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Be Careful What You Pay For — The Voluntary Payment Doctrine, While Old, Is Alive And Well

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  • Posted on: Mar 30 2018

Simply stated, the “Voluntary Payment Doctrine” bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or material mistake of fact or law.  Dubrow v. Herman & Beinin, 157 A.D.3d 620 (1st Dep’t 2018) (citation and quotation marks omitted).  The Doctrine has been around for quite some time.  In 1898, the First Department recognized that “[a] voluntary payment of money under a claim of right cannot in general be recovered back.  To warrant such recovery there must be a compulsion, — actual, present, potential, — and the demand must be illegal.  In the absence of such compulsion a mere protest is not sufficient.  The element of coercion is essential to the right.” (Lesster v. City of New York, 33 A.D. 350.  The Lesster Court went on to reiterate the rule as follows:

If a party, with full knowledge of all the facts, voluntarily pays money in satisfaction of a demand made upon him, he cannot afterwards allege such payment to have been unjustly demanded, and recover back the money.

The Plaintiff in Lester was a property owner in New York City who paid real property taxes without knowing that the subject property had been condemned and acquired by the City for a street widening project.  When the City refused to return the tax payment, Lester sued and prevailed in light of the mistake.

Others have not been so fortunate, as was the case in Gimbel Brothers, Inc. v. Brook Shopping Centers, Inc., 118 A.D.2d 532.  There, plaintiff leased its retail store from defendant. The subject lease was drafted when New York’s “Sunday Blue Laws” prohibited businesses from operating on Sunday.  After the “Blue Laws” were declared unconstitutional, defendant started invoicing Gimbel Brothers for a $10.00 per week “Sunday charge”.  The charge was later increased to $825.00 and Gimbel Brothers paid a total of $19,800.00 in such charges before stopping.  The lease did not provide for “Sunday charges”. Gimbel Brothers commenced suit against its landlord seeking, inter alia, a declaration that it could offset the previously made “Sunday charges” against future rents.

Relying on the “Voluntary Payment Doctrine”, the Gimbel Brothers court held that the “Sunday charges” should not be returned and, in so doing, stated:

Indeed, we find that the weight of the evidence supports the conclusion that Gimbels was not operating under an actual mistake of law but, instead, made the subject payments voluntarily, as a matter of convenience, without having made any effort to learn what its legal obligations were….When a party intends to resort to litigation in order to resist paying an unjust demand, that party should take its position at the time of the demand, and litigate the issue before, rather than after, payment is made.  Gimbels displayed a marked lack of diligence in determining what its contractual rights were, and is therefore not entitled to the equitable relief of restitution.  (Citations omitted.)

In Dillon v. U-A Columbia Cablevision, 100 N.Y.2d 525 (2003), plaintiff brought a purported class action lawsuit against her cable provider alleging that a $5 late fee/administrative fee was an impermissible penalty and she would not have made the payments “had she known the true facts”.  The Dillon Court of Appeals, agreeing with “both lower courts that the voluntary payment doctrine bars plaintiff’s complaint,” stated:

Here, no fraud or mistake is alleged in that, according to the complaint, plaintiff knew she would be charged a $5 late fee if she did not make timely payment.  Alleged mischaracterization of a $5 late fee as an administrative fee does not overcome application of the voluntary payment doctrine.

Yesterday, the First Department decided The Law Offices of Paul Chin, P.C. v. Seth A. Harris, PLLC; presumably the most recent New York decision applying the Voluntary Payment Doctrine.  The parties in Chin are law firms.  Defendant hired plaintiff for six months, on a part-time basis, commencing in August.  The terms of the relationship were set forth in a memorandum that the defendant sent to plaintiff and, as presently germane, provided that plaintiff’s part-time work could not exceed 350 hours for the relevant time period.  Plaintiff, however, worked and was paid for 460 hours.  Plaintiff also worked past the six-month term of the relationship.

The Chin plaintiff sued defendant when defendant refused to pay plaintiff for all hours billed.  The Chin defendant asserted a counterclaim to recover over $20,000 in payments made to plaintiff.  Relying on the court’s decision in Dillon, supra, the Chin court found that defendant’s counterclaim was “barred by the voluntary payment doctrine, since defendant fails to present any evidence that it made the payments while laboring under any material mistake of fact or law concerning the invoiced services or the basis for the billing.

TAKEAWAY

A lesson to be learned from these cases is that payors should not “pay now and ask questions (or litigate) later”, lest they run the risk that a court will not permit the recovery of such payments from the payee.  Known rights should be asserted promptly.

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