Legal Loggerheads at Horseheads in Chemung County: Constructive Trust and Unjust Enrichment Claimed

This was originally posted on the SGR Blog.

Failed romantic relationships, in the course of which the parties purchased and sold real property and other assets, are a constant source of post-breakup litigation asserting claims for “constructive trust” and/or “unjust enrichment”. But, as a recent case illustrates, even where based on the same “facts”, the two distinguishable causes of action may lead to different outcomes.

Jim Clark and Michele Locey were involved in a long-term intimate relationship. Clark was in the business of building residential homes and Locey was a real estate broker. Together, they engaged in a business venture in which they would buy parcels of land, build residential homes, and sell for a profit. In 2005, they bought a lot in Florida as tenants in common for their personal use and as an investment and built a house on the property. Clark ultimately contributed approximately $103,000 to that property and Locey invested approximately $400,000. In 2009, Clark deeded his interest in the Florida property to Locey’s living trust and Clark was discharged from the mortgage. In early 2012, they decided to sell the Florida property. Clark then again deeded his interest in the Florida property to Locey’s living trust upon the request of the title company.

In July 2012, the Florida property was sold at a net value of about $370,000, which Locey deposited into her bank account. At the end of 2012, Locey purchased a vacant lot in the Town of Horseheads, Chemung County, on which the parties constructed a house. After Locey lived in the house, beginning in May 2014, she ultimately rented it to a third party in 2018. The parties ended their relationship in 2017 and agreed to divide most of their joint real and personal property, with the exception of the Horseheads property.

In March 2018, Clark filed suit against Locey asserting three claims. In the first two causes of action, Clark sought a constructive trust on the Horseheads property. In the third cause of action, he sought a money judgment based upon unjust enrichment. Locey answered and raised several affirmative defenses. Following discovery, Clark moved for summary judgment, which Locey opposed. Locey cross-moved for summary judgment, which Clark opposed. The Supreme Court ultimately denied Clark’s motion and granted Locey’s cross-motion, finding, among other things, that Clark failed to prove the elements of a constructive trust as a matter of law because there was no evidence that Locey made any promise upon which Clark relied. Clark appealed.

Although the equitable claims of constructive trust and unjust enrichment are elementally related and involve overlapping proof, certain essential elements differ. 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. The elements of a constructive trust are a confidential relationship, a promise, a transfer in reliance on that promise, and unjust enrichment. The promise element may be expressed or implied, as determined by the circumstances. And a person is unjustly enriched when retention of the benefit received would be unjust considering the circumstances of the transfer and the relationship of the parties.

The constructive trust doctrine serves as a fraud-rectifying remedy rather than an intent-enforcing one. By contrast, an action based on unjust enrichment, which would only result in a money judgment rather than a judicially imposed lien, requires a plaintiff to establish that (1) the other party was enriched, (2) at the plaintiff’s expense, and (3) it is against equity and good conscience to permit the other party to retain what is sought to be recovered.

As to the constructive trust causes of action; Clark asserted that an implied agreement was established as evidenced by his unpaid labor in constructing a home on the Horseheads property. But Locey relied upon, among other things, Clark’s deposition testimony, Locey’s deposition testimony, and a deed from third parties to Locey alone dated September 2012 for the Horseheads property. At his deposition, Clark attested that the parties bought the Horseheads property together and that he applied for any necessary building permits, although they were under Locey’s name. Clark further attested that there was an understanding wherein he would construct a “nice” house on the Horseheads property so he could then use it as a model home for future clients. Clark averred that Locey “wrote all the checks” for that construction project. Clark did, however, produce evidence and testify that he made some payments related to construction, but he also testified that Locey reimbursed him for all of those expenses. Clark testified that he did not pay taxes or any other related expenses on the Horseheads property, other than electric utilities through July 2014, although that bill was under Locey’s name.

Locey averred at her deposition that, during the course of their relationship, Clark would build houses and Locey would get a commission for selling them. Regarding the Horseheads property, Locey testified that she purchased a vacant lot in Horseheads sometime around the end of 2012. According to Locey, she used the sale proceeds from the Florida property to finance that purchase and the ensuing construction of a house, as well as about $200,000 of her own money for outstanding construction on the property. Locey attested that Clark built the house located on the Horseheads property as a general contractor, not a half owner and that there was no other agreement between the parties. To that end, Locey averred that the parties did not discuss whether Clark would receive income from that construction project. Locey testified that she paid Clark for all invoices related to the construction of the house, though construction material expense receipts were under Clark’s name because “[h]e was buddies with [the suppliers].” During construction of the house, the electric bill was under Clark’s corporate name for tax purposes, although Locey later changed it to her name. Locey averred that she moved into the Horseheads property around May 2014 and that Clark never lived in the property. As of April 2018, Locey rented the property to a third party. Locey further testified that the parties split “everything up” in 2017 and at that time Clark did not ask to be put on the title of, or to get money from, the Horseheads property. The foregoing evidence was sufficient to shift the burden to Clark to establish the existence of a triable issue of fact with respect to whether there was an express or implied promise upon which he relied.

In opposition to Locey’s cross-motion, and in support of his own motion, Clark submitted, among other things, text messages between the parties from various dates in 2014 and 2015. Within those text messages were statements from Locey to Clark in which she referred to the Horseheads property as “our house” and made reference to Clark being “entitled to half.” Clark placed great reliance on those text messages. However, they primarily occurred after Clark’s labor was complete. Clark did not offer any exhibit, or testimony, prior to those text messages — let alone prior to commencing labor — sufficient to raise a question of fact that there was a promise, either express or implied, upon which he relied when expending approximately 800 hours in labor to build a house on the Horseheads property. Inasmuch as the constructive trust doctrine serves as a fraud-rectifying remedy rather than an intent-enforcing one, without more, the circumstances offered by Clark were insufficient to raise a question of fact as to the promissory element which was essential to the proof of such a trust.

But the Court reached a different conclusion as to the unjust enrichment cause of action and found issues of fact as to whether Locey was unjustly enriched to the extent that Clark’s labor added to the home’s fair market value. In support of his motion for summary judgment, Clark asserted that he worked on the Horseheads property for approximately 800 hours, largely because he believed the house would be used as a model home to attract new clients and he would live there with Locey. In her deposition testimony, Locey admitted that she was not aware of whether Clark was paid for his labor. The Supreme Court found that this situation was akin to the prior real estate dealings between the parties. However, the prior dealings were markedly different because, in those transactions, Clark would build a home and his services were compensated through profit that he earned at the time of sale. Additionally, text messages between the parties revealed that Locey repeatedly referred to the Horsehead’s property as “our house,” and stated, “it’s half yours . . . I am not entitled to what is half yours.” Thus, assuming that Clark could prove that he provided such labor and that he was not compensated for it, there was a question of fact as to why he provided the labor. Further, a core question of fact was also presented as to whether Locey was unjustly enriched by Clark’s alleged provision of labor. Thus, even assuming that Locey established prima facie entitlement to summary judgment as to that cause of action, given the questions of fact raised by Clark, the appeals court found that the Supreme Court erred in granting summary judgment to Locey as to the unjust enrichment cause of action.

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