would reimburse the plaintiffs for the applicable amount. The guaranty also allowed the plaintiffs to take lawful measures to collect receivables for Fusion and waived the plaintiffs’ rights of subrogation and similar rights against any person.

Fusion later withheld money from the plaintiffs’ commissions, which the plaintiffs attributed to Ashley’s unpaid receivable. The record also showed that Ashley’s receivable remained on Fusion’s books. Fusion and affiliated debtors later filed for Chapter 11 bankruptcy. The parties disputed whether the guaranty had been rejected in that bankruptcy, but the court did not need to decide that issue.

Claims and Motions

The plaintiffs’ amended complaint asserted unjust enrichment, quantum meruit, and equitable subrogation or an implied contract to indemnify. They alleged that Ashley had received telecommunications services without paying and that the plaintiffs were entitled to recover Ashley’s outstanding balance. The plaintiffs sought $126,372.88, although the opinion notes that the parties gave inconsistent amounts in different filings and agreed to a different figure in their statements of undisputed facts.

Ashley moved for summary judgment, and the plaintiffs filed a cross-motion for summary judgment. The court assumed that New York law governed because Ashley argued for its application and the plaintiffs did not object and applied New York law in their briefing.

Quasi-Contract Claims

Under New York law, unjust enrichment and quantum meruit are quasi-contract claims. Unjust enrichment generally requires proof that the defendant received a benefit at the plaintiff’s expense and that allowing the defendant to retain it would be unfair. Quantum meruit generally requires proof of good-faith performance, acceptance of services, an expectation of payment, and the reasonable value of the services.

The court held that the plaintiffs’ quasi-contract claims were precluded because the telecommunications agreement governed the same subject matter: Ashley’s obligation to pay for the telecommunications services, including fraudulent or unauthorized use. The court explained that this rule applies even when a plaintiff is not a party to the contract. The plaintiffs’ argument that the agreement was not itself disputed did not change the result; the relevant question was whether the agreement governed the subject matter of the claims.

The court also considered the claims’ merits as a precaution. It assumed, for purposes of the motions, that Ashley might have received a benefit by continuing to receive telecommunications services without paying its prior balance and that Fusion had withheld money from the plaintiffs because of Ashley’s nonpayment. Even so, the court found that the plaintiffs had not satisfied Ashley’s debt. Instead, under the guaranty, the plaintiffs had satisfied their own obligation to Fusion, while Ashley’s obligation remained outstanding and the receivable remained on Fusion’s books. The court also noted that the plaintiffs’ theories and claimed amounts did not match: they sought Ashley’s larger outstanding balance even though they alleged that a smaller amount had been withheld from their commissions.

The court therefore concluded that the plaintiffs’ unjust enrichment and quantum meruit claims failed.

Equitable Subrogation

Equitable subrogation is a legal doctrine that can allow someone who pays another person’s debt, under compulsion or to protect a necessary interest, to seek reimbursement from the person primarily responsible for the debt. The plaintiffs argued that the guaranty required them to advance money to Fusion and allowed them to pursue Ashley’s receivable.

The court rejected that claim because the plaintiffs had not paid Ashley’s debt. Even assuming the withheld money resulted from Ashley’s nonpayment, Ashley remained obligated to pay Fusion the full outstanding amount. The court further noted that the guaranty waived the plaintiffs’ right of subrogation and similar rights against any person.

The court also rejected the plaintiffs’ argument that the guaranty allowed them to step into Fusion’s position. The guaranty allowed the plaintiffs to take collection measures for Fusion, but it did not assign the debt to the plaintiffs or authorize them to collect it on their own behalf. The court stated that, if Fusion failed to assist with collection as promised, the plaintiffs’ possible remedy would be against Fusion, subject to the contracts and any release or other barrier—not against Ashley through equitable subrogation.

Disposition

Judge Cathy Seibel granted Ashley Furniture Industries, Inc.’s motion for summary judgment and denied the plaintiffs’ cross-motion for summary judgment. The Clerk was directed to enter judgment for Ashley, terminate the pending motions, and close the case.