Opinion ID: 2801672
Heading Depth: 5
Heading Rank: 1

Heading: S&C’s Claims

Text: The district court misinterpreted the scope of the fiduciary duty imposed by the reinsurance agreements. The General Agency Agreement states that U.S. Auto owed S&C a fiduciary duty in virtually all transactions related to the premiums: The Agent [U.S. Auto] shall accept and maintain at all times all premiums collected and other funds relating to the business written under this Agreement as a fiduciary for [S&C]. The privilege of retaining commissions shall not be construed as changing the fiduciary capacity. This imposed a fiduciary duty on U.S. Auto that encompassed collecting, handling, spending, deducting from, and depositing the premiums. The broad 18 Case: 13-10589 Document: 00513046323 Page: 19 Date Filed: 05/18/2015 No. 13-10589 language defining the boundaries of this fiduciary duty—maintaining “all premiums” at “all times”—is without qualification. Such language required U.S. Auto to handle all funds as a fiduciary from the moment it accepted them until the time they left its control—a period including when it calculated commissions, made deductions, and ultimately deposited the remaining premiums. The expansive contractual language is consistent with a provision in the Texas Insurance Code stating that “[a] managing general agent holds money on behalf of an insured or insurer in a fiduciary capacity.” TEX. INS. CODE § 4053.106. Indeed, control over funds belonging to others is the classic situation in which a fiduciary duty arises. Pegram v. Herdich, 530 U.S. 211, 231 (2000) (“At common law, fiduciary duties characteristically attach to decisions about managing assets and distributing property to beneficiaries.”). As the plain language of the provision states, U.S. Auto’s “privilege of retaining commissions” does not alter this analysis. The district court imposed too narrow a duty by holding that fiduciary duties arose only after U.S. Auto retained its commissions and deposited funds in the trust account. In addition to contradicting the contract’s broad language, imposing such a narrow duty would eviscerate the fiduciary obligations concerning the funds. U.S. Auto could simply avoid liability by misappropriating all the premium funds before making deposits into the trust account. The district court thought Texas Insurance Code provisions requiring managing general agents to maintain escrow accounts mean that no fiduciary duties exist prior to the funds being deposited in the escrow account. Those provisions do the opposite, however, recognizing that agents can siphon funds just as easily—and perhaps in a manner more difficult to detect—before they end up in the account. TEX. INS. CODE.§ 4053.105(c) (“[A] managing general agent may not use, take as an 19 Case: 13-10589 Document: 00513046323 Page: 20 Date Filed: 05/18/2015 No. 13-10589 offset, or convert money that is or should have been deposited in the escrow account.” (emphasis added)). The ruling that U.S. Auto owed no fiduciary duty with respect to premiums until it transferred the funds to the trust account thus contravenes the terms of the agreement and the fiduciary protections the parties intended. U.S. Auto contends that we should nevertheless affirm dismissal of the assigned S&C claim on the alternative ground that S&C, unlike Lincoln, did not suffer any damages (S&C was paid its 2% fee). We think the better course is to allow the district court to consider the damages issue in the first instance. Lincoln requested a constructive trust over the profits U.S. Auto received, which is a remedy that may be available for breach of fiduciary duty. 8 See Meadows v. Bierschwale, 516 S.W.2d 125, 128–29 (Tex. 1974); Chien v. Chen, 759 S.W.2d 484, 494 n.6 (Tex. App.—Austin 1988, no writ) (“Equitable remedies, such as . . . the imposition of a constructive trust, may be awarded for breach of the higher standards of conduct demanded in the fiduciary relationship.”). That remedy does not require actual damages. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942) (“It would be a dangerous precedent for us to say that unless some affirmative loss can be shown, the person who has violated his fiduciary relationship with another may hold on to any secret gain or benefit he may have thereby acquired.”); see 8 Lincoln appears to have satisfied the pleading requirement to obtain such relief by explicitly requesting a constructive trust in its complaint. See Lee v. Lee, 47 S.W.3d 767, 780– 81 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (holding that the plaintiff must prove actual damages if it fails to request equitable relief); see also Tisino v. R&R Consulting & Coordinating Grp., LLC, 478 F. App’x 183, 185 (5th Cir. 2012) (holding that a “complaint, which asserts a breach of fiduciary duty claim and requests imposition of a constructive trust” provides sufficient notice (internal quotation marks omitted)). 20 Case: 13-10589 Document: 00513046323 Page: 21 Date Filed: 05/18/2015 No. 13-10589 also ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 874 (Tex. 2010) (“[W]here a fiduciary takes advantage of his position of trust to induce a principal to enter into a contract[,] [t]he remedy of forfeiture is necessary to prevent such abuses of trust, regardless of proof of actual damages.” (emphasis added)); Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999) (“[A] client need not prove actual damages in order to obtain forfeiture of an attorney’s fee for the attorney’s breach of fiduciary duty to the client.” (emphasis added)). The parties therefore may fully litigate the merits of S&C’s fiduciary duty claims on remand. The grant of summary judgment on S&C’s fiduciary duty claim—asserted by Lincoln as a result of the assignment—is reversed.