Unjust Enrichment & Constructive Trust Claims

A constructive trust is an equitable remedy imposed by a court to prevent the unjust enrichment of a party who has obtained property it should not be holding. As an equitable remedy, courts do not create constructive trusts based on violations of any specific law or agreement. Instead, they are created based on the court’s sense of fairness.

A trust is usually a mechanism through which a person transfers ownership of property during the person’s lifetime or after death where a trustee is responsible for distributing the property held in the trust to its beneficiaries according to the instructions laid out in the trust document. When a court finds there is a constructive trust, it imposes a trustee’s duties on the defendant and requires the defendant to transfer the property back to its rightful owner.

A court may impose a constructive trust on a defendant’s property if it finds the property was acquired in exchange for the plaintiff’s property when the defendant knew he or she had no right to dispose of the plaintiff’s property. If the property that was acquired by the defendant becomes more valuable after the transfer, the defendant may be required to turn the profits over to the plaintiff.

Constructive trusts may also be imposed when a defendant has received property in violation of the terms of an agreement, will, trust, or contract where the plaintiff was the intended recipient. In these cases, a constructive trust would be imposed on the defendant even in cases where the plaintiff was not a victim of fraud or breach of fiduciary duty.

It is sometimes not necessary for a court to find that the person who holds the property acted wrongly for it to impose a constructive trust. The court may make a finding of unjust enrichment arising from circumstances where it would be inequitable for the party holding the property to retain possession.

Because constructive trusts are governed by state law, the specific elements sought by the courts in claims seeking one vary from state to state. However, most states require the plaintiff to do the following:

• Establish a substantive claim for unjust enrichment;
• Show that the enrichment was the result of the defendant’s possession of a specific asset; and
• Trace the assets, or the proceeds received in exchange for the assets, to property held by the defendant.

Claims for unjust enrichment also fall under state law, but generally require that the defendant receive benefits at the expense of the plaintiff and under circumstances where it would be unjust for the defendant to keep the benefit without compensation.

The law surrounding constructive trusts is complex and our experienced attorneys at Thomas H. Curran Associates can help clients navigate the litigation process when a court is being ask to rule that property be held in a constructive trust.