First, “upon a showing that an accounting is warranted, an interlocutory decree is issued requiring the fiduciary to make an accounting.” Soley II, 2013 WL 6388401, at *4 (citing Wilde v. Wilde, 576 F.Supp.2d 595, 608 (S.D.N.Y. 2008)). Second, once the accounting is made, “a hearing is held to establish the final amounts owed to the principal.
As a court in this District more recently held, "[a] constructive trust may be imposed on property belonging to and traceable to the principal but possessed by the third party, where the third party 'may not in good conscience retain the beneficial interest.'" Wilde v. Wilde, 576 F. Supp. 2d 595, 604 (S.D.N.Y. 2008) (quoting Sharp v. Kosmalski, 40 N.Y.2d 119, 121 (1976)). Courts rarely relax the tracing requirement.
As a court in this District more recently held, "[a] constructive trust may be imposed on property belonging to and traceable to the principal but possessed by the third party, where the third party ‘may not in good conscience retain the beneficial interest.’ " Wilde v. Wilde , 576 F.Supp.2d 595, 604 (S.D.N.Y. 2008) (quoting Sharp v. Kosmalski , 40 N.Y.2d 119, 121, 386 N.Y.S.2d 72, 351 N.E.2d 721 (1976) ). Courts rarely relax the tracing requirement.
In any case, the parties have relied exclusively on New York law, so they have impliedly consented to its application. See Wilde v. Wilde, 576 F. Supp. 2d 595, 603 (S.D.N.Y. 2008) (citing Tehran-Berkeley Civil & Environmental Engineers v. Tippets-Abbett-McCarthy-Stratton, 888 F.2d 239, 242 (2d Cir. 1989), and Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 52-53 (2d Cir. 1984)); see also Federal Insurance Co. v. American Home Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011) ("[W]here the parties agree that New York law controls, this is sufficient to establish choice of law."). 1. Breach of Contract
The purpose of an equitable accounting is to require a fiduciary to show what he did with the principal's property. Kramer v. Lockwood Pension Services, Inc., 653 F.Supp.2d 354, 396 (S.D.N.Y.2009) (Batts, J.) (citing Wilde v. Wilde, 576 F.Supp.2d 595, 607 (S.D.N.Y.2008)). If a plaintiff is successful in an accounting claim, in addition to returning the property, a fiduciary must return any profits generated by the use of the property.
Soley also argues that, in finding that the jury verdict and award of damages constituted an adequate remedy at law, the District Court in effect shifted the burden to Soley to prove that Wasserman retained funds that should be disgorged - whereas the burden would have been on Wasserman in the context of an equitable accounting. See Wilde v. Wilde, 576 F. Supp. 2d 595, 608 (S.D.N.Y. 2008) ("Wilde 1") ("[Defendant] bears the burden of proof and is presumed to have been unjustly enriched by all transfers and withdrawals unless he can show otherwise."). Insofar as this is true, New York courts clearly do not consider this argument sufficient to render a legal claim inadequate, as it would effectively render all legal claims inadequate and thus constructively undermine the basic tenet expressed in United Telecard.
To that end, any constructive trust would “extend[] only to the portion [of the purchased asset] traceable to the misappropriated funds.” Wilde v. Wilde, 576 F.Supp.2d 595, 605 (S.D.N.Y. 2008). The upshot is that a claimant who seeks a constructive trust on assets purportedly bought with comingled funds must show two elements of traceability: (1) that the asset was purchased with comingled funds including the claimant's, and (2) “what portion, if any, of the [asset] is actually traceable” to the comingled funds.
“Once the accounting is made, a . . . hearing is held to establish the final amounts owed to the principal.” Wilde v. Wilde, 576 F.Supp.2d 595, 608 (S.D.N.Y. 2008); see Nishman v. De Marco, 76 A.D.2d 360, 367, 430 N.Y.S.2d 339 (2d Dep't 1980) (other citations omitted).
“When a constructive trust extends only to a portion of the property, it is generally known as an equitable lien.” Wilde v. Wilde, 576 F.Supp.2d 595, 605 (S.D.N.Y. 2008). Similarly, “[a]n accounting is an equitable remedy designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession.”
An accounting is an equitable remedy entitling a principal to require his fiduciary to show what the fiduciary did with the principal's property or money. See Wilde v. Wilde, 576 F. Supp. 2d 595, 607 (S.D.N.Y. 2008). To survive a motion to dismiss a claim for an accounting, a party must allege facts sufficient to show "(1) relations of a mutual and confidential nature; (2) money or property entrusted to the [plaintiff] imposing upon [it] a burden of accounting; (3) that there is no adequate legal remedy; and (4) in some cases, a demand for an accounting and a refusal."