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CABALLERO v. ANSELMO

March 15, 1991

ROSA MARIA CABALLERO, PLAINTIFF,
v.
REYNOLD V. ANSELMO AND JULIAN M. KAUFMAN, DEFENDANTS.



The opinion of the court was delivered by: Irving Ben Cooper, District Judge.

MEMORANDUM AND ORDER

Plaintiff Rosa Maria Caballero commenced this action March 27, 1985, to recover four thousand five hundred forty six (4,546) shares of stock ("the stock") in Spanish International Communications Corporation ("SICC") which she alleged were improperly sold by defendant Reynold V. Anselmo to defendant Julian M. Kaufman. Both Anselmo and Kaufman were directors and shareholders of SICC at the time of the alleged improper sale.

Pursuant to plaintiff's motion, we bifurcated the action with respect to the issues of liability and damages. The liability issue was tried before this Court in April, 1986. At the close of plaintiff's case, defendant Kaufman moved for a directed verdict pursuant to Federal Rule of Civil Procedure 50, and defendant Anselmo moved to dismiss pursuant to Federal Rule of Civil Procedure 41(b). We reserved decision on both motions. In an opinion dated September 7, 1989, we found in favor of plaintiff against defendant Anselmo on the grounds that Anselmo had wrongfully converted the shares of plaintiff's SICC stock; all claims against defendant Kaufman were dismissed. Caballero v. Anselmo, 720 F. Supp. 1088 (S.D.N.Y. 1989).

At that time we directed plaintiff and defendant Anselmo to endeavor to agree upon a reasonable and proper amount of damages, and to provide us with a proposed form of judgment including such amount agreed upon within 60 days. The parties were not able to reach an agreement on the amount of damages. After numerous conferences, counsel agreed that another trial was not necessary for the court to determine the legal damages issues (letter to Court from Joseph F. Kelly, Jr., Esq. dated November 7, 1990 and letter to Court from Lawrence L. Ginsburg dated November 14, 1990) and submitted papers in support of their respective positions regarding the formula for measuring damages owing to plaintiff and whether plaintiff is entitled to punitive damages as a result of the conversion. We shall address each issue separately below. The facts of the case are set out at length in our opinion, 720 F. Supp. 1088; familiarity with them is assumed.

DISCUSSION

I. Measure of Damages

Plaintiff seeks recovery under alternative theories: she argues that we should either impose a constructive trust upon the stock and declare defendant a constructive trustee thereof or apply a conversion theory of damages. Plaintiff argues that under either theory she is entitled to judgment equal to the highest value of the stock between the time of conversion and the time of judgment, to wit, proceeds in the amount of $1.5 million resulting from a transaction that occurred in July, 1986 ("the July 1986 sale"). We will analyze each of plaintiff's theories in turn.

A. Constructive Trust

Plaintiff argues that we should impose a constructive trust upon the $1.5 million proceeds of the July, 1986 sale of plaintiff's stock by Daniel Villanueva to a third party, and determine that defendant Anselmo, as constructive trustee, owes plaintiff the full amount. Plaintiff's Memorandum Of Law In Furtherance Of The Assessment Of Damages at 11-14 ("Plaintiff's Memo"). Defendant argues that we should not impose a constructive trust because the application of a constructive trust theory of damages is not appropriate in conversion cases, and even if appropriate, a constructive trust can only be imposed against entities who are in possession of the converted property or the proceeds thereof. In short, defendant argues that if we do declare him constructive trustee, it can be only for the $15,000 proceeds realized when he sold the stock to Kaufman in May, 1973. Defendant Reynold V. Anselmo's Memorandum Of Law With Respect To The Determination Of Damages at 9 ("Defendant's Memo"). For the reasons set forth below, we agree with defendant to the extent that the imposition of a constructive trust is not appropriate in this action.

    The constructive trust may be defined as a
  device used by chancery to compel one who
  unfairly holds a property interest to convey that
  interest to another to whom it justly belongs. .
  . . If the property has been sold the trust
  attaches to its proceeds in the hands of the
  defendant, or to the other property purchased by
  defendant into which the original

  property or its proceeds can be traced. . . .
    If one has possession of personal property
  under such circumstances that appropriation of it
  to his own use . . . will make him guilty of the
  tort of conversion . . ., the wronged person may
  charge the converter as a constructive trustee of
  the converted property or of cash proceeds or
  property he receives by reason of a sale of the
  property converted.

Bogert, Law of Trusts and Trustees, § 471 at 3-5, § 476 at 125-132 (rev. 2d ed. 1978) (footnotes omitted).

A constructive trust will be imposed where "property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919); Scull v. Scull, 94 A.D.2d 29, 462 N.Y.S.2d 890 (1st Dep't. 1983), aff'd 67 N.Y.2d 926, 493 N.E.2d 238, 502 N.Y.S.2d 135 (1986); Coco v. Coco, 107 A.D.2d 21, 485 N.Y.S.2d 286 (2d Dep't. 1985).

Under New York law, the general legal requisites for imposition of a constructive trust are (1) the existence of a fiduciary or confidential relationship, (2) a promise, express or implied, (3) a transfer in reliance on the promise, and (4) unjust enrichment. Kopelman v. Kopelman, 710 F. Supp. 99, 102 (S.D.N.Y. 1989); Bankers Sec. Life Ins. Soc. v. Shakerdge, 49 N.Y.2d 939, 406 N.E.2d 440, 428 N.Y.S.2d 623 (1980); Hutton v. Klabal, 726 F. Supp. 67 (S.D.N.Y. 1989). Generally, a constructive trust must be proved by plaintiff by clear and convincing evidence. Schmieder v. Hall, 421 F. Supp. 1208 (S.D.N.Y. 1976), aff'd, 545 F.2d 768 (2d Cir.), cert. denied, 430 U.S. 955, 97 S.Ct. 1601, 51 L.Ed.2d 805 (1977).

  We approach our analysis of these factors with a certain
elasticity. The constructive trust remedy is flexible, and "it
has . . . been held that, `although the [above-mentioned]
factors are useful in many cases constructive trust doctrine
is not rigidly limited,' Simonds v. Simonds, 45 N.Y.2d 233,
241, [380 N.E.2d 189, 194] 408 N.Y.S.2d 359, 363 (1978), and a
constructive trust may be found even in the absence of these
prerequisites when . . . equity and common sense require."
S.E.C. v. Levine, 689 F. Supp. 317, 323 (S.D.N.Y. 1988). See
Lines v. Bank of America Nat. Trust & Sav. Assoc., 743 F. Supp. 176
 (S.D. N.Y. 1990); Hornett v. Leather, 145 A.D.2d 814, 535
N.Y.S.2d 799 (3d Dep't. 1988), appeal denied, 74 N.Y.2d 603,
541 N.E.2d 425, 543 N.Y.S.2d 396 (1989); Reiner v.
Reiner, 100 A.D.2d 872, 874, 474 N.Y.S.2d 538, 541 (2d Dep't.
1984). However, in those instances, plaintiff must at least
show a promise and a transfer of property. Chipman v.
Steinberg, 106 A.D.2d 343, 483 N.Y.S.2d 256 (1st Dep't. 1984),
aff'd, 65 N.Y.2d 842, 482 N.E.2d 925, 493 N.Y.S.2d 129 (1985);
Plotnikoff v. Finkelstein, 105 A.D.2d 10, 482 N.Y.S.2d 730 (1st
Dep't. 1984).

We defer for a moment any discussion of whether a fiduciary relationship existed between plaintiff and defendant, and we turn to address the other factors. First, no promise was made by defendant to plaintiff's father or to plaintiff. Defendant made no promise to hold the stock for plaintiff's benefit, nor was there a promise to convey the stock to a third party for plaintiff's benefit. At most there was an agreement whereby defendant and plaintiff's father agreed that plaintiff would retain title to the stock and defendant would vote her interest. This, we conclude, is insufficient to establish that a promise had been made to plaintiff.

Second, plaintiff has not shown that she or her father made a transfer at all. Even assuming that a voting right was given, no transfer of title was made nor intended. The stock remained in plaintiff's name while defendant had possession of the stock or stock certificate. In order to establish a constructive trust it is necessary to show that defendant wrongfully obtained title rather than mere possession. Edwards v. Rector, Church Wardens and Vestrymen of Trinity Church in City of New York, 5 F. Supp. 335 (S.D.N.Y. 1933), aff'd, 77 F.2d 884 (2d Cir. 1935), cert. denied, 296 U.S. 628, 56 S.Ct. 151, 80 L.Ed. 446. Based on the evidence and the arguments ...


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