Judicial imposition of a constructive trust on traceable property for benefit of a victim of unjust enrichment freezes property, insulates it from reach of creditors of others, and captures any appreciation

Assume wrongdoer procures title to a traceable portfolio of stocks by fraud, duress, or undue influence from rightful owner and then transfers title on to an innocent third party for nominal consideration, i.e. to a non-BFP. The innocent third party’s unjust enrichment is at the expense of its rightful owner.

The rightful owner could bring a tort action, which would be an action at law, against the wrongdoer for money damages and leave it at that. Simple. The rightful owner, however, if successful, is now in competition with the wrongdoer’s other creditors. Moreover, the value of any appreciation in the value of the portfolio after the awarding of damages is not captured.

Or the rightful owner might want to turn to equity in the first instance. He might seek the judicial imposition of a constructive trust on the portfolio, the constructive trust being a procedural equitable remedy. The unjustly enriched titleholding third party constructive trustee now holds the portfolio for the benefit of its rightful owner. Any subsequent appreciation in its value accrues to the rightful owner. Even better, the portfolio, or the product into which it has been traced, is insulated from the reach of the creditors of the wrongdoer and of the unjustly enriched innocent third party. In other words, the rightful owner’s in specie interest in the portfolio has been judicially secured via the imposition of a constructive trust. At some point the equity court will then issue an in personam specific performance order of restitution to the third party to transfer legal title back to the rightful owner. The restitution order is a substantive equitable remedy. At some point in the process the rightful owner will want to give consideration to bringing an action at law for damages against the wrongdoer for the direct and indirect costs, legal and otherwise, that the rightful owner has incurred in having the unjust enrichment remedied in equity.

The Idaho Supreme Court [McOmber v. Thompson, 572 P.3d 736 (Idaho 2025)] failed to appreciate that the equitable doctrines of traceability and 2 constructive trust operate in tandem, a topic I addressed in a prior JDSUPRA posting. See https://www.jdsupra.com/legalnews/traceable-economic-value-of3260875/. The court had also failed to appreciate that even a titleholder who has been innocently unjustly enriched may be saddled with the status of constructive trustee. In §7.2.3.1.6 of Loring and Rounds: A Trustee’s Handbook (2026) we explain how an express trustee can morph into constructive trustee. Said section is reproduced in the appendix below. The sub-section also supplies authority for the assertions in this posting.