Court Opinion

ID: 4049364
Source: CourtListenerOpinion
Date Created: 2016-09-29 00:56:13.78761+00
Date Added: 2024-06-11T14:30:59.637522
License: Public Domain

PD-1636-14
                                                        COURT OF CRIMINAL APPEALS
                                                                         AUSTIN, TEXAS
                                                       Transmitted 2/5/2015 9:01:53 AM
                                                         Accepted 2/6/2015 2:46:45 PM
                                                                          ABEL ACOSTA
                           No. PD-1636-14                                        CLERK

                      In the
        Court of Criminal Appeals of Texas
                           WALTER DEMOND,
                                        Petitioner,
                                 v.

                       THE STATE OF TEXAS,
                                        Respondent.

    On Petition from the Third Court of Appeals at Austin, Texas

   REPLY TO PETITION FOR DISCRETIONARY REVIEW

KEN PAXTON                     SCOTT A. KELLER
Attorney General of Texas      Solicitor General

CHARLES E. ROY                 DUSTIN HOWELL
First Assistant Attorney       Assistant Solicitor General
   General                     State Bar No. 24050169

                               OFFICE OF THE ATTORNEY GENERAL
                               P.O. Box 12548 (MC 059)
                               Austin, Texas 78711-2548
                               Tel.: (512) 936-0826
February 6, 2015               Fax: (512) 474-2697
                               dustin.howell@texasattorneygeneral.gov

                               COUNSEL FOR THE STATE
                 IDENTITY OF JUDGES, PARTIES, AND COUNSEL

Trial Court Judges
The Honorable Dan Mills
The Honorable Bert Richardson (by assignment)1
424th District Court, Blanco County

Counsel for Petitioner Walter Demond
Counsel in This Court
James C. Ho
Kyle Hawkins
Prerak Shah
GIBSON, DUNN & CRUTCHER LLP
2100 McKinney Avenue
Suite 1100
Dallas, Texas 75201
jho@gibsondunn.com

Counsel in the Court of Appeals
James C. Ho                                     Daniel L. Geyser
GIBSON, DUNN & CRUTCHER LLP                     MCKOOL SMITH
2100 McKinney Avenue                            300 Crescent Court
Suite 1100                                      Suite 1500
Dallas, Texas 75201                             Dallas, Texas 75201
jho@gibsondunn.com                              dgeyser@mckoolsmith.com

Trial and Additional Appellate Counsel
E.G. (Gerry) Morris                Warren L. “Rip” Collins
LAW OFFICE OF E.G. MORRIS          MINTON, BURTON, BASSETT &
608 W. 12th Street, Suite B          COLLINS
Austin, Texas 78701                1100 Guadalupe Street
egm@egmlaw.com                     Austin, Texas 78701
                                   rcollins@mbfc.com

1   Judge Richardson ruled on the disqualification and recusal issues.

                                            i
Counsel for the State
Counsel in This Court and the Court of Appeals
Dustin M. Howell
Assistant Solicitor General
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
dustin.howell@texasattorneygeneral.gov

Trial Counsel
Harry E. White
Tom Cloudt
Assistant Attorneys General
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 048)
Austin, Texas 78711-2548
harry.white@texasattorneygeneral.gov

                                  ii
                                      TABLE OF CONTENTS

Identity of Judges, Parties, and Counsel ................................................... i

Index of Authorities.................................................................................. iv

Argument ................................................................................................... 1

        I.      Legally Sufficient Evidence Supports Petitioner’s
                Misapplication-of-Fiduciary-Property Conviction. ................. 2

        II.     Petitioner’s Public-Policy Arguments Have No Merit............ 4

Certificate of Service ............................................................................... 14

Certificate of Compliance ........................................................................ 14

                                                     iii
                                    INDEX OF AUTHORITIES

Cases

Bender v. State,
    No. 03-09-00652-CR, 2011 WL 1561994 (Tex. App.—
    Austin Apr. 19, 2011, pet. struck) (mem. op., not
    designated for publication)............................................................... 5

Clayton v. State,
     235 S.W.3d 772 (Tex. Crim. App. 2007). .......................................... 3

Cotton v. Rand,
     51 S.W. 838 (Tex. 1899).................................................................... 6

Demond v. State,
    No. 03-11-00553-CR, 2014 WL 6612510 (Tex. App.—
    Austin Nov. 21, 2014, pets. filed). .................................... 2, 4, 6, 7, 8

Ieremia v. State,
     No. 08-00-00380-CR, 2002 WL 1939154 (Tex. App.—El
     Paso Aug. 22, 2002, pet. ref’d) (not designated for
     publication). ...................................................................................... 5

Jackson v. Virginia,
     443 U.S. 307 (1979). ................................................................. 2, 3, 5

Matchett v. State,
    941 S.W.2d 922 (Tex. Crim. App. 1996) (en banc). .......................... 2

Statutes

TEX. PENAL CODE § 32.45(a)(2). ................................................................. 2

TEX. PENAL CODE § 32.45(b). ..................................................................... 2

TEX. PENAL CODE § 32.45(c)(7). ................................................................. 9

                                                    iv
TEX. PENAL CODE § 7.01(a). ....................................................................... 3

TEX. PENAL CODE § 7.02(a)(2). ................................................................... 3

TEX. PENAL CODE § 7.03(2). ..................................................................... 12

Rules

TEX. DISCIPLINARY R. PROF’L CONDUCT 1.12(a). ........................................ 6

TEX. R. APP. P. 9.4(i)(1). ........................................................................... 14

TEX. R. APP. P. 9.4(i)(2). ........................................................................... 14

TEX. R. APP. P. 66.3. ................................................................................... 1

TEX. R. APP. P. 66.3(a). .............................................................................. 1

TEX. R. APP. P. 66.3(b). .............................................................................. 1

TEX. R. APP. P. 66.3(d). .............................................................................. 1

                                                    v
TO THE HONORABLE COURT OF CRIMINAL APPEALS OF TEXAS:

     Texas Rule of Appellate Procedure 66.3 lays out the considerations

this Court undertakes when deciding whether to grant a petition for

discretionary review.     These include whether the court of appeals’

decision (1) conflicts with a decision of another court of appeals,

(2) decides an important question of state law that should be settled by

this Court, or (3) misconstrues a statute. TEX. R. APP. P. 66.3 (a), (b), (d).

Petitioner invokes these provisions at the outset of his petition, PDR 2-

3, but he fails to meaningfully address any of them. Instead, he reurges

the same legal-sufficiency arguments that he asserted below and that

the court of appeals correctly rejected. This Court, therefore, should

deny Petitioner’s petition for discretionary review.

                                ARGUMENT

     Contrary to Petitioner’s hyperbolic assertions, the court of appeals’

holding does not set “frightening,” PDR 8, or “dangerous precedent[],”

id. at 1, with “severe consequences for the Texas business community,”

id. at 11, that should “worry every attorney in Texas,” id. at 2. The

court of appeals considered the evidence and concluded that the

inferences the jury drew were reasonable and legally sufficient to
support the elements of misapplication of fiduciary property. Jackson v.

Virginia, 443 U.S. 307, 319 (1979).       In so doing, the court below

correctly declined Petitioner’s invitation to reweigh the evidence and

“sit as a thirteenth juror” in his case. Matchett v. State, 941 S.W.2d
922, 936 (Tex. Crim. App. 1996) (en banc). This Court should do the

same.

I.   LEGALLY SUFFICIENT EVIDENCE SUPPORTS PETITIONER’S
     MISAPPLICATION-OF-FIDUCIARY-PROPERTY CONVICTION.

     Though Petitioner was also guilty of misapplication of fiduciary

property as a primary actor, the court of appeals focused on Petitioner’s

guilt as a party to Bennie Fuelberg’s misapplication. Demond v. State,

No. 03-11-00553-CR, 2014 WL 6612510, at *6 (Tex. App.—Austin Nov.

21, 2014, pets. filed).      An individual commits the offense of

misapplication of fiduciary property if he “misapplies property he holds

as a fiduciary . . . 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.” TEX. PENAL CODE § 32.45(b). The statute defines “misapply” as

“deal[ing] 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.” Id. § 32.45(a)(2). And an individual is

                                    2
guilty as a party to an offense “if the offense is committed by his own

conduct, by the conduct of another for which he is criminally

responsible, or by both.”      Id. § 7.01(a).   “A person is criminally

responsible for an offense committed by the conduct of another if . . .

acting with intent to promote or assist the commission of the offense, he

solicits, encourages, directs, aids, or attempts to aid the other person to

commit the offense.” Id. § 7.02(a)(2).

     Petitioner devotes the entirety of his petition to making public-

policy arguments for why his conduct should not be considered criminal.

None of these has merit, as explained below.          Petitioner ignores,

however, the actual question decided below, i.e., whether “‘any rational

trier of fact could have found the essential elements of the crime beyond

a reasonable doubt.’” Clayton v. State, 235 S.W.3d 772, 778 (Tex. Crim.

App. 2007) (quoting Jackson, 443 U.S. at 319). The evidence the jury

heard from almost forty witnesses over a nine-day trial more than

supports the limited scope of a legal-sufficiency review.         On this

evidence, the jury could have reasonably concluded beyond a reasonable

doubt (1) that Fuelberg held PEC property as a fiduciary, (2) that

Fuelberg and Petitioner intentionally and knowingly subjected that

                                    3
property to a substantial risk of loss by funneling it to Fuelberg’s

brother (Curtis) and the son of a PEC board member (Bill Price)

through arrangements in which they knew PEC would receive little or

no benefit, and finally (3) that Petitioner’s role in the scheme—utilizing

his law firm to make these sham hires—made him guilty as a party to

Fuelberg’s misapplication. Demond, 2014 WL 6612510, at *7-11.

II.   PETITIONER’S PUBLIC-POLICY ARGUMENTS HAVE NO MERIT.

      Petitioner lays out a parade of horribles that he contends will

inevitably follow if the court of appeals’ decision is left to stand. None

of these arguments has any basis in law, and none provides any reason

for the Court to grant discretionary review.

      1.   Fuelberg’s authority does not excuse his or Petitioner’s

criminal conduct. Petitioner argues that Fuelberg’s authority to hire

and fire whomever he pleased absolved him of any culpability for the

scheme in which Curtis and Price were “hired” to do work for PEC.

PDR 1, 3-6. There are several problems with this theory.

      First, Fuelberg’s authority was not “unfettered,” as Petitioner

contends. PDR viii. Fuelberg’s employment contract and disciplinary

policy prohibited “willful falsification of cooperative records” and

                                    4
“dishonesty, willful damage and/or unauthorized appropriation of

cooperative funds or property.” Sx 2B; Sx 4. It was reasonable for the

jury to conclude that Petitioner, as PEC’s attorney, would have been

familiar with those provisions. And Petitioner’s attempt to bolster his

theory by arguing that a “clear majority” of the PEC board testified to

Fuelberg’s broad authority, PDR 6 n.2, is unavailing. The jury was free

to weigh the credibility of the witnesses and accept or reject their

testimony accordingly. Jackson, 443 U.S. at 319.

     In any event, Petitioner has not denied, nor could he credibly, that

both he and Fuelberg were fiduciaries who owed PEC a duty to act in its

best interests—including a duty to not pay salaries to individuals who

did not perform valuable work.             Moreover, multiple courts have

recognized that an executive’s broad authority does not shield him from

guilt for misapplication when he acts contrary to the best interests of

his company.     See Bender v. State, No. 03-09-00652-CR, 2011 WL
1561994, at *10-11 (Tex. App.—Austin Apr. 19, 2011, pet. struck) (mem.

op., not designated for publication); Ieremia v. State, No. 08-00-00380-

CR, 2002 WL 1939154, at *10 (Tex. App.—El Paso Aug. 22, 2002, pet.

ref’d) (not designated for publication).

                                     5
     Second, Petitioner’s client was PEC, not Bennie Fuelberg. See,

e.g., 17.RR.135; see also TEX. DISCIPLINARY R. PROF’L CONDUCT 1.12(a).

When Fuelberg asked Petitioner to participate in his scheme to funnel

money to Curtis and Price, Fuelberg was no longer acting in the interest

of PEC. Thus, Petitioner’s decision to participate was not done on behalf

of his client, PEC, but instead on behalf of Fuelberg’s personal

interests—which were directly opposed to PEC’s. See, e.g., Cotton v.

Rand, 51 S.W. 838, 842 (Tex. 1899).

     For this same reason, Petitioner’s contention that the court below

considered these arrangements unauthorized only because he concealed

them, PDR 7, is meritless. As the court explained, the extensive effort

Fuelberg and Petitioner undertook to conceal the arrangements—from

both the PEC board and from Petitioner’s law partners—was strong

circumstantial evidence that they knew the board would not approve of

them. Demond, 2014 WL 6612510, at *9. Petitioner points to testimony

that they hid these arrangements to prevent a “‘morale issue’” at PEC,

PDR 7 n.3, but the jury was free to reject this explanation.

     2. Petitioner was not convicted because the jury second-guessed

how much Curtis and Price were being paid. The court below, viewing

                                    6
the evidence in a light most favorable to the verdict, concluded that it

was reasonable for the jury to find that Fuelberg and Demond

intentionally and knowingly overpaid Curtis and Price for their

“services.” Demond, 2014 WL 6612510, at *11. Regarding Curtis, the

jury heard testimony, for example, that he had never been paid more

than $4,000 per month as a registered lobbyist, whereas Fuelberg and

Demond arranged for PEC to pay him $5,000 per month to serve merely

as a “legislative consultant” and instructed him not to register as a

lobbyist. 11.RR.92, 104, 108-09, 117, 187. Regarding Price, the jury

learned that though he was hired to handle PEC work in the Lampasas

area, Petitioner never gave him any PEC work to perform, 9.RR.62, 68,

103-05, and that while his retainer was justified in part because he

could be conflicted from being adverse to PEC, 15.RR.98, neither he nor

PEC knew that he was retained on the cooperative’s behalf and so any

alleged conflict would have been impossible to discover, 9.RR.64.

     This is not, therefore, a matter of a jury reassessing the value of

the services rendered. The jury was never asked, “in your estimation,

were Curtis or Price overpaid?” And that was never the State’s theory

in this case, which was instead that these were sham hires from the

                                   7
beginning that provided virtually no value to PEC. E.g., 9.RR.61-62,

11.RR.37.   Viewing the evidence in a light most favorable to the

judgment, it was reasonable for the jury to conclude that they were.

That can be a complex determination, but “juries are required to make

such value judgments under the Penal Code, and it is not the Court’s

place to second-guess the jury so long as its decision is supported by the

evidence in the record.” Demond, 2014 WL 6612510, at *10.

     Petitioner’s novel position that the Court should adopt a “business

judgment rule” as a prophylaxis against jury overreach misses the point

for the same reason. PDR 9-10. Cases like this one do not “put[] jurors

into the CEO office to make business decisions,” PDR 10; they simply

ask jurors to determine whether an individual in a fiduciary capacity

intentionally exposed his principal’s property to a substantial risk of

loss. If Petitioner is correct, courts could never uphold a misapplication

conviction arising in a corporate environment because, in his cynical

view, juries are incapable of understanding “complex business

decisions” that are better left to CEOs. PDR 10. Petitioner is wrong.

The jury here did not “usurp Fuelberg’s role as the architect of PEC’s

                                    8
business plan,” PDR 10; it convicted Petitioner for being the co-architect

of a years-long scheme that deprived PEC of over $200,000.2

      3.   Petitioner is incorrect to say that there was “no evidence”

rebutting his testimony that he was unaware of the illegal nature of his

conduct.      As discussed above, ample circumstantial evidence—

particularly the remarkable lengths to which he and Fuelberg went to

hide the arrangements from the PEC board and his law partners—

demonstrated that he was aware.

      Petitioner attempts to explain this behavior by noting that

lawyers are permitted to rely on instructions regarding how to prepare

their bills. PDR 15. What he fails to mention, however, is that the jury

heard testimony that, while there are legitimate reasons to disguise

information on an attorney’s bill—e.g., attorney-client privileged

matters or confidential matters related to pending mergers or

bankruptcies, 11.RR.206-07—the jury also heard testimony that

modifying a bill to disguise payments to a general manager’s brother or

2Though this dollar amount might represent a “de minimis sum” to Petitioner, PDR
17-18, in the eyes of the Legislature, it is enough to amount to a first-degree felony.
TEX. PENAL CODE § 32.45(c)(7).

                                          9
a board member’s son would not be the sort of “confidential

information” that could legitimately be excluded from a bill, 11.RR.208.

     4. The decision below will not “fundamentally alter the attorney-

client relationship in Texas,” PDR 16, and Petitioner’s hypothetical

proves the point. Petitioner describes an unused motion to compel as

“illustrat[ing] the danger” inherent in the decision below. Because the

lawyer in the hypothetical billed his client, at the general counsel’s

instruction, for a motion that became unnecessary because the matter

settled, Petitioner posits that the lawyer, and his client, could be found

guilty under the court of appeals’ reasoning if a jury later disagrees

with the value of the motion. PDR 16-17.

     Petitioner again misunderstands the decision below. The court of

appeals did not uphold Petitioner’s conviction because it believed the

jury correctly discounted the value of Curtis’s and Price’s “services.”

Instead, it affirmed the conviction because legally sufficient evidence

supports the jury’s finding that Fuelberg and Petitioner intended to

deprive PEC of the value of its property—that they knew PEC would

not get what it paid for.

                                   10
      The absence of any such criminal intent makes Petitioner’s

hypothetical inapposite.          Unlike the attorney in that scenario,

Petitioner admitted that he had reason to question Fuelberg’s billing

scheme at its outset. When Petitioner’s first invoice to PEC referenced

Curtis by name, Fuelberg instructed Petitioner to remove it.

16.RR.152. Petitioner offered to modify the bill to merely reference a

“legislative consultant,” but Fuelberg objected to this as well.

16.RR.155. Ultimately, the two agreed that the bills would simply read

“for legal services rendered in connection with regulatory and

legislative matters,” Sx 7, despite the fact that Curtis was not an

attorney, 11.RR.32.3

      When asked about his willingness to hide information from the

board, Petitioner simply replied that “[i]t was never intended that

Curtis Fuelberg or Bill Price stay secret forever.” 17.RR.161-62. When

asked why he would keep secret arrangements he knew he would

eventually have to explain, Petitioner responded “I mean, explaining

something later is different than explaining it up front.” 17.RR.162.

Petitioner’s “it’s easier to ask for forgiveness” approach demonstrates

3Petitioner now says that Curtis was hired to “provide outside legislative services,”
PDR 5 (emphasis added), contrary to the bills he sent PEC, Sx 7.

                                         11
that he knew the board was unlikely to approve of these arrangements

if it knew of them. And it is anything but the typical attorney-client

interaction, as Petitioner would have the Court believe.

     5.   Petitioner claims that his guilt under the law of parties is

contingent on Fuelberg’s conviction. PDR 12 n.5. Petitioner is wrong.

Texas Penal Code section 7.03(2) states that, in a prosecution under the

law of parties, “it is no defense . . . that the person for whose conduct

the actor is criminally responsible has been acquitted.”       TEX. PENAL

CODE § 7.03(2). Thus, there is no reason, as Petitioner suggests, PDR

19, that the Court should grant review in this case if it chooses to grant

Fuelberg’s PDR, or that the Court should hold this case in abeyance

pending the resolution of Fuelberg’s PDR. The Fuelberg PDR has no

legal bearing on this case.       Petitioner and Fuelberg were tried

separately and their petitions raise entirely separate grounds (with the

sole exception of their disqualification/recusal arguments, which

Petitioner relegated to an “unbriefed” issue, PDR xi).

                              *     *     *

     The petition for discretionary review should be denied.

                                   12
Respectfully submitted.

KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

SCOTT A. KELLER
Solicitor General

/s/ Dustin M. Howell
DUSTIN M. HOWELL
Assistant Solicitor General
State Bar No. 24050169

OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
Tel.: (512) 936-0826
Fax: (512) 474-2697
dustin.howell@texasattorneygeneral.gov

COUNSEL FOR THE STATE

  13
                       CERTIFICATE OF SERVICE

     On February 5, 2015, this Reply to Petition for Discretionary

Review was served via File & Serve Xpress on:

     James C. Ho                   Lisa C. McMinn
     GIBSON, DUNN & CRUTCHER       STATE PROSECUTING ATTORNEY
        LLP                        P.O. Box 13406
     2100 McKinney Avenue          Austin, Texas 78711-3046
     Suite 1100                    lisa.mcminn@spa.texas.gov
     Dallas, Texas 75201
     jho@gibsondunn.com

                                /s/ Dustin M. Howell
                                Dustin M. Howell

                     CERTIFICATE OF COMPLIANCE

     In compliance with Texas Rule of Appellate Procedure 9.4(i)(2),

this brief contains 2,387 words, excluding the portions of the brief

exempted by Rule 9.4(i)(1).

                                /s/ Dustin M. Howell
                                Dustin M. Howell

                                 14