In U.S. Bank Equipment Finance v. J.W. Jones Company, LLC., et. al., 2018 WL 5312905, at *5–6 (S.D.Ind., 2018), in granting summary judgment to a floorplan lender on its contract/replevin claim, the District Court also found that the borrower owed a fiduciary duty to the floorplan lender due to the trust-relationship.
The language of the Agreement meets the high bar for creation of an express trust as a matter of law. It specifies that proceeds from the sale of collateral equipment “shall be held in trust for the use and benefit of [U.S. Bank].” (Filing No. 1-1 at 2, ¶2.7.) That provision establishes the three elements required under Minnesota law for creation of an express trust: (1) a designated trustee with enforceable duties—Jones Company, (2) a designated beneficiary with enforceable rights—U.S. Bank, and (3) a definite trust res in which the trustee has legal title and the beneficiary has the beneficial interest—the proceeds from sales of equipment serving as collateral under the Agreement. Jones Company points to the relationship between the parties, which it asserts is one between sophisticated business entities on the same level, as opposed to a layman and a professional with superior knowledge or skill. And while there is no difference in knowledge between the parties, there is a difference in power. See DT Floormasters, Inc. v. United States, No. 4:07-cv-0112-DFH-WGH, 2008 WL 2705554 at *4 (S.D. Ind. July 10, 2008) (defining a fiduciary relationship as one where there is a difference in knowledge or power between the fiduciary and principal giving the former a position of ascendancy of the latter). Without the fiduciary duty to even the playing field, Jones Company holds power over U.S. Bank because it is in actual possession of the proceeds from the sale of collateral equipment. Absent a trust, Jones Company could use those proceeds to pay other creditors or give bonuses to executives, leaving U.S. Bank without compensation for the reduction in the value of its position. The Defendants also argue, citing DT Floormasters and Judd v. First Fed. Saving & Loan Ass’n of Indianapolis, 710 F.2d 1237 (7th Cir. 1983), that merely using the words “trust,” “trustee,” or “in trust” is insufficient to create a trust. The Seventh Circuit has said: “[s]imply stated, the words used in the document are not always conclusive evidence of a trust. The principal consideration is intent.” Judd at 1241. Mere usage of the term “trust” cannot create a trust when the substance of the transaction involved is unmistakably creation of debt. But that is beside the point because in this case, the language of the Agreement shows the parties intended to create a trust. The Agreement identifies the proceeds from sales of collateral as “the property of [U.S. Bank]…until paid to [U.S. Bank] as provided hereunder.” (Filing No. 1-1 at 2-3.) The express language of the agreement makes clear that the proceeds belong to U.S. Bank until a certain portion of them is remitted to U.S. Bank, and until that time Jones Company must hold them in trust. Because the language of the Agreement established an express trust, a relationship of trustee to beneficiary arose between the parties and Jones Company and Jones owed a fiduciary duty to U.S. Bank as a matter of law. That Jones Company engaged in conduct that constitutes breaching the duty—failing to remit and hold in trust proceeds from the sales of collateral equipment—is undisputed. (Filing No. 57-9; Filing No. 57-13 at 12-14; Filing No. 57-14 at 10-11.) Thus, the Court grants U.S. Bank’s Motion for Summary Judgment on the breach of fiduciary duty claim against Jones Company and Jones.