## Facts

- In 1981, Ronald E. Ponec, Marion R. Wamsat, and Joseph Alan Hartley started ProData Computer Services, Inc. (ProData), a computer business.
- Wamsat and Hartley were ProData’s sole shareholders throughout the relevant period.
- Wamsat and Ponec were married during ProData’s early years; they separated in 1990 and divorced in 1991.
- Ponec initially helped ProData with bookkeeping on an as-needed basis and later worked full time; his duties were in accounting and financial matters.
- Ponec handled ProData’s billings, collections, deposits, expense payments, and bank accounts, and he maintained control over key financial records.
- Wamsat and Hartley later discovered multiple instances in which Ponec converted ProData funds to his own use by:
  - writing checks on ProData accounts for personal purposes,
  - causing direct payments from ProData accounts for personal expenses and luxuries, and
  - depositing customer checks meant for ProData into Ponec’s personal accounts.
- In 1996, ProData sued Ponec for fraud, conversion, embezzlement, breach of fiduciary obligations, and breach of employment contract.
- Before trial, ProData obtained pretrial attachment of certain Ponec-owned assets, including an Elkhorn, Nebraska residence and investment accounts maintained through Dain Bosworth, Inc., and Wallace Weitz & Co.
- A jury returned a verdict for ProData for approximately $580,000.
- After the verdict, the district court imposed a constructive trust on identified Ponec assets, including the investment accounts into which converted funds had been deposited.
- Ponec appealed the constructive trust order, arguing (1) the investment accounts existed before the deposits of converted funds and (2) any post-deposit increase in value should not be included.

## Issues

1. May a court impose a constructive trust on an investment account that existed before misappropriated funds were deposited into it, where the funds are traced into the account?
2. May the constructive trust include later gains or increases in value attributable to the misappropriated funds once deposited and invested?

## Decision

- The Nebraska Supreme Court affirmed the district court’s order imposing a constructive trust on specified Ponec assets in favor of ProData.
- The court rejected Ponec’s argument that preexisting investment accounts were immune from a constructive trust simply because they existed before the wrongful deposits; the relevant question was whether ProData’s money could be traced into the accounts and related assets.
- The court also rejected Ponec’s argument that later gains were excluded, holding that equity could award ProData the benefit of increases in value attributable to the wrongfully obtained funds, so the wrongdoer would not profit from the misconduct.
- Applying equitable review, the court concluded the record supported the district court’s tracing findings and its decision to impose a constructive trust on the attached assets.

## Legal Principles

- A constructive trust is an equitable remedy imposed when a person holds title to property under circumstances that make it unjust for that person to keep the benefit of the property.
- When a party wrongfully takes another’s money and the money is traced into specific property or accounts, equity may treat the titleholder as holding that property for the benefit of the rightful owner to the extent of the traced interest.
- The fact that an account or asset existed before the wrongful deposits does not, by itself, defeat a constructive trust; commingling or prior balances do not bar relief if tracing is shown on the record.
- A constructive trust may extend to increases in value or profits attributable to the misappropriated funds, because the wrongdoer should not receive the benefit of gains produced by the wrongful use of another’s property.
- Appellate review of an equitable remedy is conducted de novo on the record, while giving weight to the trial court’s factual determinations, including credibility assessments, where relevant.

## Conclusion

The Nebraska Supreme Court affirmed a constructive trust over Ponec’s identified assets, including preexisting investment accounts and related increases in value, because ProData proved that corporate funds were converted and traced into those assets and equity required returning both the misappropriated funds and their gains to prevent unjust retention of the benefit.


ProData Computer Services, Inc. v. Ponec, 256 Neb. 228 (1999)