Opinion ID: 76367
Heading Depth: 2
Heading Rank: 5

Heading: Roseann Levy

Text: 76 Roseann Levy asserts that her lack of knowledge or involvement in the Debtor's massive fraudulent activity exonerates her from liability and renders the holdings of Jones and Fishbein inapplicable to her. However, a lack of knowledge on the part of the person asserting the homestead exemption does not change this analysis, as it is the fraudulent nature of the funds which is of utmost importance. The undisputed facts show that the Defendants gave no consideration for the tainted funds used to purchase the El Caballo Property and have been unjustly enriched by the use of these funds. Unjust enrichment can be the basis for the assertion of an equitable lien. In Fishbein, the Florida Supreme Court imposed an equitable lien on home stead property based on an unjust enrichment and subrogation theory, notwithstanding the fact that Mrs. Fishbein had not participated in the fraud. The court also extended the equitable lien to the homestead interest of the uninvolved spouse in all three cases. In Fishbein the court specifically stated: 77 Thus, it is apparent that where equity demands it this Court has not hesitated to permit equitable liens to be imposed on homesteads beyond the literal language of article X, section 4. However, the court below was not so concerned with the constitutional language as it was with the belief that an equitable lien could not be imposed because Mrs. Fishbein was not a party to the fraud. Yet, there was no fraud involved in either La Mar or Sonneman. In those cases, the equitable liens were imposed to prevent unjust enrichment. Moreover, in both cases the homestead interest of the spouse of the party whose conduct led to the unjust enrichment was also subject to the equitable lien. 78    79 Mrs. Fishbein is not entitled to a $930,000 windfall. The homestead exemption is intended to be used as a shield, not a sword. 80 Id. at 270-71 (emphasis added) (footnote omitted). See also Spridgeon v. Spridgeon, 779 So.2d 501 (Fla.App.2d Dist.2000) (imposing equitable lien in favor of former husband on unjust enrichment theory when former husband supplied funds for purchase of condominium where court made no finding of fraud). 81 In Babbit, the funds transferred by the defendant to his daughter-in-law were subsequently used to satisfy a mortgage on a home the daughter-in-law and her husband were occupying. Since nearly $120,000.00 was used to satisfy a mortgage, the creditor was entitled to an equitable lien on their home in the amount of the transfer. The court reasoned that the transferred would stand in no worse of a position by the imposition of an equitable lien than they stood before the fraudulent transfers. Babbit, 915 F.Supp. at 338. Similarly, if this Court were to impose an equitable lien on the El Caballo Property, both Roseann Levy and Ray Levy would be in the same position as they were before the fraudulent transfers, making an equitable lien appropriate. 82 In the instant case the Defendants did not satisfy a mortgage with the funds; they outright purchased a home. This distinction, however, is immaterial to this Court's ability to impose an equitable lien, as the end result is the same. It is undisputed that the Defendants, through First R&R used fraudulently obtained funds to purchase the El Caballo Property, for which they gave no value to the Debtor. The Defendants have been unjustly enriched due to the use of the funds to purchase the El Caballo Property and then, after it was clear that the Debtor's scheme was collapsing, by taking out a mortgage for $700,000.00, more than half of the equity in the El Caballo Property. F. Imposition of a Constructive Trust 83 The doctrine of constructive trusts is a recognized tool of equity designed in certain situations to right a wrong committed and to prevent unjust enrichment of one person at the expense of another either as a result of fraud, undue influence, abuse of confidence or mistake in the transaction. In re Powe, 75 B.R. 387, 393 (Bankr. M.D.Fla.1987). In In re First Fidelity Fin. Serv., Inc., 36 B.R. 508 (Bankr. S.D.Fla.1983), the Bankruptcy Court held that: 84 The reason for imposing a constructive trust is to avoid unjust enrichment to the recipient of the windfall, and to do equity for the party whose property has been misused. But a desire to do equity alone is not enough. The essence of the equitable remedy of imposing a constructive trust, as opposed to the legal remedy of damages, is the concept that the very property in question can be returned to its rightful owner. The law gradually broadened so that the proceeds of the original property may be pursued, but the basic requirement of tracing the original property, albeit in its various forms, remains an element of proof for constructive trusts. 85 Id. at 511 (citation omitted). 86 Before one can successfully impress a constructive trust, there must be an identifiable res on which the trust can be impressed. If the original res no longer remains, but is transformed into a different form, it is the burden of the party seeking to impress a constructive trust to trace the property to specific funds before it can prevail. In re Powe, 75 B.R. at 393. Traceable proceeds from prior fraudulent transfers, which are used to acquire a homestead, may also be subject to a constructive trust. In re Lapes, 254 B.R. 501 (S.D.Fla.2000). 87 Despite the Defendants' conversion of the fraudulently obtained funds into the El Caballo Property, Kozyak can nonetheless trace the amount he seeks in order to impose a constructive trust on this property. 88 In In re Mart, 106 B.R. 309 (Bankr. S.D.Fla.1989) Judge Britton had before him a creditor's attempt to impose a constructive trust upon homestead property. In analyzing the legal principles applicable to the case Judge Britton stated: 89 I agree with Chicago Title that if it had proved that these properties were financed to any significant extent with money traceable to the funds embezzled by [the Debtor's brother] and if it had proved that [the Debtor] furnished no consideration for those funds ... a resulting trust would be appropriate. 90 Id. at 311 (emphasis added). 91 Although Judge Britton ultimately determined that the debtor in Mart proved that the funds to purchase the property came from an independent third source unrelated to the debtor or the debtor's brother, his statement regarding the tracing of the funds is applicable here. Kozyak can trace directly or indirectly over 90% of the funds used to purchase the El Caballo Property to the Debtor's fraud. Clearly, all but a fraction of the funds First R&R used to purchase the El Caballo Property originated with the Debtor. It is undisputed that the vast majority of the funds transferred to R&R and U.S. Benefits originated with the Debtor. As all of the elements necessary to establish a constructive trust are present in this case, Kozyak is entitled to the imposition of a constructive trust on the El Caballo Property. G. Conclusion and Order 92 Ray Levy and First R&R were participants in the FinFed fraud. Ray Levy knew about and assisted in fraudulently obtaining funds from the investors. Most of the funds in First R&R's account at the time of the El Caballo Property purchase were obtained directly from the FinFed fraud. It is undisputed that at least $977,921 can be traced directly back to the Debtor. These funds were fraudulently obtained by First R&R and used to purchase the El Caballo Property. This is not a case of conversion of non-exempt to exempt assets, the use of a homestead to hinder, delay or defraud creditors, or use of a homestead which is connected to a criminal activity. This is a case involving the investment of fraudulently obtained funds directly to the homestead and thus, can be squarely decided within the holding of Jones which remains the law in Florida. 93 The imposition of an equitable lien in favor of Kozyak is necessary to prevent the Defendants from using the homestead exemption as an instrument of fraud and to prevent the Defendants unjust enrichment at the expense of the defrauded investors. An equitable lien will provide a means for Kozyak to recover at least a portion of the fraudulently obtained funds. The amount of the lien must be based upon the amount of funds obtained from the Debtor and used to purchase the El Caballo Property. The undisputed evidence reflects such amount to be no less than $977,921. This total dwarfs the present equity in the El Caballo Property which, without interest, is $523,635.94. Nevertheless, the Court will impose an equitable lien for the full amount of $977,921. 6 Based on the foregoing, it is ORDERED AND ADJUDGED as follows: 94 1. Kozyak's Motion for Summary Judgment on all Counts of the Complaint is granted. 95 2. Kozyak is entitled to an equitable lien and a constructive trust in the amount of $977.921.00. 96 3. The Defendants' homestead exemption shall not be a defense to any action taken by Kozyak to enforce his equitable lien/constructive trust against the equity proceeds by foreclosure, by separate order of this Court or otherwise. 97 4. Kozyak is entitled to all of the funds currently being held in escrow in the amount of $525,635.94 plus all accrued interest to date. Kozyak is directed to file a separate motion with notice to the escrow agent requesting the release of these funds to which request the Defendants are prohibited from asserting the defense of homestead exemption as set forth in paragraph 3 above. 98 5. The Court shall enter a separate final judgment in accordance with the findings and conclusions set forth herein.