Chapter 32
Fraud
32.25 General Comments on Misapplication of Fiduciary Property
Defining “Fiduciary.” The statutory definition of “fiduciary” in Tex. Penal Code § 32.45(a)(1), insofar as it goes beyond specific examples (trustee, guardian, etc.), is largely circular: “any . . . person acting in a fiduciary capacity.” Tex. Penal Code § 32.45(a)(1)(C). The Committee concluded that given the central role this term plays in defining the offense, a somewhat more elaborate definition is both desirable and permissible.
In Coplin v. State, 585 S.W.2d 734 (Tex. Crim. App. [Panel Op.] 1979), the jury instruction appears (this is not made explicit) to have given the jury only the statutory definition. The court noted Coplin’s complaints related to this and responded:
Complaint is next made that the jury charge is vague and confusing because it fails to define the following crucial terms: “fiduciary property”, “commercial bailee”, “trustee”, “guardian”, “administrator”, “executor”, “conservator”, “receiver” and “managing partner.” Coplin also contends that “fiduciary” is not completely defined.
We have examined the charge. It defines the offense and applies the facts to the law. It defines the terms fiduciary, joint venturer, misapply, owner, benefit and property. The charge properly submits the case to the jury in accordance with the statute. We note that “trustee”, “guardian”, “administrator”, “executor”, “conservator”, and “receiver” are not essential terms in a prosecution under Section 32.45(a)(1)(B). No error is shown.
Coplin, 585 S.W.2d at 735–36.
Coplin can be read as holding (or at least strongly suggesting) that a defendant has no right to anything beyond the statutory definition.
In Showery v. State, 678 S.W.2d 103 (Tex. App.—El Paso 1984, pet. ref’d), the defendant challenged the constitutionality of the statutory provision defining a fiduciary as “any other person acting in a fiduciary capacity.” The court responded:
While not directly addressing a constitutional challenge, the Court of Criminal Appeals was called upon to evaluate the scope of that subsection in Coplin v. State, 585 S.W.2d 734 (Tex. Crim. App. 1979). There the defendant asserted that the (a)(1)(B) provision had to be narrowly construed as applying only to an individual associated with the specific fiduciaries enumerated in the preceding subsection. The court declined such a restricted interpretation, finding (a)(1)(B) to have a plain meaning, subject to normal usage and applicable to anyone acting in a fiduciary capacity of trust (other than a commercial bailee). Even in the absence of a specific constitutional objection, surely the Court of Criminal Appeals would not adopt such an open view of the language if the result were impermissibly vague.
Showery, 678 S.W.2d at 107.
Neither Coplin nor Showery addressed whether a definition would be desirable or permissible.
At least one trial judge has concluded that a definition is both desirable and permissible, and a court of appeals has suggested it was permissible. In Walls v. State, No. 01‑99-00714-CR, 2001 WL 83548 (Tex. App.—Houston [1st Dist.] Feb. 1, 2001, pet. ref’d, untimely filed) (not designated for publication), the defendant contended the trial court erred in refusing to give his requested definition of “fiduciary.” The court noted that the trial judge had given the statutory definition and held under Coplin that this was sufficient. It added—
[W]e note that in addition to the statutory definition of “fiduciary,” the trial court included the following definition:
A “Fiduciary” is a person who has a duty, created by his own undertaking, to act primarily for another person’s benefit in matters connected to that undertaking. An individual acts in a fiduciary capacity when he receives money, contracts a debt, or handles property not belonging to him, not for his benefit, but for another person’s benefit. The transaction is conducted for the benefit of another person to whom the actor stands in a relation implying and necessitating great confidence and trust and a high degree of good faith.
This definition, paraphrased from Black’s Law Dictionary 564 (5th ed. 1979), is a correct statement of the law. No further definition was required.
Walls, 2001 WL 83548, at *8.
The Walls court’s comment that the instruction given in that case was “a correct statement of the law” was confirmed by Berry v. State, 424 S.W.3d 579 (Tex. Crim. App. 2014), construing the term fiduciary for purposes of appellate review of the evidence:
[T]he plain meaning of a fiduciary is one “who is required to act for the benefit of another person on all matters within the scope of their relationship.” Black’s Law Dictionary 702 (9th ed. 2009); see also Webster’s New International Dictionary 845 (3d ed. 2002) (defining adjective of fiduciary as “holding, held, or founded in trust or confidence”). An individual who acts as a fiduciary is further defined as “one who owes to another the duties of good faith, trust, confidence and candor,” or, “[o]ne who must exercise a high standard of care in managing another’s money or property.” Black’s Law Dictionary 702 (9th ed. 2009). A fiduciary relationship may additionally be described as “existing when one person justifiably reposes confidence, faith, and reliance in another whose aid, advice, or protection is sought in some matter,” or when “good conscience requires one to act at all times for the sole benefit and interest of another with loyalty to those interests.” Webster’s New International Dictionary 845 (3d ed. 2002).
Berry, 424 S.W.3d at 583 (footnote omitted).
Walls makes clear that at least one trial judge was dissatisfied with the statutory provisions alone. While the appellate court observed that the more extensive definition given was “a correct statement of the law,” Walls, 2001 WL 83548, at *8, it did not comment on the propriety of the giving of that more extensive definition to the jury.
The Committee concluded that the basic approach taken in Walls is desirable and not precluded by Coplin or other case law. Consequently, it recommends a definition based on the Walls instruction.
Definition of “Commercial Bailee.” The term commercial bailee is not defined in the Texas Penal Code or elsewhere in the statutes. Charging instruments for this offense commonly allege, in the language of the statute, that the defendant acted “in a fiduciary capacity, but not as a commercial bailee.” See Tex. Penal Code § 32.45(a)(1)(C). Even if the term is not addressed by the evidence, it is often put before the jury in the instructions by inclusion of the statutory definition of “fiduciary.”
In discussing the term commercial bailee, the court in State v. Hart, 342 S.W.3d 659 (Tex. App.—Houston [14th Dist.] 2011, pet. ref’d), noted—
The word “commercial bailee” is not defined in the Penal Code. However, the ordinary meaning of “bailee” is a “person to whom goods are committed in trust and who has a temporary possession [of the goods] for the purposes of the trust.” See Talamantez v. State, 790 S.W.2d 33, 36 (Tex. App.—San Antonio 1990, pet. ref’d). The ordinary meaning of a “bailment,” the acceptance of goods by a bailee, is “a delivery of personal property by a bailor to a bailee for specific purposes under an express or implied agreement of the parties that when those purposes are accomplished the property will be returned to the bailor, kept until he reclaims it, or disposed of according to the agreement.” See id. The adjective “commercial” means that the bailee accepts bailments of goods for a fee or as a part of his business. See id.
Hart, 342 S.W.3d at 667–68.
Likewise, in Talamantez v. State, 790 S.W.2d 33 (Tex. App.—San Antonio 1990, pet. ref’d), the court opined—
Appellant’s claim that he could not tell whether he was exempted from the statute as a commercial bailee is . . . meritless. The word bailee . . . has a common usage . . . found in Webster’s: “the person to whom goods are committed in trust and who has a temporary possession and a qualified property in them for the purposes of the trust.” “Bailment,” the acceptance of the bailee by these goods, is defined as “a delivery of personal property by a bailor to a bailee for specific purposes under an express or implied agreement of the parties that when those purposes are accomplished the property will be returned to the bailor, kept until he reclaims it, or disposed of according to the agreement.” The adjective “commercial,” used in the statute, means the bailee performs this function for a fee or otherwise as part of his business.
Talamantez, 790 S.W.2d at 36.
This term is not one of general usage, yet there is unlikely to be any dispute about its meaning. Thus the Committee included a definition based on the case discussions. This definition should not be an impermissible comment on the evidence and may make clear to juries that there is no further definition that might somehow be relevant and helpful.
Defining “Substantial Risk of Loss.” The term substantial risk of loss is not defined by statute. Case law has, however, addressed it to some extent.
The court of criminal appeals discussed the meaning of the term in Bynum v. State, 767 S.W.2d 769 (Tex. Crim. App. 1989):
We will . . . assess the appellant’s vagueness challenge of the phrase “substantial risk of loss” in light of his conduct. The appellant contends that the phrase is not defined in § 32.45, is not a commonly used phrase, nor is the phrase used elsewhere in the law. We note that the appellant neither objected to the charge on this ground nor was a specially requested charge submitted with a proposed definition of a “substantial risk of loss.”
In Casillas v. State, 733 S.W.2d 158 (Tex. Crim. App. 1986), the Court cited the Amarillo Court of Appeals’ decision in [Bynum v. State, 711 S.W.2d 321, 164 (Tex. App.—Amarillo 1986)], and ultimately concluded that:
The Bynum . . . discussion of substantial risk of loss comports with that of the Model [Penal] Code: a “real possibility” of loss is one, we believe, that exists but does not rise to the level of a substantial certainty. It need not have to be “unlikely” that the property will be recovered, but the risk of loss does have to be a positive possibility; we conclude that the risk must be, at least, more likely than not.
Although this Court did not review the constitutionality of § 32.45 in Casillas, supra, our discussion of the meaning of substantial risk of loss is notable. The record clearly reveals that if the appellant had not been constantly reminded and confronted with the diversion of checks, [the victim] would not have recovered those funds. In general, the phrase “substantial risk of loss” is neither vague nor arbitrary. Moreover, when applied to the conduct of the appellant, as shown in the record, the phrase is not arbitrary or vague at all. The appellant’s contention that the phrase “substantial risk of loss” is vague as applied to him is without merit.
Bynum, 767 S.W.2d at 774–75 (some citations omitted).
Bynum might be read as adopting a specialized definition of the term to save the statute from at least possible constitutional vagueness.
Some members of the Committee believed that, under Bynum, the term has taken on a specialized meaning that can and should be given to juries. The Committee considered a proposal to include a definition as follows:
A substantial risk of loss exists if loss is more likely than not. There need not be a substantial certainty that loss will occur.
A majority of the Committee concluded that the discussion in Bynum and any definition in that discussion addressed analysis for appellate review of evidence sufficiency. This majority was persuaded that a definition such as that proposed would be inappropriate and might well be a prohibited comment on the evidence.
Culpable Mental State Analysis. Tex. Penal Code § 32.45(b) provides that the offense must be committed “intentionally, knowingly, or recklessly.” The statute, like many in the Penal Code, does not make clear to which elements this culpable mental state applies.
The required culpable mental state clearly applies to the basic conduct element of the offense: misapplying the property. Does it also apply to the subelements brought into play by section 32.45(a)(2)’s definitions of “misapply”? For example, if the state’s theory is that the defendant misapplied the property by using it contrary to an agreement, must the defendant be proved to have been at least aware of the agreement? Must the defendant be aware that the agreement did not permit the use made of the property?
Judge Miller’s discussion in Amaya v. State, 733 S.W.2d 168 (Tex. Crim. App.1986), suggests that awareness of these matters is required.
In Amaya, the state contended that misapplication occurred because the defendants used certain grant money, first, in a manner that violated a grant agreement between the Mexican American Council for Economic Progress and the federal government’s Office of Economic Opportunity and, second, by making a loan that violated certain Small Business Administration (SBA) regulations. The court of appeals had upheld the convictions on the first theory. Judge Miller’s opinion rejected this on the ground that the evidence was not sufficient:
We agree with Amaya that the record does not demonstrate that he had knowledge of the provisions in the agreement; Hernandez’s knowledge was also not demonstrated although such knowledge is circumstantially shown for the other three appellants.
Amaya, 733 S.W.2d at 171. If the state’s theory is that the defendant misapplied the property by using it contrary to an agreement, the Amaya analysis assumes the defendant must be proved to have been at least aware of the agreement. The Committee agreed that this was a sound reading of the Penal Code provision.
Regarding the state’s second theory in Amaya (that the misapplication occurred because the use of the property violated certain SBA regulations), Judge Miller’s opinion is less clear. Insofar as the state’s theory was that the defendants were primary actors, he seems to have concluded that the charged offense did not require knowledge of the law violated:
We believe that the evidence amply shows Amaya’s and Hernandez’s awareness of the source of the money and their active participation in the disposition of the money. They are charged, just as the other appellants, with knowledge of the legal restrictions imposed on use of the money. The jury was adequately instructed on the defenses of mistake of fact and mistake of law, and on the definition of “intentionally.”
Amaya, 733 S.W.2d at 173. The opinion seems to indicate that knowledge of “law”—unlike knowledge of the restrictions imposed by an agreement—need not be proved. The defendant is “charged with” such knowledge. See Amaya, 733 S.W.2d at 174.
Regarding the state’s theory that the defendants in Amaya were parties to the offense, Judge Miller’s opinion suggested that the state had to prove knowledge of the law and that it failed to do so:
While Amaya and Hernandez . . . are charged with knowledge of the law as primary actors, we cannot hold them accountable as parties without some indication that they knew they were assisting in the commission of an offense. Otherwise, criminal complicity would extend to all those who perform acts that happen to assist in a criminal undertaking, even though there was no knowledge that a crime was being assisted. We require a higher level of complicity from those we denote parties than those we denote primary actors, because the former are performing acts that are not illegal in and of themselves; the acts only attract criminal liability because of the result they are directed to, the commission of a crime. The conduct of primary actors is a crime in and of itself, and we hold such actors liable whether they realize they are breaking the law or not.
. . . .
We find that the State failed to show that Amaya and Hernandez . . . knew the criminality of the conduct they assisted, sufficiently to show that they acted with intent to promote or assist in the commission of an offense as required by § 7.02.
Amaya, 733 S.W.2d at 174−75.
In Casillas v. State, 733 S.W.2d 158 (Tex. Crim. App. 1986), the companion case to Amaya, the opinion—unlike the Amaya opinion clearly that of the court—announced the affirmance of the convictions of three codefendants of Amaya and Hernandez, apparently as primary actors. The state was held to have proved misappropriation by dealing with the money contrary to a law—the SBA regulation. The court did not discuss whether the state had to prove any awareness of that “law” or that the actions violated it.
The Committee concluded that the Amaya opinion was incorrect insofar as it might suggest that awareness of the law prescribing the use of the property is not required by section 32.45(b). If the state relies on the theory that the defendant misapplied the property because the defendant used it in violation of a “law,” then in the Committee’s view the state must prove that the defendant was at least reckless concerning that law. This means it must prove that the defendant was aware of at least a risk that the law proscribed the use the defendant made of the property.
The instruction is drafted to implement this position. The position is reflected in the definitions of “intentionally misapply property,” “knowingly misapply property,” and “recklessly misapply property.”
Penal Code section 8.03(a) does provide: “It is no defense to prosecution that the actor was ignorant of the provisions of any law after the law has taken effect.” Tex. Penal Code § 8.03(a). The Committee concluded that this does not apply where proper culpable mental state analysis means awareness of a provision of “law” is required by the culpable mental state required by the offense at issue. A claim of ignorance of the law in such a situation is not an assertion of a “defense” within the meaning of section 8.03(a). It is an argument that the state has not met part of its burden of proof.
Mistake of “Fact” and Misapplication of Fiduciary Property. As discussed above, Judge Miller’s opinion in Amaya suggested that if the state relies on misapplication by dealing with the property contrary to a law, a mistake-of-fact instruction is not available if the defense produces evidence that the defendant misunderstood the law and, as a result, believed the use of the property was not contrary to that law. The Committee concluded that any such suggestion is incorrect.
The Committee concluded—as explained above—that in such situations the state must prove the defendant was at least reckless about whether the defendant’s use of the property was contrary to the “law.” In such situations, that law becomes a “fact” within the meaning of Tex. Penal Code § 8.02(a), and an instruction under that provision should be given.
In Amaya itself, for example, if the defense evidence was simply that Amaya never heard of the SBA regulation, this would be a claim of mere ignorance and not mistake. Section 8.03(a) would apply. The instructions defining the elements of the charged offense should make clear that the state must prove the defendant was at least aware of a risk that some such law existed and prohibited what he did with the property. But the defense would not be entitled to any instruction focusing the jury’s attention on the defense contention that the state’s proof failed in this regard.
In contrast, if the defense evidence was that Amaya consulted the SBA regulations and misconstrued them as permitting what he did with the property, section 8.02 would be triggered. The defense would be entitled to an instruction in effect calling the jury’s attention to this aspect of the case and the possibility that the defense evidence “negated” that aspect of recklessness referring to awareness of the law.
Awareness of Risk of Loss. One element of the offense requires proof that the misapplication of the property be done “in a manner that involves substantial risk of loss to the owner of the property or the person for whose benefit the property is held.” Tex. Penal Code § 32.45(b). This element is a “result of conduct” element. A substantial risk of loss must have developed as a consequence of the defendant’s misapplication, although no actual loss need have occurred.
Some members of the Committee believed that the required culpable mental state applies to this element. Thus in the view of these members the state must prove the defendant was at least aware of a risk that the misapplication of the property would create a substantial risk of loss. They reasoned that this is consistent with a general policy of construing a required culpable mental state as applicable to those elements that distinguish criminal from innocent behavior. Misapplying fiduciary property without causing a risk of loss is perhaps immoral, but it is not criminal. Causing a risk of loss separates innocent from criminal conduct.
These Committee members found some support in Casillas. In a footnote discussion the court stated:
[T]he Model [Penal] Code authors . . . note that Texas is one of the few states that grades the offense as a felony if the property involved exceeds a certain amount. They also note that there is “at least one” jurisdiction (Texas) that allows conviction based merely on a mens rea of recklessness for all elements of the crime, including the risk of loss. See [Model Penal Code and Commentaries, § 224.13 (ALI 1980),] pp. 358–9, 363. We conclude that Texas is comparatively “tough” on misapplication offenses.
Casillas, 733 S.W.2d at 163 n.5. Casillas appeared to assume the correctness of the observation by the Model Penal Code authors.
As discussed above, however, a majority of the Committee concluded that Texas courts will read the culpable mental state prescribed by section 32.45(b) as applicable only to the nature of conduct element of the offense. Thus the offense does not require awareness that a risk of loss will develop. Particularly given how the culpable mental state applies to the conduct element, the culpable mental state so construed reasonably serves to assure blameworthiness without imposing an impractical and inappropriate burden on the prosecution.
Comment
Misapplication of fiduciary property is of considerable importance because it is often used—rather than theft—to prosecute what traditionally was regarded as embezzlement.
Two leading discussions of this offense, considered below, are in Judge Miller’s opinions in two court of criminal appeals cases involving five codefendants convicted in a joint trial: Casillas v. State, 733 S.W.2d 158 (Tex. Crim. App. 1986) (affirming convictions of defendants Casillas, Luna, and Aguilar), and Amaya v. State, 733 S.W.2d 168 (Tex. Crim. App. 1986) (reversing convictions of defendants Amaya and Hernandez for insufficiency of evidence). Casillas is clearly an opinion of the court of criminal appeals. The precedential significance of the Amaya opinion is less clear, as it was joined by only four of the eight judges participating in the case.
Several issues complicated the task of drafting an instruction for this offense.