Berlinger v. Wells Fargo, N.A., Slip Copy, 2014 WL 4071667 (M.D.Fla. August 18, 2014)

This isn’t the first time the trusts at the center of this on-going divorce battle have made it into a published court ruling. I previously wrote about these trusts here, in the context of a controversial appellate ruling by the 2d DCA clarifying when spendthrift/ discretionary trusts are subject to claims for unpaid alimony. This time around the battle ground is a federal court (note the increasing “federalization” of trust disputes, see here), and the question to be decided is whether a trustee can use a common-law based claim of “unjust enrichment” to recoup trust assets it’s being sued for having improperly distributed.

For reasons not discussed in the linked-to order, in framing its claims for recoupment Wells Fargo didn’t rely on F.S. 736.1018, a provision in our trust code that specifically authorizes trustees to sue for the return of improperly-distributed trust funds. I’m not sure if this omission was by design or not, and it may not ultimately matter. Why? Because F.S.  736.0106 tells us trust litigation isn’t governed exclusively by our trust code, to the extent not specifically preempted, the common law of trusts and principles of equity continue to apply.

Can a corporate trustee caught in middle of on-going divorce litigation sue one of the ex-spouses for unjust enrichment? YES:

The plaintiffs are suing Wells Fargo, alleging improper trust distributions were made on behalf of their father, “Bruce,” to their mother, “Sue,” in connection with their 2007 divorce settlement. Bruce is the primary beneficiary of the trusts, although his three children are also beneficiaries. The plaintiffs are Bruce and Sue’s three children. Wells Fargo and Bruce served as co-trustees of the trusts at the time the distributions were made. The contested distributions include $2 million to Sue, on behalf of Bruce, for the equitable distribution of marital assets and monthly distributions to provide alimony and support payments due from Bruce to Sue pursuant to a divorce settlement. In other words, trust funds that were supposed to benefit both Bruce and his children . . . were used to pay Bruce’s individual debts (i.e., settle his divorce). Why anyone at Wells Fargo thought it was a good idea to go along with this plan is beyond me.

Anyway, although we won’t know who’s ultimately at fault here until the case is tried, for now we do know this: if anyone got trust funds they weren’t supposed to get, it wasn’t Wells Fargo. So what to do now that they’ve gotten themselves caught up in this mess? Answer: sue both Bruce and Sue for the return of the trust funds their children are now contesting.

Now back to the unjust-enrichment claim. Is it viable in this kind of case? I don’t see why not. More importantly, the judge agrees it’s viable; here’s why:

Sue contends that the unjust enrichment claim . . . should be dismissed for failing to state a claim for which relief can be granted. Wells Fargo asserts that to the extent it is liable to plaintiffs for payments provided to Sue, it would be inequitable for Sue to retain those funds. Thus, Wells Fargo argues it has properly alleged a valid claim for unjust enrichment.

“A claim for unjust enrichment has three elements: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant voluntarily accepted and retained that benefit; and (3) the circumstances are such that it would be inequitable for the defendants to retain it without paying the value thereof.” Virgilio v. Ryland Grp., Inc., 680 F.3d 1329, 1337 (11th Cir.2012); Florida Power Corp. v. City of Winter Park, 887 So.2d 1237, 1241 n. 2 (Fla.2004).

In this case, Wells Fargo alleges it conferred a benefit on Sue pursuant to a divorce settlement by distributing principal or income on a monthly, on-going basis to provide for alimony and support payments. In addition, Wells Fargo distributed $2,000,000.00 to Sue, on behalf of Bruce, pursuant to the divorce settlement. Wells Fargo also alleges that Sue voluntarily accepted and retained these benefits and if plaintiffs prevail in the underlying action, Sue’s retention of the benefit conferred would be inequitable. Accordingly, the Court finds the allegations set forth a plausible claim for unjust enrichment.

What about standing?

As a fallback Sue argued that if the claim for unjust enrichment against her was viable, Wells Faro lacked standing to assert it because the funds came from the “Trusts” not Wells Fargo. Strike two, here’s why:

As discussed above, plaintiffs allege Wells Fargo made improper distributions from the Trusts to Sue, on behalf of Bruce. If plaintiffs succeed, Wells Fargo will be held liable for the distributions of the funds, not the Trusts, and it would be inequitable for Sue to keep those funds at Wells Fargo’s expense. . . . Therefore, this Court finds Wells Fargo has standing to bring a claim for unjust enrichment against Sue.