Constructive Trust Cause of Action Sufficiently Pled/Dismissal “With Prejudice” Not Allowed—Doctrine of Res Judicata Does Not Apply—a Dismissal for Failure to State a Cause of Action Is Not On the Merits

The Second Department determined Supreme Court should not have dismissed the constructive trust cause of action.  The court further determined that the conversion, constructive fraud and breach of contract causes of action were properly dismissed for failure to state a cause of action, but should not have been dismissed “with prejudice.”  With respect to the constructive trust and the dismissal with prejudice, the court wrote:

The equitable remedy of a constructive trust may be imposed ” [w]hen 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” … . “To achieve equity and avoid unjust enrichment, the courts apply these factors flexibly rather than rigidly” … .

Here, the plaintiff sufficiently alleged the existence of a confidential or fiduciary relationship with the defendants. The parties were related through marriage, and the plaintiff and Atanasio, along with their respective spouses, pooled their resources in order to purchase the residential property and the boat … . Further, the plaintiff sufficiently pleaded the elements of a promise and a transfer in reliance on the promise. He alleged that, before he sold the defendants his interest in the property in November 2005, the defendants promised to reimburse him for the expenditures he made for the property and boat as long as he continued making those payments for one year after the sale of his interest. In reliance on this alleged promise and his confidential relationship with the defendants, he transferred his interest in the property to the defendants, and thereafter continued to make expenditures in connection with the property and boat. Finally, his allegations that he made all expenditures for the property and boat during a period of 7½ years, and that the defendants refused to reimburse him, despite being co-owners of the property and boat and notwithstanding their promise, were sufficient to plead the unjust enrichment element necessary to the imposition of a constructive … .

…Supreme Court, upon dismissing the second, third, and fourth causes of action, improperly did so “with prejudice.” A dismissal for failure to state a cause of action based on the insufficiency of the allegations in the pleading is not a dismissal on the merits, and does not bar the adequate repleading of the claim in a subsequent action… . Canzona v Atanasio, 2014 NY Slip Op 04458, 2nd Dept 6-18-14

In a related case, the Second Department noted that, because a dismissal for failure to state a cause of action is not on the merits, the doctrine of res judicata does not apply.  Canzona v Atanasio, 2014 NY Slip Op 04459, 2nd Dept 6-18-14