No Constructive Trust Without a Property‑Specific Promise: The Second Department limits constructive trusts where diverted funds merely improve unrelated properties

Introduction

In Angel v. Strulovich (2025 NY Slip Op 04149), the Appellate Division, Second Department, clarifies a recurring issue in real estate investor litigation: when, if ever, can investors impose a constructive trust on properties that were not the subject of their investment but were later improved or developed with their misappropriated funds? The plaintiffs alleged a multi‑property scheme in which their capital, solicited for specific “investment properties,” was diverted by Yechezkel Strulovich and affiliated entities to improve an entirely different group of “subject properties.”

After the Supreme Court (Kings County) granted dismissal of the constructive trust claims and canceled notices of pendency, the plaintiffs appealed. The appellate court’s decision:

Dismisses the appeal as to the statute of limitations ruling on a subset of properties because that portion of the order was superseded by a later order made upon reargument, addressed in a separate appeal decided the same day; and
Affirms dismissal, on the merits, of the constructive trust causes of action on the “subject properties” for failure to state a claim, and upholds cancellation of the related notices of pendency.

The decision sharpens the pleading and proof required when plaintiffs try to reach real property that was not the object of their bargain but allegedly benefited from their funds.

Summary of the Judgment

The Second Department held that the plaintiffs’ constructive trust claims against numerous “subject properties” failed as a matter of law because the amended complaint did not allege that plaintiffs contributed funds in reliance on an express or implied promise to receive an interest in those specific subject properties. Allegations that diverted funds were used to “purchase, improve, or develop” the subject properties—standing alone—do not establish the necessary promise or transfer elements for a constructive trust over those properties.

Key points:

The appeal addressing statute of limitations dismissals for 15 properties was dismissed because the July 1, 2020 order was superseded by a December 2, 2020 order on reargument (addressed in a separate, contemporaneous appeal).
The remainder of the July 1, 2020 order—granting dismissal for failure to state a constructive trust claim—was affirmed.
With the constructive trust claims dismissed as to the subject properties, cancellation of the corresponding notices of pendency was proper.

Analysis

1) Precedents Cited and Their Influence

The court anchored its ruling in a well‑developed line of constructive trust doctrine:

Elements of a constructive trust (Berry v Wallerstein; Kaprov v Stalinsky; Rock v Rock): fiduciary or confidential relationship; a promise; a transfer in reliance on that promise; and unjust enrichment.
Scope of the “transfer” element (Rock v Rock; Baker v Harrison; Rafferty Sand & Gravel, LLC v Kalvaitis): “Transfer” extends beyond conveyance of title; it includes contributions of money, time, or effort in reliance on a promise to share in the result—but crucially, this is tied to the particular property at issue.
Property‑specific nexus requirement (Rock v Rock quoting Marini v Lombardo): Where the claimant had no prior interest, they must show that an equitable interest developed “through the expenditure of money, labor and time in the [particular] property.”
Pleading standard on a motion to dismiss (Benjamin v Yeroushalmi; Olden Group, LLC v 2890 Review Equity, LLC): Even according plaintiffs every favorable inference, the complaint must plausibly allege all constructive trust elements for the specific property targeted.
Restatement (Third) of Restitution § 55, cmt k, Illustr. 23: Where a wrongdoer uses another’s funds to improve property, the typical equitable response is an accounting or lien corresponding to the value added—not a constructive trust granting the claimant an ownership interest—absent a promise or other special circumstances tying the claimant’s reliance to that property.
Comparative cases (Kaprov; Rafferty; Baker; Hernandez v Florian; Ning Xiang Liu v Al Ming Chen): These decisions illustrate both sides of the line—when allegations of a promise to share in the specific property survive dismissal, and when the absence of such a promise is fatal.

Collectively, these authorities support a property‑specific view of constructive trust: the promise and reliance must relate to the particular property on which a constructive trust is sought, especially where plaintiffs had no prior legal or equitable interest in that property.

2) The Court’s Legal Reasoning

The court accepted the complaint’s facts as true—plaintiffs were solicited (2012–2014) to invest in “investment properties,” prospectuses allegedly overstated purchase and development costs, and funds were instead used, at least in part, to improve or develop different “subject properties.” Even so, the claim still failed because:

No property‑specific promise alleged: Plaintiffs pleaded a promise to receive interests in the investment properties, not in the subject properties. Without an express or implied promise tied to the subject properties, two constructive trust elements falter: “promise” and “transfer in reliance” in relation to the specific res.
Improvements alone are insufficient: Post‑purchase improvements to properties owned by the defendants do not, by themselves, convert investors into equitable co‑owners. The Restatement and New York case law indicate that the appropriate equitable relief in such circumstances is typically a money judgment, accounting, or an equitable lien to the extent of value added—not a constructive trust.
Constructive trust is property‑specific: It is not a generalized remedy for wrongdoing; it attaches to a specific res when equity dictates that the defendant should not, in good conscience, hold legal title free of the claimant’s equitable interest. Here, the plaintiffs’ equitable interest, as pleaded, ran to the promised investment properties, not to the subject properties.
Procedural effect on lis pendens: Because the constructive trust claims (the only claims directly affecting title to the subject properties) were dismissed, the notices of pendency were properly canceled.

3) Doctrinal Impact and Practical Consequences

The decision advances and clarifies New York law in several respects:

Pleading discipline in investor‑developer disputes: Plaintiffs who seek to reach properties different from those they were promised must allege more than diversion of funds. They must plausibly allege a promise—express or fairly implied—to share in the specific property targeted for a constructive trust.
Remedy selection: Where diverted funds merely improved existing properties owned by the wrongdoer or affiliates, courts are likely to steer plaintiffs toward money remedies, accountings, or equitable liens, rather than constructive trusts.
Real property stability: By tightening the constructive trust gateway, the court protects certainty in real estate titles from broad claims premised solely on improvements financed with diverted funds.
Notices of pendency: Litigants filing lis pendens should ensure that their complaint truly “affects title” to the identified properties (CPLR 6501). If the only title‑affecting theory is a constructive trust, and that theory is not property‑specific, the lis pendens is vulnerable.
Tracing vs. ownership claims: The ruling does not foreclose tracing remedies or equitable liens; it clarifies that tracing improvements does not, without more, warrant an ownership remedy (constructive trust) in the improved property.

Complex Concepts Simplified

Constructive trust: An equitable device used by courts to prevent unjust enrichment by treating the defendant as if they hold title to property for the benefit of the plaintiff. It typically requires (1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer made in reliance on that promise, and (4) unjust enrichment. The “promise” and the “transfer in reliance” must relate to the specific property over which the trust is sought.
Property‑specific promise: A representation—express or implied—that the claimant will receive an interest in the particular property at issue. A general promise to invest funds profitably is not the same as a promise to share ownership in a particular parcel.
Transfer in reliance: The claimant must have contributed money, labor, or time because of the promise, and those contributions must relate to the property over which a constructive trust is sought.
Unjust enrichment: The defendant should not be allowed to retain a benefit (e.g., an improved property) unfairly. But unjust enrichment alone does not entitle a claimant to an ownership remedy; the other elements must also be met.
Equitable lien vs. constructive trust: An equitable lien secures a monetary claim against specific property to the extent of value added or funds invested; a constructive trust, by contrast, can confer an equitable ownership interest. Courts often favor an equitable lien—not a constructive trust—when misappropriated funds merely improve existing property and no promise of ownership was made.
Notice of pendency (lis pendens): A filing that alerts the world to litigation that may affect title to real property. If a complaint no longer states a claim affecting title (e.g., a constructive trust claim is dismissed), the lis pendens can be canceled.
Order “superseded” on reargument: When the trial court reconsiders an issue on a motion for reargument and issues a new order, the prior order on that issue is superseded. Appeals from the superseded portion are typically dismissed as academic, with the merits addressed in the separate appeal from the reargument order.

How the Court Used the Cited Authorities

Berry v Wallerstein; Kaprov v Stalinsky; Rock v Rock: Provided the four‑factor framework for constructive trusts, and emphasized that reliance must tie the claimant’s contribution to the property in question.
Marini v Lombardo (via Rock v Rock): Reinforced that, absent prior interest, a plaintiff must show an equitable interest arising from expenditures in the particular property.
Baker v Harrison; Rafferty Sand & Gravel; Hernandez v Florian; Ning Xiang Liu v Al Ming Chen: Illustrated contrasting outcomes depending on whether the complaint alleged a promise to share in the specific property; the court aligned this case with those dismissing claims where that link was missing.
Restatement (Third) of Restitution § 55, cmt k, Illustr. 23: Supported the proposition that using another’s funds to improve property typically yields an accounting or lien, not a constructive trust, unless a property‑specific promise or similar equitable consideration is present.
Benjamin v Yeroushalmi; Olden Group: Confirmed that, even under the liberal CPLR 3211(a)(7) standard, a complaint lacking the property‑specific promise fails to state a constructive trust claim.
Cooper v Cooper & Clement: Explained why the appeal could proceed as to issues not encompassed by the motion for reargument, clarifying the procedural posture.

Practical Guidance for Future Cases

For plaintiffs:
- Plead a clear, property‑specific promise—express or implied—to share in the particular property for which a constructive trust is sought.
- Allege how your funds, labor, or time were contributed in reliance on that promise, and how they relate specifically to that property.
- If the property was merely improved with diverted funds and there was no property‑specific promise, consider seeking an equitable lien, accounting, tracing of proceeds, or money damages, rather than a constructive trust.
- Use notices of pendency cautiously; they are appropriate only if your claims truly affect title or possession of the named property.
For defendants:
- On a CPLR 3211(a)(7) motion, scrutinize whether the complaint alleges a property‑specific promise and transfer. If not, move to dismiss constructive trust claims.
- Seek cancellation of lis pendens when the only title‑affecting claim is legally insufficient.
- Where plaintiffs seek ownership remedies based solely on improvements, point to the Restatement and New York authorities favoring liens or monetary relief instead of constructive trusts.
For courts:
- This decision provides a clear template for analyzing constructive trust claims targeting “unpromised” properties—focusing on the promise and transfer elements as to the specific res.

Conclusion

Angel v. Strulovich sharpens the boundary between equitable ownership remedies and monetary or lien‑based relief in New York. The Second Department confirms that a constructive trust is a property‑specific remedy: where investors’ funds are allegedly diverted to improve properties they were never promised, a constructive trust will not lie absent a plausible allegation of an express or implied promise to share in those particular properties. The ruling preserves stability in real estate titles, guides litigants toward appropriate remedies (equitable liens, accountings, damages) when improvements are at issue, and reinforces disciplined pleading standards for constructive trust claims.

While the statute of limitations issue for a subset of properties was addressed in a separate, contemporaneous appeal, the core takeaway from this decision is clear: misappropriation and unjust enrichment, without a property‑specific promise and transfer in reliance, do not justify imposing a constructive trust on unrelated real property merely because it was improved with diverted funds.