"A constructive trust is an equitable remedy to compel a person who has property to which he is not justly entitled to transfer it to the person entitled thereto. " ( Weiss v. Marcus, supra,51 Cal.App.3d at p. 600.)

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It is well established that “constructive trust” is not a cause of action, but is merely a remedy by which equity may correct an underlying wrong. (13 Witkin, Summary of Cal. Law (10th ed. 2005) Trusts, § 319, p. 892.)

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EXAMPLE: Breach of fiduciary duty can constitute such an underlying wrong (id., § 322, p. 897), as can fraud (id., § 320, pp. 894-895).Flores v. Yeremian, No. F059076, at *1 (Cal. Ct. App. Oct. 20, 2010)

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                                                           THE CONSTRUCTIVE TRUST

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The principal constructive trust situations are set forth in Civil Code sections 2223 and 2224. Section 2223 provides that `one who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner.'  Section 2224 provides that: `[o]ne who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.' (Italics added.)" ( Martin v. Kehl (1983) 145 Cal.App.3d 228, 237 [ 193 Cal.Rptr. 312].) As these sections suggest, "a constructive trust may be imposed in practically any case where there is a wrongful acquisition or detention of property to which another is entitled." ( Weiss v. Marcus, supra,51 Cal.App.3d at p. 600, italics added.) Farmers Ins. Exchange v. Zerin, 53 Cal.App.4th 445, 457 (Cal. Ct. App. 1997)

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Since a constructive trust is a creature of state law, the Court must look to California law to determine whether a constructive trust exists over the present receivership estate.

 

California law does not require fraud or intentional misrepresentation as a prerequisite to a constructive trust. Calistoga Civic Club v. City of Calistoga, 143 Cal.App.3d 111, 191 Cal.Rptr. 571, 576 (1983).

 

Under California law, a court may find that a constructive trust exists if it finds merely that "the acquisition of property was wrongful and that the keeping of the property by the defendant would constitute unjust enrichment." Id., 191 Cal.Rptr. at 576 (citations omitted). The requirements for a constructive trust in California are: (1) the existence of a res; (2) the plaintiffs right to the res; and (3) the defendant's acquisition of the res by some wrongful act. Id., 191 Cal.Rptr. at 575-576 (citations omitted).

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"[T]hree conditions are necessary for a plaintiff to establish a constructive trust for its benefit: the existence of a res (some property or some interest in property), the plaintiff's right to that rest, and the defendant's gain of the res by fraud, accident, mistake, undue influence or other wrongful act." U.S. v. Pegg, 782 F.2d 1498, 1500 (9th Cir. 1986). "Under California law, a constructive trust is an equitable remedy, not a substantive claim. In order to establish a constructive trust, the purported beneficiary of the trust must have a substantive right to receive the property." Fourth Investment LP v. U.S., 2010 WL 3069685, *8 (S.D. Cal. Aug. 4, 2010) (citations omitted). Because at least some of Plaintiff's claims will survive defendants' motions to dismiss, it is possible that Plaintiff will establish a substantive right to some property held by defendants. 

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Civil Code section 2217 reads: "An involuntary [constructive] trust is one which is created by operation of law." Civil Code section 2223 reads: "One who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner." Civil Code section 2224 provides: "One who gains a thing by . . . the violation of a trust, or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it." Civil Code section 2243 reads: "Everyone to whom property is transferred in violation of a trust, holds the same as an involuntary trustee under such trust, unless he purchased it in good faith, and for a valuable consideration." In Bainbridge v. Stoner, 16 Cal.2d 423, 428 [ 106 P.2d 423], the court stated: "The theory of a constructive trust was adopted by equity as a remedy to compel one to restore property to which he is not justly entitled, to another.

 

The person holding the property may have acquired it through fraud, undue influence, breach of trust, or in any other improper manner and he is usually personally liable in damages for his acts. But the one whose property has been taken from him is not relegated to a personal claim against the wrongdoer which might have to be shared with other creditors; he is given the right to a restoration of the property itself. The title holder is, therefore, said to be a constructive trustee holding title to the property for the benefit of the rightful owner, but he is not charged with responsibility based upon either the actual or presumed intention of the parties. (Sec. 2224, Civ. Code; Burns v. Ross, 190 Cal. 269 [ 212 P. 17]; Restatement, Restitution, sec. 160.)" (Italics added.) (See, also, Rankin v. Satir, 75 Cal.App.2d 691, 695 [ 171 P.2d 78]; Scott on Trusts, 2317, § 462.2.)

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Highland Park Inv. Co. v. List, 27 Cal.App. 761, 763 [ 151 P. 162], says that "A fundamental obligation of trusteeship is that a trustee may not obtain any benefit or advantage over his cestui que trust. The law looks with strictness amounting to suspicion upon all transactions had by a trustee respecting the trust property, and the burden is generally cast upon the trustee in such a case to make a clear showing of the absence of fraud and that there was no lack of good faith."

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