United States v. Lequire

Under Arizona law, a contract between an insurance agency and insurance company that “permitted agency commingling, required monthly agency payments whether premiums were collected or not, and created a right to interest on late payments” results in a creditor-debtor relationship, not a trust. Thus, if no trust property exists, there can be no crime of embezzlement since the alleged victim did not own the funds allegedly embezzled.

Dwayne Lequire was treasurer of Patriot Insurance Agency (“Patriot”). Patriot entered into a contract for services with Spirit Mountain Insurance Company (“Spirit”) to provide for the collection and remittance of Spirit’s insurance premiums. The contract stated that Patriot would provide Spirit with a monthly remittance of the premiums due to Spirit regardless of whether Patriot actually collected the premiums. Spirit was entitled to an interest penalty on any late payment. Lequire collected Spirit’s payments but diverted nearly $750,000 to a private account. Lequire was charged and convicted of embezzlement of insurance premiums under 18 U.S.C. § 1033(b)(1). Lequire appealed, arguing that because no trust property existed, there could be no crime of embezzlement. The Ninth Circuit noted that the definition of trust property is based on state law. The Court held that under Arizona law the agreement entered into created a creditor-debtor relationship and not a trust relationship, because the agreement permitted Patriot to commingle Spirit’s premiums, required Patriot to pay the monthly premium amounts regardless of whether Patriot actually collected the premiums, and could require Patriot to pay interest on any late payment to Spirit. Since the premiums were not the property of Spirit—thereby precluding the conclusion that Patriot held the premiums “in trust”—there could be no crime of embezzlement by Lequire. REVERSED and REMANDED.