The Institute in the Courts: State Supreme Courts Adopt ALI Work

This year, several state supreme courts have adopted ALI work, including some of the Institute’s more recent Restatements. Some examples follow:

In Cornell v. Desert Financial Credit Union, 524 P.3d 1133 (Ariz. 2023), the Arizona Supreme Court adopted Restatement of the Law, Consumer Contracts § 3 (Tentative Draft No. 2, 2022) in holding that consumers were not required to have actual notice of modifications businesses made to standardized contracts in order for those modifications to be enforceable. In a class-action lawsuit brought by a customer against a bank, the Arizona Supreme Court answered a question certified by the U.S. District Court for the District of Arizona in determining whether arbitration provisions added unilaterally by the bank to the bank’s terms of service were enforceable. In this case, the court explained, the modifications were valid and enforceable, so long as the customer received “express and reasonable notice of the [bank’s] right to unilaterally modify the agreement”; the customer obtained reasonable notice of the modified terms and a reasonable opportunity to opt out without penalty; and the parties continued “the business relationship past a reasonable opt-out period.” Adopting § 3 was appropriate, observed the court, because it reinforced prior court decisions “recognizing effective modification through silent conduct,” and imposed “safeguards to protect consumers from unfair exploitation.”

In Beldock v. VWSD, LLC, 2023 WL 4280767 (Vt. June 30, 2023), the Supreme Court of Vermont adopted Restatement of the Law Third, Restitution and Unjust Enrichment § 2 in holding that the existence of a valid contract displaced unjust-enrichment claims if those claims arose from matters within the scope of the contracting parties’ express contract. In this case, a purchaser of solar-power projects sued, among others, the seller, alleging that the seller was unjustly enriched when the seller received the purchaser’s assistance in acquiring deliverables and did not pay compensation. The Supreme Court of Vermont reversed and remanded the trial court’s entry of summary judgment against the purchaser, holding that, while the seller was obligated under the parties’ purchase agreement to convey deliverables to the purchaser, the court was “unable to determine whether the subject matter of the express agreement encompass[ed]” the purchaser’s unjust-enrichment claims, because the agreement was ambiguous and did not contemplate the purchaser’s provision of assistance in acquiring the deliverables. The court observed that the rule set forth in § 2 was “well-reasoned” and preserved the purchaser’s right to obtain equitable relief without subverting contractual principles.

In L&D Investments, Inc. v. Antero Resources Corp., 887 S.E.2d 208 (W.Va. 2023), the Supreme Court of Appeals of West Virginia adopted Restatement of the Law Third, Restitution and Unjust Enrichment § 29 in expanding the common-fund doctrine to permit counsel for certain named plaintiffs to receive attorney’s fees and costs from a separate group of “unknown” plaintiffs who benefited from counsel’s representation of the named plaintiffs, even though counsel did not have a contractual relationship with the “unknown” plaintiffs. In this case, counsel, during a quiet-title action arising from unpaid oil-and-gas royalties, represented identified heirs of the original owners of interests in oil-and-gas leases, but was unable to reach the remaining heirs in order to enter into an express representation agreement; counsel, having established the individual percentage ownership interests of all of the heirs whose interests were aligned, separately negotiated settlements for counsel’s clients as well as for the “unknown” heirs, and sought an award of fees and costs from both settlement funds.

The Supreme Court of Appeals of West Virginia reversed and remanded the trial court’s denial of counsel’s request for attorney’s fees and costs from the “unknown” heirs’ settlement award. The court held that, while counsel and the “unknown” heirs did not have a contractual relationship, counsel in this circumstance was entitled under the common-fund doctrine to compensation for work performed on the “unknown” heirs’ behalf. The court adopted Restatement of the Law Third, Restitution and Unjust Enrichment § 29 as a guideline in expanding the doctrine, observing that:

The American Law Institute’s formulation of the common fund doctrine . . . sets forth a logical and orderly approach to be utilized in determining whether a claimant is entitled to recover fees and costs expended in creating or enhancing a fund that benefits . . . non-parties whose interests are aligned.

In this case, explained the court, granting counsel’s request despite the lack of a contractual relationship with the “unknown” heirs was appropriate, because the “unknown” heirs would not “have to make a net payment in cash”; the value of each “unknown” heir’s share of the common fund exceeded each “unknown” heir’s liability to counsel; and counsel acted diligently to protect the “unknown” heirs’ interests by bringing the “unknown” heirs into the litigation as parties.