Originally published by David Fowler Johnson.
There are several criminal statutes that implicate fiduciary activities in Texas that are not well-known: misappropriation of fiduciary property and financial exploitation of the elderly. Though these may be similar in some ways to a theft charge, they are different criminal charges. Rhinehardt v. State, No. 08-01-00335-CR, 2003 Tex. App. LEXIS 6223 (Tex. App.—El Paso July 17, 2003, no pet.).
Misapplication Of Fiduciary Property
Misapplication of fiduciary property or property of a financial institution is a charge that has been in existence in Texas for over forty years. Tex. Penal Code Ann. § 32.45. A person commits the offense of misapplication of fiduciary property by intentionally, knowingly, or recklessly misapplying property he holds as a fiduciary in a manner that involves substantial risk of loss to the owner of the property. Id. at § 32.45(b). “Substantial risk of loss” means a real possibility of loss; the possibility need not rise to the level of a substantial certainty, but the risk of loss does have to be at least more likely than not. Coleman v. State, 131 S.W.3d 303 (Tex. App.—Corpus Christi 2004, pet. ref’d).
The statute defines “Fiduciary” to include: “(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 Chapter XII, Texas Probate 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.” Id. at § 32.45(a)(1).
The phrase “acting in a fiduciary capacity” is not defined in the code, but the Texas Court of Criminal Appeals has construed the undefined phrase according to its plain meaning and normal usage to apply to anyone acting in a fiduciary capacity of trust. Coplin v. State, 585 S.W.2d 734, 735 (Tex. Crim. App. 1979). Based on the plain and ordinary meaning of the word “fiduciary” as “holding, held, or founded in trust or confidence,” one court has held that a person acts in a fiduciary capacity within the context of section 32.45 “when the business which he transacts, or the money or property which he handles, is not his or for his own benefit, but for the benefit of another person as to whom he stands in a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other part.” Gonzalez v. State, 954 S.W.2d 98, 103 (Tex. App.—San Antonio 1997, no pet.); see also Konkel v. Otwell, 65 S.W.3d 183 (Tex. App.—Eastland 2001, no pet.). Moreover, evidence that a defendant aided another person in misapplying trust property sufficed, under the law of parties as set forth in Texas Penal Code sections 7.01(a), 7.02(a)(2), to convict a defendant of misapplication of fiduciary property although the defendant did not personally handle the misapplied funds. Head v. State, 299 S.W.3d 414 (Tex. App.—Houston [14th Dist.] 2009, pet. ref’d).
An offense under this statute ranges from a Class C misdemeanor if the property is less than $100 to a first degree felony if the property misapplied is over $300,000. Tex. Penal Code Ann. § 32.45(c). Moreover, the punishment is increased to the next higher category if it is shown that the offense was committed against an elderly individual. Id. at § 32.45(d). For example, a court affirmed a sentence of 23 years for a conviction of this crime, and held that such was no cruel and unusual punishment. See Holt v. State, NO. 12-12-00337-CR, 2013 Tex. App. LEXIS 8393 (Tex. App.—Tyler July 10 2013, no pet.).
This criminal charge arises in the context of trustees misapplying trust property. Bowen v. State, 374 S.W.3d 427 (Tex. Crim. App. 2012); Kaufman v. State, No. 13-06-00653-CR, 2008 Tex. App. LEXIS 3880 (Tex. App.—Corpus Christi May 29, 2008, pet. dism.). It also arises in joint bank accounts situations and the use of funds therein. Bailey v. State, No. 03-02-00622-CR, 2003 Tex. App. LEXIS 10140 (Tex. App.—Austin Dec. 4, 2003, pet. ref’d). It also arises when a power of attorney holder makes gifts to himself or herself. Natho v. State, No. 03-11-00498-CR, 2014 Tex. App. LEXIS 1427 (Tex. App.—Austin Feb. 6 2014, pet. ref’d); Tyler v. State, 137 S.W.3d 261, 2004 Tex. App. LEXIS 3446 (Tex. App.—Houston [1st Dist.] 2004, no pet.). This can also apply in business contexts, where a business partner improperly diverts funds for personal use. Bender v. State, No. 03-09-00652-CR, 2011 Tex. App. LEXIS 3096 (Tex. App.—Austin Apr. 19 2011, no pet.); Martinez v. State, No. 05-02-01839-CR, 2003 Tex. App. LEXIS 9963 (Tex. App.—Dallas Nov. 21, 2003, pet. ref’d). Attorneys can be charged for misapplying clients’ funds. Sabel v. State, No. 04-00-00469-CR, 2001 Tex. App. LEXIS 6493 (Tex. App.—San Antonio Sept. 26, 2001, no pet.). It also arises where a defendant misapplies royalty owners’ money contrary to a gas lease agreement. Coleman v. State, 131 S.W.3d 303, 2004 Tex. App. LEXIS 2093 (Tex. App.—Corpus Christi 2004, pet. ref’d). It also arises in the abuse of guardianship relationships. Latham v. State, No. 14-04-00248-CR, No. 14-04-00249-CR, No. 14-04-00250-CR, 2005 Tex. App. LEXIS 6560 (Tex. App.—Houston [14th Dist.] Aug. 18, 2005, no pet.). Of course, the charge can apply in many other instances as well.
Financial Exploitation Of The Elderly
Financial exploitation of the elderly is a criminal offense in Texas that has been in the statutes since 2011. Tex. Penal Code Ann. § 32.53. “A person commits an offense if the person intentionally, knowingly, or recklessly causes the exploitation of a child, elderly individual, or disabled individual.” Id. at § 32.53(b). “Exploitation” means the illegal or improper use of a child, elderly individual, or disabled individual or of the resources of a child, elderly individual, or disabled individual for monetary or personal benefit, profit, or gain. Id. at § 32.53(a)(2). A “child” means a person 14 years of age or younger, and an “elderly individual” means a person 65 years of age or older. Id. at § 22.04(c). A “disabled individual” means a person: (A) with one or more of the following: (i) autism spectrum disorder, as defined by Section 1355.001, Insurance Code; (ii) developmental disability, as defined by Section 112.042, Human Resources Code; (iii) intellectual disability, as defined by Section 591.003, Health and Safety Code; (iv) severe emotional disturbance, as defined by Section 261.001, Family Code; or (v) traumatic brain injury, as defined by Section 92.001, Health and Safety Code; or (B) who otherwise by reason of age or physical or mental disease, defect, or injury is substantially unable to protect the person’s self from harm or to provide food, shelter, or medical care for the person’s self. Id. This offense is a felony of the third degree. Id. at § 32.53(c).
Criminal Statutes Do Not Create Civil Liability
Even though plaintiffs may desire to cite these criminal statutes in civil cases, they do not create civil causes of action. “The Texas Penal Code does not create private causes of action,” and as a result, criminal code “allegations fail to state a viable claim for relief.” Spurlock v. Johnson, 94 S.W.3d 655, 658 (Tex. App.—San Antonio 2002, no pet.); see also Macias v. Tex. Dep’t of Crim. Justice Parole Div., No. 03-07-00033-CV, 2007 Tex. App. LEXIS 6798 (Tex. App.—Austin August 21, 2007, no pet.). Other states have adopted express civil causes of action for the exploitation of the elderly or other vulnerable persons. See, e.g., Ariz. Rev. Stat. § 46-456, et. seq.; CA Welf. & Inst. Code § 15610-1561-.65; Fla. Ann. Stat. § 415.102(8)(a)(1) and (2); (8)(b). In Texas, there are no such statutory or common law claims for exploitation of vulnerable persons. However, there is a common law claim for breach of fiduciary duty, and the same conduct that may justify a criminal charge may also support a valid breach of fiduciary duty claim. Compare Natho v. State, No. 03-11-00498-CR, 2014 Tex. App. LEXIS 1427 (Tex. App.—Austin Feb. 6 2014, pet. ref’d) (criminal charge affirmed) with Natho v. Shelton, No. 03-11-00661-CV, 2014 Tex. App. LEXIS 5842 (Tex. App.—Austin May 30, 2014, no pet.) (affirming civil judgment in part based on same acts of fiduciary breach). Moreover, there are civil claims for conversion, tortious interference with inheritance, fraud, breach of contract, money had and received, undue influence, mental incompetence, etc. that may provide the appropriate relief.
Criminal Statutes May Impact Exemplary Damages Awards
Plaintiffs in civil litigation often seek punitive or exemplary damages. “Exemplary damages” means any damages awarded as a penalty or by way of punishment but not for compensatory purposes. Exemplary damages are neither economic nor noneconomic damages. “Exemplary damages” includes punitive damages. Tex. Civ. Prac. & Rem. Code Ann. § 41.001(5). A jury may only award exemplary damages if the claimant proves, by clear and convincing evidence, that the harm resulted from: (1) fraud; (2) malice; or (3) gross negligence. Id. at § 41.003(a).
Under Texas case law, exemplary damages may be proper in breach of fiduciary duty cases where the plaintiff can prove by clear and convincing evidence that the action arose by actual fraud, malice, or gross negligence. Murphy v. Canion, 797 S.W.2d 944, 949 (Tex. App.—Houston [14th Dist.] 1990, no pet.); see also Lesikar v. Rappeport, 33 S.W.3d 282, 311 (Tex. App.—Texarkana 2000, pet. denied); Natho v. Shelton, No. 03-11-00661-CV, 2014 Tex. App. LEXIS 5842, 2014 WL 2522051, at *2 (Tex. App.—Austin May 30, 2014, no. pet.).
One important protection for defendants is the statutory cap on the amount of exemplary damages. The Texas Civil Practice and Remedies Code permits exemplary damages of up to the greater of: (1) (a) two times the amount of economic damages; plus (b) an amount equal to any noneconomic damages found by the jury, not to exceed $750,000; or (2) $200,000. Tex. Civ. Prac. & Rem. Code Ann. § 41.008(b). This cap need not be affirmatively pleaded as it applies automatically and does not require proof of additional facts. Zorrilla v. Aypco Constr., II, LLC, 469 S.W.3d 143 (Tex. 2015).
These limits do not apply to claims supporting misapplication of fiduciary property or theft of a third degree felony level. Tex. Civ. Prac. & Rem. Code Ann. § 41.008(c)(10). Natho v. Shelton, 2014 Tex. App. LEXIS 5842 at n. 4. The statute states that the caps “do not apply to a cause of action against a defendant from whom a plaintiff seeks recovery of exemplary damages based on conduct described as a felony in the following sections of the Penal Code if … the conduct was committed knowingly or intentionally….” Id. Accordingly, if a defendant is found liable for one of these crimes with the required knowledge or intent, it cannot take advantage of the statutory exemplary damages caps.
A plaintiff must prove its entitlement to an exception to the exemplary damages cap. The Texas Pattern Jury Charge has the following as a proposed jury question that a plaintiff can seek to submit to the jury:
QUESTION ______
Did Don Davis intentionally misapply [identify property defendant held as a fiduciary, e.g., 300 shares of ABC Corporation common stock] in a manner that involved substantial risk of loss to Paul Payne [and was the value of the property $1,500 or greater]?
“Misapply” means a person deals with property [or money] contrary to an agreement under which the person holds the property [or money].
“Substantial risk of loss” means it is more likely than not that loss will occur. A person acts with intent with respect to the nature of his conduct or to a result of his conduct when it is the conscious objective or desire to engage in the conduct or cause the result.
Answer “Yes” or “No.”
Answer: _______________
This question presumes that a fiduciary relationship exists. If the existence of such a fiduciary relationship is disputed, the court should submit a preliminary question, and the question set out above should be made conditional on a “Yes” answer to the preliminary question. Further, the statute authorizes elimination of the limitation on exemplary damages awards if the conduct described in the applicable Texas Penal Code section was committed either knowingly or intentionally. If knowing instead of intentional conduct is alleged, the Texas Pattern Jury Charge suggests the following definition: “A person acts knowingly 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 with respect to a result of his conduct when he is aware that his conduct is reasonably certain to cause the result.”
“A plaintiff can avoid the cap by pleading and proving the defendant intentionally or knowingly engaged in felonious conduct under criminal statutes expressly excluded from the cap under section 41.008(c).” Zorrilla, 469 S.W.3d at 157. In a civil case, a plaintiff must prove by clear and convincing evidence the elements of exemplary damages. Tex. Civ. Prac. & Rem. Code Ann. § 41.003(b). “‘Clear and convincing’ means the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.” Id. § 41.001(2).
However, the state has to prove the elements of a crime by the beyond-a-reasonable-doubt standard. See Jackson v. Virginia, 443 U.S. 307, 319, 99 S. Ct. 2781, 2789, 61 L. Ed. 2d 560 (1979); In re Winship, 397 U.S. 358, 361, 90 S. Ct. 1068, 1071, 25 L. Ed. 2d 368 (1970); Laster v. State, 275 S.W.3d 512, 517 (Tex. Crim. App. 2009); Marin v. IESI TX Corp., 317 S.W.3d 314, 330 (Tex. App.—Houston [1st Dist.] 2010, pet. denied) (holding evidence legally sufficient to support finding beyond reasonable doubt that defendant misapplied fiduciary property by depositing funds tendered for payment to one company’s account into another company’s account that she also controlled). A finding of liability in a civil case should not have any collateral estoppel or res judicata effect in a subsequent criminal trial as the burdens of proof are different. Osborne v. Coldwell Banker United Realtors, No. 01-01-00463-CV, 2002 Tex. App. LEXIS 4930 (Tex. App.—Houston [1st Dist.] July 11, 2002, no pet.) (citing State v. Benavidez, 365 S.W.2d 638, 640 (Tex. 1963)). If the criminal trial is first, and the jury does not find the defendant guilty, that also does not have collateral estoppel effect in a subsequent civil proceeding as the burden of proof is lighter in the civil case. See Ex Parte Watkins, 73 S.W.3d 24, n. 16 (Tex. Crim. App. 2002) (citing One Lot Emerald Cut Stones v. United States, 409 U.S. 232, 235, 34 L. Ed. 2d 438, 93 S. Ct. 489 (1972) (noting that the difference between the burden of proof in criminal and civil trials prevents application of collateral estoppel in subsequent civil trial after acquittal on specific fact in criminal case with “beyond a reasonable doubt” standard)).
Interestingly, the crime of financial exploitation of the elderly is not an exception to the exemplary damages cap. Perhaps this is due to the fact that the Texas Legislature created the criminal charge in 2011 and it was not on the books at the time that the Legislature created the exemplary damages statute. In any event, at least one court has considered this criminal charge in determining whether exemplary damages awarded was reasonably proportioned to the actual damages. Natho v. Shelton, 2014 Tex. App. LEXIS 5842 at *8. The court held:
We conclude that the trial court’s award of $20,000 in punitive damages is reasonably proportioned to actual damages in the amount of $33,096.11, considering the following applicable factors: (1) the nature of the defendant’s wrongdoing (the unauthorized appropriation for Natho’s personal benefit of appellee’s personal and real property, including family heirlooms); (2) the character of the defendant’s conduct (effectuated under the apparent authority of a power of attorney with respect to an elderly and infirm woman); (3) the degree of the defendant’s culpability (despite his testimony at an earlier temporary-injunction hearing that he relied on the advice of financial advisers in spending appellee’s money to qualify her for Medicaid, Natho refused to answer questions at trial on the ground of protecting himself against self-incrimination with respect to concurrent criminal proceedings against him for the same conduct); (4) the situation and sensibilities of the parties concerned (Natho was the ex-grandson-in-law of appellee, who was elderly, infirm, and living in a nursing home); and (5) the extent to which such conduct offends a public sense of justice and propriety (the legislature has deemed the “improper use” of the resources of an elderly individual especially reprehensible, making it a third-degree felony, see Tex. Penal Code § 32.53).
Id. Accordingly, even though the crime of financial exploitation of the elderly is not an exception to the exemplary damages cap, it may still be relevant in a civil proceeding.
Courts Can Award Restitution In A Criminal Case
Even if a party cannot assert a civil claim under a criminal statute, a criminal court has discretion to award a victim restitution as against the criminal defendant. Jones v. State, 2012 Tex. App. LEXIS 10549 (Tex. App.—Corpus Christi Dec. 20 2012, pet. ref’d). “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) (quoting Tex. Code Crim. Proc. Ann. art. 42.12 § 9(a)). A sentencing court may order a defendant to make restitution to any victim of the offense. Tex. Code Crim. Proc. Ann. art. 42.037(a). “[T]he amount of a restitution order is limited to only the losses or expenses that the victim or victims proved they suffered as a result of the offense for which the defendant was convicted.” Cabla, 6 S.W.3d at 546. “An abuse of discretion by the trial court in setting the amount of restitution will implicate due-process considerations.” Campbell v. State, 5 S.W.3d 693, 696 (Tex. Crim. App. 1999). Due process places four limitations on the restitution a trial court may order. First, “[t]he amount of restitution must be just, and it must have a factual basis within the loss of the victim.” Id. Second, “[a] trial court may not order restitution for an offense for which the defendant is not criminally responsible.” Id. at 697. Third, “a trial court may not order restitution to any but the victim or victims of the offense with which the offender is charged.” Id. Fourth, a trial court may not, “without the agreement of the defendant, order restitution to other victims unless their losses have been adjudicated.” Id. The standard of proof for determining restitution is a preponderance of evidence. Tex. Code Crim. Proc. Ann. art. 42.037(k). The burden of proving the amount of loss sustained by the victim is on the prosecution. Id. The restitution ordered must be “just” and must be supported by sufficient factual evidence in the record.
Because the request for restitution creates more work for prosecutors and is often seen as civil in nature, prosecutors are reluctant to request this form of relief. A victim should do everything that he or she can do to encourage the prosecutor to seek this permissible form of relief.
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