Misapplication of Fiduciary Property by Trustees, Guardians, Executors, Administrators, Managers in Texas: Fiduciary Criminal Charges

Fiduciaries Can Face Arrest under Texas Penal Code 32.45

When someone under a power of attorney, or other legal authority, has control over the financial assets or property of another person, there’s always the temptation to take things.  Accordingly, under both civil and criminal law, fiduciaries are held to a higher standard of conduct.

In fact, Texas has several criminal statutes that define when fiduciary actions become criminal acts, and Texas law treats fiduciary bad acts much differently than a generic theft.   These laws include “financial exploitation of the elderly,” under Texas Penal Code § 32.53 and “misappropriation of fiduciary property” under Texas Penal Code § 32.45.

As explained by the San Antonio Court of Appeals in Talamantez v. State, 790 S.W.2d 33, 37 (Tex. App. — San Antonio 1990, pet. ref’d): “It is readily apparent that these statutes are aimed at different classes of persons. Any person may commit theft. Only one in a position of trust may commit misapplication of fiduciary property.”

Recent Examples of Arrests for Misapplication of Fiduciary Property

Arrests for violations of Texas Penal Code § 32.45 happen much more often than many people realize.  This is because there are so many roles that involve fiduciary responsibility.   Consider the following:

1.  Tarrant County JP Court Manager Sentenced in October 2018

For instance, just last week there was the sentencing of Shelly Denise Ables, former court manager for Tarrant County Justice of the Peace Gary Ritchie (Precinct 6).  In a plea deal, Ms. Ables pled guilty to misapplication of fiduciary property (among other charges), and was sentenced to 42 months imprisonment.

For details, read: “Tarrant County employee sentenced for stealing more than $65,000 in taxpayer money,” written by Stephen English and published in the Fort Worth Star Telegram on October 11, 2018.

2.  Hill County Cattle Manager Arrested in September 2018

Last month, a Texas Rangers’ investigation led to the arrest of a Hill County man for felony Misapplication of Fiduciary Property, where it is alleged the accused took over 500 head of cattle he was entrusted to manage.

See: “TSCRA Special Ranger investigation leads to arrest,” published by North Texas E-News on September 28, 2018.

3.  Wichita Falls Pay Day Loan Manager Arrested in July 2018

The former manager of a Check ‘n Go location in Wichita Falls was arrested and charged with Misapplication of Fiduciary Property (among other things) as it is alleged that he took out fake loans totalling around $37,500.  Read: “Police: Petersen took out “ghost loans” to steal money,” written by Trish Choate and published by the Times Record News on July 16, 2018.

Other Examples

These are just three recent examples of the wide variety of circumstances where someone can be surprised with an arrest based upon violations of Texas Penal Code § 32.45.  Other common situations where this crime can be charged include:

• Trustees named in a Will or Trust alleged to have misapplied or misused trust property;
• Guardian of an elderly person or minor child accused of using their charge’s funds for personal benefit;
• Attorney alleged to take client funds (like settlement proceeds) for his own use;
• Holder of a power of attorney alleged to use it for his own benefit (like giving gifts to himself);
• Charity or Non-Profit bookkeeper accused of taking charity funds or property for personal use.

Different Crime: Financial Exploitation of the Elderly

Those who are responsible for the care or well-being of an elderly person, child, or disabled individual in Texas need to know that violations of Texas Penal Code § 32.45 are independent allegations from the charge of Financial Exploitation of the Elderly under Tex. Penal Code Ann. § 32.53.  This offense is third degree felony. Tex. Penal Code Ann. § 32.53(c).

It is possible for the prosecutor to charge the accused with violating both laws.  Under Tex. Penal Code Ann. § 32.53, “exploitation” means the illegal or improper use (1) of a child, elderly individual, or disabled individual or (2) of the resources of a child, elderly individual, or disabled individual for monetary or personal benefit, profit, or gain.

What is a “Fiduciary” Under Texas Penal Code 32.45?

Under Texas Penal Code § 32.45(a)(1), the term “fiduciary” is described as:

(A) a trustee, guardian, administrator, executor, conservator, and receiver;

(B) an attorney in fact or agent appointed under a durable power of attorney as provided by Subtitle P, Title 2, Estates Code;

(C) any other person acting in a fiduciary capacity, but not a commercial bailee unless the commercial bailee is a party in a motor fuel sales agreement with a distributor or supplier, as those terms are defined by Section 162.001, Tax Code; and

(D) an officer, manager, employee, or agent carrying on fiduciary functions on behalf of a fiduciary.

Acting in a Fiduciary Capacity

Many are charged as violating Under Texas Penal Code § 32.45(a)(1)(C) for actions undertaken while “acting in a fiduciary capacity.” In order to learn what this means, reference must be made to case law.

The Texas Court of Criminal Appeals advises that “fiduciary” is to be given its plain meaning.  Berry v. State, 424 S.W.3d 579, 583 (Tex. Crim. App. 2014). Looking to both Black’s Law Dictionary and Webster’s, the Berry court ruled:

“[W]e hold that one acts in a “fiduciary capacity” for purposes of the misapplication statute if his relationship with another is based not only on trust, confidence, good faith, and utmost fair dealing, but also on a justifiable expectation that he will place the interests of the other party before his own.”

Misapplication of Property Can Be Based on Actions or on Doing Nothing

As for “misapplication” of property, Texas Penal Code § 32.45(a)(2) explains that “[m]isapply” means to deal with property contrary to:

(A) an agreement under which the fiduciary holds the property; or

(B) a law prescribing the custody or disposition of the property.

Under the definition, property can be misapplied by taking action or by failing to act when there is a duty to do so.  Notice that the individual need not receive any personal benefit in order to “misapply” the property.  See, e.g., Talamantez, 790 S.W.2d at 37. 

Range of Punishment under Texas Penal Code

The penalties for violating the law against Misapplication of Fiduciary Property are listed in Texas Penal Code § 32.45(c).  The punishment corresponds to the value of the misapplied property.  There is a sentencing enhancement (to the next higher level of punishment) if the beneficiary was an elderly person, defined in Texas Penal Code 22.04 as an individual age 65 years or older.

Felony Charges

• First Degree Felony: the value of the property misapplied is $300,000 or more;
• Second Degree Felony: the value of the property misapplied is $150,000 or more but less than $300,000;
• Third Degree Felony: the value of the property misapplied is $30,000 or more but less than $150,000;
• State Jail Felony: the value of the property misapplied is $2,500 or more but less than $30,000.

Misdemeanor Charges

• Class A misdemeanor: the value of the property misapplied is $750 or more but less than $2,500;
• Class B misdemeanor: the value of the property misapplied is $100 or more but less than $750;
• Class C misdemeanor: the value of the property misapplied is less than $100.

Restitution

Under Texas case law, there is also the possibility that punishment will include a court order that awards restitution to be paid by the accused.  “Restitution was intended to ‘adequately compensate the victim of the offense’ in the course of punishing the criminal offender.”  Cabla v. State, 6 S.W.3d 543, 545 (Tex. Crim. App. 1999).

Defending Against Charge of Misapplication of Fiduciary Property

An aggressive criminal defense strategy is very important for someone accused of the misapplication of fiduciary property under Texas Penal Code § 32.45.  The criminal defense lawyer must consider not only the efforts undertaken by the ADA (Assistant District Attorney) to make his case for conviction, but the defense attorney must also discover potential defenses to be asserted under the law.  Simultaneously, the criminal lawyer must monitor efforts made by the alleged victim to proceed with a civil case for damages in a separate system using different rules of procedure and different burdens of proof.

Failure of Prosecutor to Meet State’s Burden

One of the first things that a criminal defense lawyer will do is ascertain the strength or weakness of the state’s case.  It is the responsibility of the ADA to prove the elements of the charge of violating Texas Penal Code § 32.45 with evidence that establishes guilt beyond a reasonable doubt.

What does the evidence actually show?  Is it legally sufficient (authenticated)?  The defense lawyer will review things like bank statements, cancelled checks, accounting records, witness statements, and more.  Is there admissible evidence that fiduciary property was misapplied?  Do exceptions like hearsay apply?  Was there an unconstitutional search or seizure?  A Motion to Suppress may be needed.

Defenses to Charge of Misapplying Fiduciary Property

The criminal defense strategy must also include researching potential defenses for the accused to assert against the charges of misapplication of fiduciary property.  Key here is the language of the statute itself.

For instance, under the language of Texas Penal Code 32.45(b):

A person commits an offense if he intentionally, knowingly, or recklessly misapplies property he holds as a fiduciary or property of a financial institution in a manner that involves substantial risk of loss to the owner of the property or to a person for whose benefit the property is held.

Intentional, Knowing, or Reckless

The defense will consider whether or not the actions alleged as criminal by the state were indeed “intentional, knowing, or reckless.”  What if this was simply a mistake?  What if there was an accounting error?  What if something simply got lost?

Investigation may be necessary to go into the background facts of the case much more than the defense is shown in the state’s file.  Additionally, experts may need to be queried and asked to give their opinion in the case.  The defense here can be complicated and time consuming, but challenging the accused’s culpability as alleged by the ADA is a key defense in these kinds of cases.

Under Texas Penal Code § 6.03, these mental states are defined by law.  Specifically:

(a)  A person acts intentionally, or with intent, with respect to the nature of his conduct or to a result of his conduct when it is his conscious objective or desire to engage in the conduct or cause the result;

(b)  A person acts knowingly, or with knowledge, with respect to the nature of his conduct or to circumstances surrounding his conduct when he is aware of the nature of his conduct or that the circumstances exist.  A person acts knowingly, or with knowledge, with respect to a result of his conduct when he is aware that his conduct is reasonably certain to cause the result; and

(c)  A person acts recklessly, or is reckless, with respect to circumstances surrounding his conduct or the result of his conduct when he is aware of but consciously disregards a substantial and unjustifiable risk that the circumstances exist or the result will occur.  The risk must be of such a nature and degree that its disregard constitutes a gross deviation from the standard of care that an ordinary person would exercise under all the circumstances as viewed from the actor’s standpoint.

If evidence can be shown that the actions were not reckless, knowing, or intentional, as defined under Texas Penal Code 6.03, then the statutory requirements have not been met.  The case cannot be proven by the prosecutor.  Settlement negotiations can begin, or a Motion to Dismiss can be filed.

Substantial Risk of Loss

The statute also requires that the action be done “in a manner that involves substantial risk of loss.”  Pursuant to Casillas v. State, 733 S.W.2d 158, 164 (Tex. Crim. App. 1986), appeal dismissed, 484 U.S. 918 (1987), “substantial risk of loss” means it is more likely than not that loss will occur.

What if the defense can show with admissible evidence that there was not a “substantial risk of loss” in the circumstances?  Depending upon the facts of the case, a remote risk may have existed but that will not be enough to meet the statutory requirements.  Again, experts may be necessary to substantiate the level of risk involved in some cases.

Misapplication of Fiduciary Property is a Criminal Charge and Civil Action

The criminal charge of Misapplication of Fiduciary Property is part of Chapter 32 of the Texas Penal Code, which deals with various types of activities that have been legislatively defined as illegal fraud.

Often, criminal fraud charges will dovetail civil lawsuits, where money damages are being sought against those who are facing the criminal fraud charges.  Fraud can be both the basis of civil lawsuits and criminal prosecutions.  For more on this coalescence, read Coffee, John C. “Paradigms Lost: The Blurring of the Criminal and Civil Law Models. And What Can Be Done about It.” The Yale Law Journal, vol. 101, no. 8, 1992, pp. 1875–1893. JSTOR, JSTOR, www.jstor.org/stable/796949.

Civil Lawsuits for Fraud Damages

Civil claims for the misapplication of fiduciary property are filed based upon Texas common law, defining the elements of proving up the civil cause of action as follows:

1. the existence of a fiduciary duty;
2. breach of the duty;
3. causation; and
4. financial damages.

ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 873 (Tex. 2010); Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.-Dallas 2006, pet. denied).

Moreover, there may be “punitive” or “punishment” damages demanded by the plaintiffs from the accused fiduciary in the civil case. See, e.g., Tex. Civ. Prac. & Rem. Code § 41.008; Lesikar v. Rappeport, 33 S.W.3d 282, 311 (Tex. App.—Texarkana 2000, pet. denied).

Civil Case May Look to Criminal Proceedings

Of course, the criminal charges are litigated independently from any civil action.  However, the accused must be aware that the civil matter may look to the criminal case for guidance and information to use in the civil lawsuit.

Why?  Evidence placed into the record of a criminal matter is available for review and possible use by the plaintiff to meet the burden of proof in their civil case.  The alleged victim may, for instance, be able to review witness statements in the criminal case in order to prepare discovery in the civil matter.

The savvy defense lawyer may find it necessary to expedite the criminal matter accordingly, or to coordinate with the attorney representing the accused in the civil case.

Obviously, anyone facing fraud charges of any type here in Texas is wise to have criminal defense counsel advocating on their behalf as soon as possible.  These can be complex matters where the accused is fighting for their freedom while simultaneously defending against attempts to take control of their personal assets.

For more Texas criminal fraud charges, see:

• White Collar Crime: Indictments Of Texas Professionals
• Arrested for Bank Fraud in Texas
• Arresting Texas Doctors for Health Care Fraud: What You Need to Know
• Health Care Fraud Prosecutions in 2018: Money and Drugs
• Things to Know about Wire Fraud Today: It’s a Big Deal.

_____________________________________

For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth article,” Pre-Arrest Criminal Investigations.”