By Victor M. Metsch, Esq.
This article was originally published by Thomson Reuters.
The Legal Framework
“Constructive trust” was just one of many mind-numbing “ancient” remedies dissected in my first year of law school. The applicability of such relief, at the time, seemed purely academic and clearly remote from the real world. Given that introduction to the remedy, I am surprised how often the doctrine is invoked in connection with circumstances that our predecessors-in-law could never have foreseen.
Simply put: A constructive trust may be imposed when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest. Simonds v. Simonds, 45 N.Y 2d 233, 408 N.Y.S.2d 359 (1978). Imposition of a constructive trust is warranted, to prevent unjust enrichment, where, in the context of a fiduciary or confidential relationship, a promise is made and a transfer is effected in reliance thereon. Bankers Sec. Life. Ins. Soc. v
Shakerdge, 49 N.Y.2d 939, 428 N.Y.S.2d 623 (l980). The required promise may be inferred or implied based upon the circumstances and the relationship between the parties. Coco v. Coco, 107 A.D.2d 21, 485 N.Y.S.2d 286 (2dDept 1985).
“A person may be unjustly enriched if he (or she) has received a benefit, the retention of which would be unjust… A conclusion that one has been unjustly enriched is essentially a legal inference drawn from the circumstances surrounding the transfer of property and the relationship of the parties. It is a conclusion reached through the application of the principles of equity.” Sharp v. Kosmalski, 40 N.Y.2d 119, 386 N.Y.S.2d 72 (1976).
Application of these simply enunciated legal principles to often complicated and disputed facts results in very case and fact-specific outcomes. Some recent examples follow.
Recent Appellate Cases
Sharrow v. Sheridan, 2012 Slip Op 00773 (2d Dept. 1/31/12): The plaintiff sued his mother and his sister alleging that the sister, through the use of duress and undue influence, caused their elderly mother to transfer her assets (the mother’s former residence and other property) to the sister, thereby frustrating her intent to divide her assets equally between her children. Supreme Court granted defendants’ motion to dismiss the action for lack of standing. The Appellate Division affirmed. “The defendants demonstrated that the mother had revoked the power of attorney naming the plaintiff as her attorney-in-fact. The plaintiff further lacked standing to commence [the] action as his mother’s potential heir… While the mother was alive, she had the absolute right to change her intentions regarding the distribution of her assets. Accordingly, the plaintiff’s interest as his mother’s potential heirs was just that—a potential, speculative interest.”.
Brown v. Kass, 2012 Slip Op 00742 (2d Dept. 1/31/12): Brown filed four related action one of which sought, among other things, to impose a constructive trust on real property in Atlantic Beach and another of which sought, inter alia, to impose a constructive trust over a limited liability company. Supreme Court denied the motion to dismiss the real property action and the LLC suit. The Appellate Division affirmed. As to the real property proceeding, “the defendant met his prima facie burden of demonstrating his entitlement to judgment as a matter of law dismissing the complaint [however] [i]n opposition to [the] prima facie showings, the plaintiff raised triable issues of fact[.]” And, as to the LLC suit, “the defendant failed to demonstrate, prima facie, that he was entitled to judgment as a matter of law dismissing [the claim] insofar as asserted against him. The defendant’s submissions did not eliminate the existence of triable issues of fact surrounding the various agreements made between the plaintiff and the defendant, and as to their credibility and the credibility of their witnesses.”
Bodden v. Kean, 86 A.D.3d 524, 927 N.Y.S.2d 137 (2d Dept. 2011): Plaintiff sued in August 2008 to impose a constructive trust on real property. Supreme Court denied defendant’s motion to dismiss the claim as time-barred. The Appellate Division held that “[a] cause of action to impose a constructive trust is governed by a six year-year statute of limitations, which begins to run upon the occurrence of the wrongful act giving rise to a duty of restitution[.]” Plaintiff asserted that the date of the wrongful triggering act “[was] the date [June 11, 2008—within the six year period] the defendant allegedly breached or repudiated the agreement to transfer the property to plaintiff.” Defendant asserted that the “trigger” date [in 2001]was “when, without the plaintiff’s knowledge or consent, the defendant obtained a relatively small loan which was consolidated with, and increased the outstanding balance of, the original purchase money mortgage on the property.” The Second Department agreed with plaintiff and therefore held that Supreme Court properly denied defendant’s motion to dismiss on the ground of the statute of limitations.
Papovitch v. Papovitch,84 A.D.3d 1045, 923 N.Y.S.2d 209 (2d Dept. 2011): A mother brought an action against her son to impose a constructive trust on her house. The residence had been conveyed by the mother to her son and daughter allegedly “on the conditions that [she be permitted} to reside in the house for so long as she lives, and that [the house be reconveyed] to her if she so demanded.” The son acknowledged that the conveyance was made with the understanding that his mother would be permitted to live in the house but denied a condition or agreement to reconvey on demand.. When the mother was hospitalized with a serious illness, the son and his family moved into the house and, after her release from the hospital, refused to permit the mother to return. The Court found in the mother’s favor after a non-jury trial and directed the son either to reconvey the house or pay his mother $100,000. The mother appealed. “asserting, among other things, that the Supreme Court should have directed [the son] to reconvey [the house to her].’ The Second Department affirmed. ”The Supreme Court found that the [mother’s] testimony that, as a condition to the conveyance, the [son] agreed to reconvey the subject property to [her] at any time, if she so demanded, was not credible.”
Delzer v. Rozbicki, 85 A.D.3d 1722, 925 N.Y.S.2d 796 (4thDept. 2011): Plaintiffs sought to impose a constructive trust on real property. Supreme Court granted defendant’s motion for summary judgment dismissing the complaint. The Fourth Department affirmed. “In support of her motion, defendant acknowledged the confidential relationship but established as a matter of law that there was no promise, no transfer in reliance on the alleged promise, no breach of the alleged promise, and no unjust enrichment on defendant’s part, and plaintiffs failed to raise a triable issue of fact to defeat the motion[.]”
[Parenthetically, ‘[a]n action to impose a constructive trust on real property qualifies as one in which the filing of a notice of pendency is allowed[.]” Ewart v. Ewart, 78 A.D.3d 992, 912 N.Y.S.2d 265 (2dDept. 2010).]
Recent Trial Court Decisions
Selch v. Selch,33 Misc.3d 1208(A), 2011 NY Slip Op 41814(U) (Sup.Ct. N.Y.Co. 2011): Plaintiff sued her son and daughter-in-law, among other claims, to impose a constructive trust on surplus monies received from the sale of defendants’ cooperative apartment. Plaintiff alleges that she was required to pay more than $737,000 to satisfy a guaranty that she signed in connection with a $2.750 million line of credit (secured by the apartment) extended to her son by MB Financial Bank—the proceeds of which were used by defendants to pay expenses related to the apartment. The plaintiff’s son and daughter-in-law were involved in a divorce proceeding; the daughter-in-law and their children lived in the apartment; and the son lived elsewhere. Defendants defaulted on the loan; plaintiff entered into a settlement agreement with the bank and paid $737,000 in satisfaction of the guarantee. The bank threatened to foreclose on the apartment and, fearing loss of the apartment through foreclosure by the bank or sale in connection with the divorce, plaintiff filed suit.
The Court (Wooten, J.) granted a motion in Selch to dismiss the claim for constructive trust. A confidential or fiduciary relationship was found to exist out of the marital and family relationships; however, ‘plaintiff [failed to plead] allegations sufficient to support a finding of any promise, express or implied, made [by the son to his mother] in connection with the [g]uaranty.” Plaintiff also failed to plead sufficient facts to satisfy the “transfer” element of the claim. “[Plaintiff’s] mere allegation that both defendants benefitted from the [g]uaranty is insufficient to establish that plaintiff made a transfer in reliance on a promise [by her son].” And the mother also failed to assert facts from which the inference could be drawn that defendants were unjustly enriched. “Plaintiff’s mere allegation that [her daughter-in-law] benefitted from the [g]uaranty simply because she lived in the co-op apartment and presumably used the proceeds from the line of credit to pay expenses related to the co-op are insufficient to establish the element of unjust enrichment.”
Rovner v. Stewart, 2011 NY Slip Op 32893U (Sup. Ct. Nassau Co. 10/27/11): In an action to impose a constructive trust on real property, the property was initially owned by Matthew Stewart and his then wife, Andrea Yenco. Matthew and Andres were divorced in 2008. Matthew then began dating the plaintiff, Rachel Rovner. Matthew purchased the house from Andrea “with a view that it one day would become his marital residence with plaintiff.” “In anticipation of their engagement’, Andrea gave Matthew a gift of $7,500 “by check payable to Andrea” which was used to buyout Andrea’s interest in the house for $15,000. – and ‘[i]t was agreed that so long as plaintiff was residing in the [house] she would pay 50% of the carrying costs, inclusive of the mortgage.”
Matthew and Rachel apparently decided not to marry and, in Rovner, Rachel asserted a claim for constructive trust. The Court found that plaintiff “properly plead[ed] the elements of a cause of action to impose a constructive trust: (1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4) unjust enrichment[.]” However, the Court also found that “[w]hether, inter alia, plaintiff’s relationship with defendants satisfied the initial requisite of a confidential or fiduciary relationship is a factual issue[.]” Accordingly, the Court denied defendants’ pre-answer motion to dismiss.
Manteiga v. DePaola, 2011 NY Slip Op 33193(U) (Sup. Ct. Suff. Co. 11/30/11): Manuel Manteiga sued Denise DePaola and Michael Nolan for, among numerous other claims, fraud and the imposition of a constructive trust. Manteiga and DePaola began dating in April 2010 and in August of that year DePaola transferred title to a parcel in Pennsylvania , that she owned alone, to herself and Manteiga as tenants in common. By October 2010 they were no longer dating. On November 16, 2010 a deed was recorded transferring Manteiga’s rights in the property back to DePaola. Manteiga claimed that he did not sign that deed “back” or authorize anyone else to do so on his behalf.; and asserted his signature was forged on the deed in the presence of Nolan, a notary.
The Manteiga Court granted defendants’ motion to dismiss the claim for imposition of a constructive trust because “a review of the Verified Complaint reveals that the first cause of action fails to allege any [of the required elements for such a claim].’ [The Court did not dismiss the RPAPL causes of action to determine a claim to real property and to cancel the deed .]
Malul v. Azulay, 2011 NY Slip Op 31565(U) (Sup. Ct. Queens Co. 5/26/11): Shalom Malul alleged that, in July 2005, Maimon Azulay approached him with an opportunity to develop a property (owned by Pleasant Place, Inc. and Azulay) in Laurelton; in August, 2005, Malul and Azulay “agreed to partner on the project and to share equally any profits or losses of the venture[;]” and “in reliance upon this agreement, plaintiff made substantial investments in money and time towards development of the [p]roperty and also lent his credit for the subject project, as well as other partnership ventures and projects.” According to the complaint, Yizhaq Ivgi “[was] representing that he is the sole owner and managing member of Pleasant and ha[d] been attempting to convey Pleasant’s sole asset, the [p]roperty.” Almu filed a notice of pendency and sought an injuunction and the imposition of a constructive trust.
Defendants in Malul moved to dismiss the constructive trust cause of action. The Court (Kitzes, J.) denied the motion. “Here, the plaintiff has stated a cvause of action to impress a constructive trust since there is an allegation in the complaint that he gave money to a member of Pleasant for an interest in Pleasant and he has not been given that interest.. Consequently, the equitable remedy of a constructive trust is available inasmuch as there is an allegation that there has been a transfer of property to defendants Ivgi and Pleasant in reliance upon a fiduciary relationship.”
Kunkel v. Kunkel, 2011 NY Slip Op 51161(U) (Sup. Ct. Nassau Co. 6/23/11): Michael Kunkel sued his father, Andrew Kunkel, for the imposition of a constructive trust of the family residence. Michael grew up in the house. At the time of his first marriage in 1980, Andrew allegedly “offered to help get [Michael] a house inSuffolkCounty or alternatively [ Andrew] could ‘turn the upstairs into a house and in 15 years it would be [Michael’s] ‘.” Michael accepted the offer; the house was converted from a single family home to a two family residence; “[Andrew} was financially successful and did not need additional income” and Michael made payments to his father every month “based upon what Michael could afford”. Problems arose when Andrew remarried to a woman namedSharon; the “newlyweds” separated; however.Sharon returned to the house in 2007. Michael and Andrew had a “falling out” after Michael’s daughter, following her divorce, moved into the upstairs apartment with her child. Although Michael continued making payments to his father, Andrew served Michael with eviction papers.
After a non-jury trial, the Kunkel Court (DeStefano, J.) the Court found in favor of Andrew. While Michael established a confidential or fiduciary relationship with Andrew and Andrew’s promise to give Michael the house after fifteen year, he failed to prove a transfer in reliance on the promise and that Andrew was unjustly enriched. “[M]erely showing that funds were transferred or expended by the claimant does not necessarily satisfy the requirement of proving a transfer in reliance on a promise.” And “[Andrew] was not unjustly enriched by the improvements to the house or monthly payments made, all of which benefitted Michael[.]”
Lessons Learned
Although we are no longer in the legal “Dark Ages”, the medieval doctrine of “constructive trust” survives and flourishes.
Before invoking (or defending against) a “constructive trust” claim determine:
Did a legally-cognizable fiduciary or confidential relationship exist?
Was there an enforceable promise?
Is enforcement of the promise time-barred?
Was the transfer made in reliance on the promise?
And was the transferee unjustly enriched?
Victor M. Metsch is a Senior Litigation/ADR partner at Hartman & Craven, LLP