Counihan v. Allstate Insurance

• Citation: 194 F.3d 357
• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-6163
• Parties: (2nd Cir. 1999) JOSEPHINE COUNIHAN, Plaintiff-Appellant, UNITED STATES OF AMERICA, Plaintiff-Intervenor-Appellee, v. ALLSTATE INSURANCE CO., Defendant
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 357

194 F.3d 357 (2nd Cir. 1999)

JOSEPHINE COUNIHAN, Plaintiff-Appellant, UNITED STATES OF AMERICA, Plaintiff-Intervenor-Appellee, v. ALLSTATE INSURANCE CO., Defendant.

Docket No. 98-6163

August Term, 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: May 25, 1999

Decided: October 13, 1999

Appeal from a judgment entered after a bench trial in the United States District Court for the Eastern District of New York (Wexler, J.), imposing a constructive trust in favor of the United States on proceeds of a fire insurance policy covering a residential dwelling subject of ongoing forfeiture proceedings.

Judgment affirmed.

RICHARD B. LIND, New York, NY, for Plaintiff-Appellant.

CHARLES S. KLEINBERG, Assistant United States Attorney, Brooklyn, NY (Zachary W. Carter, United States Attorney, Eastern District of New York, Deborah B. Zwany and Arthur P. Hui, Assistant United States Attorneys), for Plaintiff-Intervenor-Appellee.

Before: KEARSE, MINER and McLAUGHLIN, Circuit Judges,

MINER, Circuit Judge:

Plaintiff-Appellant Josephine Counihan appeals from a judgment entered in the United States District Court for the Eastern District of New York (Wexler, J.) imposing a constructive trust in favor of plaintiff-intervenor-appellee the United States of America (the "government" or the "United States") on benefits paid pursuant to an insurance policy issued by defendant Allstate Insurance Co. ("Allstate"). During the course of forfeiture proceedings against Counihan, but prior to the final entry of judgment, the property which the United States sought to seize by forfeiture was partially destroyed by arson. After the fire, Counihan brought the action giving rise to this appeal against Allstate to recover the insurance proceeds. The United States intervened in the action, asserting that it was entitled to the benefits of the fire insurance policy under a theory of constructive trust. The district court imposed a constructive trust on the proceeds, concluding that Counihan would be unjustly enriched if she were to receive the benefits of the fire insurance policy.

Affirmed.

BACKGROUND

The extensive background of this action is set out in our three previous opinions dealing with this litigation. See Counihan v. Allstate Ins. Co., 25 F.3d 109 (2d Cir. 1994) (Miner, J.), United States v. Certain Real Property, 990 F.2d 1250 (2d Cir. 1993) (summary order), United States v. 890 Noyac Road, 945 F.2d 1252 (2d Cir. 1991). We presume familiarity with each of those opinions and recount here only those facts most pertinent to the resolution of this appeal.

Josephine Counihan owned a one-half interest in property at 890 Noyac Road in Noyac, New York (the "Property"). In July of 1988, police raided the Property and arrested Thomas Counihan, Counihan's son, for drug dealing. In February of 1989, the government filed a complaint in rem seeking forfeiture of Counihan's interest in the Property pursuant to 21 U.S.C. 881(a)(7) (the "forfeiture action"), predicating forfeiture on Counihan's knowledge of the prior drug activity at the Property. In response, Counihan filed a claim in the forfeiture action as an innocent owner. In December of 1989, Counihan renewed an insurance policy on the residence that she had first obtained a year earlier from Allstate.

In July of 1990, a jury in the forfeiture action returned a verdict in the government's favor, and the district court entered a judgment of forfeiture. Counihan appealed the judgment and continued to exercise the incidents of ownership without objection from the government. On November 1, 1990, arson destroyed the Property. In October of 1991, we reversed the judgment of forfeiture and remanded for a new trial, holding that the district court abused its discretion by allowing a post-trial amendment of the complaint to set forth matters that occurred after July 22, 1988, the date Thomas Counihan was arrested. See 890 Noyac Road, 945 F.2d at 1259. After reversal, in October of 1991, Counihan instituted the action giving rise to this appeal in order to recover the proceeds of the insurance policy due on account of the fire (the "insurance action").¹

On remand in the forfeiture action, a jury again returned a verdict in the government's favor, and the district court entered a final judgment of forfeiture in May of 1992. On appeal, we affirmed the judgment. See Certain Real Property, 990 F.2d 1250. Pursuant to the forfeiture judgment, the government sold the property for $50,000. From these proceeds, the government paid closing costs and Counihan's first mortgage debt of $32,275.25, receiving net proceeds of $5,000.

In August of 1993, the parties cross-moved for summary judgment in the insurance action. The district court granted Allstate's motion and dismissed the complaint, concluding that Counihan had no insurable interest in the Property at the time of the fire due to the "relation-back" provision of the Comprehensive Drug Abuse Prevention & Control Act of 1970, 21 U.S.C. 881(h). See Counihan v. Allstate Ins. Co., 827 F. Supp. 132, 136 (E.D.N.Y. 1993). On appeal, we reversed and remanded. Counihan, 25 F.3d 109. We held that the "relation-back" provision of the statute could not serve retroactively to divest Counihan of the Property because, at the time of the fire, the final judgment of forfeiture had not been entered and Counihan therefore still had an insurable interest in the Property. See id. at 113. We commented that [e]ven if arson is not detected, it lies within the power of the government to reach the proceeds of the fire insurance policy through various means.

The government may seek to intervene in an action brought by the owner to recover the insurance proceeds.. . . After a final adjudication of forfeiture, it is open to the government to assert ownership of the proceeds on a claim of constructive trust.

Id.

In November of 1995, the district court granted a motion by the government to intervene in the insurance action. See Counihan v. Allstate Ins. Co., 907 F. Supp. 54, 55 (E.D.N.Y. 1995). Prior to trial, Allstate agreed to pay the fire insurance proceeds plus interest into an escrow account, to be held until Counihan and the United States resolved the issue of entitlement to the proceeds. Thereafter Counihan and the United States stipulated

that the Court can take judicial notice of all prior proceedings, filings and opinions in [the forfeiture action] and [the insurance action], and can make findings of fact based thereon.

On June 16, 1998, the district court issued its decision, listing twenty numbered findings of fact and seven conclusions of law, determining that the government was entitled to the policy proceeds under a theory of constructive trust. The court noted that the purpose of a constructive trust is to prevent unjust enrichment and found that retention of the insurance policy proceeds by Counihan would result in her unjust enrichment. In imposing the constructive trust, the district court observed that the government's right to the proceeds did not depend upon a showing of Counihan's involvement in the arson. The district court concluded that, under the circumstances, equity and good conscience dictated the remedy provided. Judgment was entered accordingly, and this appeal followed.

DISCUSSION

On appeal, we review the district court's underlying findings of fact for clear error, and its conclusions of law are reviewed de novo. See Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 139 (2d Cir. 1999); Brand v. Brand, 811 F.2d 74, 77-78 (2d Cir. 1987) (affirming district court's imposition of a constructive trust). In this diversity action, we apply the substantive law of New York. See id. at 77.

"'[A] constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.'" Simonds v. Simonds, 45 N.Y.2d 233, 241 (1978) (quoting Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386 (1919) (Cardozo, J.)); see 106 N.Y. Jur.2d Trusts 162 (1993) ("a person may be deemed to be 'unjustly enriched' if he has received a benefit, the retention of which would be unjust").

Constructive trusts have been imposed in a variety of situations where equity had dictated such a remedy. See, e.g., United States v. Coluccio, 51 F.3d 337, 340 (2d Cir. 1995) (constructive trust imposed in favor of claimant's mother who provided monies to secure cost bond so that claimant could contest criminal seizure of his aircraft); Golden Budha Corp. v. Canadian Land Co. of America, 931 F.2d 196, 202 (2d Cir. 1991) (cause of action stated against party allegedly in possession of converted treasure trove); Latham v. Father Divine, 299 N.Y. 22, 29 (1949) (constructive trust imposed where fraud, duress or undue influence prevented testatrix from executing a will bequeathing property to others); G & M Motor Co. v. Thompson, 567 P.2d 80, 84 (Okla. 1977) (constructive trust impressed upon proceeds of life insurance policies where portion of premiums paid with embezzled funds).

A constructive trust is an equitable remedy, necessarily flexible to accomplish its purpose. See Simonds, 45 N.Y.2d at 241. Its purpose is to prevent unjust enrichment, although unjust enrichment does not necessarily implicate the performance of a wrongful act. See id. at 242. What is necessary is that the court identify a party who is holding property "under such circumstances that in equity and good conscience he ought not to retain it." Miller v. Schloss, 218 N.Y. 400, 407 (1916). Counihan contends that she is not such a party and that she would not be unjustly enriched at the government's expense if she received the insurance proceeds. We disagree and adopt the district court's conclusion that "[i]f plaintiff is allowed to retain the policy proceeds, she will be unjustly enriched,...