Demond, Walter ( 2015 )

PD-1636-14
COURT OF CRIMINAL APPEALS
AUSTIN, TEXAS
Transmitted 2/17/2015 3:03:31 PM
Accepted 2/19/2015 11:21:46 AM
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 for Discretionary Review from the
Third Court of Appeals at Austin, Texas
Case No. 03-11-00533-CR
RESPONSE TO CROSS-PETITION FOR DISCRETIONARY REVIEW
James C. Ho
State Bar No. 24052766
Prerak Shah
State Bar No. 24075053
GIBSON, DUNN & CRUTCHER LLP
February 19, 2015 2100 McKinney Avenue, Suite 1100
Dallas, TX 75201-6912
Tel.: (214) 698-3264
Fax: (214) 571-2917
jho@gibsondunn.com
pshah@gibsondunn.com
COUNSEL FOR PETITIONER
TABLE OF CONTENTS
Index of Authorities ................................................................................................. iii
Argument ...................................................................................................................2
I. The Third Court correctly held that the evidence against
Demond is not legally sufficient to support the theft
conviction. ....................................................................................................... 4
A. The Third Court reversed the theft by deception
conviction because the evidence is insufficient to
prove that the PEC’s judgment had been affected
by Demond’s alleged deceptive intent ..................................................5
B. The Third Court applied the proper legal standard
for a sufficiency of the evidence challenge ...........................................7
II. The law of parties does not apply to Demond’s theft
conviction. ..................................................................................................... 10
Prayer for Relief .......................................................................................................13
Certificate of Compliance ........................................................................................15
Proof of Service .......................................................................................................15
ii
INDEX OF AUTHORITIES
Cases
Brooks v. State,
323 S.W.3d 893 (Tex. Crim. App. 2010) .................................................................... 7, 9
Demond v. State,
2014 WL 6612510 (Tex. App.—Austin Nov. 21, 2014, pet. filed) ....................... passim
Ehrhardt v. State,
334 S.W.3d 849 (Tex. App.—Texarkana 2011, pet. ref’d) ........................................ 6, 7
King v. State,
17 S.W.3d 7 (Tex. App.—Houston [14th Dist.] 2000, pet. ref’d) ............................ 5, 12
Ragan v. State,
2000 WL 1676060 (Tex. App.—Houston [14th Dist.] Nov. 9, 2000, pet. ref’d) ..... 5, 12
Roberts v. State,
319 S.W.3d 37 (Tex. App.—San Antonio 2010, pet. ref’d) ................................. 5, 6, 12
Swope v. State,
805 S.W.2d 442 (Tex. Crim. App. 1991) ...................................................................... 12
Statutes
TEX. PENAL CODE § 31.01(1) .......................................................................................... 4, 5
TEX. PENAL CODE § 31.01(3) .................................................................................... 4, 5, 11
TEX. PENAL CODE § 31.01(C) ............................................................................................. 5
TEX. PENAL CODE § 31.03(b) .................................................................................... 4, 5, 11
TEX. PENAL CODE § 7.01(a) ........................................................................................ 10, 11
TEX. PENAL CODE § 7.02(a) .............................................................................................. 11
iii
TO THE HONORABLE COURT OF CRIMINAL APPEALS OF TEXAS:
The State’s Cross-Petition for Discretionary Review confirms that this case
merits this Court’s review. The prosecution of Walter Demond was not only
fatally flawed from the start, it also raised a host of novel legal theories that strike
at the heart of the relationship between Texas businesses and their outside lawyers.
The only question now is which issues merit this Court’s attention.
There is no need for this Court to review the reversal of Demond’s theft by
deception conviction. The Third Court correctly recognized that Demond could
not, as a matter of law, be convicted of that crime on the evidence the State
presented to the jury. That holding is not only correct—it is a case-specific
conclusion that has little impact on any area of law or business.
By contrast, the Third Court’s decision to affirm Demond’s convictions for
misapplication of fiduciary funds and money laundering is not only incorrect—it
fundamentally alters the law in a way that risks criminalizing a lawyer’s decision
to rely on the business judgment of a company’s highest executive. That is the
portion of the Third Court’s ruling that calls out for this Court’s review.
Demond never committed any crime. The State’s Cross-Petition, which
wrongly asks this Court to reinstate Demond’s theft conviction, should be denied.
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ARGUMENT
Walter Demond, a partner and the head of the energy practice at the Austin
law firm Clark, Thomas & Winters, PC, advised the Pedernales Electric
Cooperative (“PEC”) for three decades. During that time, Demond worked at the
direction of PEC’s general manager, Bennie Fuelberg. Crucially, as general
manager, Fuelberg had the authority to hire whomever he wanted.
But even though everyone agrees that Fuelberg had unfettered discretion as
general manager to hire outside consultants and lawyers, the State brought criminal
charges against Fuelberg after it learned that he had hired the son of a PEC board
member (William Price) to provide legal advice under a retainer agreement and
hired his brother (Curtis Fuelberg) to consult on legislative matters. The State
claimed these engagements were illegal because Fuelberg concealed them from
some PEC employees.
Compounding its error, the State also prosecuted Demond for acting on
Fuelberg’s instructions regarding those transactions—actions Demond never even
suspected were criminal.
Relevant here, the State convicted Demond of theft by deception. The Third
Court properly reversed that conviction. Demond v. State, 2014 WL 6612510, at
*14 (Tex. App.—Austin Nov. 21, 2014, pet. filed). But the State now wants
Demond’s theft conviction reinstated.
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In its Cross-Petition, the State argues that the court of appeals erred in
reversing the conviction, because (1) the evidence is sufficient to affirm the
conviction for theft by deception; and (2) alternatively, the law of parties doctrine
can support the conviction.
Neither argument is correct. The court of appeals correctly applied the law
in concluding that the evidence the State presented to the jury is insufficient to
affirm the conviction. The court did not misapply the standard of review or
minimize any of the State’s evidence—rather, it simply concluded that the
evidence the State presented could not prove an element of the crime. The court
also correctly concluded that the law of parties did not apply to this case, because
no one committed any crime for which Demond could be held accountable under
the law of parties.
In sum, the court of appeals reviewed the evidence in the light most
favorable to the verdict and correctly concluded that no rational trier of fact could
have found all of the elements of theft by deception beyond a reasonable doubt.
Accordingly, the Third Court properly reversed the theft conviction.
Moreover, the decision to reverse the theft conviction was not only correct,
it was based purely on the facts of this case—not on any disagreement with any
case or legal standard. Thus, there is no need to grant review on this issue.
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I. The Third Court correctly held that the evidence against Demond is not
legally sufficient to support the theft conviction.
The Third Court correctly applied the law when it reversed the theft
conviction. To establish that Demond committed theft by deception, the State had
to prove beyond a reasonable doubt that the PEC’s consent to pay Curtis and Price
was ineffective because it was induced by deception. TEX. PENAL CODE
§§ 31.01(3), 31.03(b)(1). In pertinent part, “deception” means “creating or
confirming by words or conduct a false impression of law or fact that is likely to
affect the judgment of another in the transaction, and that the actor does not believe
to be true,” or “preventing another from acquiring information likely to affect his
judgment in the transaction.” Id. § 31.01(1)(A), (C) (emphasis added).
Based on this definition, the court of appeals held that the State failed to
prove beyond a reasonable doubt that Demond committed the crime. Demond,
2014 WL 6612510, at *14. Specifically, the court concluded that there is
insufficient evidence to establish that, had it known its funds were being paid to
Curtis and Price, the PEC would have reined in or revoked Fuelberg’s authority to
hire outside consultants. Id. at *13. In other words, the evidence did not establish
that knowing about the engagements would have affected the PEC’s judgment. Id.
The State contends that the Third Court minimized the value of the
circumstantial evidence against Demond and accordingly set an “impossibly high
bar for prosecutors to meet.” CPDR 8.
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But these concerns are utterly unfounded. First, the issue in Demond’s case
is uniquely difficult to prove without direct testimony, so the failure to affirm the
conviction based on circumstantial evidence is not surprising. And, second, the
Third Court hardly “minimized” the significance of certain testimony.
A. The Third Court reversed the theft by deception conviction
because the evidence is insufficient to prove that the PEC’s
judgment had been affected by Demond’s alleged deceptive intent.
To commit theft by deception, a guilty party’s intent to deceive must affect
his victim’s judgment. TEX. PENAL CODE §§ 31.01(1)(A), 31.01(C), 31.01(3),
31.03(b)(1). But whether the victim’s judgment was affected by the defendant’s
deceit is rarely at issue on appeal. Rather, in almost every single case, appellate
courts have been tasked with deciding only whether the defendant had the requisite
intent to deceive. See, e.g., Roberts v. State, 319 S.W.3d 37 (Tex. App.—San
Antonio 2010, pet. ref’d); Ragan v. State, 2000 WL 1676060 (Tex. App.—Houston
[14th Dist.] Nov. 9, 2000, pet. ref’d); King v. State, 17 S.W.3d 7 (Tex. App.—
Houston [14th Dist.] 2000, pet. ref’d). And courts sometimes look to
circumstantial evidence to establish this element.
The State is concerned that the decision below, if left to stand, will disturb
this long-standing practice. But in its rush to condemn the Third Court’s mere
reversal of a conviction in this case, the State ignores that the court of appeals
actually did, rightly or wrongly, presume that Demond had an intent to deceive—
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and did so based on circumstantial evidence. Demond, 2014 WL 6612510, at *13.
Thus, the decision below does not, as the State claims, make it impossible for
prosecutors to rely on circumstantial evidence to establish the requisite intent in
theft by deception cases—because that is not an issue in this case.
Instead, the court of appeals in this case actually dealt with a completely
different issue: whether the PEC’s judgment was affected by Fuelberg’s and
Demond’s deceit. The court concluded that the circumstantial evidence in this case
on that element is insufficient to support the theft by deception conviction.
There is nothing novel about that conclusion. Other Texas courts have
similarly found that circumstantial evidence can be insufficient to establish that the
victim’s judgment was affected.
In Roberts, for example, the court was satisfied that the defendant’s deceit
had induced the victim to act only because the victim had testified to that effect.
319 S.W.3d at 42-43.
In Ehrhardt v. State, the defendant contractually agreed to repair a
homeowner’s damaged house. 334 S.W.3d 849, 858 (Tex. App.—Texarkana
2011, pet. ref’d). When the defendant left the job incomplete, the homeowner filed
criminal charges, alleging that the defendant provided her with a fraudulent
accounting prior to her final payment. Id. at 853. The defendant was convicted of
theft by deception, but the court of appeals reversed. Id. at 860. The court had no
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trouble inferring the defendant’s intent to deceive from circumstantial evidence.
Id. at 857. But the court concluded the evidence is insufficient to establish that the
deception actually affected the homeowner’s judgment. Id. The court relied on the
fact that the homeowner had never testified that the deception induced her last
payment. Id. at 858. In other words, circumstantial evidence established the
defendant’s intent—but was inadequate to prove that the victim’s judgment had
been affected by the deceit.
That is precisely what the Third Court did here: the State had insufficient
evidence demonstrating that the PEC’s judgment was affected by any alleged
intent to deceive. That holding was not novel, and—contrary to the State’s Cross-
Petition—will not create any unnecessary hurdles for prosecutors.
B. The Third Court applied the proper legal standard for a
sufficiency of the evidence challenge.
The State argues that the court of appeals improperly “minimized” the
significance of certain testimony. CPDR 5. In fact, the Third Court correctly
applied the standard for a legal sufficiency challenge. The court reviewed the
evidence in the light most favorable to the verdict and determined whether any
rational trier of fact could have found the essential elements of the offense beyond
a reasonable doubt. Demond, 2014 WL 6612510, at *4 (citing Brooks v. State, 323
S.W.3d 893, 895 (Tex. Crim. App. 2010)). In its review, the court analyzed the
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testimony of the PEC’s assistant general manager, as well as current and former
PEC directors—and it did so in the light most favorable to the verdict.
The State’s contention otherwise is baseless. The court narrowed in on
every single statement in the trial transcript that indicated that Fuelberg’s or
Demond’s deceit could have affected the PEC’s judgment. It extracted the
assistant general manager’s testimony that “all hell would have broken loose” if
PEC employees learned that Curtis was being paid as an outside consultant.
Demond, 2014 WL 6612510, at *13. And it recognized that current and former
PEC directors stated they would like to have known that Curtis and Price were
being paid with PEC funds. Id. The court even quoted one former director as
testifying he was “pretty hot when he found out” that Fuelberg and Demond
concealed Curtis’s and Price’s employment. Id.
Thus, contrary to the State’s argument, the court below demonstrated a
complete willingness to consider only the evidence supporting the jury’s verdict.
Indeed, the court managed to highlight the most negative statements from the
record, to the exclusion of the plentiful positive testimony—such as the assistant
general manager’s testimony that “I don’t think I would have took it to the board,”
a director’s testimony that he never told Fuelberg it would be inappropriate for him
to hire his brother, another director’s testimony that being told about the Curtis and
8
Price engagement would have been a mere “courtesy,” and more. 11.RR.35;
12.RR.16; 13.RR.42.
The State, however, takes issue with the fact that the Third Court’s opinion
only explicitly referenced the testimony of three directors who testified that they
would have wanted to know about the arrangements, as opposed to five directors
who testified similarly. CPDR 6 n.3. But it is unclear why the State believes
referencing three directors instead of five matters.
“Legal sufficiency of the evidence is a test of adequacy, not mere quantity.”
Brooks, 323 S.W.3d at 917 (Cochran, J., concurring). In other words, “[l]egal
sufficiency in criminal cases is judged by the quality, not the quantity, of
evidence.” Id (emphasis omitted).
Here, it is inconsequential that either three or five directors wished they
would have been in the loop regarding the Curtis and Price engagements—indeed,
it would not matter if all seven directors had testified to that effect—because that
evidence is inadequate.
The fact that the directors wished that Fuelberg had told them that he hired
the outside consultants—being “hot” that he failed to inform them, even—is not
the same as concluding that the PEC would not have paid for Curtis or Price if the
directors had known, which is what the State needed to prove here. And the
evidence in this case cannot bridge that gap—the State simply cannot prove that
9
the PEC would have taken the unprecedented action of revoking Fuelberg’s
authority to hire outside consultants. Therefore, the evidence does not establish
beyond a reasonable doubt one of the essential elements of the offense: that the
deceit affected the PEC’s judgment.
The court of appeals correctly recognized this evidentiary gap. Demond,
2014 WL 6612510, at *13 (“[T]he jury would have had to make some inferences
about the PEC board’s potential reaction to the deception.”). The State’s
contention that the court below diminished the importance of certain testimony, or
applied the wrong standard of review, is incorrect. The Third Court merely refused
to accept the unacceptable leap in reasoning that the State needed in order to affirm
the theft by deception conviction.
II. The law of parties does not apply to Demond’s theft conviction.
The State also argues that Demond’s conviction should have been affirmed
under the law of parties doctrine. This too is wrong.
Under the law of parties, “[a] person is criminally responsible 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.” TEX. PENAL CODE
§ 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
10
the offense, he solicits, encourages, directs, aids, or attempts to aid the other person
to commit the offense.” Id. § 7.02(a)(2).
Crucially, a crime must have been committed for the law of parties doctrine
to come into play. See id. § 7.01(a) (“A person is criminally responsible as a party
to an offense if the offense is committed . . . .” (emphasis added)).
But as the Third Court’s opinion makes clear, no crime was committed
here—by either Demond or Fuelberg. Demond, 2014 WL 6612510, at *14.
Inducement is an explicit element of theft by deception. TEX. PENAL CODE
§§ 31.01(3)(A), 31.03(b)(1). The court below concluded that “the evidence is
insufficient to support a finding that either Demond’s or Fuelberg’s deception
induced the PEC to make payments it otherwise would not have made.” Demond,
2014 WL 6612510, at *14 (emphasis added). Accordingly, Demond could not
have been held liable for theft by deception based on Fuelberg’s deceptive act, as
the State proposes, because Fuelberg’s deceptive act did not induce the PEC’s
action either. See id.
The State attempts to manufacture a circuit split by arguing that multiple
courts have upheld theft by deception convictions under the law of parties. CPDR
9. That is obviously true—but the cases the State cites are those where the court
found that an underlying offense was actually committed. See Swope v. State, 805
11
S.W.2d 442, 445 (Tex. Crim. App. 1991); Roberts, 319 S.W.3d at 50; Ragan, 2000
WL 1676060, at *4-5; King, 17 S.W.3d at 14-15.
No one quarrels with that case law, least of all the Third Court. The court
below was not confused about whether the law of parties could apply to theft by
deception. It simply concluded that it did not apply in this case, because no crime
occurred at all—neither Fuelberg’s nor Demond’s deception induced the PEC to
pay Curtis’s and Price’s salaries. Demond, 2014 WL 6612510, at *14.
***
The State’s decision to file a Cross-Petition reveals an important truth: this
is, without a doubt, a significant case. Right or wrong, the decision issued by the
Third Court will impact prosecutorial and business decisions across Texas.
But, curiously, the issue that the State decides to hang its hat on—the
reversal of the theft by deception conviction—is the least important issue of all,
given the purpose of this Court. At its core, the State’s Cross-Petition is an
argument about evidentiary sufficiency on appeal. The State thought it put on
enough evidence to maintain its conviction. The Third Court disagreed. That’s it.
To be sure, the State dresses its Cross-Petition up in the language of grave
legal error—but that is not what actually happened. The State writes of the
differences between direct testimony and circumstantial evidence, and the
opinion’s impact on evidentiary standards, all in an attempt to make it seem like
12
the Third Court demanded too much to sustain a conviction. But simply reading
the opinion disabuses that thinking: the Third Court did not raise the evidentiary
bar, it simply decided that the evidence the State presented did not meet it. That
determination was not only correct, it does not have the type of sweeping
consequences that merit this Court’s review.
The principal Petition for Review in this case, by contrast, is not about mere
evidentiary sufficiency on appeal. It concerns important questions of law on
whether this case should have gone to a jury in the first place—and the
consequences the prosecution of Walter Demond will have on not only the law of
this State, but also the legal and business communities. Those are issues worthy of
this Court’s attention.
PRAYER FOR RELIEF
For the foregoing reasons, the Third Court correctly reversed Walter
Demond’s conviction for theft by deception. As significant as the issues in this
case are generally, there is no reason to revisit that case-specific conclusion. The
State’s Cross-Petition for Discretionary Review should accordingly be denied.
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DATED: February 17, 2015 Respectfully submitted,
/s/ James C. Ho
James C. Ho
State Bar No. 24052766
Prerak Shah
State Bar No. 24075053
GIBSON, DUNN & CRUTCHER LLP
2100 McKinney Avenue, Suite 1100
Dallas, TX 75201-6912
Tel.: (214) 698-3264
Fax: (214) 571-2917
jho@gibsondunn.com
pshah@gibsondunn.com
COUNSEL FOR PETITIONER
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CERTIFICATE OF COMPLIANCE
In compliance with Texas Rule of Appellate Procedure 9.4(i)(2)(D), this
brief contains 2,957 words, excluding the portions of the brief exempted by Rule
9.4(i)(1).
/s/ James C. Ho
James C. Ho
PROOF OF SERVICE
I certify that on February 17, 2015, a true and correct copy of this motion
was served on the following counsel of record via electronic mail:
Dustin Howell
OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
dustin.howell@texasattorneygeneral.gov
Lisa C. McMinn
STATE PROSECUTING ATTORNEY
P.O. Box 13406
Austin, Texas 78711-3046
lisa.mcminn@spa.texas.gov
/s/ James C. Ho
James C. Ho
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