11, 1990; Order of September 24, 1990. While plaintiffs' supplemental memorandum filed on November 29, 1990, essentially repeated the claims asserted in its July 11, 1990 reply brief, the Government's opposition demonstrated that there were two Cayman Island bank accounts under the name of TMG Associates. One of those accounts was, however, opened by N.V., with N.V. funds, in order to act as a "Euro trading account." Third Strzegowski Declaration para. 15. Funds from this latter account were transferred on February 14, 1983, to another N.V. account and then used to purchase the 2329 Porter Street residence. See id. para. 16. In their supplemental reply brief, the Partnerships do not dispute this account. Instead, they present new evidence that the two TMG Associates accounts in the Cayman Islands were combined before the money used to purchase the 2323 Porter Street residence was transferred. On the basis of these facts, they ask the Court to enter summary judgment in their favor. The Government has not, however, had a chance to respond to this new evidence, nor indeed does it appear that the plaintiffs provided the Government with notice of this evidence during the additional discovery period. However, TMG's proffer of this evidence is so belated that it would be unfair to allow its submission. See Cope v. McPherson, 251 App. D.C. 31, 781 F.2d 207, 208 (D.C. Cir. 1985).
Finally, plaintiffs rather perfunctorily contend that they can trace five other assets seized or recovered by the Government. In fact, however, they really contend that they do not need to trace these assets at all.
The primary asset at issue is the 2323 Porter Street residence. Noting that Markowitz had few assets before the Partnerships were formed, see Stipulation para. 4, plaintiffs contend that Markowitz must have used Partnership funds in order to satisfy the $ 496,171.00 purchase price. It is, however, stipulated that the residence was purchased with funds from Monetary Group, N.V. See id. para. 39. Moreover, it is also undisputed that in one month's trading with Hillcrest more than $ 500,000 in commissions were earned. See id. para. 6. So, it is more than possible that Markowitz paid for the house at 2323 Porter Street without using Partnership funds. Given the evidence in the record, any assertion to the contrary is pure speculation insufficient to defeat defendant's motion for summary judgment. See, e.g., Siegel v. Mazda Motor Corp., 278 App. D.C. 333, 878 F.2d 435, 439 (D.C. Cir. 1989).
Along a similar vein, the Partnerships argue that Markowitz should be deemed to have purchased 2323 Porter Street, the minority interest in the Washington Capitals, and the Ford Bronco with Partnership funds under the doctrine of swollen assets. This doctrine is recognized in a few jurisdiction as an exception to the tracing requirement. See Bogert on Trusts § 922, at 375 - 77. It is not, however, applicable here. The swollen assets doctrine is based upon
the theory that the use of trust funds to pay the personal debts of the trustee relieved him from using his individual property for that purpose and consequently increased the amount of it on hand at insolvency, and so it could be said that using trust funds to pay personal debts had "swelled" the assets on hand at the time of determining the rights of creditors and other claimants.
Id. at 376 - 77 (footnote omitted). The Partnerships do not allege that any debts were satisfied with Partnership funds. The swollen assets doctrine is, therefore, inapplicable.
Finally, the Partnerships argue that they can trace a transfer of $ 30,000 from Monetary Group, Ltd., to the Markowitz Stables account seized by the IRS. See Stipulation para. 31. Be that as it may, this fact does not establish their entitlement to those funds. The Monetary Group, Ltd., the general partner of TMG Associates, was owned by Edward Markowitz. There is nothing suspicious about Markowitz transferring money from a corporation to himself, and any claim that such funds include property of TMG Associates or TMG II is pure speculation, which as mentioned above, is not sufficient to raise a genuine issue of fact.
In sum, although the Partnerships have been able to establish that Markowitz breached a fiduciary duty owed them, they have failed to establish that any of the assets seized or recovered by the Government are traceable to Partnership property. They have presented some evidence suggesting that the funds used to purchase the 2323 Porter Street residence can be traced into a TMG Associates bank account in the Cayman Islands, but that late emerging evidence is not cognizable at this stage of these marathon proceedings.
Finally, the Government contends that even if a constructive trust were declared by this Court over the 2323 Porter Street property, such a trust would not defeat its tax liens because the constructive trust was not "choate" at the time the tax liens were filed. Implicitly, the Government contends that a constructive trust is created when a court decided to enforce it. However, as Judge Sands convincingly argues, the better view is that the constructive trust arises "when the duty to make restitution arises, not when the duty is subsequently enforced." United States v. Fontana, 528 F.Supp. at 146 (quoting V Scott on Trusts § 462.4, at 3421). The Government concedes the validity of the Fontana decision but attempts to distinguish it. It argues that in a case of theft or embezzlement like Fontana, title never passes to the wrongdoer, but in the case of fraud, since the transferor in fact intends to pass legal title, the wrongdoer gains voidable title sufficient to allow a lien to attach. See SEC v. Levine, 881 F.2d 1165, 1174 - 76 (2d Cir. 1989). This is a provocative argument. However, the Partnerships' theory, that a constructive trust was created by Markowitz's fraudulent representations, has more obvious failings. See supra 22. Moreover, even on its own terms it does not apply to the Partnerships' theory that Markowitz embezzled Partnership funds because, in such a case, Markowitz would not have gained even voidance title to that property. Accordingly, the Government's argument is now moot.
For the reasons stated above, the accompanying order will enter summary judgment on behalf of the Government and dismiss plaintiffs' claims.
ORDER - September 30, 1991, Filed
For the reasons stated in the accompanying Memorandum, it is this 27th day of September, 1991, hereby
ORDERED: that defendant's Motion for Summary Judgment should be, and is hereby, GRANTED; and it is further
ORDERED: that plaintiffs' Motion for Summary Judgment should be, and is hereby, DENIED and their claims DISMISSED.