Opinion ID: 168824
Heading Depth: 2
Heading Rank: 2

Heading: Should the District Court Have Imposed a Constructive Trust?

Text: 57 Mr. Butt maintains that even if the Bank does not serve as trustee of an express trust, it may yet hold profits from the Lease that belong to him. He notes that the district court acknowledged this possibility but declined to make determinative findings given its ultimate disposition of the case. Mr. Butt seeks a remand for an accounting and the imposition of a constructive trust over any monies that are found rightfully to belong to him. 58 Although somewhat inartfully drawn, Mr. Butt's filings before the district court are sufficient to preserve this issue. The overriding theory of Mr. Butt's complaint is that the Bank acted with respect to the Lease in a way hostile to his interests and thereby procured profits that rightfully belong to him. Moreover, in his pre-trial filing before the district court, Mr. Butt specifically noted that the Bank may have acted adversely to his interest with regard to the Turner Farmout, the Machris Assignment, and the Pauley Petroleum Assignment. See App. Vol. I, at 78-79, 81. He repeated this assertion at trial as well. See App. Vol. III, at 878. 59 Under New Mexico law, [a] constructive trust ... is imposed to prevent the unjust enrichment that would result if the person having the property were permitted to retain it. The circumstances where a court might impose such a trust are varied. They may involve fraud, constructive fraud, duress, undue influence, breach of a fiduciary duty, or similar wrongful conduct. Aragon, 812 P.2d at 1304. Because Mr. Luthy's name is the only one that appears on the Lease, the Bank, as his testamentary trustee, was in a position to act on behalf of the entire Lease without the consent of the other owners. Such conduct would, of course, be wrongful and warrant the imposition of a constructive trust on any resulting profits that were not shared with the other beneficial owners. 60 The district court found that the Bank may have acted adversely to Mr. Butt's rights with respect to three transactions: the Turner Farmout, the Machris Assignment, and the Pauley Petroleum Assignment. With respect to the Turner Farmout, the district court found that the Ratification and Amendment to Agreement cured any problem with the original farmout agreement entered into by [the Bank]. Dist. Ct. Mem. Dec. 11. We agree with that assessment. Thus, we are left with the Bank's potentially wrongful actions surrounding the Pauley Petroleum and Machris Assignments. And it is with regard to those two assignments that we reverse the district court and require a limited remand. 61 On remand, the district court should address whether Mr. Butt has a valid claim for an accounting with regard to these transactions, including whether any such claim is time barred. If his claim is valid, and if the accounting reveals wrongly withheld profits, then imposition of a constructive trust may be warranted. The remand is limited to these two transactions because, having had the benefit of full discovery and a bench trial in this case, Mr. Butt has failed to bring to the attention of the district court or this Court any other potentially problematic transactions. 14