Court Imposes Constructive Trust Over Proceeds of Fraud

On January 10, 2019, Justice Ash of the Kings County Commercial Division issued a decision in Kliban v. Vishnev, 2019 NY Slip Op. 30150(U), imposing a constructive trust over the proceeds of a fraud, explaining:

With regards to Plaintiffs claim for a constructive trust against Susanna, Atlantic Ocean, Kogan, and AGVD for the monies paid to them through VIP, the Court finds that Plaintiff has satisfied the elements to impose a constructive trust. The ultimate purpose of a constructive trust is to prevent unjust enrichment and, thus, 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 cause of action to impose a constructive trust are (1) the existence of a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4) unjust enrichment. However, these factors serve only as a guideline and should be applied flexibly. Thus, courts can and will impose constructive trusts whenever necessary to satisfy the demands of justice.

Here, Plaintiff established that, due to the misrepresentations by Vishnev and Shapiro, Plaintiff was induced to make checks directly payable to Atlantic Ocean in the amount of $41,500.00. Further, the evidence indicates that Atlantic Ocean received payments from VIP, during the relevant time period, totaling $145,830.00 and from New VIP totaling $11,000.00 despite Atlantic Ocean having no relation to VIP or New VIP's business. Similarly, Plaintiff established that due to the misrepresentations by Vishnev and Shapiro, Plaintiff was induced to make checks directly payable to AGVD in the amount of $60,000.00. Further, the evidence indicates that AGVD received payments from VIP in the amount of $1,500.00 and from New VIP in the amount of $5,700.00 despite AGVD having no relation to VIP or New VIP's business. Based on the foregoing, a constructive trust is imposed on the amount paid to Atlantic Ocean and Susanna in the amount of $69,729.40 plus interest thereon from the date of the last payment, October 16, 2012. And a constructive trust is imposed on the amount paid to AGVD and Kogan in the amount of $61,296.00 plus interest thereon from the date of the last payment, May 27, 2011.

(Internal citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements and rules, including the damages that are available. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.