Court Opinion

ID: 1043654
Source: CourtListenerOpinion
Date Created: 2013-10-08 00:24:45.151735+00
Date Added: 2024-06-11T11:59:11.345605
License: Public Domain

2013 VT 1

Shattuck v.
Peck (2011-145)
 
2013 VT 1
 
[Filed 11-Jan-2013]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by
mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont
05609-0801, of any errors in order that corrections may be made before this
opinion goes to press.
 
 

2013 VT 1

 

No. 2011-145

 

Victor J. Shattuck

Supreme Court

 

 

 

On Appeal from

     v.

Superior Court, Windsor Unit,

 

Civil Division

 

 

Donna Mae Peck

March Term, 2012

 

 

 

 

Katherine
  A. Hayes, J.

 

Patricia G. Benelli and Amanda T. Rundle of Dakin &
Benelli, P.C., Chester, for 
  Plaintiff-Appellee.
 
Melvin Fink, Ludlow, and Michael Rose (On the Brief), St.
Albans, for Defendant-Appellant.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund, Burgess and
Robinson, JJ.
 
 
¶ 1.            
BURGESS, J.   Defendant Donna Mae Peck appeals from a
superior court judgment granting plaintiff Victor J. Shattuck a writ of
possession for the parties’ former residence in Cavendish and denying
defendant’s counterclaim for an equitable interest in the Cavendish property
and another former residence in Springfield.  We affirm.  
¶ 2.            
The facts as found by the trial court may be summarized as
follows.  The parties lived together for several years in defendant’s mobile
home located in Springfield, Vermont on a three-acre plot that defendant had
purchased from her mother in 1988.  The mobile home was purchased by
defendant in 1994 with a $37,000 loan secured by the property.  In 1999,
some time after she was laid off from her job, defendant began to receive
Social Security disability benefits of approximately $700 per month. 
Plaintiff worked during this time at a variety of jobs, although his primary
employment was as a sub-contractor installing cable services.
¶ 3.            
Between December 1997 and June 1999, plaintiff purchased two adjoining
parcels of land in Cavendish for $8500 each.  Plaintiff made most of the
payments for the first parcel, but defendant made a significant financial
contribution toward payment of the second parcel.  In 2001, plaintiff
conveyed the Cavendish properties to himself and defendant as joint tenants
with rights of survivorship, and defendant conveyed the Springfield property to
herself and plaintiff as joint tenants with rights of survivorship.  The
court found that the conveyances were made for estate planning purposes, and
were “entirely donative in nature.”    
¶ 4.            
In 2004, plaintiff invested approximately $50,000 and significant “sweat
equity” in the construction of a home on the Cavendish property. 
Defendant contributed by cooking meals for construction crews, picking out
decorative items, and doing some painting and finishing work.  In July
2005, plaintiff signed a promissory note for a $90,000 loan to continue work on
the house, and both plaintiff and defendant signed a mortgage as
co-owners.  The following month, the parties moved into the home’s
finished walk-out basement and rented the Springfield property to
tenants.  In August 2006, plaintiff obtained an additional $50,000 loan to
complete construction of the residence.  A month later, plaintiff took out
a sizable loan that allowed him to pay off the previous two loans and provided
him with an additional $30,000 in proceeds.  He was the sole signer of the
note and mortgage.  The parties moved into the upstairs of the completed
Cavendish house sometime in 2006.  
¶ 5.            
On September 15, 2006, the same day that plaintiff signed the new loan
and mortgage, defendant transferred her interests in both the Cavendish and
Springfield properties to plaintiff, and the following month she quitclaimed
her interest in the mobile home to him.  Defendant claimed at trial that
she was induced to make these transfers by plaintiff’s fraudulent
misrepresentation that she would lose her disability benefits if she retained
title to the properties.  The trial court found, however, that both
parties believed that “it would be to their mutual financial advantage to
transfer all of their real estate into the plaintiff’s name,” as both “believed
that these arrangements were likely to protect the defendant from any risk of
losing her federal benefits because of having too many assets or too much
income,” particularly from the rented Springfield property. 
¶ 6.            
After the parties moved into the Cavendish property, defendant began to
pay plaintiff between $600 and $700 in rent.  The trial court found that,
like the real estate transfers, the parties believed that the rental
arrangement would benefit defendant financially by allowing her to claim a
renter’s rebate.  Shortly after the move, plaintiff used a portion of the
remaining proceeds from the loan to pay off the outstanding mortgage balance on
the Springfield property, approximately $20,000.  In February 2007, the
parties executed wills that named each other as the residuary beneficiary of
their respective estates.  
¶ 7.            
The parties lived together in Cavendish until June 2010, when plaintiff
decided to end their relationship.  Following an angry confrontation,
defendant obtained a relief-from-abuse order against plaintiff and was awarded
sole possession of the Cavendish property.  Plaintiff evicted the tenants
and moved into the mobile home in Springfield.
¶ 8.            
Plaintiff then filed a complaint in superior court seeking to evict
defendant from the Cavendish property.  Defendant answered and
counterclaimed, alleging that the Cavendish and Springfield properties were the
subject of a partnership agreement between the parties, and requested a dissolution
and accounting.  Alleging that she had been induced to convey the
Springfield properties by plaintiff’s fraudulent misrepresentations, she also
sought equitable relief through imposition of a resulting or constructive
trust.  She later claimed that the Cavendish property was also held in a
constructive trust for her benefit.  
¶ 9.            
Following a two-day evidentiary hearing in November 2010 and February
2011, the trial court issued a written ruling in favor of plaintiff.  The
court found no persuasive evidence that the parties had entered into a
partnership concerning the properties.  Nor did the court find any basis
to support the imposition of a resulting trust.  Nor, finally, did the
court credit defendant’s claim that plaintiff had fraudulently induced the
transfers, or her contention that plaintiff owed the defendant a “special
fiduciary duty.”  Accordingly, the court found no basis for imposition of
a constructive trust.  Consistent with these findings, the court issued a
final judgment order granting plaintiff a writ of possession for the Cavendish
property, requiring defendant to pay plaintiff rent of $560 per month until she
left or was removed from the property, and denying defendant’s
counterclaims.  This appeal followed.  
¶ 10.        
On appeal, defendant contends that the trial court erroneously denied
her request for equitable relief.[1] 
Our review is limited.  “We review equitable remedies, like the creation
of a constructive trust, for a trial court’s abuse of discretion.”  Weed
v. Weed, 2008 VT 121, ¶ 16, 185 Vt. 83, 968 A.2d 310.  This standard
requires a showing that the court withheld its discretion entirely or exercised
it on “clearly untenable” grounds.  Id. (quotation
omitted).   
¶ 11.        
The circumstances under which a court may impose a constructive trust
are broad and highly contextual.  As we explained in Weed: “A court
may impose a constructive trust when a party obtains some benefit that they
cannot, in good conscience, retain. . . . Courts may employ constructive trusts
to avoid unconscionable results and to prevent unjust enrichment.”  Id.
¶ 17.  Unjust enrichment, in turn, rests on the principle that one
should “not be allowed to enrich himself unjustly at the expense of another.” 
Id. (quotation omitted).  “[T]he inquiry is whether, in light of
the totality of circumstances, it is against equity and good conscience to
allow [a party] to retain what is sought to be recovered. . . . It must be a
realistic determination based on a broad view of the human setting
involved.”  Id. (quotation omitted).    
¶ 12.        
While not always clearly articulated, defendant’s argument here is that
the trial court abused its discretion in declining to impose a constructive
trust in several respects.  She asserts that the properties were conveyed
to plaintiff without the requisite “donative” intent, or actual present intent
to convey title, and therefore should be held in a constructive trust for her
benefit.  See Brousseau v. Brousseau, 2007 VT 77, ¶ 6, 182 Vt. 533,
927 A.2d 773 (mem.)  (noting that the two essential elements of an inter
vivos gift of property are “donative intent” and delivery).  Although it
is unclear whether this precise argument was expressly raised below, the trial
court implicitly rejected it in finding no evidence—nor indeed any claim—of an
agreement or understanding between the parties that the property would
ultimately be reconveyed to defendant.  
¶ 13.        
Defendant principally contends that the trial court failed to properly
credit her “significant contributions” to the acquisition and development of
the properties.  While acknowledging that defendant made some
contributions over the years, the court—as noted—found no grounds for the
imposition of a constructive trust absent a showing that plaintiff committed
fraud or owed defendant a special fiduciary duty.  The court’s inquiry in
this regard was—arguably—unduly narrow.  The parties’ purpose in
effectuating a transfer, their respective contributions, and the existence of a
confidential relationship could all theoretically be considered a part of the
totality of the circumstances in determining whether in equity and good
conscience the legal titleholder should be allowed to retain the property.
 See, e.g., Lester v. Zimmer, 542 N.Y.S.2d 855, 857 (App. Div.
1989) (holding that plaintiff’s participation, support, and financial
contributions to construction of vacation home during ten-year relationship
with defendant were relevant considerations in action for imposition of
constructive trust); Rhue v. Rhue, 658 S.E.2d 52, 58-59 (N.C. Ct. App.
2008) (upholding imposition of constructive trust on properties that parties
bought and renovated together during long-term relationship).  See
generally, Restatement (Third) of Restitution & Unjust Enrichment § 28(1)
(2011) (providing that party to relationship resembling marriage who
contributes to asset may have claim for restitution to prevent unjust
enrichment). 
¶ 14.        
This is not an issue that we must address and resolve here, however, as
it is well settled that “one who seeks relief in equity must come to the court
with clean hands.”  Savage v. Walker, 2009 VT 8, ¶ 10, 185 Vt. 603,
969 A.2d 121 (mem.).  See generally C. Yzenbrand, et al., Bogert’s Trusts
and Trustees § 472, at 74 (2012) (“A plaintiff seeking the establishment of a
constructive trust is subject to the ordinary rules of equity, including that
he or she must come into court with clean hands.”).  As we explained in Walker,
a party requesting a constructive trust on property “transfer[red] . . . to
avoid his creditors . . . would not appear to meet this requirement.” 
2009 VT 8, ¶ 10.  The same principle applies when the object of the
conveyance is not to defraud a private creditor but to mislead the
government.  See, e.g., In re Estate of Bruner, 338 F.3d 1172, 1177
(10th Cir. 2003) (“Under the maxim, [h]e who comes into equity must come with
clean hands, a court . . . will not lend its aid . . . to one who has been a
participant in a transaction the purpose of which was to defraud a third
person, to defraud creditors, or to defraud the government.” (quotation
omitted));  McMichael v. Flynn, 686 So. 2d 254, 256 (Ala. Civ. App.
1995) (noting that “a party seeking to set aside a deed . . . is not entitled
to have that deed set aside if the reason behind the transfer was to defraud a
third party, such as a creditor or a governmental entity”).
¶ 15.        
Courts have thus refused to impose a constructive trust in a variety of
circumstances where the original transfer was to avoid a governmental penalty
or obtain an unwarranted governmental benefit.  See, e.g., Bruner,
338 F.3d at 1173 (holding that clean hands doctrine barred resulting or
constructive trust on property which plaintiff induced his parents to purchase
with his funds so that he could “avoid[] certain taxes and obtain[] other
advantages”); Hardy v. Hardy, 910 N.E.2d 851, 853 (Ind. Ct. App. 2009)
(invoking unclean hands doctrine to reject father’s request to impose
constructive trust on property that he transferred to his children to avoid
possible excise tax, forfeiture, and fine).  The facts in McMichael
present a case in point.  There, the defendant invoked the unclean hands
doctrine in an action to set aside a deed, claiming that the plaintiff—her
mother—had “conveyed the property to her in order to defraud a governmental
entity into considering her to be eligible for Medicaid and other governmental
benefits.”  686 So. 2d at 256.  The court acknowledged that the
claim, if proven, would be sufficient to bar the action, but ultimately
concluded that the evidence failed to support it.  Id.  
¶ 16.        
Here, in contrast, the court expressly found—and indeed defendant
readily admitted—that the 2006 property transfers were intended to circumvent
governmental regulations that jeopardized her continued eligibility to receive
Social Security disability benefits.  She would have the courts become
complicit in that effort by requiring that the properties be held for her
benefit, utilizing an equitable remedy designed to accomplish justice where
enforcement of legal title would otherwise be intolerable to equity and good
conscience.  As the foregoing decisions make clear, however, a court will
not lend its aid to any scheme designed to mislead or defraud the
government.  And the fact that both parties were involved in the effort
does not alter this conclusion.  See Cook v. Cook, 116 Vt. 374,
381, 76 A.2d 593, 598 (1950) (“Ordinarily, where parties are in pari delicto, a
court of equity will not afford relief . . . .” (quotation omitted)), rev’d
on other grounds, 342 U.S. 126 (1951); see also Bruner, 338 F.3d at
1178 (holding that, under in pari delicto doctrine, “a party may not obtain
equitable relief by proving inequitable conduct in which he participated”); Eline
Realty Co. v. Foeman, 252 S.W.2d 15, 19 (Ky. Ct. App. 1952) (fact that
defendant induced plaintiff to enter transaction to defraud government did not
absolve plaintiff of unclean hands, as “[e]quity will not relieve one party
against another where both are in pari delicto”).   
¶ 17.        
Although the trial court here did not rule on this issue, there is no
factual dispute concerning the intended purpose of the property
transfers.  The undisputed evidence demonstrates that defendant lacked the
“clean hands” necessary for an award of equitable relief.  Accordingly, we
affirm the judgment on that basis.  See Samplid Enters., Inc. v. First
Vt. Bank, 165 Vt. 22, 28, 676 A.2d 774, 778 (1996) (we may affirm judgment
on rationale different from trial court where result was otherwise
correct).    
¶ 18.        
The dissent here argues that a fraudulent intent, or “ ‘guilty
mind’ ,” is insufficient to support a finding of unclean hands absent an
additional finding that defendant “actually benefitted from the
arrangement.”  Post, ¶ 21.  The dissent maintains that
defendant’s concern about her rental income and ownership of real property was
unfounded because Social Security disability income is not means-tested.  Thus,
defendant’s “potentially nefarious but ultimately ill-founded motives” provide,
in the dissent’s view, a weak basis for the denial of equitable relief.  Post,
¶ 24.  
¶ 19.        
The argument is unpersuasive for two reasons.  First, on the record
before us we need not accept the dissent’s assertion that defendant made a
mistake in acting on her belief that income from the Springfield property and
her ownership interest in both the Springfield and Cavendish properties could
affect her eligibility for government benefits or the amount of benefits. 
There were no findings on this issue either way, but as the dissent notes,
there was evidence that defendant was a beneficiary of Medicaid, a needs-based
program, and her disability may also entitle her to Social Security Insurance
(SSI), also a needs based program that is often confused with Social Security
Disability Insurance (SSDI).  The trial court did find that defendant “had
a case manager to assist her with her benefits, and also had the assistance of
an attorney in obtaining SSDI.  She would have called on these people for
reliable information as to the steps necessary to retain eligibility for the
programs she needed.”  The record and findings thus do not clearly support
the mistake theory advanced by the dissent.  
¶ 20.        
Even assuming, moreover, that defendant acted on a mistake, sound public
policy—and ample authority—support the principle that a party forfeits any
claim to equitable relief when a conveyance is rendered with the intent
to defraud, even if the reason for the conveyance proves to be unfounded or
mistaken.  This general principle is expressed in the annotation cited by
the dissent as follows: “[I]t has been held that the particular grantor’s
motive in conveying the property barred his recovery even though the purported
claim was never asserted or was never established.”  D. Harrison,
Annotation, Rule Denying Recovery of Property to One Who Conveyed to Defraud
Creditors as Applicable Where the Claim Which Motivated the Conveyance Was
Never Established, 6 A.L.R. 4th 862, 867 (1981).  As the court
explained in Bishop v. Bishop, rejecting a claim that the grantor’s
fraudulent conveyance was mitigated by the fact that it was induced by
misrepresentations, “it is the moral intent of a person in such a case
as this, rather than any actual injury done, which determines whether he has
come into court with clean hands.”  257 F.2d 495, 501 (3d Cir. 1958)
(emphasis added).  Indeed, as the court in MacRae v. MacRae
explained, “[t]o hold that equity only applies the [unclean hands]
maxim . . . when the attempted fraud actually succeeds”
would immunize the fraud “if it prove[d] in the end to have been
unnecessary.”  294 P. 280, 284 (Ariz. 1930).  The court categorically
rejected this approach, holding instead that the “requisite in
determining . . . whether a party comes into court with
clean hands is the moral intent, and not the actual injury done.”  Id. 
Numerous courts are in agreement.  See, e.g., Fakhri v. United States,
507 F. Supp. 2d 1305, 1320 (Ct. Int’l Trade 2007) (“The moral intent, and not
the actual injury incurred, is the fundamental inquiry in determining whether a
party has unclean hands.”); Menard v. Menard, 294 N.W. 106, 107 (Mich.
1940) (holding that unclean hands doctrine barred equitable relief where
plaintiff’s conveyance was intended to defraud creditor, even where plaintiff
“later discovered there was no such actual liability”); Hyde Park Amusement
Co. v. Mogler, 214 S.W.2d 541, 545 (Mo. 1948) (“[T]he fundamental requisite
in determining whether a party comes into court with clean hands is the moral
intent, and not the actual injury done.” (quotation omitted)); Blaine v.
Krysowaty, 38 A.2d 859, 860-61 (N.J. Ch. 1944) (“The rights of fraud doers
are not looked at in the light of the wrong they accomplish, but of the wrong
they plan.” (quotation omitted)).  Accordingly, we are not persuaded that
defendant is entitled to equitable relief because her admittedly improper
purpose in effectuating the transfer was based on a mistake.  Nor, as
noted, does the fact that plaintiff and defendant both mistakenly believed the
transfer would enhance plaintiff’s eligibility for benefits alter this
conclusion.  Cook, 116 Vt. at 381, 76 A.2d at 598.  Nor,
finally, does the trial court’s failure to specifically address this issue
compel a remand where, as here, the evidence and findings concerning the intent
of the transfers are clear and undisputed.  See Bishop, 257 F.2d at
500 (holding that court may apply unclean hands doctrine, even where not set up
as defense, where “the unconscionable character of a transaction” is
plain).    
Affirmed. 
 

 

 

FOR THE COURT:

 

 

 

 

 

 

 

 

 

 

 

Associate
  Justice

 
 
¶ 21.        
ROBINSON, J., dissenting.  These parties were involved in a
long-term, committed, intimate partnership.  Defendant brought into the
relationship substantial equity in the Springfield property and mobile home,
and the trial court expressly found that she made a significant contribution to
the purchase of the second parcel in Cavendish.  Now that the parties’
relationship has ended with plaintiff holding legal title to both properties,
the majority declines to address defendant’s claims for equitable relief on the
ground that she has “unclean hands.”  Because the majority relies solely
on its own findings that defendant had a “guilty mind” when transferring her
interests in the properties to plaintiff, without consideration of whether
defendant actually benefitted from the arrangement, I respectfully dissent.
¶ 22.        
The doctrine of unclean hands “is not one of absolutes,” and “does not
apply to every unconscientious act or inequitable conduct on the part of a
plaintiff.”  Nelson v. Emmert, 105 S.W.3d 563, 567 (Mo. Ct. App.
2003) (quotation omitted); see Garbitelli v. Town of Brookfield, 2011 VT
122, ¶ 15, 191 Vt. 76, 38 A.3d 1133 (finding that, in determining whether to
deny aid to “unclean litigant,” town board of abatement “was entitled to weigh
the equities and take into account any bad conduct of taxpayer” (emphasis
added)).  When a court invokes a party’s inequitable conduct to disqualify
that party from pursuing equitable relief, where such relief would otherwise be
warranted, the court is necessarily prioritizing one equitable objective over
another.  Restatement (Third) of Restitution & Unjust Enrichment
§ 63 cmt. f (2011).  
¶ 23.        
The trial court found that both parties believed that by quitclaiming
her interests in the two properties, and paying rent in connection with the
Cavendish property, defendant could protect her federal Social Security
disability benefits from claims that she had too many assets or too much
income.  The trial court expressly declined to reach any conclusions
regarding the accuracy of those beliefs.  The majority’s conclusion, which
is based on the trial court’s findings, thus relies solely on findings about
defendant’s subjective beliefs and intent, with no findings suggesting that
defendant did, in fact, derive any advantage from the property transfers. 
Because the majority focused on the parties’ shared subjective belief about the
impact of defendant’s property ownership on her disability benefits, rather
than on whether that belief had any foundation in reality and whether she actually
benefitted from the conveyances, I believe the majority wrongly concludes that,
as a matter of law, the equitable balance in this case precludes defendant’s
claims.[2]

¶ 24.        
The distinction between defendant’s subjective belief and the objective
reality is real in this case.  Social Security Disability Insurance (SSDI)
is not a means-tested program.  U.S. Soc. Sec. Admin., A Primer: Social
Security Act Programs to Assist the Disabled, 66 Soc. Sec. Bull. 53, 54 (2005/2006),
available at http://www.ssa.gov/policy/docs/ssb/v66n3/ v66n3p53.html.  For
that reason, defendant’s receipt of rental income and her ownership of real
property had no effect on her entitlement to SSDI benefits, and by transferring
her legal interests in the Springfield and Cavendish properties she did not
derive any advantage with respect to SSDI benefits.  This is not a case in
which the defendant has, on the one hand, qualified for governmental benefits
by disclaiming her interests in the properties at issue while, on the other
hand, disavowing the disclaimers from which she benefitted.  Defendant may
have been trying to circumvent what she thought were SSDI eligibility
requirements by conveying legal title to her property interests, but there is
no evidence that the imagined requirements actually existed, or that she
circumvented anything.  Because there is nothing improper about her
holding a beneficial interest in real property while receiving SSDI benefits,
she was not improperly “having it both ways.”  Rather, the majority is
denying defendant the possibility of equitable relief on account of her
potentially nefarious but ultimately ill-founded motives.[3] 
¶ 25.        
A Texas appeals court considered this same issue in a case in which the
estate of a decedent sought to impose a constructive trust on property she had
conveyed prior to her death.  Stout v. Clayton, 674 S.W.2d 821
(Tex. Ct. App. 1984).  The decedent had transferred the property because
she believed that she needed to do so to protect her eligibility for Medicaid
and Social Security disability benefits.  The estate alleged that the
decedent was in a confidential relationship with the grantees, and that the
grantees had agreed at the time of transfer to hold the property only as long
as the grantor needed government benefits.  The court reaffirmed the
general rule that “[w]here parties have transferred land in constructive fraud
of creditors, it is the policy of the law to leave the parties in the position
in which they placed themselves.”  Id. at 827.  However, the
court rejected the notion that, in the absence of any evidence of actual fraud,
evidence that the grantor believed the transfer was necessary to protect
her eligibility for government benefits was enough to preclude a constructive
trust on account of the grantor’s purported fraudulent intent.  Id.
at 827-28.  The court found that there was not sufficient evidence in the
record to determine whether ownership of the transferred property did jeopardize
the grantor’s eligibility for benefits.  Id.  Accordingly, the
court concluded:
Even
if [the grantor] thought she was engaged in a fraudulent transaction, it was
not proved she actually was. . . . The motive with which a
conveyance is made and the fears by which it is prompted are of no importance
unless there are creditors to be protected.  The law has no concern with
the futile intent to protect the property from a claim which its owner fears
may be asserted . . . but which is never asserted and does
not exist.
 
Id. at 828 (citation
omitted).
¶ 26.        
Likewise, a New York court faced a similar situation when confronted
with parties who had sought to convey legal title to their property out of fear
that the government might assess the real estate for penalties on account of
their violation of certain laws.  Buszozak v. Wolo, 211 N.Y.S. 557
(Sup. Ct. 1925).  The grantors’ fear that their property was subject to
assessment by the government, though suggested to them by a lawyer, had no
basis in law.  Id. at 566-67.  The court concluded that the
“unclean hands” doctrine did not preclude the grantors’ equitable claim in that
circumstance, explaining:
The maxim is that
‘[one] who would come into a court of equity must come with clean
hands.’ . . . The cases in which this maxim is usually applied
arise where parties have put their property out of their hands to evade the
just claims of creditors.  Under such circumstances, with some exceptions,
a court of equity will leave a grantor in the bed which [the grantor] has
made.  No rights of creditors are here involved.  There is no
pretense that these parties were indebted to any one.  
 
Id. at 566.
 
¶ 27.        
For similar reasons, many courts have declined to invoke “unclean hands”
to deny recovery of property conveyed to evade creditors where the feared claim
by creditors was never asserted or was not shown to actually exist.  See,
e.g., Steele v. Lannon, 355 So. 2d 190, 192 (Fla. Dist. Ct. App. 1978)
(requiring more than bad motive or intention to defraud, but rather that there
were “hindered creditors or indebtedness or other indicia of actual fraud”); Pratt
v. Watson, 559 N.E.2d 280, 282 (Ill. App. Ct. 1990) (“The exception to this
rule [that fraudulent transfers are binding] is that if no actual fraud has
occurred and no creditors were threatened, damaged, or hindered, then the court
can properly reconvey the property to the transferor.” (citing Rossow v.
Peters, 115 N.E. 524 (Ill. 1917))); Valenti v. Valenti, 108 N.Y.S.2d
315, 315-16 (App. Div. 1951) (reversing trial court’s dismissal of claim
seeking to impress trust upon real property because, although trial court
concluded that property had been transferred with intent to defraud state of
estate tax upon father’s death, there was no evidence upon which it could be
determined whether there was estate tax due on father’s estate, and thus “no
proof that there existed a debt or charge which could have been hindered or
delayed, nor that there was a creditor who could be defrauded”); Hickey v.
Ross, 172 P.2d 771, 774 (Okla. 1946) (“[W]here there are no actual
creditors to defraud and the threatened litigation against the grantor is only
imaginary and the transfer is without consideration, equity will give relief
against the transfer.”); Bailey v. Banther, 314 S.E.2d 176, 179-80 (W.
Va. 1983) (“Equity makes courts reluctant to establish trusts in favor of those
who transfer property to avoid creditors. . . . However,
the equities are different when it turns out that the supposed claims were
invalid, unproved, or illusory. . . . [A] conveyance to
avoid potential creditors, who never press claims, will not justify application
of the unclean hands rule . . . .”); see also Gilpatrick
v. Hatter, 258 P.2d 1200, 1203 (Okla. 1953) (“[W]here there are no actual
creditors to be defrauded and there is only a mental purpose to hinder an
imaginary creditor, equity will not withhold relief.”).  But see Menard
v. Menard, 294 N.W. 106, 107 (Mich. 1940).  See generally D. Harrison,
Annotation, Rule Denying Recovery of Property to One Who Conveyed to Defraud
Creditors as Applicable Where the Claim Which Motivated the Conveyance Was
Never Established, 6 A.L.R. 4th 862 (1981).
¶ 28.        
Moreover, the trial court found that plaintiff and defendant both
believed their arrangement would enhance defendant’s eligibility for disability
benefits.  If defendant had actually benefitted from the transactions in
connection with her benefits, I would agree with the court’s application of the
“clean hands” maxim, and with the in pari delicto corollary; on the facts of
this case, plaintiff’s knowing participation in the scheme is an additional
factor weighing against barring defendant’s claim for equitable relief against
plaintiff.  Insofar as the majority is concerned about defendant’s guilty
mind as opposed to any actual benefit she received as a result of the
transactions, plaintiff’s mind was just as (mistakenly) guilty.  See Nelson,
105 S.W.3d at 568-69 (affirming trial court’s decision against invoking unclean
hands to bar equitable claim for return of property transferred to avoid claim
of creditors where no actual harm came to potential creditors and grantee was
complicit in scheme).
¶ 29.        
For the above reasons, the policy considerations supporting a denial of
equitable relief for defendant are weak, and I cannot join the majority’s
holding that on these facts, as a matter of law, defendant is barred from
pursuing equitable relief.  Defendant’s mind may have been impure, but we
have no findings that defendant gained an improper advantage as a result of the
conveyances, or that anyone was harmed.  
¶ 30.        
By contrast, the equities potentially supporting defendant’s claim are
substantial.  The trial court did not make any findings regarding
defendant’s equity in the Springfield property at the time she conveyed the
property to herself and plaintiff as joint tenants with rights of survivorship,
but found that several years later, in 2006, the property was worth at least
$55,000 when defendant quitclaimed her remaining interest in the property to
plaintiff.  At that time, the outstanding mortgage balance on the property
was $21,694.02.  Accordingly, the equity in the Springfield property when
defendant conveyed the balance of her interest to plaintiff was approximately
$33,300.  Even disregarding defendant’s significant financial contribution
to the purchase of the Cavendish property, acknowledged but unquantified in the
trial court’s findings, the magnitude of defendant’s unjust enrichment claim
against plaintiff is significant.[4] 
For that reason, I would reach the merits of defendant’s equitable claims.
¶ 31.        
On the merits, the trial court’s analysis was detailed and thoughtful. 
However, its analysis of defendant’s unjust enrichment claim was too
restrictive.[5] 
The court concluded that defendant’s unjust enrichment theory failed because
plaintiff had not fraudulently induced defendant to transfer her property
interests to him, the parties had no explicit oral agreement that plaintiff
held the interests in trust for defendant, and plaintiff had no special
fiduciary duties to defendant.  
¶ 32.        
The legal framework thus erected by the trial court was exceptionally
narrow.  First, the court seemed to limit its analysis to a contract-based
framework—even though an unjust enrichment theory does not require any
agreement.  See Savage v. Walker, 2009 VT 8, ¶ 8, 185 Vt. 603,
969 A.2d 121 (mem.) (“A constructive trust is not based upon the intention of
the parties but is imposed in order to prevent one of them from being unjustly
enriched at the expense of the other.” (quotation omitted)); see also
Restatement (Third) of Restitution & Unjust Enrichment § 1 cmt. d
(2011) (“Restitution is the law of nonconsensual and nonbargained benefits in
the same way that torts is the law of nonconsensual and nonlicensed
harms.  Both subjects deal with the consequences of transactions in which
the parties have not specified for themselves what the consequences of their
interaction should be. . . . [T]he law of restitution
identifies those circumstances in which a person is liable for benefits
received, measuring liability by the extent of the benefit.”).  The trial
court’s reliance on the absence of an explicit oral agreement between the
parties in evaluating the unjust enrichment claim was error. 
¶ 33.        
Second, the trial court did not take into account modern developments in
equity pursuant to which courts recognize that longstanding general principles
of equity apply in distinct ways in the context of unmarried cohabitants in
committed, long-term relationships.  As reflected in the Restatement
(Third) of Restitution and Unjust Enrichment, “If two persons have formerly
lived together in a relationship resembling marriage, and if one of them owns a
specific asset to which the other has made substantial, uncompensated
contributions in the form of property or services, the person making such
contributions has a claim in restitution against the owner as necessary to
prevent unjust enrichment upon the dissolution of the relationship.”  Id.
§ 28.[6] 

¶ 34.        
Although the foundational principles of unjust enrichment analysis are
not qualitatively different when the parties are former unmarried cohabitants,
courts have “relaxed” some fundamental requirements for liability in equity in
recognition of the unique circumstances of such cases.  Id.
§ 28 cmt. b.  As a consequence, transactions between unmarried
cohabitants may give rise to consequences by way of unjust enrichment that
would not attach to the same transactions between strangers or even people in
other confidential relationships such as parent and child.  Id. 
The Restatement posits that most of these cases can be explained with reference
to a party’s frustrated expectations when a party confers a benefit in the
expectation that the relationship would be something other than it ultimately
proved to be.  Id. § 28 cmt. c.  “This is why the unjust
enrichment in these cases can be demonstrated only in retrospect.”  Id.
¶ 35.        
On the basis of such considerations, the Court of Appeals in New York
reversed the lower courts’ dismissals of a claim for constructive trust made by
a 56-year-old widowed farmer who had showered his younger new female companion
with gifts—including title to his farm.  Sharp v. Kosmalski, 351
N.E.2d 721 (N.Y. 1976).  After he transferred his farm to his companion,
she ended the relationship and ordered him to vacate the farm.  Although
the court recognized that the woman had made no promises to the farmer
concerning his ongoing access to the farm, the court rejected the assertion
that the law could not imply an agreement or limitation from the circumstances
surrounding the transfer.  Id. at 723-24.  The court remanded
the case for consideration of whether the woman’s conduct in ousting the farmer
“was in violation of [their] relationship.”  Id. at 724.  The
court instructed that the conveyance should be interpreted “not literally or
irrespective of its setting, but sensibly and broadly with all its human
implications.”  Id. (quotation omitted); see Walker, 2009 VT
8, ¶ 8 (unjust enrichment evaluation “involves a realistic determination
based on a broad view of the human setting involved, rather than a limited
inquiry confined to an isolated transaction” (quotation omitted)).
¶ 36.        
Similarly, the Supreme Court of Colorado considered a case in which an
architect, who had designed a home to be shared with his unmarried partner and
had contributed almost $170,000 to the cost of constructing the house, sought
partition of the home after the parties broke up and his partner, to whom he
had conveyed his interest in the property, ordered him to leave.  Salzman
v. Bachrach, 996 P.2d 1263 (Colo. 2000).  The court explained that
unjust enrichment does not depend upon any contract or agreement between the
parties and concluded that the architect could proceed on his unjust enrichment
case; the court remanded for, among other things, calculation of the
architect’s total contributions, as well as the offsetting rental value of his
occupancy during the years he lived in the house rent-free.  Id. at
1265, 1269-70.
¶ 37.        
Likewise, the Wisconsin Court of Appeals affirmed a judgment for unjust
enrichment in a case brought by a former girlfriend who had deeded a portion of
her property to her cohabiting boyfriend so he could get a loan from the bank
and build a garage for his tools on the land.  Wilson v. Ogilvie,
No. 98-2976, 1999 WL 326202 (Wis. Ct. App. May 25, 1999).  Although the
unpublished opinion has no precedential value, the court’s reasoning that the
evidence supported the trial court’s finding that the transfer was not intended
as a gift, and its assessment that she had conferred a benefit on him the
retention of which would be inequitable under the circumstances, is
instructive.[7]
¶ 38.        
In all of these cases, courts allowed equitable relief for individuals
who had taken the affirmative step of deeding their own property interests to
their unmarried cohabitants.  Courts did so even though legal title to the
property was thereby vested in the (former) cohabitants, and even though there
was no evidence of an agreement or promise by the (former) cohabitant to hold
the property in trust, to deed it back upon request, or to allow ongoing access
to the initial owner who made the conveyance.  The question these courts
asked was, in substance, the central question this Court asks in unjust
enrichment cases: “whether (1) a benefit was conferred on defendant; (2)
defendant accepted the benefit; and (3) defendant retained the benefit under
such circumstances that it would be inequitable for defendant not to compensate
plaintiff for its value.”  Reed v. Zurn, 2010 VT 14, ¶ 11, 187
Vt. 613, 992 A.2d 1061 (mem.) (quotation omitted).
¶ 39.        
Likewise, modern courts have allowed unjust enrichment claims based on an
unmarried cohabitant’s investment in improvements to property owned by the
other.  See, e.g., Thibeault v. Brackett, 2007 ME 154, 938 A.2d 27
(affirming unjust enrichment award for girlfriend who made substantial
contributions for improvements to her boyfriend’s home, in which she lived with
him for six years); Hendrick v. Tellier, 710 N.Y.S.2d 750 (App. Div.
2000) (affirming that ex-boyfriend who had made substantial improvements to
ex-girlfriend’s home while they lived there together before she ended their
engagement could pursue an unjust enrichment claim).  And an unmarried
cohabitant is not barred from pursuing an unjust enrichment claim for return of
cash advanced to the other following a break-up.  See, e.g., Lawlis v.
Thompson, 405 N.W.2d 317, 319 (Wis. 1987) (“It is an obligation which the
law creates, in the absence of any agreement, when and because the acts of the
parties or others have placed in the possession of one person money, or its
equivalent, under such circumstances that in equity and good conscience [that
person] ought not to retain it . . . .”). 
¶ 40.        
This strand of unjust enrichment cases does not displace the law
governing gifts or contracts, and the fact remains that the only way to secure
the full legal and economic protections incident to legal marriage—including a
regime of equitable division upon divorce—is to legally marry.  
¶ 41.        
Pursuant to the principles of equity, not every unmarried cohabitant who
confers an economic benefit on his or her partner is entitled to payback if the
relationship ends.  In this case, defendant may or may not ultimately be
entitled to restitution, whether in the form of a constructive trust or a money
judgment, for her substantial investments in the Cavendish and Springfield
properties, and any such judgment could well be subject to offsets for benefits
received.  But she is entitled to an assessment of the evidence supporting
her unjust enrichment claim in light of the applicable principles of equity
law; the absence of a fiduciary duty, fraud, or an express agreement between
the parties may be relevant, but is not determinative of her equitable
claim.  Accordingly, I would remand for the trial court to reevaluate the
evidence in light of the above principles of equity or to take more evidence in
its discretion.

 
 
 

 

 

 

 

Associate Justice

 

[1] 
Defendant has not renewed her claim that the properties were partnership
assets, nor has she clearly and specifically challenged the court’s findings
that her financial contributions were insufficient to impose a purchase money
resulting trust.  She asserts in passing that the parties’ mutual
conveyances in 2001 lacked the requisite donative intent, but this claim was
not clearly and specifically raised below, and therefore was not preserved for
review on appeal.  Maguire v. Gorruso, 174 Vt. 1, 9, 800 A.2d 1085,
1092 (2002).     

[2] 
This discussion accepts, for the sake of argument only, the majority’s implicit
conclusion that this Court can properly conduct such an equitable analysis in
the first instance, without the benefit of the trial court’s input on this
highly discretionary subject.  Garbitelli, 2011 VT 122, ¶ 15
(analyzing trial court’s application of the unclean hands doctrine for abuse of
discretion).  I do not argue, as suggested in the majority opinion, that
evidence of fraudulent intent or “guilty mind” is insufficient to support a
finding of unclean hands.  Ante, ¶ 18.  Had the trial
court made such a finding on this record, I may well affirm.  The majority
goes much further in this case and concludes as a matter of law, even
without any findings by the trial court, that defendant had unclean hands and
that the equitable balance in this case tips against allowing her equitable
claim.  It is this latter conclusion that I challenge.
 

[3] 
The record includes evidence that defendant was a Medicaid beneficiary as
well.  Although eligibility for Medicaid, in contrast to SSDI, is based on
an individual’s income and resources, the trial court did not make any findings
that defendant enjoyed Medicaid benefits to which she would not have been
entitled if she had not conveyed her interests in the Springfield and Cavendish
properties.  If the trial court had made such a finding, then a ruling by
that court along the lines articulated by the majority would not be an abuse of
discretion.  The only finding by the trial court that supports the
majority’s conclusion that defendant had unclean hands as a matter of law is
that defendant and plaintiff transferred the properties to him to protect her
SSDI.  The majority’s alternative hypotheses—that defendant was motivated
by a desire to protect her Medicaid benefits, or that the trial court really
meant “SSI” when it referred to SSDI—are not supported by the trial court’s
findings and, in the case of the latter, are not supported by the record.

[4] 
The trial court also found that as a result of defendant’s disavowal of any
ownership interest in the Cavendish property, and her payment of rent,
defendant was able to get a renter’s rebate and plaintiff was able to deduct
expenses associated with the Cavendish property on his taxes.  This
evidence might be sufficient to support an “unclean hands” bar against
equitable relief for defendant in connection with her acknowledged investment
in the Cavendish property, but would not affect her equitable claim relating to
the Springfield property. 
 

[5] 
Defendant framed the unjust enrichment claim as a claim for a constructive
trust.  Constructive trust is the remedy defendant sought; the underlying
equitable claim was primarily one of unjust enrichment.  See Weed v.
Weed, 2008 VT 121, ¶ 16, 185 Vt. 83, 968 A.2d 310 (describing
constructive trust as equitable remedy).

[6] 
Although all unmarried cohabitants fall within this category—friends, siblings,
or computer-selected roommates may cohabit—for simplicity in this dissent, I
use the term “unmarried cohabitants” to describe couples in committed long-term
intimate relationships.

[7] 
Significantly, the trial court did not make a finding in this case that
defendant’s 2006 transfers to plaintiff of her interests in the Springfield and
Cavendish properties were intended as gifts.