Wadsworth v. Talmage

                                      558

  Argued and submitted June 4, certified question answered October 10, 2019


                       John WADSWORTH,
                 individually and as trustee for
                the RBT Victim Recovery Trust,
                             Plaintiffs,
                                 v.
                      Ronald B. TALMAGE
                     and Annette C. Talmage,
                    in Default as of 8/31/2017;
          Rivercliff Farm, Inc., an Oregon corporation,
                 in Default as of 1/26/2017; and
                  New Century Properties Ltd.,
                    in Default as of 8/31/2017,
                         Defendants below,
                                and
               UNITED STATES OF AMERICA,
                            Defendant.
                (United States Court of Appeals
                for the Ninth Circuit - 17-35805)
                           (SC S066414)
                                  

     The Ninth Circuit certified a question to the Oregon Supreme Court: Does
a constructive trust arise at the moment of purchase of a property using
fraudulently-obtained funds, or does it arise when a court order that a constructive trust be imposed as a remedy? Held: (1) A constructive trust arises when a
court imposes it as a remedy, but the party for whose benefit the constructive
trust is imposed has an equitable ownership interest in the property that predates the constructive trust; (2) plaintiffs have a viable subrogation theory that
allows them to seek a constructive trust based on equitable interests that predate
all tax liens on the property at issue in this case.
    The certified question is answered.



    En Banc
  On certified question from the United States Court of
Appeals for the Ninth Circuit; certification order dated
January 2, 2019; certification accepted January 31, 2019.
  William B. Ingram, Strong & Hanni, Salt Lake City,
Utah, argued the cause and filed the briefs for plaintiffs on
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review. Also on the briefs were Thomas A. Ped, Williams
Kastner Greene & Markley, Portland.
   Randolph L. Hutter, U.S. Department of Justice,
Washington, D.C, argued the cause and filed the brief
for defendant on review. Also on the brief was Jeremy N.
Hendon, Washington D.C.
  BALMER, J.
  The certified question is answered.
560                                      Wadsworth v. Talmage

         BALMER, J.
         This case is before the court on a certified question from the United States Court of Appeals for the Ninth
Circuit, under ORS 28.200. The Ninth Circuit certified to
the court the following question:
   “Under Oregon law, does a constructive trust arise at the
   moment of purchase of a property using fraudulently-obtained funds, or does it arise when a court orders that a
   constructive trust be imposed as a remedy?”
Wadsworth v. Talmage, 

 (9th Cir 2018).
We accepted that question, reformulating it to include one
related issue:
   “If the former, does it make any difference if the fraud as to
   the party seeking establishment of a trust occurred after
   the initial purchase?”
         As we discuss in greater depth below, we answer the
first part of the question by clarifying that a constructive
trust arises when a court imposes it as a remedy, but that
the party for whose benefit the constructive trust is imposed
has an equitable ownership interest in specific property that
predates the imposition of the constructive trust. We also
answer the second part of the question by explaining that,
in the circumstances of this case, plaintiffs have a viable
subrogation theory that allows them to seek a constructive
trust based on equitable interests that predate all tax liens
on the property.
   I. FACTUAL AND PROCEDURAL BACKGROUND
         We begin by setting out the underlying facts, which
we take from the Ninth Circuit’s certification order and, in
light of the procedural posture of the case, the complaint.
See Wadsworth, 

 (“Because this case was
resolved in federal district court on a motion to dismiss, the
factual background is based on the allegations in the complaint, which we assume to be true.”).
         Beginning in the 1990s, defendant Ronald Talmage
ran a Ponzi scheme. More specifically, he represented to
client investors, in the United States and Japan, that he
would hold their funds in trust and invest them. Instead, he
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made no investments on behalf of clients and repaid clients
only through use of the funds of later clients. Talmage also
induced investments through false claims about his fund’s
size and history. In 1997, Talmage and his wife acquired
the RiverCliff Property (“RiverCliff”) for $903,000, and paid
that price exclusively using money that Talmage was holding for his clients. Between 1998 and 2006, Talmage took
more than $12.5 million of client funds to make improvements to the property.
         Plaintiffs are victims of the scheme;1 they first
invested funds with Talmage in 2002. Much of the money
that they invested with Talmage was used in the improvements to RiverCliff. In 2005, another $1.5 million of
plaintiffs’ funds was used to pay Talmage’s wife for her
half interest in RiverCliff, after the couple divorced. And
$3.4 million of plaintiffs’ funds was used to repay earlier,
pre-2002 investor clients, including clients whose funds had
been used to purchase RiverCliff. In June 2005, Talmage
transferred RiverCliff, without consideration, to a corporate
entity that he controlled and that is also a defendant in the
federal action.
        Meanwhile, Talmage had failed to pay federal
income taxes from 1998 to 2005, and in 2007. The Internal
Revenue Service (IRS) recorded tax liens, beginning in
2008, under 

. That history sets the stage for
the present dispute, which is between plaintiffs and the federal government.
         The government brought an action to foreclose its
tax liens on RiverCliff. Plaintiffs
    “then brought the present action to quiet title to RiverCliff
    as to the Government. The Trust’s complaint contends that
    because Talmage ‘used wholly stolen funds’ to obtain and
    improve RiverCliff, ‘he did not hold an enforceable or legitimate property interest’ in the property. The Trust contends
    that the Government’s federal tax liens therefore could not
    attach to RiverCliff under 

, which authorizes
    liens on ‘all property and rights to property … belonging

     1
       Specifically, plaintiff Wadsworth was a victim of the scheme, and a number
of victims, including Wadsworth, assigned their interests to plaintiff RBT Victim
Recovery Trust.
562                                     Wadsworth v. Talmage

   to’ a person who owes ‘back taxes.’ The Trust contends that
   it has either an exclusive or superior interest in RiverCliff
   under Oregon law as a resulting trust, as a constructive
   trust, or based on other equitable relief.”
Wadsworth, 

. The government moved to dismiss, arguing that RiverCliff
   “ ‘belonged’ to Talmage within the meaning of 

, and that a federal tax lien could attach. It argued
   that the Trust had, ‘at most,’ a claim that did not become
   choate until after the federal tax liens had attached. The
   Government argued its tax liens were therefore superior to
   any claims the Trust might have.”

 The trial court agreed with the government and dismissed plaintiffs’ quiet title claim.
        Plaintiffs appealed to the Ninth Circuit, which
explained that the dispute turned on “Oregon state law
regarding constructive trusts” and that,
   “[t]o determine whether property ‘belongs’ to someone
   within the meaning of § 6321, a federal court must, first,
   ‘look … to state law to determine what rights the taxpayer has in the property the Government seeks to reach,’
   and then, second, ‘determine whether the taxpayer’s state-delineated rights qualify as “property” or “right to property” within the compass of’ 

.”
Wadsworth, 

 (quoting Drye v. United States,

, 

, 

 (1999)). Having
so framed the inquiry, the Ninth Circuit explained that, “[i]n
the case before us, the Trust can prevail in its quiet title
action only if, under Oregon law, a constructive trust arises
at the moment of the purchase of a property with ill-gotten
gains, such that the purchaser never acquires rights in the
property beyond bare legal title.” Wadsworth, 

.
That court then observed that the descriptions of constructive trusts in our case law have not been entirely consistent
and certified to us the question of when a constructive trust
arises.
         In their briefs, plaintiffs and the government cite
numerous cases that this court has decided. Plaintiffs highlight cases that refer to a constructive trust arising at some
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time prior to a court’s judgment, which they characterize as
consistent with the “majority rule.” The government cites a
number of cases that refer to constructive trusts as purely
remedial mechanisms, or where courts are said to “impress”
or to “impose” a constructive trust.
          The parties also offer theoretical reasoning in support of their positions. The government contends that, in
light of our holdings in Barnes v. Eastern & Western Lbr. Co.,

, 

 (1955), and Tupper v. Roan,

, 

 (2010), a constructive trust is
a form of remedy, and, like other remedies, must arise only
when imposed by a court. Any retroactive existence, says
the government, is therefore purely fictional, the product of
the doctrine that constructive trusts relate back to an earlier unjust enrichment. Plaintiffs cite several treatises and
argue that taking the government’s position would entail a
rejection of the majority view of constructive trusts.
         We find neither party’s arguments fully persuasive. As we explain, the question that they are fighting over
appears to be less consequential than they take it to be,
and we do not see any fundamental conflict in our case law.
Nevertheless, we agree with the government that, because a
constructive trust is a form of remedy, rather than a type of
trust, constructive trusts originate at the time that they are
imposed by the court. We also agree with plaintiffs, however,
that a remedial constructive trust is based on a preexisting
equitable ownership interest and that an understanding of
the nature of that interest may prove helpful to the Ninth
Circuit in resolving the issue before it. We therefore discuss
briefly the nature of the equitable interest that forms the
basis for the imposition of a constructive trust under Oregon
common law.
     II. WHEN CONSTRUCTIVE TRUSTS BEGIN
A. The Scope of the Question
         The parties, and the Ninth Circuit, highlight an
inconsistency in our cases as to when a constructive trust
arises. We cannot resolve that inconsistency for purposes of
answering the certified question without first clarifying its
relevance to that question, and we begin there.
564                                    Wadsworth v. Talmage

         A constructive trust is a form of remedy for unjust
enrichment. Tupper, 

. The remedy has its limits, as “a constructive trust can attach only to items and
money that the evidence clearly identifies as rightfully
‘belonging’ to the plaintiff, or to the identifiable products of,
or substitutes for, those items and money.” 

. But it
also has its advantages, and one reason that a plaintiff may
elect a constructive trust as a remedy is “ ‘for the sake of priority against the defendant’s general creditors.’ ” Evergreen
West Business Center, LLC v. Emmert, 

, 

 (2014) (quoting Restatement (Third) of Restitution
and Unjust Enrichment § 4 comment e (2001)); see also
Restatement (Third) § 60 (“Except as otherwise provided by
statute and by § 61, a right to restitution from identifiable
property is superior to the competing rights of a creditor of
the recipient who is not a bona fide purchaser or payee of the
property in question.”).
         Here, plaintiffs seek a constructive trust to obtain
priority over the federal government’s tax liens. But, somewhat counterintuitively, the case before us is not a fight over
the priority rules that govern constructive trusts. The parties agree that a plaintiff entitled to a constructive trust
would receive priority over ordinary creditors under state
law and that whichever answer we give to the question of
when the constructive trust originates will not make the
slightest difference to the application of those rules. That is
because, the government acknowledges, a constructive trust
may “relate back” to an earlier date, even if it arises only
when it is declared by a court. The parties also agree that
federal law allows tax liens to jump the ordinary priority
queue, as long as the property to which the lien attaches
“belonged” to the taxpayer at that time. Here, then, the
question of when a constructive trust arose is not pertinent
to priority directly, but rather to whom RiverCliff—in the
words of the federal statute, 26 USC § 6321—“belong[ed]”
when the government obtained its tax liens. That question,
the parties submit, hinges on when a constructive trust
arose.
         As the foregoing illustrates, the question before us
has significance only to the application of federal law, and
only as it bears, if it does, on whether RiverCliff “belong[ed]”
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to the taxpayer when the actions giving rise to the constructive trust arose. Many of the cases cited by the government
on the question of when a constructive trust originates are
federal cases, dealing with other interactions between federal law and state constructive trusts. See, e.g., Healy v.
Commissioner, 

 (1953); Blachy v. Butcher,

 (6th Cir 2000); International Refugee Org.
v. Maryland Drydock Co., 179 F2d 284, 287 (4th Cir 1950).
Not only is there no Oregon case that lends the question
of when a constructive trust begins any significance, the
parties have been unable to identify any other state case in
which a substantive issue turned on the resolution of that
question.
         That observation leads to one potential concern, in
this instance pertinent to our acceptance of this question:
whether the question that we have been asked to answer
is actually one of state law at all. See Western Helicopter
Services v. Rogerson Aircraft, 

, 

(1991) (explaining that we can accept certification only if
the question is one of Oregon law). The Eleventh Circuit,
at least, has suggested that an analogous question in the
forfeiture context is really one of federal law. United States
v. Ramunno, 

, 1274 n 2 (11th Cir 2010) (distinguishing a prior case concerning the time that a constructive trust came into being on the ground that it “was considering the federal law temporal question, not the threshold
state law question of whether a constructive trust exists”).
Because the question’s practical consequences are limited
to interactions with federal statutes, it might be contended
that the question is, at heart, one of federal law. Indeed, the
government attempts to rely on Healy, 

, in
which the United States Supreme Court treated the effect of
state constructive trusts on tax obligations as a question of
federal law and, in that context, discussed the time at which
they originated without any reference to state law.
         Nevertheless, we are persuaded that it remains
appropriate for us to answer the question certified by the
Ninth Circuit. There is, at bottom, a state law answer to
that question, even if the law of our state may not completely
resolve the federal question at issue in this case. At the end
of the day, and strictly as a matter of state law, it must
566                                                Wadsworth v. Talmage

either be the case that a constructive trust exists from the
moment of the fraudulent transaction or that it is created by
the court at some later date. The distinction might be one
that, apart from its federal law consequences, is essentially
academic, but academic questions still have answers.2
         Plaintiffs argue that, given the relative insignificance of the question for any purpose other than the federal statute at hand, the equitable purposes of a constructive trust would be better served if we were to decide that
a constructive trust originates at the time of the fraudulent
conduct. Put another way, if accepting plaintiffs’ theory of
a constructive trust’s origins is necessary for federal courts
to respect the priority that state law accords to constructive
trusts—and there are no other real stakes to this case—
then why not accept it for that reason alone?3
         We view that as an inappropriate consideration in
our decision. To the extent that federal law deviates from
Oregon’s priority rules, that is Congress’s decision to make,
just as our own legislature ordinarily has the authority
to modify our state’s rules of equity by statute. See Evans
Products v. Jorgensen, 

, 

 (1966)
(declining to apply unjust enrichment principles in a case
subject to Article 9 of the Uniform Commercial Code (UCC),
because “[t]he purpose and effectiveness of the UCC would
be substantially impaired if interests created in compliance
with UCC procedures could be defeated by application of
the equitable doctrine of unjust enrichment”). Our role in
this case is to elucidate the structure of constructive trusts
under Oregon common law, not to gerrymander our terms so
as to yield a particular result under federal law.

    2
      “[T]he decisional effect of our answer” is one factor to weigh when deciding
whether to answer a certified question. Western Helicopter Services, 

. For the reasons just given, this may not be a significant decision for state law
purposes. However, the Ninth Circuit, at least, has indicated that the application
of the federal statute at issue turns on the law of this state, and the answer to
this question may be significant in other federal contexts as well. See United
States v. Wilson, 

 (9th Cir 2011) (looking to state law on when
a constructive trust begins in the forfeiture context).
    3
      The government, for its part, suggests that, because the priority accorded
to constructive trusts is inequitable to the extent that it deprives the government’s tax liens of validity, this court should adopt the government’s theory of
constructive trusts in order to avoid that result.
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B.    The Development of the Constructive Trust in Oregon
        We turn to our cases on constructive trusts. As
we discuss, those cases evince a transformation over time
from a view of the constructive trust as a species of trust
to a view of the constructive trust as a remedy for unjust
enrichment—a transformation that is in line with the development of American law generally. That shift explains, in
part, the different usages of the term “constructive trust”
that the parties have found in our cases.
        Our earliest cases on constructive trusts classed
them as a species of trust. Trusts were divided into “express”
and “implied,” and the category of implied trusts was subdivided into resulting trusts and constructive trusts. See
Manaudas v. Mann, 

, 

 (1892) (citing John N. Pomeroy, 2 A Treatise on Equity Jurisprudence
§ 987, 533-34 (1st ed 1886)); Springer v. Young, 

, 

 (1886).
         In one of our earliest substantial discussions of constructive trusts, we appeared to take a position on the time
that a constructive trust emerged. In Barger v. Barger, 

, 

 (1897), the plaintiff and her husband
had received a parcel of land through the Donation Land
Act, of which plaintiff originally owned half.4 The couple
sold their claim, and, using that money, the husband purchased an interest in a ferry. 

. That, too, was sold,
and the husband used some of the funds to purchase 115
head of cattle. 

. Some years later, the cattle business
was sold, and the proceeds were used to cover most of the
purchase of two tracts of land. 

. The husband died,
some portion of the land passed to the couple’s children, and
the plaintiff sought to have recognized an implied trust over
    4
      The Donation Land Act provided grants of land to Oregon settlers and conveyed to a married man “the quantity of one section, or six hundred and forty
acres, one half to himself and the other half to his wife, to be held by her in her
own right ….” Act of Sept 27, 1850, 9 Stat 496, 497 (emphasis added). Early on,
we held that the Donation Land Act, at least in combination with a subsequent
act of the territorial legislature, gave the wife title to her half of the granted
land, and that she could not be divested of it by her husband against her will.
Linnville v. Smith, 

 (1876). In two cases prior to Barger—Linnville
and Springer—this court had used trust theories to protect a married woman’s
interest in proceeds from land that she had received through the Donation Land
Act.
568                                        Wadsworth v. Talmage

the land, arguing that she had owned half of the Donation
Land Act claim, the proceeds of which were ultimately used
to purchase the land in dispute. 

. With
respect to both constructive and resulting trusts, the court
explained that
   “a trust of either description must arise, if at all, at the time
   of the conveyance, and the money or other consideration for
   the deed which is the foundation of the trust must then be
   paid, or secured to be paid.”

 (emphasis added). This court linked that principle
to the concept of tracing, which was at the heart of the case:
   “The fund, or other form of property which it is sought to
   trace into a different form, does not lose its identity, while it
   may change in semblance, as, if a sum of money is expended
   for a parcel of land, or a band of cattle exchanged for stock
   in a bank, the property form is changed, but the identity
   of the original form is traceable and distinguishable. …
   That which was the property of the cestui que trust in
   the first instance continues to be his property, in equity,
   throughout all its metamorphoses, but when the identity is
   lost the trust escapes. … It is therefore the entire ownership, speaking in an equitable sense, that must be established, and not some equitable lien upon the changed form
   of property; and, if established, the cestui que trust takes
   the property thus identified, not that his demand be satisfied out of it.”

. This court ultimately determined that the
plaintiff’s funds that were derived from the original land had
become too intermingled with other funds over the course of
the relevant transactions to be traceable, and that, based
on her consent, certain transactions “must be regarded as
a loan, rather than the imposition of trust obligations upon
[her husband].” 

.
         Barger thus clarified two fundamental principles
of constructive trusts. First, for a constructive trust to be
established there must be a traceable equitable ownership
interest in specific property—one that existed at the time
of conveyance. Second, in light of that principle, Barger
declared that constructive trusts, like resulting trusts, originate at the time of the conveyance.
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         Despite that clear statement in Barger, however, this
court on several occasions described the origins of constructive trusts differently. The next year, in Parrish v. Parrish,

, 

 (1898), overruled on other grounds by
Hanscom v. Irwin, 

, 

 (1949), this
court stated that “ ‘the interference of courts of equity is
called into play by fraud as a distinct head of jurisdiction,
and the complainant’s right of relief is based upon that
ground; the defendant being treated as a trustee merely for
the purpose of working out the equity of the complainant.’ ”

 at 492 (quoting George T. Bispham, The Principles of
Equity § 91, 133 (4th ed 1887)). That statement expressed
a different view of constructive trusts—that is, as a fiction
employed after-the-fact by the court, rather than a type of
trust.

         Inconsistency in how constructive trusts were conceptualized predominated during this period. In Kroll v.
Coach, 

, 

 (1904), this court quoted
the same passage from Bispham’s treatise, and, in Clough
v. Dawson, 

, 

 (1914), the court held
that “[t]he Circuit Court properly impressed a constructive
trust” on certain property, each of which could suggest that
a constructive trust originated only after the intervention of
a court. Yet those cases were followed by an emphatic statement to the contrary:
   “If a resulting or a constructive trust arose at all, it must
   have been at the time of the conveyance; for these are obligations imposed by the law itself in spite of or independent of
   the actions of the parties themselves. The law is constantly
   operant, and without delay attaches the consequences to be
   derived from the acts of the parties. So far as such trusts
   are concerned, they are not created or established by subsequent acts of any of the participants.”

Chance v. Graham, 

, 

 (1915).
And, inconsistent with the earlier assertion that a court
impresses a constructive trust, this court stated in Meek v.
Meek, 

, 

 (1916), that, “[i]n a case
where confidential relations, such as husband and wife, parent and child, exist, the betrayal of such a confidence itself
raises a constructive trust.”
570                                      Wadsworth v. Talmage

          That confusion was understandable, because this
court was hardly the only court struggling to develop a
conceptually satisfying theory of constructive trusts. See
Warren A. Seavey & Austin W. Scott, Restitution, 54 LQ Rev
29, 40 (1938) (observing that, prior to the Restatement (First)
of Restitution, there was “no general agreement among the
treatise writers as to what constitutes a constructive trust,
and the definitions and descriptions given are widely divergent”). In fact, a rather important doctrinal shift was about
to occur on a national level. The shift likely began with a 1920
law review article by Roscoe Pound, then Dean of Harvard
Law School. See Lionel Smith, Legal Epistemology in the
Restatement (Third) of Restitution and Unjust Enrichment,
92 BU L Rev 899, 908 (2012) (describing origins of the shift).
Pound expressed the key innovation simply: “An express
trust is a substantive institution. Constructive trust, on
the other hand, is purely a remedial institution.” Roscoe
Pound, The Progress of the Law, 1918-1919 Equity, 33 Harv
L Rev 420, 420-21 (1920). Pound went on to suggest that,
“[i]f one bears in mind the purely remedial nature of constructive trust, the results which courts have reached in
[cases involving constructive trusts] are attained with much
less difficulty.” Id. at 422.
        That view proved influential. Although constructive trusts were initially slated to be included in the
American Law Institute’s Restatement (First) of Trusts, the
decision ultimately was made to move constructive trusts,
as well as quasi-contractual obligations, into a restatement of their own, the Restatement (First) of Restitution.
See Restatement (First) of Trusts, Introduction at xi (1935)
(explaining that constructive trusts had not been included);
Andrew Kull, Three Restatements of Restitution, 68 Wash
& Lee L Rev 867 (2011) (describing that history). The first
Restatement strongly embraced the remedial view of constructive trusts:
       “The term ‘constructive trust’ is not altogether a felicitous one. It might be thought to suggest the idea that it is
   a fiduciary relation similar to an express trust, whereas it
   is in fact something quite different from an express trust.
   An express trust and a constructive trust are not divisions
   of the same fundamental concept. They are not species of
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 (2019)                                        571

   the same genus. They are distinct concepts. A constructive
   trust does not, like an express trust, arise because of a
   manifestation of an intention to create it, but it is imposed
   as a remedy to prevent unjust enrichment. A constructive
   trust, unlike an express trust, is not a fiduciary relation,
   although the circumstances which give rise to a constructive trust may or may not involve a fiduciary relation.
       “It is true that both in the case of an express trust and
   in that of a constructive trust one person holds the title to
   property subject to an equitable duty to hold the property
   for or to convey it to another, and the latter has in each case
   some kind of an equitable interest in the property. In other
   respects, however, there is little resemblance between the
   two relationships. An attempt to define a trust in such a way
   as to include constructive trusts as well as express trusts
   is futile, since a single definition which would include such
   distinct ideas would be so general as to be useless.”
Restatement (First) of Restitution § 160 comment a (1937).
The constructive trust was linked to the animating principle of the Restatement—unjust enrichment. The Restatement
explained that “[a] constructive trust is imposed upon a person in order to prevent his unjust enrichment.” Restatement
(First) of Restitution § 160 comment c. That, it should be
noted, was a substantial innovation, and a distinctly
American one. See D. W. M. Waters, The Constructive Trust
in Evolution: Substantive and Remedial, 10 Est & Tr J 334
(1991) (contrasting development of American law of constructive trusts with that of Commonwealth countries).
         However, despite that innovation, the Restatement
effectively took the position that the constructive trust
arose at the time of the transaction giving rise to the unjust
enrichment, not when instituted by the court. For example,
in explaining the bona fide purchaser rule—the principle
that property in the hands of a bona fide purchaser cannot
be recovered through a constructive trust, see Tupper, 349
Or at 223—the Restatement explained:
   “This principle is most frequently applied to the situation
   where a person holds property subject to a constructive
   trust and transfers it to a person who pays value without
   notice of the facts which gave rise to the constructive trust;
   in which case the constructive trust is cut off.”
572                                      Wadsworth v. Talmage

Restatement (First) of Restitution § 172 comment a. In that
context, the Restatement used “constructive trust” to refer
to an interest that predated the court’s order and, indeed,
could be terminated prior to the case coming before a court.
Similarly, when discussing the effect of the availability of
alternative remedies, the Restatement asserted that
   “a constructive trust may exist even though[,] because of
   the adequacy of the remedy at law[,] a proceeding in equity
   cannot be maintained specifically to enforce it; but a constructive trust will not be imposed merely because[,] owing
   to the insolvency of the defendant[,] the remedy at law is
   inadequate.”
Restatement (First) of Restitution § 160 comment f. Thus,
in the terminology of the Restatement, a constructive trust
exists in the discussed circumstances all the while but may
(or may not) be enforced by the court.
         Two decades later, in Barnes, 

, this
court came to adopt the remedial view of constructive trusts
set forth in the Restatement (First) of Restitution. In that
case, we explained that
   “a constructive trust is simply a procedural device. A constructive trust does not create in the party favored by it
   any new substantive rights. Its sole purpose is to enable
   the courts to afford the victim of the wrong relief in specie.
   In instances in which the law employs a constructive trust,
   the doctrine of unjust enrichment governs generally the
   substantive rights of the parties.”

. We also emphasized what a constructive trust
was not intended to accomplish:
   “The purpose of creating the procedural device known as
   a constructive trust was not to effect a change in the substantive law and place the trustee of a constructive trust
   upon the same level as that of a trustee of an express trust.”

. That phrasing, as well as the remedial tenor of
the case, could suggest that a constructive trust is something
created by a court, but as in the Restatement, other lines in
Barnes suggested otherwise: “If the defendants’ fraud made
them constructive trustees when they acquired the Buehner
stock, no rescission was necessary and no court action was
needed to bring about that result.” 

.
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          Our usage of the term “constructive trust” since
Barnes has not been entirely consistent, either. In several
cases, we have referred to a court “impressing” property
with a constructive trust. See Montgomery v. U.S. Nat’l
Bank et al, 

, 

 (1960) (using that
wording); Schomp et al v. Brown et al, 

, 

, decision clarified on denial of reh’g, 

, 

 (1959) (same). And in several more cases, we have
made references to courts “imposing” constructive trusts or
the “imposition” of a constructive trust by a court. Stirewalt
v. Chilcott, 

, 

 (1963); Jimenez
v. Lee, 

, 

 (1976); Osterberg v.
Osterberg, 

, 

 (1977); Tupper, 

. However, in a handful of cases, we have continued to refer to constructive trusts in ways that are more
consistent with a constructive trust emerging at the time of
an unjust enrichment. We have stated that, in certain situations, a trust “arose by operation of law” based on a given
set of facts. Person v. Pagnotta, 

, 

(1975); see also Lane County Escrow Serv., Inc. v. Smith, Coe,

, 

 (1977) (“it is now universally
recognized that a constructive trust will arise when stolen
or embezzled funds are used to purchase other property”).
Plaintiffs rely on Albino v. Albino, 

, 

(1977), although that case used both formulations, first stating that a “resulting trust continued until [the defendant]
violated the confidential relationship and refused to pay
the sale price of the property to the plaintiffs, when it was
converted into a constructive trust,” 

, then stating
that, “[i]f the circuit court can trace the funds into the hands
of either or both defendants, it shall impose a constructive
trust upon the proceeds,” 

.
C. Resolving the Confusion
         Since Barnes, the Restatement (First) of Restitution
has been superseded by the Restatement (Third) of
Restitution and Unjust Enrichment, which we relied upon
in our discussion of constructive trusts in Evergreen West
Business Center, LLC, 

.5 The new Restatement

     5
       A Restatement (Second) of Restitution was attempted but never came to fruition. See Kull, 68 Wash & Lee L Rev at 867 (describing that history).
574                                       Wadsworth v. Talmage

contains a comment expressly dealing with the question of
when constructive trusts originate. The answer set out in
that comment begins with a statement lending some support to plaintiffs’ position:
   “The question is artificial, because it implies that the term
   ‘constructive trust’ describes a legal relationship that is
   either created or decreed; when in fact the words are no
   more than a judicial shorthand describing the parties’ preexisting interests in particular property. The tendency
   to ask when the constructive trust is ‘created’ is encouraged by familiar statements to the effect that a court may
   ‘impose’ a trust, or ‘subject’ the disputed property to a trust
   in favor of the claimant, or even ‘convert the holder of title
   into a trustee,’ but such expressions are merely the magisterial rhetoric of equity.”
Restatement (Third) § 55 comment e.
         That portion of the comment appears to favor plaintiffs, but the Restatement subsequently acknowledges that
“[t]here is a sense in which the remedial obligation of the
constructive trustee does not exist until the court issues its
decree” and ultimately adopts a form of agnosticism:
   “The answer to the question posed, therefore, is that the
   constructive trust ‘exists’ from the moment of the transaction on which restitution is based; or (if the court prefers)
   that the constructive trust arises on the date of judgment,
   but that the state of title it describes ‘relates back’ to the
   transaction between the parties. The practical consequence
   is that the ownership rights of the constructive trust beneficiary, once recognized, are protected from the moment the
   trustee acquires legal title.”
Id. We agree with the thrust of that statement. The key point
is that, however characterized, “the rights of the claimant
are paramount to the rights of the defendant’s successors
in interest, so long as the latter do not qualify as bona fide
purchasers.” Id. Whether a constructive trust exists from
the start or simply relates back is purely terminological.
        Although in this case we have been told that it
does matter, we respectfully suggest that the parties may
be treating a linguistic inconsistency as more significant
than it is, while looking past a substantive consistency in
Cite as 

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our law. Professor Andrew Kull, the Reporter of the Third
Restatement, has elaborated on the question at somewhat
greater length, in a law review article cited by plaintiffs:
       “ ‘Constructive trust’ is a declaratory judgment about
   property out of place. The necessary condition of constructive trust, and the legal wrong to which the remedy responds,
   is that ownership, possession, and title to property have
   been improperly separated. The restitution claimant complains of an involuntary transfer, typically one resulting
   from fraud, mistake, or coercion: a transfer, in short, that
   is legally insufficient to bring about a conclusive alteration
   of property rights. … If the retained rights need a name,
   they can be called ‘equitable ownership,’ or ‘an equitable
   interest,’ or simply ‘an equity.’ Property rights of this character are asserted by means of a claim in restitution.”
Andrew Kull, Restitution in Bankruptcy: Reclamation and
Constructive Trust, 72 Am Bankr LJ 265, 287 (1998).
         We find that view, and that use of terminology, to
be both persuasive and consistent with our cases. From our
earliest cases, we have recognized that the basis for a constructive trust is an equitable ownership right—one that
arises out of a transaction that is fraudulent, mistaken, the
product of a violation of fiduciary duty, or otherwise results
in unjust enrichment. In Barger, we explained that, for a constructive trust to arise, it is “the entire ownership, speaking
in an equitable sense, that must be established” and that
tracing is the process of following that equitable ownership
interest as the property changes form. 

. In
Barnes, we quoted the Restatement (First) of Restitution for
the following principle:
   “ ‘It is true that both in the case of an express trust and
   in that of a constructive trust one person holds the title to
   property subject to an equitable duty to hold the property
   for or to convey it to another, and the latter has in each case
   some kind of an equitable interest in the property.’ ”
Barnes, 

 (quoting Restatement (First) of
Restitution § 160 comment a). In explaining the relationship
of the constructive trust to that interest, we clarified that
a constructive trust “does not create in the party favored
by it any new substantive rights”—that is, that the rights
576                                       Wadsworth v. Talmage

enforced by the constructive trust necessarily predated
its creation. Accord Seavey & Scott, 54 LQ Rev at 42 (the
Reporters of the Restatement (First) of Restitution suggesting that the “[constructive trust] part of the Restatement
might perhaps more properly have been entitled ‘Rights in
Property Created as the Result of a Right to Restitution’ ”).
And we emphasized the same feature in two of the three
elements of a constructive trust that we set out in Tupper:
   “First, the plaintiff must show that property or a property interest that rightfully belongs to her was taken or
   obtained by someone else under circumstances that in
   some sense were wrongful or inequitable. … Finally, the
   plaintiff must establish, with ‘strong, clear and convincing
   evidence,’ that the property in the hands of that person, i.e.,
   the property upon which she seeks to impose a constructive
   trust, in fact is the very property that rightfully belongs to
   her, or is a product of or substitute for that property.”

. Or, as Tupper explained in summarizing our
earlier case law,
   “when a person possesses property that, in equity and good
   conscience belongs to another, the fact that that person is
   innocent of any affirmative wrongdoing with respect to the
   property will not, standing alone, prevent the equitable
   owner from obtaining a constructive trust.”
Tupper, 

 (emphasis added).
         The link between the remedy of a constructive
trust and the underlying equitable ownership right already
possessed by the beneficiary is, and has always been, crucial to our constructive trust law. That equitable interest
is, however, distinguishable from the remedial order by the
court. Our past cases sometimes have conflated those two
concepts and used the term “constructive trust” to refer to
both. Thus, as we have documented, our cases refer to a constructive trust arising out of parties’ actions, using the term
in the first sense, and also state that a constructive trust is
imposed by the court, using the term in the second sense.
In our pre-Barnes cases, it made some sense to use the term
“constructive trust” to refer to the fact that the person in
possession of the property lacked an equitable interest in
it. When those earlier cases were decided, this court generally treated constructive trusts as a species of actual trust,
Cite as 

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rather than as a form of equitable remedy. Under that view,
it was intuitive to treat constructive trusts, as we do other
types of trusts, as a product of earlier actions by the parties,
rather than as a creation of the courts.
          Our more recent cases, in emphasizing the remedial nature of the constructive trust, demonstrate why it is
appropriate to draw a clearer distinction. Having decided
that a constructive trust is a form of remedy for unjust
enrichment, misunderstanding is most easily avoided if we
use the term “constructive trust” to refer only to the remedy
imposed by the court. That remedy is not enforcement of a
trust that has existed all the while, but a remedial fiction
imposed by the court to achieve justice. That generally has
been our usage of the term “constructive trust” in our cases
since Barnes. To the extent that our more recent cases have
suggested that a constructive trust emerges from the actions
of the parties, that terminology is an artifact of the earlier
view of constructive trusts that we rejected in Barnes, 

. To be clear, however, a remedial constructive trust is
still (as constructive trusts have been from the start) based
on a preexisting equitable ownership interest. Therefore,
while some of our terminology has been inconsistent, none
of that inconsistency has been particularly significant.6
         Although we think that the foregoing discussion
answers the Ninth Circuit’s question as phrased, we hesitate to leave the matter at that. We do not wish to have
inadvertently avoided the reason for the certified question
by redefining some terms. One possible objection, discussed

    6
      As part of its evidence of inconsistency, the Ninth Circuit highlighted two
excerpts from the Court of Appeals decision in Brown v. Brown, 

,

 (2006), the first describing constructive trusts as “remedial devices
to avoid unjust enrichment when no other adequate remedy is available,” 

, and the second quoting McDonald v. McDonald, 

, 

, rev den, 

, 

 (1982), for the proposition that “ ‘[a] constructive trust may be imposed only when the putative trustee holds property
which rightfully belongs to another and is thereby unjustly enriched,’ ” 

 As
should be clear from the foregoing discussion, we see both of those statements as
essentially correct, and perceive no conflict between them, much less a difference
in case outcomes. Similarly, although plaintiffs frame the question by asserting
that there are majority and minority positions on constructive trusts, we have
seen nothing to suggest that there are conflicting substantive approaches to constructive trusts among state courts or the various cited treatises, rather than
differences in their terminology.
578                                              Wadsworth v. Talmage

in a case relied on by the government, is that the equitable
ownership interest that we have described is just as much a
remedial fiction as a constructive trust itself:
    “Because a constructive trust, unlike an express trust, is a
    remedy, it does not exist until a plaintiff obtains a judicial
    decision finding him to be entitled to a judgment ‘impressing’ defendant’s property or assets with a constructive
    trust. Therefore, a creditor’s claim of entitlement to a constructive trust is not an ‘equitable interest’ in the debtor’s
    estate existing prepetition, excluded from the estate under
    § 541(d).”
In re Omegas Group, Inc., 

 (6th Cir 1994).
That is a contention advanced most clearly by Professor
Emily Sherwin. Emily Sherwin, Why In re Omegas Group
Was Right: An Essay on the Legal Status of Equitable Rights,
92 BU L Rev 885 (2012).7
        Professor Sherwin suggests that “two features
of property rights—definite rules governing what can be
owned and definite rules governing who owns them—are the
minimum components of property rights that are capable of
operating in rem and supporting transactions between owners and the rest of the world.” Id. at 889. She acknowledges
that
    “equitable title is also a sensible, though limited, legal concept. A beneficiary’s interest in an express trust is a common example of a genuine equitable title. Both the thing
    equitably owned and its owner are defined by determinate
    rules.”
Id. at 890 (footnotes omitted). She contends, however, that
the divided ownership involved in constructive trust cases
“is not a background legal fact recognized by the declaration
of a constructive trust, but a remedial conclusion settling
a dispute about unjust enrichment.” Id. at 892. “There has
been no intentional division of legal and equitable ownership by recognized procedures in the manner of an express
trust.” Id. (footnote omitted).

    7
      An earlier article by Professor Sherwin supplied an important portion of In
re Omegas Group’s reasoning. See In re Omegas Group, 

 (relying
on Emily L. Sherwin, Constructive Trusts in Bankruptcy, 1989 U Ill L Rev 297
(1989)).
Cite as 

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         We disagree with that view, for two reasons. First,
as Professor Sherwin acknowledges, that argument relies
on “distinctions between concepts that may in fact differ
only in degree.” Id. at 896. Perhaps it is typically true that
the holder of legal title or the existence of an express trust
is more determinate than whether an unjust enrichment
occurred, but those are patterns to be observed in aggregations of cases, not essential properties of the type of right.
Rather, the equitable ownership interests at issue in constructive trust cases are the product of longstanding, and
determinate, tracing rules that link specific property to
unjust enrichment. Second, our cases, both before and after
our adoption of the remedial approach to constructive trusts,
have acknowledged an actual equitable ownership interest
in property—an interest that is vindicated through the remedy of a constructive trust. That interest, like the equitable
interest in an express trust, is good against both the current
holder of the property and against third parties who are not
bona fide purchasers. We reaffirm that framework.

         We think that that discussion carries the ball as
far as state law can take it. It remains to be “ ‘determine[d]
whether the taxpayer’s state-delineated rights qualify as
“property” or “right to property” within the compass of’ 

.” Wadsworth, 

 (quoting Drye, 

). That, however, is a question of federal law, on
which we express no view.8 It may be that that question is
not meaningfully different from the question that the Ninth
Circuit would face had we answered the certified question
differently.9 Even if our law did label plaintiffs’ pre-2008
equitable interest as a constructive trust, that label would
not mean anything substantively different than the (more
accurate) label that we give it today. Nevertheless, that is
the best answer that we are able to provide.

    8
      For the same reason, although we emphasize that certain passages of In
re Omegas Group, 

, do not accurately reflect Oregon law, we do not
mean to suggest that they are inaccurate statements of how federal bankruptcy
law would apply to those property interests.
    9
      That is, if we had concluded that a constructive trust originates at the time
of the transaction, the Ninth Circuit would still need to decide whether a prejudgment constructive trust is too inchoate to render plaintiffs owners for the
purposes of the federal tax lien statute.
580                                    Wadsworth v. Talmage

       III.   WHEN THE INTEREST ORIGINATED
          The second issue briefed by the parties is one that
we added in reformulating the question. Again, that additional issue was, as further reframed in light of our analysis
of the first issue:
   “If plaintiffs’ equitable ownership interest arises at the
   moment of the purchase of a property with fraudulently
   obtained funds, does it make any difference if the fraud
   as to the party seeking establishment of a trust occurred
   after the initial purchase?”
That, too, is a question of state law on which the parties
disagree. It is not entirely certain, however, that the answer
will prove dispositive to the Ninth Circuit’s resolution of this
case. If the Ninth Circuit decides that any equitable interest
of plaintiffs would be too inchoate to defeat the tax lien, then
the particulars of that interest will not matter. Despite that
uncertainty, the question satisfies the requirement that
“our decision must, in one or more of the forms it could take,
have the potential to determine at least one claim in the
case.” Western Helicopter Services, 

. We think
it prudent to answer the question for several reasons: It has
already been briefed by the parties; clarifying the nature
of plaintiffs’ interest may be helpful to the Ninth Circuit in
deciding how the federal tax lien statute, 

,
applies to that interest; and—not being sure of the course
that this case will take from here—it serves the interest of
judicial economy to render a decision now, rather than to
have the parties litigate it again later.
         The problem presented here is less a question of
unjust enrichment—plaintiffs have stated such a claim—
than it is of tracing. At issue is whether plaintiffs’ interest
in the money that they transferred to Talmage can be traced
into an ownership interest in the RiverCliff property—
one that existed prior to 2008. Recall that Talmage and
his wife purchased RiverCliff in 1997 using client funds
and, between 1998 and 2006, Talmage used client funds to
improve the property and to purchase his wife’s half share
in the property in 2005, after their divorce. Plaintiffs first
invested with Talmage in 2002. Plaintiffs’ funds were used
to pay for improvements, to purchase Talmage’s wife’s share,
Cite as 

 (2019)                                      581

and to repay funds Talmage had received from pre-2002
investors. The parties agree that plaintiffs’ funds are traceable to at least the half-interest in RiverCliff that Talmage
purchased from wife in 2005, after their divorce. Plaintiffs
offer three theories of when and how they acquired an equitable ownership interest in the other half of RiverCliff:
(1) when Talmage used money fraudulently obtained from
plaintiffs to improve RiverCliff; (2) when Talmage transferred RiverCliff to a corporation that he controlled, for no
consideration; and (3) by subrogation, when Talmage paid
off the earlier victims of his scheme using plaintiffs’ funds.
         The first two theories are easily disposed of. When
Talmage used plaintiffs’ funds to make improvements in
RiverCliff, that act gave plaintiffs an interest in the property, but not an ownership interest for which a constructive
trust would be an appropriate remedy. Instead, they have
recourse to an equitable lien. As the Restatement explains:
   “Unjust enrichment is susceptible to remedy by constructive trust when the defendant holds title to property to
   which the claimant has an equitable claim of ownership.
   … By contrast, equitable lien requires only that the asset
   in question incorporate value obtained from the claimant to
   a significant and measurable degree. The two remedies are
   typically distinguished (but occasionally confused) when
   the claimant’s assets have been used by the defendant to
   improve property rather than to acquire it.”
Restatement (Third) § 55 comment k. The fact that Talmage
used a large amount of plaintiffs’ funds to improve RiverCliff
is relevant to the extent of the equitable lien they may have
on the property, but does not allow plaintiffs to seek a constructive trust.
         Similarly, Talmage’s transfer of the property from
his personal ownership to a corporation that he controlled
did not change the nature of the interest that plaintiffs had
in the property. Plaintiffs allege that the transfer was made
without consideration and that the entity now holding legal
title to the property (and its parent corporation) are controlled by Talmage. Both of those entities are defendants
in the federal action. Yet, the fact that Talmage initiated
a paper transaction to transfer the property from himself
582                                       Wadsworth v. Talmage

to an entity that he controlled, without consideration, at
a time when he was holding funds fraudulently obtained
from plaintiffs, does not make RiverCliff “property or funds
that ‘can be traced and followed’ from the specific property”
in which plaintiffs had an equitable ownership interest.
Evergreen West Business Center, LLC, 

 (quoting
Ferchen v. Arndt, 

, 

 (1894)).
       However, plaintiffs’ subrogation theory is viable. As
we have explained:
   “ ‘Subrogation is the substitution of another person in place
   of the creditor to whose rights he succeeds in relation to
   the debt, and gives to the substitute all of the rights, priorities, remedies, liens and securities of the party for whom
   he is substituted. … [W]here one has been compelled to
   pay a debt which ought to have been paid by another, he is
   entitled to exercise all of the remedies which the creditor
   possessed against the other ….’ ”
Maine Bonding v. Centennial Ins. Co., 

,

 (1985) (quoting United States F. & G. Co. v.
Bramwell, 

, 

 (1923)). The right
to subrogation includes “the right to follow trust funds, to
enforce liens, to enforce a mortgage, and to enjoy any priority that the subrogor enjoyed, not only as to the person
against whom claim is made, but against other creditors,
as well.” State ex rel Healy v. Smither, 

,

 (1981). Rights of the former creditor to which a
claimant may potentially be subrogated include claims and
remedies in restitution. See Restatement (Third) § 57 comment d (so stating).
          As alleged in the complaint, the RiverCliff property
was purchased exclusively with the funds of Talmage’s earlier victims. Those victims therefore had an equitable ownership interest in the property, and a remedy for Talmage’s
unjust enrichment at their expense through a constructive
trust. When Talmage paid the same earlier victims back
with funds fraudulently obtained from plaintiffs, the earlier
victims’ equitable ownership interest in the property was
subrogated to plaintiffs, to the extent of the repayment. See
Restatement (Third) § 57 (“Recovery via subrogation may not
exceed reimbursement to the claimant.”). As a consequence,
Cite as 

 (2019)                               583

plaintiffs can take advantage of the same constructive trust
remedy.
        The certified question is answered.