Court Holds That Funds Collected From Amp'd Mobile Customers for Insurance on Cellphones Are Property of the Estate, and Not Held in Trust for Insurer
Asurion Ins. Servs., Inc. v. Amp’d Mobile, Inc. (In re Amp’d Mobile, Inc.), 377 B.R. 478 (Bankr. D. Del. 2007) (Judge Brendan Linehan Shannon)
The United States Bankruptcy Court for the District of Delaware denied a vendor’s request for a determination that funds that the debtor received in connection with a contract between the parties were not property of the estate, and that such funds were held in a constructive trust. The vendor, Asurion Insurance Services, Inc., was party to an agreement with the debtor to offer insurance to the debtor’s customers against loss or damage to the participating customers’ cellular phones. The Court found that there was no fiduciary relationship between Asurion and the debtor so as to warrant a finding that the premium payments the debtor received from its customers were anything other then property of the debtor’s estate.
Prepetition, the debtor/defendant, Amp’d Mobile, Inc., entered into an agreement with plaintiff Asurion Insurance Services, Inc. for Asurion to develop a program to provide insurance to Amp’d customers against loss or damage to their cellular phones. Amp’d agreed to bill its customers for the monthly premiums and remit those funds to Asurion. Asurion separately contracted with Liberty Mutual Insurance Company to provide the actual insurance coverage.
In June, 2007, Asurion filed a motion for relief from the automatic stay to file a complaint against the debtor seeking turnover of the premiums that the debtor had collected from its customers, but had not paid to Asurion. The United States Bankruptcy Court for the District of Delaware granted the motion and scheduled a trial on the limited issue of whether the premiums were property of the estate under 11 U.S.C. § 541. Asurion then filed a complaint against the debtor alleging breach of contract, conversion and breach of fiduciary duty. At the same time, Asurion also filed a motion seeking imposition of a constructive trust and an order requiring the debtor to turn over all premiums to Asurion.
In support of the relief requested in its complaint, Asurion contended that its agreement with the debtor positioned the debtor as a conduit for the premiums that the debtor was required to collect and remit to Asurion. As a conduit, the debtor would have acquired no interest in the premiums. In the alternative, Asurion contended that California insurance law imposed a fiduciary relationship between Asurion and the debtor such that the debtor held the premiums as a fiduciary for Asurion.
The debtor countered that the agreement did not create a fiduciary relationship; instead, there was merely a creditor-debtor relationship between the parties. In support of its argument, the debtor noted that the agreement contained no express language creating a fiduciary relationship or requiring the debtor to segregate the premiums. Also, the debtor was required to pay Asurion without regard to whether the customers actually made the premium payments. The debtor also argued that Asurion had waived its right to enforce the California statutes that may have created a fiduciary relationship, and that the request for a constructive trust must fail because Asurion could not trace any funds in the debtor’s possession to the actual premiums received.
New York law governed the contract. Under New York law, to establish grounds for the imposition of a constructive trust, a party must prove the existence of (i) a confidential or fiduciary relationship; (ii) an express or implied promise; (iii) a transfer of property made in reliance on the promise; and (iv) unjust enrichment. The Court concluded, as a threshold matter, that Asurion was unable to establish that there was a fiduciary relationship. The Court found that the contract lacked any indicia of such a relationship. Examples of such indicia included (i) clear and explicit language in the governing documents; (ii) affirmative statements in the governing documents that the debtor would have no interest in the premiums; (iii) segregation of the premiums; and (iv) a requirement that the debtor remit only those premiums actually received from its customers.
Similarly, Asurion’s argument that the parties intended to be a “conduit” failed because (i) Asurion was under no obligation to segregate, trace or separately account for premiums received; and (ii) Amp’d was required to pay Asurion regardless of whether the debtor's customers paid Amp’d.
The Court also pointed to the contract between Asurion and Liberty Mutual for evidence that the Amp’d/Asurion contract did not create a fiduciary relationship. In the Liberty Mutual contract, there was express language creating a fiduciary relationship and requiring funds to be segregated. The Court reasoned that Asurion was able to create an express fiduciary relationship, and its failure to do so in the Amp’d agreement was evidence that no such relationship existed.
The Court then considered Asurion’s argument for a statutorily created trust. Under section 1733 of the California Insurance Code, an insurance agent who collects premiums under an insurance policy holds them as a fiduciary for the insurer. These funds are further required to be segregated unless the insurer agreed otherwise, in writing. The Court found that Asurion was not the insurer; Liberty Mutual was. Therefore, only Liberty Mutual could have released the debtor from its obligation to segregate the premium funds. Here, Liberty Mutual provided in writing that a fiduciary relationship did not exist between it and the debtor. As a consequence, Liberty Mutual, and by extension, Asurion, waived the right to assert a fiduciary relationship under section 1733.
Although the Court determined that there was no basis to find the existence of a fiduciary relationship, which was a threshold requirement for the existence of a trust, the Court also stated that a constructive trust could not be imposed because of the absence of an identifiable trust res. Here, the debtor did not segregate the funds arising from premium payments. Therefore, it became Asurion’s burden to trace the funds in the debtor’s commingled accounts. This task was made all but impossible because the accounts into which the premiums and other funds were deposited were swept each day into a general operating account.
The Court therefore denied Asurion’s requests for a determination that the premiums were not property of the debtor’s estate and for imposition of a constructive trust.
