Fiduciaries And Beneficiaries Should Be Aware Of Criminal Statutes

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...