Jaffer v. Hirji
887 F.3d 111 (2018)
Rule of Law:
Under New York law, a constructive trust may be imposed to prevent unjust enrichment, even without an express promise, when there is a confidential or fiduciary relationship, a transfer made in reliance on an implied promise arising from that relationship, and a subsequent breach of that promise resulting in unjust enrichment.
Facts:
- In 1982, Mohamed Hirji purchased a residential house in Hartsdale, New York, placing the title in the names of his sons, Ahmed Hirji and Mustafa Hirji, with the intention that it be a family residence.
- In 1984, Plaintiffs Ahmed Hirji, Latifa Jaffer (Mohamed's daughter), and Hussein Jaffer (Latifa's husband), along with Shehzad Hirji (Ahmed's son, later), began residing at the property.
- Between 1984 and 2013, Plaintiffs maintained and made capital improvements to the property, paid all subject property taxes, and never remitted rent payments to any record owners.
- In 1989, Ahmed Hirji and Mustafa Hirji transferred the title to their father Mohamed Hirji and their brother, Defendant Naushad Hirji, as joint tenants with the right of survivorship, with no consideration paid.
- Upon Mohamed Hirji's death in 1998, his interest in the property devolved to Defendant Naushad Hirji.
- In 2001, Defendant Naushad Hirji deeded the property to himself and his wife, Defendant Sabira Hirji, without discussing these changes with the real estate lawyer who prepared the deeds.
- In January 2014, Defendants Naushad and Sabira Hirji, who resided in Tanzania and had visited the property only once, issued a Notice of Termination to Plaintiffs, requiring them to vacate the property.
Procedural Posture:
- Plaintiffs Latifa Jaffer, Ahmed M. Hirji, Shehzad Hirji, and Hussein Jaffer commenced litigation in the United States District Court for the Southern District of New York against Defendants Naushad M. Hirji and Sabira Hirji.
- Plaintiffs' amended complaint asserted claims for (1) the imposition of a constructive trust on the property and (2) title to the property by adverse possession.
- The District Court granted judgment on the pleadings under Federal Rule of Civil Procedure 12(c) against Plaintiffs' adverse possession claim.
- The District Court subsequently granted summary judgment to Defendants on Plaintiffs' constructive trust claim.
- Plaintiffs appealed the District Court's October 27, 2015 order (adverse possession) and May 18, 2017 judgment (constructive trust) to the United States Court of Appeals for the Second Circuit.
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Issue:
Does New York law permit the imposition of a constructive trust on real property transferred between family members based on an implied promise arising from a confidential relationship, even in the absence of an express promise, if the transfer was made in reliance on that implied promise and refusing to honor it would result in unjust enrichment?
Opinions:
Majority - Calabresi, Circuit Judge
Yes, New York law permits the imposition of a constructive trust based on an implied promise arising from a confidential family relationship, provided the transfer was made in reliance on it and unjust enrichment would result. The District Court improperly granted summary judgment to Defendants on the constructive trust claim. Under New York law, a constructive trust can be imposed to prevent unjust enrichment and requires (1) a confidential or fiduciary relation, (2) a promise (express or implied), (3) a transfer made in reliance on that promise, and (4) unjust enrichment. Citing Sharp v. Kosmalski and Sinclair v. Purdy, the court clarified that a promise need not be express but can be implied from the circumstances and relationship, especially when it is 'inconceivable' that a transferor would convey property without a tacit understanding. The undisputed facts, such as Plaintiffs living rent-free for almost 30 years, making improvements, paying taxes, and the casual approach to deed changes within the family, may create a genuine dispute of material fact regarding an implied promise and unjust enrichment. The District Court erred by not fully comparing the relationship and transaction to the precedents of Sharp and Sinclair, and by focusing solely on Naushad's belief. Therefore, the constructive trust claim is vacated and remanded for further determination. However, the adverse possession claim was properly dismissed. To establish adverse possession, occupation must be (1) hostile and under claim of right; (2) actual; (3) open and notorious; (4) exclusive; and (5) continuous for 10 years. In cases involving close family relationships, the presumption of hostility does not apply. Instead, the claimant must present affirmative facts to establish use under a claim of right and adverse to the true owners' interests. Since Ahmed conveyed title to Naushad, an implied permission existed, and the amended complaint did not contain any affirmative facts showing a distinct assertion of a right hostile to the Defendants.
Dissenting - José A. Cabranes, Circuit Judge
No, New York law does not permit the imposition of a constructive trust based merely on subjective expectations or implied intentions in a family context, as it requires a fraud-rectifying remedy, and no fraud was alleged. Judge Cabranes dissented, arguing that the New York Court of Appeals has consistently held that the constructive trust doctrine serves as a 'fraud-rectifying' remedy rather than an 'intent-enforcing' one, citing Bankers Sec. Life Ins. Soc'y v. Shakerdge and Binenfeld v. Binenfeld. He contended that the majority's decision risks transforming the doctrine by imposing a constructive trust based on Ahmed's subjective expectations without any evidence that the appellees committed fraud. He emphasized that unrealized expectations, without more, are insufficient to fashion a constructive trust under existing New York law.
Analysis:
This case significantly clarifies the application of constructive trust doctrine in New York, particularly regarding the 'promise' element within confidential family relationships. It reinforces that an express promise is not always necessary and that courts must closely examine the circumstances, conduct, and relationship of the parties to infer a tacit understanding upon which property was transferred. The decision serves as a cautionary tale for those who rely on informal family arrangements for property ownership, emphasizing that such arrangements, if breached, may be remedied in equity. It provides a crucial precedent for future litigants seeking to establish constructive trusts in similar intra-family disputes, particularly when long-term residential use and contributions to property maintenance are present, making it harder for legal titleholders to evict family members based solely on deed ownership. The dissent highlights a tension in New York law between 'fraud-rectifying' and 'intent-enforcing' remedies, which may warrant further clarification from the New York Court of Appeals.
