Opinion ID: 26691
Heading Depth: 3
Heading Rank: 2

Heading: Trust Relationship.

Text: [7-Eleven] as its Agent and Trustee authorized to sell Money Orders in accordance with the provisions stated herein. Upon the Effective Date of this Agreement, and pursuant to its terms and conditions, Seller shall be a trustee and act in a fiduciary capacity with respect to any Money Orders and Trust Funds in Seller’s possession.
Trust Funds in trust for the benefit of Amex.... Except as set forth herein, it is expressly understood that Seller does not by operation of this Agreement or otherwise acquire any right, title or interest of any kind in the Money Orders or Trust Funds. All Money Orders and Trust Funds remain the sole and exclusive property of Amex. ... 4. Remittance and Reporting Procedures. a. Seller shall pay Amex the Amex Fee in the amount of $0.13, for each Money Order sold or used by Seller or Participating Franchisees. ... 6. Safekeeping and Liability for Loss. a. ... As used in this Section 6, the term “Seller” shall mean and include any officer, employee, representative, Participating Franchisee(s) or agent of Seller. b. Seller shall be absolutely liable to Amex for the Face Value of any Money Orders in all circumstances where such Money Orders are lost, stolen, misappropriated, seized or forfeited from Seller and subsequently paid by Amex. [Emphasis ours.] Amex entered into a separate agreement directly with Alfares. In that agreement, Alfares was appointed Amex’s “agent authorized to sell American Express Money Orders.” As did the agreement 3 between Amex and 7-Eleven, Amex’s agreement with Alfares emphasized that (c) It is expressly understood that [Alfares] does not, by operation of this Agreement, acquire any right, title or equitable interest in the Money Order or the proceeds. Finally, the contractual relationship between Alfares and 7- Eleven was updated to cover this new class of transactions in an agreement titled the Money Order Amendment. In the Money Order Amendment, the parties agreed that Alfares, acting “as an independent contractor,” would “use [his] best efforts in the promotion and sale of Money Orders,” report all daily proceeds from the sale of money orders and deposit the daily proceeds from the sale of money orders as directed by the agreement, paying 14 ½ cents per money order to 7-Eleven as consideration for the money orders themselves and all the related services and material that 7- Eleven agreed to provide to Alfares. Alfares began selling Amex money orders from his three 7- Eleven stores in 1995, and continued to do so without incident until 1999. In 1999, however, he began to steal the money orders by either (1) issuing them to fictitious payees or (2) fraudulently signing money orders that were issued to legitimate payees and depositing the proceeds in his personal accounts or using them for his personal benefit. By April 1999, Alfares had stolen $1,916,095 in this manner. Alfares is thought to have left the United States and is a fugitive from justice. 4 2. The CrimeGuard Insurance Policy To protect itself from losses arising from criminal activities, 7-Eleven had purchased a series of annual “CrimeGuard” insurance policies from National Union, effective for one-year terms that ran from November to November. The policies provided broad coverage for “losses” that met the definition of being “the direct deprivation of [7-Eleven] by a single act or a series of related acts resulting from dishonesty, dissolution, or forgery occurring during the Policy Period and reported to [National Union] during the Policy Period.” For purposes of this definition, the terms “dishonesty” and “dissolution” are defined as well: “Dishonesty” is theft by an employee of the policy holder; “dissolution” is the destruction or disappearance of money or securities,1 or theft by any natural person other than an employee. When 7-Eleven discovered Alfares’s theft of almost $2 million in Amex money orders, it notified National Union of its “loss” during the 1998-1999 policy term. Initially, National Union denied coverage on the ground that 7-Eleven lacked the “requisite financial interest” in the Amex money orders, but later changed its ground for denial of coverage, proffering two exclusions in the CrimeGuard policy, Exclusion “e” and Exclusion “l,” as bars to coverage. When National Union persisted in its refusal to cover 7- 1 The parties do not dispute that the Amex money orders are “money” within the meaning of the CrimeGuard policy. 5 Eleven’s losses resulting from Alfares’s defalcations, 7-Eleven brought this action in the district court for the Northern District of Texas, alleging breach of contract and violation of the Texas Insurance Code. The district court granted National Union’s Rule 12(b)(6) motion to dismiss for failure to state a claim. In its conclusional Order and Final Judgment, the district court stated: After considering the Motion, all responsive papers on file, the evidence presented by the parties and the arguments of counsel, the Court has determined that National Union’s Motion to Dismiss should be granted based upon the application of Exclusion “e” in “the Policy.” The Motion is denied with respect to the application of Exclusion “l.” The Court further determines that because of the application of Exclusion “e,” Plaintiff, 7-Eleven[,] will never be able to state any claim on the facts and occurrences set out in its complaint so that leave to amend would be futile. The action was dismissed with prejudice, and 7-Eleven timely appealed.