Abdo v. Abdo

• Decision Date: 07 August 2019
• Docket Number: 2D18-2764,Case Nos. 2D18-2270
• Citation: 284 So.3d 1101
• Parties: Joseph E. ABDO; Social Media, Inc.; Social Media Ltd. LLC; and Social Media, Inc. Ltd., Appellants, v. Khalil ABDO, individually and as a shareholder of Social Media, Inc.; Nada Abdo Quill; and Marie Abdo Silva, Appellees.
• Court: Florida District Court of Appeals

284 So.3d 1101

Joseph E. ABDO; Social Media, Inc.; Social Media Ltd. LLC; and Social Media, Inc. Ltd., Appellants,

v.Khalil ABDO, individually and as a shareholder of Social Media, Inc.; Nada Abdo Quill; and Marie Abdo Silva, Appellees.

Case Nos. 2D18-2270

2D18-2764

District Court of Appeal of Florida, Second District.

Opinion filed August 7, 2019

Robert E. Biasotti of Biasotti Law, St. Petersburg, for Appellants.

Craig L. Berman of Berman Law Firm, P.A., St. Petersburg, for Appellees.

CASANUEVA, Judge.

Appellants challenge two nonfinal orders entered after the close of evidence in a bench trial involving a dispute between siblings over ownership of certain websites and the income stream from those websites. Appellees claim an ownership interest in six websites identified in the second amended complaint (the Websites) and entitlement to a portion of the income generated therefrom. They allege that their brother, Appellant Joseph E. Abdo, took sole control of the Websites and has failed to make required payments of income to Appellees.

The first order on appeal, entered on May 18, 2018, imposed a constructive trust over the income from the Websites and enjoined certain actions of Joseph E. Abdo. The second order, entered on June 29, 2018, appointed a trustee, identified the trust assets, and specified the powers of the trustee.¹ On December 21, 2018, this court held that the trial court did not have personal jurisdiction over two defendants, Social Media, Inc. Ltd. and Social Media Ltd. LLC, and thus erred in denying their motion to dismiss. Abdo v. Abdo, 263 So. 3d 141, 151 (Fla. 2d DCA 2018). A final judgment has yet to be entered in this case. We have jurisdiction. See Fla. R. App. P. 9.130(a)(3)(c)(ii).

Because the order imposing constructive trust and the subsequent order appointing trustee exceed the purpose of a constructive trust and the remedy it affords and because the trial court lacked jurisdiction over two of the defendants which the orders seek to enjoin, we are compelled to reverse.

I. PROCEDURAL HISTORY

The parties proceeded to trial on the second amended complaint, which alleged seven causes of action. After the close of evidence, only two causes of action remained: count I for declaratory action and count III for breach of fiduciary duty. Count I, brought by all plaintiffs, sought a declaratory judgment establishing ownership of the Websites. Count III is a shareholder derivative action brought by Khalil Abdo on behalf of Social Media, Inc., alleging that Joseph E. Abdo violated the fiduciary duty owed to Social Media, Inc. and Khalil Abdo, as a shareholder, by transferring the Websites and related merchant accounts to Social Media, Inc. Ltd. and/or Social Media Ltd. LLC without approval or compensation.

In the order imposing constructive trust, the court found for the plaintiffs on count I and declared the ownership of the Websites as follows: legal title and equitable title were separated, legal title was transferred to Social Media, Inc., "and Joseph then transferred legal title to his own company, Social Media Ltd. But every transfer of legal title was subject to the siblings' beneficial interests, which exist to this day." The trial court also found for plaintiffs on count III and "impose[d] a constructive trust on the income from the websites identified in the second amended complaint."

II. ANALYSIS

After careful review, we conclude that the constructive trust imposed by the trial court in the first order is overbroad and unsupported by the trial court's findings, and we conclude that the overreach in the first order is exacerbated by the second order on review, the order appointing trustee.

A. THE FIRST ORDER

We first discuss the posttrial order imposing constructive trust. A constructive trust is a remedy, not an independent cause of action, and thus "it must be imposed based upon an established cause of action." Collinson v. Miller, 903 So. 2d 221, 228 (Fla. 2d DCA 2005) ; see also Swope Rodante, P.A. v. Harmon, 85 So. 3d 508, 511 (Fla. 2d DCA 2012). As the trial court correctly noted, one such cause of action is breach of fiduciary duty. See Williams v. Stanford, 977 So. 2d 722, 730 (Fla. 1st DCA 2008) ("A constructive trust is an equitable remedy available in cases dealing with breaches of fiduciary duty ....").

A constructive trust serves two purposes: "to restore property to the rightful owner and to prevent unjust enrichment." Brown v. Poole, 261 So. 3d 708, 710 (Fla. 5th DCA 2018) (quoting Provence v. Palm Beach Taverns, Inc., 676 So. 2d 1022, 1025 (Fla. 4th DCA 1996) ). It "is 'constructed' by equity to prevent an unjust enrichment of one person at the expense of another as the result of fraud, undue influence, abuse of confidence or mistake in the transaction that originates the problem." Wadlington v. Edwards, 92 So. 2d 629, 631 (Fla. 1957) ; see also Caryl A. Yzenbaarda, George Gleason Bogert & George Taylor Bogert, The Law of Trusts and Trustees, § 471 (June 2018) ("The constructive trust may be defined as a device used by equity to compel one who unfairly holds a property interest to convey that interest to another to whom it justly belongs.").

We conclude that the order imposing constructive trust is overbroad as to the parties benefiting from it and the entities enjoined by its terms. The trial court created the constructive trust as a remedy for count III, breach of fiduciary duty, stating: "The court finds for plaintiffs on count III and imposes a constructive trust on the income from the websites identified in the second amended complaint." Although the trial court found for the "plaintiffs" on count III, this count was brought only by Khalil Abdo, on behalf of Social Media, Inc., and the beneficiary of the claim is thus Social Media, Inc. See § 607.07401, Fla. Stat. (2017) ; Provence, 676 So. 2d at 1024 ("A derivative action is one in which a stockholder seeks to sustain in his own name a right of action existing in the corporation. Accordingly, the corporation is the real party in interest with the stockholder being only a nominal plaintiff." (citation omitted)).

Furthermore, as would later be held in Abdo, 263 So. 3d at 151, the trial court lacked jurisdiction over Social Media, Inc. Ltd. and Social Media Ltd. LLC, the defendants to whom the Websites were allegedly transferred. Because the court had no jurisdiction over Social Media, Inc. Ltd. and Social Media Ltd. LLC, the constructive trust cannot bind those entities or their assets. See Humphrey v. Deutsche Bank Nat'l Tr. Co., 113 So. 3d 1019, 1020 (Fla. 2d DCA 2013) ("[N]o court can make a decree which will bind any one but a party; a court of equity is as much so limited as a court of law; it cannot lawfully enjoin the world at large, no matter how broadly it words its decree." (alteration in original) (quoting Alger v. Peters, 88 So. 2d 903, 907 (Fla. 1956) )).

Likewise, the scope of the trust assets, or res, is overbroad and undefined in the order imposing constructive trust. "The very essence of the remedy of constructive trust is the identification of specific property or funds as the res upon which the trust may be attached." Collinson, 903 So. 2d at 229. It "may be imposed only where the trust res is ‘specific and identifiable property,’ or can be ‘clearly traced in assets of the defendant.’ " Frieri v. Capital Inv. Servs., Inc., 194 So. 3d 451, 455 (Fla. 3d DCA 2016) (quoting Bank of Am. v. Bank of Salem, 48 So. 3d 155, 158 (Fla. 1st DCA 2010) ). "The remedy is ‘an extraordinary one,’ subject to the discretion of the court and traditional equitable defenses." Joseph v. Chanin, 940 So. 2d 483, 487 (Fla. 4th DCA 2006) (quoting Collinson, 903 So. 2d at 228 ).

The constructive trust here is imposed on the income from the Websites, purportedly capturing the Websites' income stream that presently exists and will continue in the future. The order does not specify a dollar amount or calculation for the res, nor does it contain findings of fact tracing the res to assets of defendants the trust seeks to enjoin and over which the court has jurisdiction. More specificity is required, see Frieri, 194 So. 3d at 456 ("Without an identifiable res traceable to CIS's assets upon which a trust might be imposed, Frieri's claim for a constructive trust against CIS must fail."), particularly in this case where the rights of numerous entities are impacted and where full appellate review has been delayed by the procedure used.

B. THE SECOND ORDER

In the second order on appeal, the order appointing trustee, the trial court provided a much more detailed description of the trust res than was provided in the order imposing the trust, which simply referenced "the income from the [W]ebsites." However, rather than narrowly identifying specific property or funds as the trust res, the second order expands the scope of the trust even further, casting a net over unspecified assets of nonparties.

In defining the "trust assets," the order includes, for example, "[i]nternet domains or subdomains referenced directly or indirectly in the Second Amended Complaint"; merchant services accounts, source codes, and computer infrastructure for such domains; "[a]ny asset purchased with monies generated or received by Social Media, Inc. or Social Media Ltd LLC since March 1, 2012"; "[a]ll income received or generated by any domain or subdomain"; "[a]ny asset held by or titled to any third-party in which the Abdo siblings now or at any time since March 1, 2012 held an equitable interest, including but not limited to Social Media, Inc.; Social Media Ltd. LLC; Social Media Inc. Ltd; or Internacionale de Communicanes Mundial (‘IDCM’)";² "[a]ny asset of any Defendant or third-party insider that has been acquired or leased with any funds generated by any asset or entity in which the siblings now or in the past held an interest"; and "[a]ny funds received by any Defendant upon closing a merchant account." This order empowers the trustee to employ third parties and "to...