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Mahoney v. Underwriting Svcs. of N. Amer

Minnesota Court of Appeals
Oct 28, 1997
No. C6-97-318 (Minn. Ct. App. Oct. 28, 1997)


No. C6-97-318.

Filed October 28, 1997.

Appeal from the District Court, Hennepin County, File No. 954410.

Michael C. Mahoney, Stephen P. Laitinen, Mahoney, Hagberg Rice, (for respondent Mahoney).

D. Graham Clark, (for respondent Underwriting Services).

Alan L. Kildow, John J. Steffenhagen, Larkin, Hoffman, Daly Lindgren, Ltd., (for appellant).

Considered and decided by Crippen, Presiding Judge, Parker, Judge, and Short, Judge.

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).


Appellant Benefits International disputes the summary judgment denying its claim of ownership of a Riverside Bank account originally opened by respondent Underwriting Services of North America. We reverse and remand.


Respondent Underwriting Services confessed to a $233,000 judgment in favor of its lawyers, respondent Mahoney, Hagberg Rice, and the firm, acting as judgment creditor, levied against a bank account that Underwriting opened at Riverside Bank. A setoff claim of the bank was upheld by the trial court and then settled. The case now involves the Mahoney law firm's claim for the balance of the account proceeds, disputed by appellant Benefits International, the successor in interest to claims by Gerber Life Insurance Company.

The Riverside account was opened in April 1993, when Underwriting Services agreed to act as a managing general agent for Gerber. The activity of managing general agents, who conduct a segment of an insurer's business, is governed by Minn. Stat. § 60H.04 (c) (1996). Consistent with statutory requirements, the account was set up with escrow terms and entitled USNA Gerber Premium Escrow Account.

Minn. Stat. § 60H.04 (c) (1996) provides:

All funds collected for the account of an insurer must be held by the managing general agent in the name of the insurer in a fiduciary capacity in a bank which is a member of the Federal Reserve System. This account must be used for all payments on behalf of the insurer. The managing general agent may retain no more than three months estimated claims payments and allocated loss adjustment expenses. A managing general agent shall deposit only trust funds in a trust account and shall not commingle personal funds or other funds in a trust account, except that a managing general agent may deposit and maintain a sum in a trust account from personal funds, which sum shall be specifically identified and used to pay service charges or satisfy the minimum balance requirements relating to the trust account.

Soon after the formation of the management contract between Underwriting Services and Gerber, Gerber became concerned about discrepancies in the records of amounts collected and owed to it. Gerber hired an outside auditor and then made several demands on Underwriting to relinquish control of the Riverside escrow account. Underwriting did not relinquish control of the account.

In May 1995, after Mahoney began its execution proceedings, Benefits International intervened with a complaint asserting its interest in the Riverside account. Several days later, the trial court denied a motion of Mahoney to distribute the account proceeds, holding that issues of fact had to be decided to determine ownership of the account.

In 1996, Riverside moved for summary judgment on its setoff claims, and Mahoney joined to seek judgment on its claim. With a different trial judge presiding, the court granted both motions and filed a memorandum stating the validity of the bank's setoff claim. For reasons not stated in the court's order or memorandum and unknown to the parties, the trial court ordered that sums not taken by Riverside should be disbursed to Mahoney. The court did not address Benefits' contention, found earlier to involve unresolved fact issues, that Benefits, not Underwriting Services, owned the funds in the account.


On appeal from summary judgment, we must determine whether there are any genuine issues of material fact and whether the trial court erred in its application of the law. State by Cooper v. French , 460 N.W.2d 2, 4 (Minn. 1990); see Admiral Merchants Motor Freight, Inc. v. O'Connor Hannan, 494 N.W.2d 261, 265 (Minn. 1992). All inferences of fact must be resolved in favor of the nonmoving party. Koelln v. Nexus Residential Treatment Facility, 494 N.W.2d 914, 918 (Minn.App. 1993), review denied (Minn. Mar. 22, 1993). A fact is material if its resolution would affect the outcome of the case. Rathbun v. W.T. Grant Co., 300 Minn. 223, 229, 219 N.W.2d 641, 646 (1974).

As a matter of law, a judgment creditor cannot levy against property unless it is owned by the debtor. Farmers' Merchants' State Bank v. Stageberg , 161 Minn. 413, 415, 201 N.W. 612, 612 (1925). As the trial court determined in 1995, there are genuine issues of fact as to the ownership of the account. The record does not compel the conclusion that Underwriting Services owned the account. To the contrary, the management contract between Underwriting and Gerber demonstrates the establishment of a trust account. The contract states that "[t]he premium account shall be a fiduciary account held in a bank which is a member of the Federal Reserve System. This Account shall be used for all payments on behalf of Gerber." Moreover, the record reflects that both Gerber's senior vice president and the president of Underwriting described the account in trust terms.

Respondent Mahoney contends that Benefits cannot establish a trust interest in a bank account without a determination that the bank was a party to the trust arrangement. But Underwriting is the purported trustee of the account, not the bank. The bank's relationship to the account is immaterial to the determination of whether there was a trust between Underwriting and Gerber. See Central Nat'l Bank v. Connecticut Mut. Life Ins. Co. , 104 U.S. 54, 66 (1881) (stating that "[i]f the money deposited belonged to a third person, and was held by the depositor in a fiduciary capacity, its character is not changed by being placed to his credit in his bank account").

Respondent Mahoney also contends that Benefits has no right to assert Gerber's interest in this appeal because the assignment from Gerber to Benefits was invalid. Because this issue was neither raised nor decided by the trial court, it cannot be reviewed on this appeal. Thiele v. Stich , 425 N.W.2d 580, 582 (Minn. 1988).

Reversed and remanded.

I respectfully dissent. The question is whether the funds on deposit at Riverside Bank are subject to a right of setoff. See Nietzel v. Farmers Merchants State Bank of Breckenridge , 307 Minn. 147, 152, 238 N.W.2d 437, 440 (1976) (holding bank has both equitable and contractual right to setoff debt owed it by depositor against depositor's account); Firstar Eagan Bank, N.A. v. Marquette Bank, N.A. , 466 N.W.2d 8, 12 (Minn.App. 1991) (holding prerequisites of setoff include that funds must be a general deposit as opposed to a special deposit), review denied (Minn. Apr. 29, 1991); see also Barkley Clark, The Law of Bank Deposits, Collections Credit Cards § 14.06, 14-18 (3d ed. 1990) (discusing prerequisites to setoff). It is undisputed the bank documents (including the account application, the signature cards, the deposit and account agreement, and the 1994 promissory note) do not establish a trust account. See Village of Monticello v. Citizens State Bank , 180 Minn. 418, 419, 230 N.W. 889, 889 (1930) (holding type of fund determined by construction of writings under which bank received money). The trial court properly concluded a commercial checking account in Minnesota is subject to setoff principles. See Nietzel , 307 Minn. at 152, 238 N.W.2d at 440 (holding bank may apply deposit or such portion necessary to payment of debt due it by depositor) (quoting Allied Sheet Metal Fabricators, Inc. v. People's Nat'l Bank of Washington , 10 Wn. App. 530, 537, 518 P.2d 734, 738-39 (1974)).

Benefits argues use of the title "Premium Escrow Account" by USNA and Gerber in their managing general agent agreement and Minn. Stat. § 60H.04 (1996) create a trust account or special deposit without regard to Riverside's documentary evidence. See American Nat'l Bank of St. Paul v. National Indem. Co. of Omaha , 222 F.2d 513, 517 (8th Cir. 1955) (holding provisions of written contract between parties clearly manifest express trust); American Sur. Co. of New York v. Greenwald , 223 Minn. 37, 45, 25 N.W.2d 681, 686 (1946) (holding terms of arrangement between insurance company and defendant establish existence of express trust). Although Benefits or Gerber may have a contract claim or a statutory cause of action against USNA, neither a separate agreement nor the statute can impose a trust on a checking account without Riverside's knowledge or consent. See Berg v. Union State Bank , 179 Minn. 191, 193, 229 N.W. 102, 103 (1930) (holding if bank has notice or knowledge of true ownership of fund or if it has knowledge of facts and circumstances sufficient to require inquiry, it cannot apply fund to individual indebtedness owing to it by trustee). Under these circumstances, I would affirm the trial court's grant of summary judgment for the creditors.

Summaries of

Mahoney v. Underwriting Svcs. of N. Amer

Minnesota Court of Appeals
Oct 28, 1997
No. C6-97-318 (Minn. Ct. App. Oct. 28, 1997)
Case details for

Mahoney v. Underwriting Svcs. of N. Amer

Case Details

Full title:MAHONEY, HAGBERG RICE, Judgment Creditor, Respondent, v. UNDERWRITING…

Court:Minnesota Court of Appeals

Date published: Oct 28, 1997


No. C6-97-318 (Minn. Ct. App. Oct. 28, 1997)