Bankr. Case No. 08-13079 Bankr. Case No. 08-13080
The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge:
Chapter 11 Chapter 11 (Jointly Administered)
MEMORANDUM-DECISION AND ORDER
Donald L. Brenner and Lisa R. Brenner ("Brenners") appeal from an order of Chief United States Bankruptcy Judge Robert E. Littlefield, Jr. in the Chapter 11 bankruptcy proceeding, In re Lincoln Logs Ltd., Bankr. Case No. 08-13079. At issue is whether the Brenners are entitled to a constructive trust on bankruptcy estate funds in the amount of $55,000, the value of undelivered materials for which they paid the debtor, Lincoln Logs Ltd. ("debtor"). Judge Littlefield denied Brenners' constructive trust claim and granted the motion by Justin A. Heller, Esq., the Liquidation Trustee ("Trustee"), joined by a creditor, Farm Credit East, ACA ("Farm Credit") (formerly First Pioneer Farm Credit, ACA), for summary judgment dismissing that claim. As explained below, this Court denies the appeal and affirms the order.
On July 3, 2006, the Brenners entered into a written contract with the debtor for the purchase of plans and materials for a log cabin home. The Brenners made payment in full. After delivering some of the materials, the debtor filed for bankruptcy on September 19, 2008. On April 21, 2009, the Brenners moved in bankruptcy court for turnover of the undelivered materials, or, in the alternative, for a refund of the monies paid for them. Judge Littlefield granted the Brenners' motion, holding that under New York law their payment to the debtor was subject to a statutory trust and not part of the bankruptcy estate. See In re Lincoln Logs Ltd., 2010 WL 322163 (Bankr. N.D.N.Y. Jan. 25, 2010). On appeal by the Trustee and Farm Credit, this Court reversed and remanded the matter to bankruptcy court. See Liquidation Trustee v. Brenner, 2010 WL 3809282 (N.D.N.Y. Sept. 23, 2010). In remanding, this Court expressly declined to address the Brenners' alternative argument for the imposition of a constructive trust, stating that Judge Littlefield was in the best position to consider the equities of the matter. Id. at 7.
Thereafter, the Trustee and Farm Credit moved before Judge Littlefield for summary judgment dismissing the Brenners' constructive trust claim. On February 15, 2011, Judge Littlefield granted the motion. The Brenners appeal.
Summary judgment is appropriate when there is no genuine issue with regard to any material fact, and the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Stated otherwise, summary judgment is appropriate "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party[.]" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). When deciding a summary judgment motion, the Court must "resolve all ambiguities and draw all factual inferences in favor of the party opposing the motion." McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999).
A constructive trust is "a device used by equity to compel one who unfairly holds a property interest to convey that interest to another to whom it justly belongs." BOGERT, THE LAW OF TRUSTS & TRUSTEES, § 471. Under New York law, "[w]hen property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386 (1919). Under New York law, the elements of a constructive trust are as follows: "(1) a confidential or fiduciary relation, (2) a promise, (3) a transfer in reliance thereon and (4) unjust enrichment." Sharp v. Kosmalski, 40 N.Y.2d 119, 121 (1976); accord United States v. Coluccio, 51 F.3d 337, 340 (2d Cir. 1995). The constructive trust doctrine is not, however, rigidly limited; rather, a constructive trust will be imposed whenever necessary to achieve equity. See Coluccio, 51 F.3d at 340; Simonds v. Simonds, 45 N.Y.2d 233, 241 (1978).
A district court reviews a bankruptcy judge's factual findings for clear error and his legal conclusions de novo. A bankruptcy judge's determination not to impose an equitable remedy, such as a constructive trust, is reviewed for abuse of discretion. See In re Flanagan, 503 F.3d 171, 179-80 (2d Cir. 2007).
On this appeal, the Brenners argue that Judge Littlefield erred in granting summary judgment dismissing their claim. They contend that they are entitled to a constructive trust as a matter of law, or, in the alternative, that the record presents material questions of fact barring summary judgment. In their opposition to the summary judgment motion and on this appeal, the Brenners rely on an affidavit from Lisa R. Brenner, stating:
My husband and I were advised by the Debtor's authorized representative, Cindy Johansen, that all of the remaining components of our home, all of which we have paid for in full, were ready and waiting for us in a warehouse. We asked for delivery on several occasions but were told by the Debtor's authorized representatives that it was in our interest to leave the remaining items in the warehouse until the ...