MIAMI BUSINESS LITIGATION: CONSTRUCTIVE TRUSTS – A BUSINESS LITIGATION REMEDY

A constructive trust can be a useful remedy in certain business disputes in Florida. If property is wrongfully taken from a business, the remedy of constructive trust can make the person holding the property the “constructive trustee” for the property. Constructive trust is an equitable remedy “with the dual objectives of restoring property to its rightful owner and preventing unjust enrichment.” Saporta v. Saporta, 766 So. 2d 379 (Fla. 3d DCA 2000). “The trust is constructed by equity to prevent an unjust enrichment of one person at the expense of another as the result of fraud, undue influence, abuse of confidence or mistake in the transaction that originates the problem.” Joseph v. Chanin, 940 So. 2d 483 (Fla. 4th DCA 2006). “Even when a property has not been acquired by fraud, a constructive trust will be imposed if equity would be offended should the property be retained by the person holding it.” Id. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In Florida, a constructive trust is a remedy, not a cause of action. “Because a constructive trust is a remedy, it must be imposed based upon an established cause of action.” Collinson v. Miller, 903 So. 2d 221 (Fla. 2d DCA 2005). Nonwasting, Florida case law indicates the party seeking a constitutive trust must still establish four elements to obtain the remedy. The elements are as follows: (1) a promise,  (2) transfer of the property and reliance thereon; (3) a confidential relationship; and (4) unjust enrichment. Bergmann v. Slater, 922 So. 2d 1110 (Fla. 4th DCA 2006). A constructive trust must involve specific and identifiable property, “or can be clearly traced in assets of the defendant.” Frieri v. Capital Inv. Services, Inc., 194 So. 3d 451 (Fla. 3d DCA 2016). Therefore, a constructive trust cannot be imposed on a defendant’s general assets. Trend Setter Villas of Deer Creek v. Villas on the Green, Inc., 569 So. 2d 766 (Fla. 4th DCA 1990).

Because a constructive trust is an equitable remedy, a defendant can raise equitable defenses thereto. For example, a defendant may assert the equitable defenses of laches or estoppel defeat a constructive trust remedy. Provence v. Palm Beach Taverns, Inc., 676 So. 2d 1022 (Fla. 4th DCA 1996).

An example of a constructive trust in the business context occurred in Provence. The plaintiff purchased 100% of the shares of a corporation and promised to make certain installment payments as consideration. The plaintiff failed to pay the installments and a lawsuit followed. The plaintiff brokered a settlement of that suit requiring (1) the corporation to pay all past due installments and (2) two new shareholders would become co-obligors on the remaining installment payments. The new shareholders were supposed to deliver the signed settlement agreement to the seller, but did not do so. Instead, the two new shareholders purchased the corporation’s remaining stock at a foreclosure auction. The plaintiff filed a new lawsuit claiming the stock purchased by the two new shareholders at auction was part of a constructive trust held for the benefit of the plaintiff. The trial court dismissed the action and determined the plaintiff had no standing to sue because the plaintiff no longer owned the stock. However, the appellate court reversed because the plaintiff’s constructive trust over the stock provided him standing to sue.

While not available in every business dispute, the remedy of constructive trust can be useful under the right circumstances for businesses and business owners to retrieve wrongfully taken property.

The Miami business litigation lawyers of the Mavrick Law Firm also represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.