Court Opinion

ID: 624294
Source: CourtListenerOpinion
Date Created: 2012-03-05 18:28:36+00
Date Added: 2024-06-11T17:51:07.488958
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,                       No. 11-10066
                Plaintiff-Appellee,                 D.C. No.
               v.                            4:08-cr-00212-DCB-
DWAYNE LEQUIRE,                                      BPV-4
             Defendant-Appellant.
                                                  OPINION

         Appeal from the United States District Court
                  for the District of Arizona
          David C. Bury, District Judge, Presiding

                   Argued and Submitted
        February 16, 2012—San Francisco, California

                       Filed March 5, 2012

    Before: A. Wallace Tashima and Barry G. Silverman,
   Circuit Judges, and Lynn S. Adelman, District Judge.*

                  Opinion by Judge Silverman

  *The Honorable Lynn S. Adelman, District Judge for the U.S. District
Court for the Eastern District of Wisconsin, sitting by designation.

                                2523
2526              UNITED STATES v. LEQUIRE

                         COUNSEL

Barry J. Pollack, Miller & Chevalier Chartered, Washington
D.C., for the defendant-appellant.

Gary M. Restaino, United States Attorney Office, District of
Arizona, for the plaintiff-appellee.

                         OPINION

SILVERMAN, Circuit Judge:

   One cannot be guilty of embezzlement if the alleged victim
did not own the funds that were supposedly embezzled. In this
case, an insurance agency had a contract with an insurance
company that allowed the agency to commingle collected
insurance premiums with its other funds in its general operat-
ing account. The contract also obligated the agency to remit
the total amount of premiums due the company each month,
whether or not the agency had collected the premiums. Fur-
thermore, if the agency were delinquent in the amount it was
to remit to the company, interest would accrue monthly on the
unpaid balance. The government contends that the premiums
collected by the agency were the property of the insurance
company and held “in trust” by the agency; it alleges that
when the funds were not remitted but used for other purposes,
they were embezzled by the agency’s treasurer, defendant
Dwayne Lequire.
                   UNITED STATES v. LEQUIRE                 2527
   We hold today that under long-standing Arizona law, the
contract between the agency and the company, which permit-
ted agency commingling, required monthly agency payments
whether premiums were collected or not, and created a right
to interest on late payments, created a creditor-debtor relation-
ship, not a trust. The agency had contractual and fiduciary
duties to the company, but was not a trustee. Because the
funds in question were not held “in trust” by the agency as a
matter of law, an essential element of embezzlement was
lacking. We reverse the denial of the defendant’s motion for
judgment of acquittal.

  I.   Background

   Lequire was charged with ten counts of embezzlement of
insurance premiums, in violation of 18 U.S.C. § 1033(b)(1),
and one count of conspiracy to commit embezzlement.

  Patriot Insurance Agency, owned by former Congressman
Rick Renzi and his wife Roberta and regulated by the Arizona
Department of Insurance, brokers property and liability insur-
ance through insurance underwriters at group rates to non-
profit organizations. During the relevant time period, defen-
dant Lequire was Patriot’s treasurer.

   After he was elected to Congress in 2002, Renzi placed
Patriot in his wife’s name but stayed involved with the com-
pany. Testimony established that Renzi was in charge; he
instructed Patriot’s staff whom to pay and when to pay them.

   In 2005, Renzi, with Lequire’s help, formed Spirit Moun-
tain Insurance Company. Spirit was formed as a “risk reten-
tion group,” a way for similarly situated entities, like the non-
profit groups for whom Patriot brokered policies, to self-
insure against risk. Though licensed in the District of Colum-
bia, Spirit was able to operate nationally. Lequire was Spirit’s
treasurer as well.
2528               UNITED STATES v. LEQUIRE
   Spirit contracted with Risk Services, LLC to serve as cap-
tive manager for Spirit. As captive manager, Risk Services
was responsible for handling Spirit’s regulatory filings,
accounting and financial reporting, and various legal and
administrative services. Risk Services was also the conduit
between Spirit and the D.C. Department of Insurance, Securi-
ties and Banking (DISB). Risk Services was independent
from Spirit and Patriot, though it had one overlapping direc-
tor. Neither Lequire, Renzi, nor Renzi’s wife had a role in
Risk Services.

   Patriot and Spirit entered into a Program Administrator
Agreement, an agency agreement signed by Roberta Renzi for
Spirit and Lequire for Patriot. As Spirit’s program administra-
tor in Arizona, Patriot performed policy-related services for
Spirit including underwriting, paying claims, and charging
and collecting premiums. Pursuant to the Agreement, Patriot
collected insurance premium payments from policyholders
insured by Spirit and made monthly payments to Spirit.

  For purposes of this appeal, the pertinent provisions of the
Agreement between Patriot and Spirit are as follows:

    Section 7
    Receipt of Funds: Accounts

    A. [Patriot] shall hold all funds received by it in
    connection with the Agreement as a fiduciary of
    [Spirit]. [Patriot] shall, under no circumstances,
    make any personal or corporate use of such funds
    not authorized by this Agreement. [Patriot] may
    deposit said funds into its general operating account
    (the “Agency Account”) which may include premi-
    ums due to other carriers and commissions due to
    [Patriot].

    B. [Patriot] shall be responsible for collecting and
    paying to [Spirit] all premiums due on the business
               UNITED STATES v. LEQUIRE                     2529
written pursuant to this Agreement. Failure to collect
shall not operate as a defense against full payment
by [Patriot] to [Spirit] of all amounts due and owing
to [Spirit] for all liability assumed by [Spirit] . . . .

C.   1. [Patriot] shall, on a monthly basis, transfer all
     amounts due to [Spirit] . . . .

     3. No later than fifteen (15) days after the close
     of each calendar month, [Patriot] shall prepare
     and submit to [Spirit] a report . . . listing gross
     premiums written for all policies issued in the
     previous accounting month, less return premi-
     ums and cancellations, reconciliations to previ-
     ous monthly reports and [Patriot] commissions
     (hereinafter referred to as the “Account Cur-
     rent”)[.]

     ...

     5. In the event that amounts transferred from
     the Company [sic — probably Agency]
     Account to [Spirit’s] home office account are
     not sufficient to pay the total net premium due
     [Spirit] as shown on [Patriot’s] Account Cur-
     rent, upon written notice from [Spirit] stating
     the additional amount due, [Patriot] shall
     promptly remit all further premium due and
     owing, irrespective of whether [Patriot] has col-
     lected it, within two (2) days following written
     notice from Spirit. If payment is not made
     within two (2) days of written notice, interest
     on amounts owing will accrue at a rate of 1.5%
     per month; and

     6. [Spirit] shall have a first lien upon commis-
     sions and/or service fees due under this Agree-
     ment for any indebtedness of [Patriot] to
2530               UNITED STATES v. LEQUIRE
         [Spirit], including premiums, and the right of
         [Patriot] or any other person to receive commis-
         sions shall at all times be subordinate to the
         right of [Spirit] to offset commissions against
         any indebtedness of [Patriot] to [Spirit]. . . .

   At Renzi’s direction, Patriot promptly deposited premium
checks received from its clients into Patriot’s general operat-
ing account. Through July 2006, Patriot stamped premium
checks it received “For Deposit Only, Patriot Insurance
Agency, Inc. Trust Account,” but there was no trust account.
After July 2006, Patriot stopped using the rubber stamp, and
continued to deposit the premium checks into its general oper-
ating account.

   Patriot routinely failed to pay the premiums over to Spirit
on a timely basis. Instead, Lequire, over a two-year period,
transferred the premium funds to Renzi’s personal account
and Renzi used those funds to pay for personal expenditures.
In all, Lequire transferred over $750,000 to Renzi at a time
when Patriot had less in its bank accounts than it owed Spirit.

   The entire time that Patriot was delinquent in its payments
to Spirit, Lequire submitted accurate reports to Risk Services
showing Patriot’s delinquency. Risk Services then reported
the delinquent payments to DISB. Even though Patriot was
unabashedly delinquent in timely paying Spirit, neither Spirit,
Risk Services, nor DISB ever invoked the 1.5% penalty inter-
est clause.

   A number of witnesses, several with no firsthand knowl-
edge of the Agreement, testified regarding their personal
beliefs as to the nature of Spirit and Patriot’s relationship.
Officials at Risk Services and DISB testified that they
believed Spirit had a fiduciary relationship with Patriot and an
official at DISB testified that she would not have approved a
program administrator agreement without a fiduciary clause.
Others opined that, although there is no Arizona statute
                    UNITED STATES v. LEQUIRE               2531
requiring Patriot to be Spirit’s fiduciary, the practice in Ari-
zona amongst brokers is to be “trustworthy and responsible”
and to treat premium funds as not their own.

   After the jury found Lequire guilty of the conspiracy
charge and eight of the ten embezzlement counts, Lequire
moved for a judgment of acquittal pursuant to Rule 29(c) of
the Federal Rules of Criminal Procedure. Lequire argued that
as a matter of law and fact there was no trust relationship
between Patriot and Spirit as required for a § 1033(b)(1) vio-
lation under embezzlement. The argument was that if the
money was not actually held “in trust,” it was not Spirit’s
money, and therefore could not be embezzled from Spirit. The
district court denied the motion, ruling that there was suffi-
cient evidence to support the jury’s finding that a fiduciary
relationship of trust existed between Patriot and Spirit.

                         II.   Analysis

  A.   Jurisdiction and Standard of Review

   This court has jurisdiction pursuant to 28 U.S.C. § 1291.
We review a district court’s denial of a Rule 29 motion de
novo. United States v. Goyal, 629 F.3d 912, 914 (9th Cir.
2010). Similarly, we review sufficiency of the evidence chal-
lenges de novo. United States v. Sarkisian, 197 F.3d 966, 984
(9th Cir. 1999). We decide “whether after viewing the evi-
dence in the light most favorable to the prosecution, any ratio-
nal trier of fact could have found the essential elements of the
crime beyond a reasonable doubt.” United States v. Nevils,
598 F.3d 1158, 1163-64 (9th Cir. 2010) (quotation marks
omitted).

  B.   Discussion

   [1] The crime of embezzlement of insurance premiums in
set forth in 18 U.S.C. § 1033(b)(1): “Whoever [ ] acting as, or
being an officer, director, agent, or employee of, any person
2532               UNITED STATES v. LEQUIRE
engaged in the business of insurance . . . willfully embezzles,
abstracts, purloins, or misappropriates any of the moneys,
funds, premiums, credits, or other property of such person so
engaged shall be punished . . . .”

   [2] The statute uses the word “embezzles” without defini-
tion. However, the cases define embezzlement as “the fraudu-
lent appropriation of property by a person to whom such
property has been entrusted, or into whose hands it has law-
fully come.” United States v. Eriksen, 639 F.3d 1138, 1145
(9th Cir. 2011) (emphasis added); Woxberg v. United States,
329 F.2d 284, 290 (9th Cir. 1964); see also United States v.
Andreen, 628 F.2d 1236, 1241 (9th Cir. 1980).

   Although federal law defines embezzlement, whether a per-
son’s property is held “in trust,” or is not even that person’s
property at all, is a question of state law. In United States v.
Lawson, 925 F.2d 1207, 1209-10 (9th Cir. 1991), we looked
to state law to determine whether an auctioneer holds auction
proceeds as a bailee or as a debtor; if the auctioneer was a
bailee he could have been guilty of embezzlement. For the
same reason, here, we look to Arizona law to determine
whether Patriot held the premiums “in trust” for Spirit, or
merely had a contractual obligation to remit certain amounts
due each month. See id. at 1210; see also United States v.
Taylor, 867 F.2d 700, 702-03 n.2 (D.C. Cir. 1989) (adopting
general definition of embezzlement but noting that “federal
courts look to state property laws in defining underlying con-
cepts of ownership for the purpose of deciding whether a
defendant violated a federal criminal statute”).

   [3] Both parties agree that Spirit’s premiums must have
been held in trust by Patriot for Lequire to be guilty of embez-
zlement. If they were not, the relationship was a debtor-
creditor one and there could be no embezzlement. See United
States v. Dupree, 569 F.2d 1061, 1064 (9th Cir. 1978) (“[T]he
property simply did not belong to one other than the defen-
dant and therefore could not have been embezzled by him.”).
                   UNITED STATES v. LEQUIRE                2533
We agree with Lequire that as a matter of Arizona law, Patriot
was a debtor of Spirit, not a trustee.

   [4] First of all, Arizona law does not require an insurance
broker to hold funds in trust for an insurance company.
Whether funds are held in trust depends on the terms of the
particular contract. Here, the Agreement states that “[Patriot]
shall hold all funds received by it in connection with this
Agreement as a fiduciary of [Spirit]. [Patriot] shall, under no
circumstances, make any personal or corporate use of such
funds not authorized by this agreement.” Conspicuously miss-
ing from the Agreement is any mention of “a trust,” of prop-
erty being “entrusted,” “held in trust,” of Patriot being a
“trustee,” or any other variant of the word.

   [5] There is no doubt that Patriot is a fiduciary of Spirit,
but that does not necessarily make it a trustee. A trust is a “a
fiduciary relationship with respect to property.” Restatement
(Third) of Trusts § 2 (2003). However, “the trust relationship
is one of many forms of fiduciary relationships” including:
“guardian-ward, agent-principal, attorney-client, and partner-
ship relations.” Id. § 2b. We have explained, in no uncertain
terms, that the two terms are not synonymous. As we said in
Joseph Rosenbaum, M.D., Inc. v. Hartford Ins. Co., 104 F.3d
258, 262 (9th Cir. 1996), “[a] trustee is a person who holds
some res in trust for a beneficiary. The class of fiduciaries is
much more inclusive . . . .” (citation omitted). Although a
trustee is always a fiduciary, a fiduciary is not always a
trustee.

   [6] The main problem for the government here is that
under Arizona law, when an insurance agent is allowed by
contract to commingle funds in a single account and has the
duty to pay over premiums to the insurance company regard-
less of whether the premiums have actually been collected, as
a matter of law no trust relationship exists; what exists is a
debtor-creditor relationship. See Chi. Fire & Marine Ins. Co.
v. Fid. & Deposit Co. of Md., 18 P.2d 260, 262 (Ariz. 1933).
2534              UNITED STATES v. LEQUIRE
   In Chicago Fire, Chicago Fire was an insurance company
that used Macmillan as its general agent for Arizona. Id. at
260. Macmillan executed an indemnity bond in which he
agreed to pay Chicago Fire for any loss resulting from embez-
zlement and agreed to: “carry out faithfully all instructions
given or to be given [by Chicago Fire] and [to be] responsible
to [Chicago Fire] for all transactions and all balances due by
his office . . . .” Id. at 261. The premiums collected by Mac-
millan on Chicago Fire’s behalf were permissibly commin-
gled with other premiums collected on behalf of other
insurers. Id. Macmillan was also liable for the insurance pre-
miums owed to Chicago Fire whether they had been collected
or not. Id. Chicago Fire did not care how the premiums were
handled or whether they had been collected. Id.

   [7] The question before the Arizona Supreme Court was
whether the premiums Macmillan received were held in trust
for Chicago Fire, or whether Chicago Fire and MacMillan had
only a debtor-creditor relationship. Id. The court held that,
because premiums could be commingled and Macmillan was
obligated to pay the premiums written, regardless of how
much was collected, there was no trust as a matter of law. Id.
at 262. That being the case, “there could be no embezzle-
ment.” Id.

   [8] We reject the argument that Chicago Fire is an outlier
case from a bygone era. To the contrary, our recent caselaw
is consistent with the proposition set forth in Chicago Fire
that commingling and a requirement to pay give rise to a
debtor-creditor relationship. In Foothill Capital Corp. v.
Clare’s Food Market, Inc. (In re Coupon Service), 113 F.3d
1091, 1100 (9th Cir. 1997), retailers argued that a coupon
clearinghouse held its coupon proceeds in trust. We held that
there was no trust relationship because the clearinghouse was
required to make payments to the retailers on a fixed schedule
regardless of when manufacturers paid the clearinghouse and
the clearinghouse was allowed to commingle payments with
its own general funds. Id. at 1101.
                   UNITED STATES v. LEQUIRE                 2535
   [9] Here, like in Chicago Fire and In re Coupon Service,
the Agreement allowed Patriot to commingle premium pay-
ments in its general operating account. And also like the situa-
tion in Chicago Fire and In re Coupon Service, Patriot was
required to pay Spirit premiums owed regardless of whether
or not they had been collected. In addition, if Patriot did not
timely pay the premiums, interest would begin accruing at
1.5% per month, making the case for a debtor-creditor rela-
tionship even stronger than in either of the other two cases. If
interest is due on unremitted amounts, “it becomes close to
certain that the relationship is a debt rather than a trust.”
Restatement (Third) of Trusts § 5k; see also In re Estate of
Zilles, 200 P.3d 1025, 1031 (Ariz App. 2008) (noting that Ari-
zona courts generally follow the Restatement (Third) of
Trusts when not bound by previous decisions or legislative
enactments).

   The government argues that Chicago Fire and In re Cou-
pon Service are inapposite to this case because neither case
had a fiduciary clause or expressly prohibited use of the col-
lected funds by the alleged trustee. First, as we have seen, the
fact that Patriot was admittedly a fiduciary does not mean it
was also a trustee. See Matter of Shulman Transp. Enters.
Inc., 33 B.R. 383, 386 (S.D.N.Y. 1983) (holding that even
though agreement between parties designated funds as “prop-
erty of the carrier,” only a debtor-creditor relationship existed
because commingling was allowed and the agent was liable
whether or not it had already received payment from the cus-
tomer). To reiterate, many — indeed most — fiduciaries are
not trustees. Second, the fact that the Agreement contained a
clause prohibiting personal and corporate use of funds alone
is insufficient to prove a trust, as opposed to it being a con-
tractual restriction. In Lawson, 925 F.2d at 1209-10, we held
that even though a statute required auctioneers to keep auction
proceeds separate from personal funds, the auctioneer had a
debtor-creditor relationship with the owner of the property
because he could commingle the proceeds from all auctions
and he was not required to remit the actual auction proceeds
2536               UNITED STATES v. LEQUIRE
— just the amount of the proceeds. In fact, in In re Coupon
Service, the clearinghouse was prohibited from personal use
of collected funds; it lacked the authority to commingle pro-
ceeds with its general operating fund or to pledge the funds
as security. Still no trust. 113 F.3d at 1100.

   Because being a fiduciary does not ipso facto create a trust
relationship, the majority of the evidence the government
cites — including the testimony of witnesses opining that
Patriot had fiduciary and “trustworthiness” obligations
towards Spirit — is irrelevant to the crucial question: whether
the Agreement created a trust. See United States v. Christian-
sen, 958 F.2d 285, 287 (9th Cir. 1992) ( “[A] [f]inding [of]
breach of trust is essential to an embezzlement conviction.”).
This case turns on the applicability of Chicago Fire, not on
the opinion of various witnesses. Chicago Fire either controls
as a matter of law, or it does not. We hold that it does.

   The fact that for a period of time Patriot endorsed checks
deposited into its general account using a rubber stamp con-
taining the words “trust account” is of no significance. First
of all, there was no separate “trust account;” it is undisputed
that the funds were deposited into a commingled general
account. More importantly, this case turns on the terms of the
contract between the parties and not on what was, or was not,
on Patriot’s endorsement stamp. For example, if the Agree-
ment had in fact created a trust, Lequire’s use of an endorse-
ment stamp claiming the funds to be his own would not have
saved him.

   The district court, in its Rule 29 order, ruled that commin-
gling did not preclude a trust relationship because Patriot was
obligated to keep an accounting of all gross premiums col-
lected and any deductions taken. It is true that money can be
converted despite commingling if the funds can be identified,
segregated, and an obligation to treat it in a specific manner
can be established. See Stokes v. Stokes, 694 P.2d 1204, 1208
(Ariz. App. 1984). No one contends that the right to commin-
                     UNITED STATES v. LEQUIRE                    2537
gling, in and of itself, negates a trust relationship. However,
the key to Chicago Fire was the confluence of both the right
to commingle and the debtor’s obligation to the creditor
regardless of whether premiums had been collected. It was the
combination of these two factors that “destroys any idea of a
trust.” 18 P.2d at 262.

   The district court also relied on Spirit Mountain’s security
interest in Patriot’s future commissions and fees to find that
Spirit had a sufficient ownership interest to sustain Lequire’s
embezzlement conviction. This rationale fails, however,
because Spirit’s security interest was in future commissions
and fees, not in the premiums collected. The district court’s
reliance on Case v. Gerhke, 91 P.3d 362, 366 (Ariz. App.
2004), is misplaced because there the party did indeed have
a valid security interest in the funds in issue. Not so here.

                         III.   Conclusion

   [10] In summary, we hold that the funds in Patriot’s pos-
session were not held in trust because the Agreement allowed
for commingling, required premium payments to be paid to
Spirit regardless of whether or not Patriot had collected them,
and allowed Spirit to collect an interest on late premium pay-
ments. Because Patriot did not hold premium payments “in
trust,” Lequire cannot be guilty of embezzlement.1

   For the foregoing reasons, the judgment of the district court
is REVERSED and the case is REMANDED for entry of
judgment of acquittal on all counts.

  1
   Having decided this case on the basis indicated, we do not reach the
other arguments advanced by Lequire.