Opinion ID: 719685
Heading Depth: 2
Heading Rank: 2

Heading: Distribution of Funds

Text: 10 The Court is offered this question to decide: did the district court abuse its discretion in distributing the assets pro rata? Typically, when a party can trace its assets, that party is entitled to seek a constructive trust or equitable lien on its portion of those funds that remain. Restatement (First) of Restitution § 211(1) (1937); Cunningham v. Brown, 265 U.S. 1, 11, 44 S.Ct. 424, 426, 68 L.Ed. 873 (1924) (discussing the infamous Ponzi scheme). A constructive trust may be created regardless of the intentions of the parties where equity and justice demand. Rosenberg v. Collins, 624 F.2d 659, 663 (5th Cir.1980). When tracing is impossible, a claimant has merely a personal claim against the wrongdoer and the funds are distributed ratably. Cunningham, 265 U.S. at 11, 44 S.Ct. at 426; Restatement (First) of Restitution § 213 cmt. c., illus. 3-6 (1937). 11 No one can dispute that tracing would have been permissible under the circumstances of this case. Cunningham, 265 U.S. at 11, 44 S.Ct. at 426. Claremont identified its funds and had a right to seek imposition of a constructive trust on the traced funds. The government in fact suggested that Claremont receive the traced funds. However, the court, in exercising its discretionary authority in equity, was not obliged to apply tracing. See S.E.C. v. Elliott, 953 F.2d 1560 (11th Cir.1993) (district court's decision to disallow tracing was well within broad equitable powers); United States v. Vanguard Inv. Co., 6 F.3d 222, 227 (4th Cir.1993) (a district court in its discretionary supervision of an equitable receivership may deny remedies like rescission and restitution where the equities of the situation suggest such a denial would be appropriate.). As noted above, the court imposes a constructive trust only where equity and justice demand. Rosenberg, 624 F.2d at 663. 12 The lower court in this case chose not to impose a constructive trust in Claremont's favor because it seemed inequitable to allow Claremont to benefit merely because the defendants spent the other victims' funds first. Claremont would obtain a preferred claim over funds if the court were to impose the constructive trust. To the district court, all the fraud victims were in equal positions and should be treated as such. We cannot say that the district court's assessment of the facts and the resulting order were an abuse of discretion. 13 Sitting in equity, the district court is a court of conscience. Wilson v. Wall, 73 U.S. (6 Wall.) 83, 90, 18 L.Ed. 727 (1867). Acting on that conscience, the lower court in the instant case rationally considered the positions of the victims and held that following the tracing principle would be inequitable. Claremont's frustration with the lower court's ruling is understandable but the court was not required to impose a constructive trust in Claremont's favor. Because the court used its discretion in a logical way to divide the money, the court committed no error requiring our intervention. For us to hold otherwise would be to chain the hands of the court in Equity to do what is right under the circumstances. We will not rob the lower court of the discretion essential to its function. The restitution order is AFFIRMED.