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Reale v. Reale

April 18, 2007

SULLIVAN REALE, STEPHEN REALE, JAMES REALE, DARLENE FELIGNO, BETTE JEAN PITIFER, SANDRA MASSA, REBEKKA ACQUESTA, DEBRA BUCKLEY, PLAINTIFFS,
v.
ANTHONY P. REALE, JOANNE R. CHURCH, THE UNITED STATES OF AMERICA, DEFENDANTS.



The opinion of the court was delivered by: David G. Larimer United States District Judge

DECISION AND ORDER

INTRODUCTION

This case concerns whether a constructive trust ought to be imposed granting an equal one-tenth interest in a parcel of real property located in Geneva, New York, to each of the ten children of Sullivan J. and Adeline Reale ("the Reale parents"). Plaintiffs are eight of the ten Reale children. Defendants are the two other Reale children, Anthony P. Reale ("Anthony") and Joanne Church ("Joanne"), who were each granted a one-half interest in the Reale parents' home by deed from the Reale parents prior to their death. The United States of America (the "Government") is also a named defendant, because the Internal Revenue Service (the "IRS") has recorded a federal tax lien against Anthony's interest in the property.

Plaintiffs commenced this action seeking the imposition of a constructive trust. According to plaintiffs, it was the Reale parents' intent that the ten Reale children would each be granted a one-tenth interest in the property after the parents' deaths and that Anthony and Joanne held title in trust for the benefit of all the children. Plaintiffs claim that, unless a constructive trust is imposed, Anthony will be unjustly enriched at their expense because his personal debt to the IRS would be paid out of his one-half interest in the property. If plaintiffs are entitled to a constructive trust, the federal tax lien recorded against Anthony would apply only to his one-tenth interest, and not his one-half interest.

FACTUAL BACKGROUND

The relevant facts here are undisputed. In March 1988, the Reale parents transferred title to their home located at 95 Lafayette Avenue, Geneva, New York (the "Lafayette Property) to Anthony and Joanne for no consideration, but reserved a life estate for themselves in the property. Five years later, in March 1993, Anthony and Joanne sold the Lafayette Property for $57,296.31. (Exs. 2 and 3). That same day, Anthony and Joanne purchased another home for the Reale parents located on West High Street, in Geneva, New York ("West High Street property") for $64,620.43, which consisted of the $57,296.31 Lafayette Property sale proceeds and an additional $7,324.12 from the Reale parents. (Exs. 4 and 5). It is undisputed that neither Anthony nor Joanne paid any consideration or used their own funds in connection with either the 1988 or 1993 property transfers. Nor is there any dispute that, after each transfer, the Reale parents continued to live in the respective homes and were cared for by all ten children until their deaths. Sullivan J. Reale died on August 17, 1998, and Adeline Reale died on May 9, 2000.

For two years after Adeline Reale's death, Anthony and Joanne continued to hold title to the West High Street property in their names only. On May 3, 2002, the IRS recorded a Notice of Federal Tax Lien against property owned by Anthony for unpaid federal tax liabilities*fn1 totaling $37,262.45. (Ex. 6). Three weeks later, on May 22, 2002, Anthony transferred his one-half interest in the West High Street property to his brother, plaintiff James Reale ("James"), for no consideration. (Ex. 8).

On August 19, 2004, James transferred the one-half interest back to Anthony (Ex. 11), after the IRS advised the parties that a federal tax lien was recorded against the property before Anthony's transfer of his interest to his brother James and, therefore, the federal lien remained an encumbrance on the property.

Plaintiffs thereafter commenced this action against Anthony, Joanne, and the Government seeking a constructive trust on the West High Street property in favor of all ten Reale children. According to plaintiffs, their parents always made it known that all ten children would inherit equally, and that the two oldest siblings, Anthony and Joanne, would handle their financial and personal affairs on behalf of and in trust for the entire family. Plaintiffs claim that the Reale parents transferred property to Anthony and Joanne in reliance on their promise to hold the property in trust during the Reale parents' lifetime. Plaintiffs allege that their parents meant to provide a means by which the family home would be transferred free from probate. Plaintiffs contend that the Court should impose a constructive trust against Anthony and Joanne in favor of each of the ten Reale children. Plaintiffs contend then that each child would hold only one-tenth interest in the West High Street property and, therefore, the federal tax lien would only affect Anthony's one-tenth interest.

The Government has moved for summary judgment arguing that no material issue of fact exists warranting a trial regarding whether the Reale children are entitled to a constructive trust. The Government claims that the 1988 and 1993 deeds are free from ambiguity and that no basis exists to set aside the plain language of those instruments. The Government also contends that the statute of limitations bars the imposition of a constructive trust, and further that plaintiffs cannot establish all the necessary elements for the imposition of a constructive trust.

I find that the Government is entitled to summary judgment; plaintiffs have failed to raise an issue of fact regarding whether they are entitled to a constructive trust.

DISCUSSION

"A constructive trust is a remedial device imposed in favor of one entitled to property that is wrongfully withheld or where to allow the present holder to retain the property would result in unjust enrichment." Stone v. Williams, 970 F.2d 1043, 1051 (2d Cir.1992). Under New York law, a party seeking to impose a constructive trust generally must show four elements: "(1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer of the subject res made in reliance on that promise; and (4) unjust enrichment." In re First Cent. Fin. Corp., 377 F.3d 209, 212 (2d Cir.2004).

Although these four elements constitute "important guideposts, the constructive trust doctrine is equitable in nature and should not be rigidly limited." Counihan v. Allstate Ins. Co., 194 F.3d 357, 362 (2d Cir.1999) (internal quotation omitted). Thus, courts impose constructive trusts even when one or more of the elements have not been met. What is essential in any constructive trust case, however, "is a showing that property is held under circumstances that render unconscionable and inequitable the continued holding of the property and that the remedy is essential to prevent unjust enrichment." Id.; see also In re First Cent. Fin. Corp., 377 F.3d at 212 (emphasizing that "[t]he fourth element is the most important since 'the purpose of the constructive trust is prevention of unjust enrichment.'") (quoting Simonds v. Simonds, 45 N.Y.2d 233, 242 (1978)); In re Koreag, Controle et Revision S.A. v. Refco F/X Assoc., Inc., 961 F.2d 341, 354 (2d Cir.1992) (unjust enrichment is the "key factor" in determining whether to impose a constructive trust). As Judge Cardozo aptly wrote, "[a] constructive trust is the formula through which ...


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