:: Complaint Need Not Identify Specific Funds For Imposition Of Constructive Trust
To accept Johanson’s argument would require a person seeking to impose a constructive trust to engage in a significant degree of pre-filing investigation and obtain information peculiarly in the possession of the defendant that is normally part of the discovery process in civil actions. Whether or not the evidence proffered by Stanton (1) identifies specific funds or property that Johanson received from the ESOP and (2) traces those funds or that property to funds or property currently in the possession or under the control of Johanson, remains to be seen. However, that can not be determined at this stage of the proceedings; it can only be determined after Stanton has an opportunity to conduct discovery and fully develop the facts. Stanton v. Couturier, Slip Copy, 2007 WL 4570699 (E.D.Cal.) (December 26, 2007)
In this dispute over ESOP funds, an interesting issue arose that may have broader applicability in the subrogation and reimbursement context. To impose a constructive trust over funds pursuant to ERISA Section 502(a)(3), Great West Life & Annuity Ins. Co., 534 U.S. 204, 213-14 (2002) requires that the particular funds or property upon which a constructive trust is to be imposed must be identified and traceable. But must the complaint identify the traceable funds, or may that await discovery in the litigation?
Stanton v. Couturier provides an answer:
In her complaint, Stanton alleges that Johanson personally enriched himself from the breach of his fiduciary duties (¶ 98) and that the ESOP is entitled to the imposition of a constructive trust on Johanson’s ill-gotten profits (¶ 100). Johanson does not argue that the imposition of a constructive trust does not constitute appropriate equitable relief under § 1129(a)(3), but that Stanton has failed to identify a particular fund or property that is traceable to the ill-gotten gains.
The Court agrees that in order to impose a constructive trust, the particular funds or property upon which a constructive trust is to be imposed must be identified and traceable back to the ill-gotten profits realized by Johanson. Great West Life & Annuity Ins. Co., 534 U.S. 204, 213-14 (2002). However, Johanson cites no authority for the proposition that the funds or property must be identified in the complaint, and independent research by the Court has not revealed any such controlling authority. Sereboff v. Mid-Atlantic Medical Svcs., Inc., 547 U.S. —-, —-, 126 S.Ct. 1869, 1875-77 (2006), cited by Johanson, does not mandate such a result and is of no assistance to Johanson. Sereboff was decided on summary judgment after the close of discovery and the plaintiff in that case was able to trace the proceeds to an identifiable fund.
Note: Thanks to Professor Roger Baron, University of South Dakota School of Law for submitting this case.
Contrary Authority - Not all courts will agree on this point. Cf. Verizon Employee Benefits Committee v. Adams 2006 WL 66711 (N.D.Tex.) (January 11, 2006) (complaint dismissed for failure to identify a specific res, such as a bank account or trust, where funds could be found). Does federal jurisdiction exist if a fund has not been identified?
See Also -:: Plan Fiduciary Claims For Overpayments, Post-Sereboff
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2 Responses to “:: Complaint Need Not Identify Specific Funds For Imposition Of Constructive Trust”
But in the 8th Circuit, Dillards v. Liberty Mutual, the funds need not be identified or traced; the contract obligation alone is sufficient for recovery of overpayments by the long term disability plan without any tracing of past social security payments that were supposed to be used to reduce plan payments.
You are correct. The Eighth Circuit in Dillards appears to have given little consideration to the existence of a res to support jurisdiction over the § 1132(a)(3) constructive trust claim. That the Sereboff/Knudson requirement that an identifiable fund exist can be met by reference to “all overpayments resulting from the payment of social security benefits†seems questionable – but not in the Eighth Circuit.