Petition for Writ of Certiorari — Rose v. Texas

In the

Supreme Court of the United States

October Term, 1987

TED ROSE,

Petitioner,

THE STATE OF TEXAS,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE TEXAS COURT OF APPEALS

FOR THE FIFTH SUPREME JUDICIAL DISTRICT,

DALLAS, TEXAS

MELVIN CARSON BRUDER

Three Forest Plaza

12221 Ment Drive

Suite 850

Dallas, Texas 75251

(214) 991-0200

Counsel for Petitioner

CASILLAS PRESS IN¢ 1717 K STREET NW WASHINGTON DC 200036 — 223-1220

ee

QUESTIONS PRESENTED FOR REVIEW

Is the Texas Securities Act unconstitutionally vague,

as applied in this case?

Were the Petitioner’s Fifth Amendment nghts

violated by the State’s use as evidence at his trial of

proof that he had committed a crime for which he

could not be convicted because of limitations?

Were the Petitioner’s Fourteenth Amendment nights

violated by the Texas Court’s refusal to apply the

Texas statute of limitation prospectively.

TABLE OF CONTENTS

Page

perms Freeemies FOF ROVIOW. .. .... 2 cece acces ccccccccevccce i

A Se a en OP iil

Opinion ee es Sw aa adeeb a XbA KO REE RRS l

EEC eee to ated adh Cave eae vceweeae 1

Constitutional and Statutory Provisions Involved.................. 2

es owas cid aceds aida aes ¥ewéwn eens 3

ee 5

Ea ee EI Se A a Y

Appendix A — Opinion of the Court of Appeals................. la

Appendix B — Denial of Petition for Discretionary Review....... 12a

TABLE OF AUTHORITIES

Cases:

Ashe v. Swensen

NN lycra yk a cdasnacccuegc@uvdaewens 9, 10

Boyce Motor Lines v. United States

gan 4h cn sods nde db wadw ace eedacee cn 6

Brown v. Ohio

eS ds A cs kn eee ond hh SNE ENWES 9

Carcatse v. Durden

EE | rr 12

City of Cleveland v. Hirsch

Ee S| 12

Colautti v. Franklin

te MN oe Ns oi ee el lk Bala be aaa 8

Commonwealth v. Patterson

344 A.2d 710 (Pa.Super.1975)............. Seer oes PP er 11

Cooper v. State

BR eB By OR ee ’ err rrr rer rr 9

Dunn v. United States

ee eT as, cna aia a Ae eA Re AND RETR 6

Gniffin Illinots

ee ss RA ae AL ARS ARS 1]

Lanzetta v. New Jersey

Ae ane es DCCs a awe aae Aen 6

Papachnstou v. City of Jacksonville

OO TES, 106 CISTI. ce a ee ee 8

Pate v. Disiinct Court of Oklahoma

ee ee 567 (Okla. Ce AOR Fes ves ens ces eden dena ese ness 11

Patrick v. Linebarger

perce 008 (Ard POF in eo eee ce hs enc cadens ce caeeues 12

People v. Zamora

By BR Ee ES ip eae my arm ere ate 12

Rose v. State

716 S.W.2d 162 (Tex.App. — Dallas 1986, pet.ref'd)......... 4,5

Ross v. Moffitt

ee gs lye ne cue e eee Eee E ee KS 1]

In re State in Interest of B.H.

es ae a aang aa ee ke he 12

State v. Fogel

Oe ee Se CO BBs we ov oats ea ena Fhe a ngewes 11

State v. Hemminger

ee Ee I 5 5 bk ood Se GLE DR a aye eae 11

State v. King

ae ee PER PUG: 5c wok oc evn eo ced ou bake vbasas ae) 1]

State v. Russell

RF oe ee RG csc ican dca wehe de dbawe Oe kab eace ee 12

Toussie v. United States

Sr ne es 11

Turner v. Arkansas

ee a ge oer ce | a ere 4 a ai leo a ue Ne )

United States v. Castro

ee ee ee a cv dn kw ok ad Be Ko we dae ee 10

Jnited States v. Day

Bp af: Bo oe 2. err anenp am ue ape npr ree 10

United States v. DiSantillo

rr ee ee I oo oa bos oc de ho eke nde aebcubeus 11

United States v. Mespoulede

ee ae Ge Ge SRO ee ok vc dns kde Scns adeauvectann 10

United States v. Mazune

ee es es so oy dice Bs’ oe SR ee dha be ae eee 6

Umited States v. Powell

ee he ok vg kk ec hk dk eda eh ae 6

United States v. Richardson

Oe We TET i ein nc adn DS we ne acon nei eds 11

Wingate v. Watnwnght

ee ee Ce ne sek OX ek bee keene 11

Constitutions:

United States, Amendment V

United States, Amendment XIV

Statutes:

Tex.Rev.Civ.Stat. art. 581-4

Tex.Rev.Civ.Stat. art. 581-29

Tex. Rev.Civ.Stat. art.581-29-1

1983 Tex.Gen.Laws ch. 465

hr

In the

Supreme Court of the United States

October Term, 1987

No.

TED ROSE,

Petitioner,

Vv.

THE STATE OF TEXAS,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE TEXAS COURT OF APPEALS

FOR THE FIFTH SUPREME JUDICIAL DISTRICT,

DALLAS, TEXAS —

Ted Rose, Petitioner, petitions for a wnt of certiorari to

review the judgment of the Texas Court of Appeals for the

Fifth Supreme Judicial District in this case.

OPINION BELOW

The opinion of the court of appeals (App. A, zfra, 1a) is

reported at 716 S.W.2d 162.

JURISDICTION

The judgment of the court of appeals was entered on 13

August 1986. App. A, imfra, 1a. A motion for rehearing was

denied without written opinion on 23 September 1986. App.

A, infra, 1a. A petition for discretionary review was refused

by the Texas Court of Criminal Appeals on 13 February 1988.

On March 15, 1988 Mr. Justice White extended the time within

which to file a petition for writ of certiorari to 12 April 1988.

App. B, infra, 1b.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1237(3).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fifth Amendment to the Constitution of the United

States provides, in relevant part:

. . .[NJor shall any person be subject for the same

offence to be twice put in jeopardy of life or limb; . . .

Section 1 of the Fourteenth Amendment to the Constitu-

tion of the United States provides, in relevant part:

.. . [NJor ‘shall any State deprive any person of

... liberty, or property, without due process of law

The Texas Securities Act (Tex.Rev.Civ.Stat. art. 581-1 et

seq.) provides in relevant part:

The terms ‘‘fraud’’ or ‘‘fraudulent practice’’ shall

include . . . any intentional failure to disclose a

material fact. . .

Art. 581-4(F); and

Any person who shall:

* * *

In connection with the sale, [or] offering for sale

... Of... any security . . . directly or indirectly

. . . engage in any fraud or fraudulent practice. . .

is guilty of a felony and upon conviction shall be im-

prisoned for not less than 2 nor more than 10 years,

fined not more than $5,000.00. or both.

Art. 581-29(c)(in effect in 1985).

STATEMENT OF THE CASE

The Petitioner was president of First Texas Petroleum, Inc.

(First Texas), a company that engaged in oil and gas produc-

tion. In November 1980, First Texas formed the Archer No.

1 Limited, a limited partnership with five investors that was

organized to drill oil wells. In January 1981, First Texas, act-

ing as the general partner of Archer No. 1 Limited, obtained

a bank loan that was secured by a conveyance of the leasehold

interest and drilling equipment owned by the Archer No. 1

Limited.

On 5 November 1981, Dr. Popkess purchased one of the

five limited partnership interests in Archer No. 1 Limited from

one of the original investors. Dr. Popkess testified that at the

time he made such purchase he had not been told that the

leasehold interest and drilling equipment owned by the part-

nership had been pledged as collateral for a bank loan.

In mid-1982 payments on the bank loan ceased, and the bank

foreclosed on Archer No. 1 Limited.

On 28 June 1985, a Dallas County grand jury indicted the

Petitioner upon four counts of Texas Securities Act violations,

all involving Dr. Popkess’ purchase of an interest in the

Archer No. 1 Limited. A jury convicted the Petitioner of

securities fraud for intentionally failing to disclose to Dr.

Popkess a material fact, to-wit: that the leasehold and equip-

ment owned by Archer No. 1 Limited had been pledged as

collateral to secure a bank loan.

The constitutionality of the statute

At the trial level and on appeal, the Petitioner challenged

the constitutionality of article 581-29(C) on the grounds that

it was vague and overly broad, as applied in this case, because

the use of the statutory definition of ‘‘fraud’’ resulted in a

failure to give the Petitioner fair notice that his conduct violated

the statute.! The Court of Appeals concluded that article

581-29(C((1) was not unconstitutionally vague because

‘‘(vjiewed in light of common understanding and practices in

selling securities, any seller of securities would be ‘well aware’

that the existence of a mortgage is a material fact which should

be disclosed.’’ Rose v. State, supra, 716 S.W.2d at 167, App.

A. pp. 8a-9a.

Extraneous offense

Prior to trial, the Petitioner challenged the trial court’s

jurisdiction to act in this case on the ground that prosecution

of the Petitioner was barred by the applicable statute of limita-

tion. See note 1, supra. Such challenges were uniformly

overruled.

In his Petition for Discretionary Review filed with the Court

of Appeals, the Petitioner argued that the prosecution’s

proof that he committed an offense for which a conviction was

barred by limitation, violated his rights under the Fifth Amend-

See Defendaht's Motion to Set Aside Indictment and Defendant's Se- |

cond Motion to fe Aside Indictment, Vol. 1, Record on Appeal, pp. 15-21,

each of which were denied by the tnal court.

ment. Petition for Discretionary Review 10-11. The Court of

Appeals did not respond to the argument.

Limitation

Prior to 1 September 1983, the period of limitations ap-

plicable to Securities Act cases was three years. On that date,

the Texas Legislature enacted Tex. Rev.Civ.Stat. art. 581-29-1

creating a five-year period of limitation for violations of article

581-29(C).

The Petitioner unsuccessfully challenged the trial court's

jurisdiction in this case arguing that prosecution was barred

by the three-year statute of limitation. See note 1, supra. The

Court of Appeals concluded that the new, five-year period of

limitation applied to the Petitioner’s case, the same having

been enacted before the offense charged was barred by the

three-year limitation period. Rose v. State, supra,716 S.W.2d

at 165, App. A, p. 4a.

REASONS FOR GRANTING THE PETITION

This case presents three important questions that involve

the constitutionality.of a Texas criminal statute; whether, con-

sistent with the Fifth Amendment’s guarantee against double

jeopardy, the prosecution may use as evidence at an accus-

ed’s trial proof that he committed an offense that is barred

by limitations; and whether the application of state statutes

of limitation are subject to due process considerations, and,

if so, whether the Texas court has properly construed and

applied an applicable statute of limitations in this case.

Constitutionality of the statute

The Petitioner contends that under the facts of this case the

definition of ‘‘fraud’’ contained in the Texas Securities Act

is so vague and overbroad as to render the resulting convic-

tion unconstitutional. He argues here, as he did below, that

the statutory definition of fraud used in this case, viz., an in-

tentional failure to disclose a material fact, failed to furnish

a person of ordinary intelligence with sufficient notice, as re-

quired by the Fourteenth Amendment, and permitted his con-

viction for conduct which, under the existing facts, lacked the

type of culpability normally required in criminal statutes.

‘It is well established that vagueness challenges to statutes

that do not involve First Amendment freedoms must be ex-

amined in light of the fact of the case at hand.’’ United States

v. Mazur, 419 U.S. 544, 550 (1975). To pass constitutional

muster, it is essential that the law give fair notice to the in-

dividual that the conduct for which stands convicted offends

the statute so that he may, by reading the statute, conform

his conduct to the requirement of the law. Lanzetta v. New

Jersey, 306 U.S. 451, 453 (1939). Mathematical precision with

respect to the language used in the statute is not required;

it is only necessary that the language of the statute give suffi-

cient notice of the required conduct to permit one who would

avoid its penalties to do so, and to guide judges in applying

it and the lawyer in defending one charged with its violation.

United States v. Powell, 423 U.S. 87, 94 (1975); Boyce Motor

Lines v. United States, 342 U.S. 337, 340 (1952). The ultimate

question in such cases is whether, under the facts, the law pro-

vides clear notice of a reasonably ascertainable standard of

conduct required of the accused, or whether an individual is

forced to speculate, at peril of conviction, whether his con-

duct is prohibited. Dunn v. United States, 442 U.S. 100, 113

(1979).

——————————e

The conduct for which the Petitioner was convicted, as set

out in the indictment, is intentionally and knowingly failing to

disclose a material fact during the course of a sale of a securi-

ty for the purpose of inducing the sale of the security. The

evidence established that Dr. Popkess purchased his interest

in Archer No. 1 Limited from a third person, not from the

Petitioner. It was also shown that before that purchase was

consummated, the Petitioner did not advise Dr. Popkess that

the assets of Archer No. 1 Limited had been pledged to secure

a bank loan. Dr. Popkess testified that such pledge was a

‘‘material fact’’ as far as he was concerned because had he

known of the pledge he would not have purchased the Ar-

cher No. 1 Limited interest.

Against this factual backdrop, the trial court instructed the

jury inter alia as follows:

The term “‘fraud’’ or “‘fraudulent practice’’ means

any intentional failure to disclose a material fact.

A material fact is one that a reasonable man would

attach importance to in determining his choice of ac-

tion in the transaction in question. In the terms of

this case, a material fact is one that a reasonable man

would deem important in determining whether or not

to purchase the security.

Record on Appeal, vol. 1, p. 119. Thus, by these instructions,

the jury was permitted to convict the Petitioner of fraud

because he failed to disclose to Dr. Popkess, with whom he

had no contractual relationship at the time, the existence of

the pledge of Archer No. 1 Limited’s assets, which had been

filed and made a public record. In permitting the Petitioner’s

conviction under these facts, without requiring proof of a rela-

tionship between the Petitioner and Dr. Popkess or the ex-

istence of duty on the Petitioner’s part to make the disclosures

required by the trial court’s instructions, the lower court er-

roneously upheld as valid a statute that proscribes indefinite

and unforseeable conduct inasmuch as no reasonable man can

predict to whom and when he may owe a duty of disclosure

absent a relationship of some sort with the person to whom

the duty is owed. Statutes are void for vagueness when they

fail to define conduct in sufficiently specific terms so that an

individual can, by conforming his conduct to what the law re-

quires, guard or protect himself against violating the statute.

Where a statute’s definition of a crime depends upon the sub-

jective belief of a third person formulated after all relevant

events have occurred, the statute is void for vagueness

under the Fourteenth Amendment. Papachnstou v. City of

Jacksonville, 405 U.S. 156 (1972). That is precisely what re-

sulted by the application of the Texas Securities Act to the

facts of this case.

The conclusion reached by the Court of Appeals was skew-

ed by an improper analysis of the issue. Contrary to the lower

court’s analysis, the question is not whether the statute's use

of ‘‘material fact’’ as a basis for criminal liability is, standing

alone, sufficient to furnish constitutional notice; rather, the

test is whether the Petitioner was duty-bound under the facts

of this case to take any action, irrespective of whether the

pledge of the Archer No. 1 Limited assets was a ‘‘material

fact.’’ Only a failure to act when action is necessary can be

made criminal, since the absence of a duty to act negates the

existence of a culpable mental state . Colautti_v. Franklin,

439 U.S. 379, 395 (1979). Moreover, the lower court failed

to properly assess the statute’s use of ‘‘material fact’’ as a

basis for satisfying the constitutional requirement of notice.

Not surprisingly, the lower court concedes, as it must, that

the term ‘‘material fact’’ has no certainty. The question then

is whether, in the context of this case, that term adequately

furnished notice to the Petitioner. To hold, as did the Court

of Appeals, that facts are ‘‘material’’ whenever an aggrieved

person testifies, after the criminative conduct is complete, (a)

they are material or (b) that he would not have acted had he

known what was not disclosed, does not furnish any notice.

Such a standard is clearly at odds with the requirement that

a criminal statute must clearly forbid some specific or definite

act or course of conduct about which one need not guess or

speculate in order to avoid its consequences. United States

v. Cohen Grocery Co., 255 U.S. 81, 89 (1921).

Extraneous offense

Count 1 of the indictment in this case charged the Petitioner

with engaging in the business of being a securities dealer

without being registered, a violation of § 581-29(A) of the

Texas Securities Act. At the time the indictment was return-

ed, prosecution of the Petitioner for the alleged violation of

that section was barred by limitation, there being no allega-

tion tolling the statute of limitations. His right to be free

from prosecution upon this count was completed. Thus, the

Petitioner stood in the same position as one acquitted of the

offense as regards his criminal liability for the offense charg-

ed in Count 1.

Ashe v. Swenson, 397 U.S. 436 (1970), protects an accus-

ed against having to defend himself against charges a second

time. Where an issue of ultimate fact has been tried and resolv-

ed between the parties, that issue is not open to relitigation.

That doctrine has been applied not only where the state seeks

to reprosecute an individual following an acquittal, Brown v.

Ohio, 432 U.S. 161 (1977); Turner v. Arkansas, 407 U.S. 366

(1971), but also where the prosecution seeks to use acts of

prior misconduct as evidence at his trial on another offense,

“The general three-year statute of limitations applies to all Securities

Act violations, except the violations defined in § 581-29(C). Cooper v. State,

527 S.W.2d 563, 565 (Tex.Cr.App.1975).

10

United States v. Castro, 629 F.2d 456 (6th Cir.1980); United

States v. Mespoulede, 597 F.2d 329 (2d Cir.1979); United States

v. Day, 591 F.2d 861 (D.C.Cir.1978); Wingate v. Wainwright,

464 F.2d 209 (5th Cir.1972).

The rationale of Ashe and its progeny apply in cases such

as this where an accused cannot legally be convicted of an of-

fense which the prosecution uses as evidence against him at

his trial. True, there has been no resolution of any ultimate

issue of fact in favor of the Petitioner in this case; however,

the legal effect of the statute of limitations, which is to bar

any prosecution of the accused, furnishes the basis for the

same result called for by the Fifth Amendment and Ashe by

precluding any possible conviction. As noted by the Court of

Appeals in Wingate, ‘‘there is no meaningful difference in the

quality of ‘jeopardy’ ’’ to which the Petitioner is subject when

the state uses against him evidence that he committed a crime

which the statute is barred from proving. See Wingate v. Wain-

wnght, supra, 464 F.2d at 213.

Because the Petitioner was subjected to proof at his trial

that he committed a crime for which he could not legally be

tried and convicted, his rights under the Fifth Amendment

were abridged. Given the jury’s expressed desire to convict

him of all counts, despite the trial court’s instructions that it

could not do so, and the jury’s assessment of a lengthy sen-

tence and maximum fine in a case where the Petitioner was

eligible for probation, it cannot be concluded that the error

allowing proof of the extraneous offense barred by limitation

was harmless. Certiorari should be granted to allow for a deci-

sion of this issue.

11

Limitation

Statutes of limitation are uniformly viewed as acts of grace

and amnesty, subject to the will of the legislature. Thus they

may be changed or repealed without violating constitutional

prohibitions. However, like any state-created night, statutes

of limitation are subject to the requirement that, once adopted,

they must be applied even-handedly, consistent with the re-

quirements of due process. See, e.g., Ross v. Moffitt, 417

U.S. 600 (1974), and Griffin v. Illinots, 351 U.S. 12 (1956),

reaffirming that while the states are not constitutionally re-

quired to provide appeals in criminal cases, appellate pro-

ceedings created under state law must be furnished in a man-

ner consistent with the demands of the Due Process Clause

of the Fourteenth Amendment.

Even though they are acts of grace, statutes of limitation

are fundamentally important because they balance an individ-

ual’s exposure to prosecution upon charges after basic facts

have become stale against society’s need for time to in-

vestigate and prosecute, Toussie v. United States, 397 U.S.

112, 114-115 (1970); United States v. DiSantillo, 615 F.2d 128

(3rd Cir. 1980); Pate v. District Court of Oklahoma, 414 P.2d

567 (Okla.Cr.App.1966), and serve a purpose co-extensive

with the right to a speedy trial. Statutes of limitation on criminal

prosecutions are ‘“‘to be liberally interpreted in favor of

repose,’ Toussie v. United States, supra; State v. Fogel, 492

P.2d 742 (Ariz.App.1972); State v. King, 275 So.2d 274

(Fla.App.1973); Commonwealth v. Patterson, 344 A.2d 710

(Pa.Super.1975), such that a presumption is indulged against

retroactive application. United States v. Richardson, 393

F.Supp. 83 (D.C.Pa.1974), aff'd 512 F.2d 105 (3rd Cir.1975);

State v. Hemminger, 502 P.2d 791 (Kan.1972).

Virtually every court called upon to address the issue has

concluded that statutes of limitation vest substantive rights, -

12

People v. Zamora, 557 P.2d 75 (Cal.1976); Carcaise v. Durden,

382 So.2d 1236 (Fla.1980); In re State in Interest of B.H.,

270 A.2d 72 (N.J.1970); City of Cleveland v. Hirsch, 268

N.E.2d 600 (Ohio App.1971), which cannot be changed by

retroactive application of legislation, Patrick v. Linebarger, 576

S.W.2d 191 (Ark.1979); State v. Russell, 617 P.2d 84 (Hawaii

1980).

The Court of Appeals ignored all of the generally accepted

principles stated above when it concluded that the 1983 amend-

ment to the Texas Securities Act applied retroactively and thus

did not bar the Petitioner’s prosecution under § 581-29(C).

It also ignored the Texas Legislature’s clear expression that

the five-year statute of limitations should not apply to the Peti-

tioner.* The intent of the Texas Legislature expressed in the

1983 amendment of the Texas Securities Act was to follow

the generally accepted practice of having the new statute of

limitations apply prospectively.

The Texas Legislature was not obliged to enact a statute

of limitations applicable to the Texas Securities Act; but, having

done so, the Texas courts are obliged to apply that law even-

handedly, consistent with the requirement of the Fourteenth

Amendment. Past decisions regarding the application of stat-

utes of limitation in Texas have consistently followed the

’The 1983 act amending the Texas Securities Act contains the follow-

ing recitations:

(b) The amendments that this Act makes to Subsection be

Section 29, the Securities Act, as amended. . . apply only

to an offense committed on or after September 1, 1983.

(d) A proceeding in which . . . an offense committed before

September 1, 1983, . . . is governed by the law in effect at

the time of the . . . offense, and that law is continued in effect

for that purpose.

1983 Tex.Gen.Laws, ch. 465.

13

general practice of holding changes in those laws to apply pro-

spectively only. The failure of the Court of Appeals to do just

that is error of constitutional dimension. What is at issue here

is not merely an interpretation of state law by a state court;

rather, this question involves the obligation of a state court

to apply state-conferred rights in a manner consistent with

the requirements of the federal consitution.

A writ of certiorari should issue in this case to allow for

review of whether the Texas Court of Appeals violated the

Petitioner’s rights under the Fourteenth Amendment by ap-

plying the newly enacted statute of limitations retroactivley.

PRAYER

For the reasons stated above, the Petitioner prays that this

Court issue a writ of certiorari to review the judgment of the

Texas Court of Appeals in this case, and to correct the er-

rors in that court’s opinion issued in this case.

Respectfully submitted,

MELVYN CARSON BRUDER

Three Forest Plaza

12221 Merit Drive

Suite 850

Dallas, Texas 75251

(214) 991-0200

Counsel for Petitioner

la

APPENDIX A

Ted A. ROSE, Appellant,

¥

The STATE OF TEXAS, Appellee.

No. 05-85-00849-CR

Court of Appeals of Texas

Dallas

Aug. 13, 1986

Rehearing Denied Sept. 23, 1986

Nathan K. Griffin, Dallas, for appellant.

Kathi Alyce Drew, Asst. Dist. Atty., Dallas, for appellee.

Before AKIN, SCALES and CARVER,! JJ.

AKIN, Justice

Ted A. Rose appeals his conviction for securities fraud for

which he was sentenced to seven-and-one-half years’ confine-

ment in the Texas Department of Corrections and a five thou-

sand dollar fine. For the reasons below, we affirm the

conviction.

Appellant was President of First Texas Petroleum, Inc., a

small oil and gas company. As president of the company, he

entered into numerous limited partnership agreements for the

purpose of drilling for oil and re-working existing oil and gas

wells. In November of 1980, appellant put together a limited

partnership called the Archer No. 1 Limited, in Archer Coun-

‘The Honorable Spencer Carver, Justice, retired, Court of Ap-

peals, Fifth District of Texas at Dallas, sitting by assignment.

2a

ty, Texas. Five investors put up letters of credit for their in-

itial limited partnership investment.

Appellant, as president of First Texas Petroleum, Inc., (the

general partner in the Archer limited partnership), obtained

a loan from First Wichita National Bank. As security for the

loan, appellant executed (in September of 1981) a Deed of

Trust conveying the leasehold interest in Archer and also fil-

ed a UCC-1 financing statement for the drilling equipment.

On November 5, 1981, Dr. Popkess, the complainant, pur-

chased one of the five original limited partnership interests

in Archer. There is evidence that appellant failed to disclose

the deed of trust and financing statement to Dr. Popkess. Six

months later, appellant stopped making payments on the loan,

and the bank foreclosed on Archer No. 1 Limited.

Appellant was indicted on four counts of securities fraud

under the State Securities Act,? as it existed prior to its 1983

amendment. The jury found appellant guilty of fraud on count

number two for intentionally and knowingly failing to disclose

a material fact, under article 581-29(C).

Statute of Limitations

Appellant contends in his first and second grounds of error

that the indictment was fundamentally defective because it was

not presented within three years of the commission of the of-

fense. We cannot agree.

The offense occurred on November 5, 1981. At that time,

the applicable statute of limitations was three years. See TEX.

CODE CRIM.PROC.ANN. art. 12.01(4) (Vernon 1977).

Before the three year limitations expired for appellant’s of-

“All citations are to the Securities Act, TEX. REV. CIV.

STAT. ANN. arts. 581-1 to 581-39 (Vernon 1964) and (Vernon

Supp. 1986), unless otherwise indicated.

3a

fense, the Legislature amended article 581 by adding sectin

29-1, extending the limitations period to five years, effective |

September 1, 1983. Securities-Regulation State Securities

Board, and Securities Commissioner-Miscellaneous Provision,

ch. 465 § 1, 1983 Tex.Gen.Laws 2710. The State then in-

dicted appellant under four counts for violations of article

581-29(A) and (C) cn September 21, 1984. Because this first

indictment was defective for other reasons, the State rein-

dicted appellant on June 28, 1985. The State proceeded to

trial on the second indictment, which was presented three-

and-one-half years after the offense.

Appellant argues that the three-year statute of limitations

applies rather than the five year period. Consequently, he con-

tends that, because the second indictment did not allege toll-

ing under the first indictment, the State was barred by the

three-year statute of limitations and thus the indictment was

fundamentally defective. We disagree because we hold that

the five-year limitation period applies in this case.

When enacted, statutes of limitations are construed as be-

ing acts of grace and as a surrender by the sovereign of its

rights to prosecute at its discretion; they are considered acts

of amnesty. Vazquez v. State, 557 S.W.2d 779, 781 (Tex.Crim.

App.1977). Statutes of limitations, being measures of public

policy only, are entirely subject to the will of the Legislature

and may be changed or repealed without violating constitu-

tional prohibitions against ex post facto laws in any case where

the right to acquittal has not been absolutely established by

lapse of the period of limitation. /d. at 782. Where a complete

defense has accrued under a statute of limitations, it cannot

be taken away by subsequent repeal or amendment; however,

a statute extending the period of limitations applies to all of-

fenses not barred at the time of the passage of the act, so

that the prosecution may be commenced at any time within

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the newly established period, although the old period of limita-

tion has expired. Archer v. State, 577 S.W.2d 244 (Tex.

Crim.App.1979). Here, the three-year limitation period had

not expired prior to the passage of the 1983 amendment.

Therefore, the five-year-limitation period is applicable, and the

second indictment was timely presented.

Appellant contends that the 1983 amendments to the Secu-

rities Act specifically state that the five-year limitation period

applies only to those offenses committed after the effective

date of the amendment. He cites section 7 of the 1983

amendments:

(b) The amendments that this Act makes to

Subsection C, Section 29, the Securities Act, as

amended, apply only to an offense committed on or

after September 1, 1983.

ch. 465 § 7, 1983 Tex.Gen.Laws 2717. We do not read this

language as applying the five-year limitation period prospec-

tively. Instead, this language refers to the amendments to ar-

ticle 581-29(C), which extend the minimum prison term and

fines for a conviction under section 29(C). Section 7 of the

amendments merely restates that substantive law may not be

modified and applied ex post facto. In this respect, section

7 does not specifically refer to section 29-1, which was added

to the Securities Act in the 1983 amendments and which ex-

tends the limitations period from three to five years. Section

29-1 is procedural in nature, as distinguished from the amend-

ments to section 29(C), and, therefore, may be applied to of-

fenses occurring before the effective date of the amendments.

Under Archer and Vasquez the section 29-1 limitations are ap-

plicable to this case. Consequently, we hold that the second

indictment was not barred by limitation and that the indict-

ment was not fundamentally defective. Accordingly, we over-

rule appellant’s first and second grounds of error.

Sa

Constructive Notice

In four grounds of error, appellant asserts that the evidence

adduced at trial was insufficient to support his conviction. Spe-

cifically, he argues that because the deed of trust and UCC-1

statement were filed in the public records of Archer County,

Texas, Dr. Popkess had constructive notice of the fact that

appellant had previously secured a loan from the First Wichita

National Bank against the Archer No. 1 Ltd. oil and gas lease.

He contends that this ‘‘constructive notice’’ effectively negates

his intent to commit fraud, thereby rendering the evidence

of his guilt insufficient. We disagree.

We hold that the doctrine of constructive notice, as it ap-

plies to real property records, is inapplicable in criminal se-

curities fraud cases. That doctrine goes only to the validity

of a deed and operates against one seeking to challenge the

validity of that deed. The rule is primarily applicable to a credi-

tor seeking to have a conveyance set aside, see Perry v. Brown,

76 S.W.2d 230 (Tex.Civ.App.—Waco 1934, no writ), and to

a purchaser of realty under a deed conveying land, see Farmer's

Mutual Royalty Syndicate v. Isaacks, 138 S.W.2d 228, 231

(Tex.Civ.App.—Amarillo 1940, no writ), and would run to

subsequent claims threatening the chain of title to that land.

It does not apply to one, charged with a duty to disclose ma-

terial facts, who fails to perform that duty.

In support of his contention, appellant relies upon cases

holding that oil and gas leases are not securities but rather

are interests in real estate. Allen v. Sorenson, 388 S.W.2d

757, 759 (Tex.Civ.App.—Beaumont 1965, writ ref’d n.r.e.);

Culver v. Cockturn, 127 S.W.2d 328, 330 (Tex.Civ.App.—

Galveston, 1939, writ dism’d). Appellant’s reliance is mis-

placed. These cases relate to the purchase and sale of the lease

itself and are distinguishable from those cases holding that an

6a

assignment of an oil and gas lease constitutes a security sub-

ject to the Texas Securities Act. Herren v. Hollinsworth, 140

Tex. 263, 167 S.W.2d 735, 738 (1943); Kadane v. Clark, 135

Tex. 496, 143 S.W.2d 197, 199 (1940); Muse v. State, 137

Tex.Crim. 622, 132 S.W.2d 596, 597 (1939); see also Howard

v. Simmons, 285 S.W.2d 478, 480 (Tex.Civ.App.—Dallas

1955, writ ref’d n.r.e.).

Moreover, even if it can be said that the doctrine of con-

structive notice could be applied to bar recovery by Dr. Pop-

kess in a civil action, the doctrine cannot be said to extend

to the State in a criminal prosecution. The State is not seek-

ing to recover damages, title, or any form of injunctive relief.

Rather, the State is seeking to protect the public. See Kadane,

143 S.W.2d at 199; see also Enntex Oil & Gas Co. (of Nevada)

v. State, 560 S.W.2d 494, 497 (Tex.Civ.App.—Texarkana

1977, writ ref’d n.r.e.). The doctrine of constructive notice

was not.intended to bar the State from showing fraud in the

sale of securities.

Finally, we hold that the evidence was sufficient to show

an intent to commit fraud by knowingly and intentionally fail-

ing to disclose a material fact. Appellant, acting through First

Texas Petroleum, Inc., obtained the bank loan, secured by

a mortgage on the leasehold and a UCC-1 filing on the equip-

ment after he had sold the initial limited partnership interests.

None of the original five investors were informed of these en-

cumbrances. One investor testified that appellant never in-

formed him as to the mortgage and UCC-1 filing and that he

would have wanted to know this information. Dr. Popkess tes-

tified that appellant did not disclose the mortgage or UCC-1

encumbrances to him, that he would have wanted to know

this information, and that he would not have invested had he

known of these encumbrances. From this evidence and from

the surrounding circumstances, the jury could reasonably in-

7a

fer intent to commit fraud. See Pinkerton v. State, 660S.W.2d

58, 60 (Tex.Crim.App. 1983); Jones v. State, 687 S.W.2d 430,

432 (Tex. App.—Houston [14th Dist.] 1985, no pet.). Accor-

dingly, we overrule appellant’s third, fourth, fifth, and sixth

grounds of error.

Unconstitutionality of the Statute

Appellant contends in his seventh ground of error that the

trial court erred in denying his motion for an instructed ver-

dict because article 581-4(F) is vague and overbroad in viola-

tion of article 1, section 19 of the Texas Constitution. Appellant

was indicted and convicted under article 581-29(C)(1) which

makes the act of engaging in ‘‘fraud’’ illegal. ‘‘Fraud,’’ as defin-

ed in article 581-4(F), includes an ‘‘intentional failure to disclose

a material fact.’ We hold that article 581-29(C)(1) as it ap-

plies the definition of ‘‘fraud’’ in article 581-4(F) is not un-

constitutionally vague or overbroad.

In determining vagueness challenges to statutes which do

not concern First Amendment freedoms, we must examine

the statute in light of the facts of the case at hand. U.S. v.

Powell, 423 U.S. 87, 92, 96 S.Ct. 316, 319, 46 L.Ed.2d 228

(1975). It is not a proper basis for finding a statute unconstitu-

tionally vague that the statute could have been written more

definitely or precisely. Jd. at 94, 96 S.Ct. at 320; U.S. v.

Petrillo, 332 U.S. 1, 7, 67 S.Ct. 1538, 1541, 91 L.Ed. 1877

(1947). Instead, the language used must only ‘‘[mark] boun-

daries sufficiently distinct for judges and juries fairly to ad-

minister the law in accordance with the will of the [legisla-

ture].’’ Petrillo, 332 U.S. at 7, 67 S.Ct. at 1541. Thus, there

may be some ‘‘element of degree in the definition as to which

estimates might differ . . . for reasons found to result either

from the text of the statutes involved or the subjects with

8a

which they dealt.’’ Connally v. General Const. Co., 269 U.S.

385, 391-92, 46 S.Ct. 126, 127-28, 70 L.Ed. 322 (1926). Thus,

in our review of the use of ‘‘material fact’’ in this case, we

need not require absolute certainty of the meaning of the words

used. Rather, we must see if a person of ordinary intelligence

would have fair notice that the conduct in this case would be

forbidden by the statute. Papachnistou v. City of Jacksonville,

405 U.S. 156, 162, 92 S.Ct. 839, 843, 31 L.Ed.2d 110 (1972).

We have previously held article 581-29(C)(1) to be constitu-

tional in a case concerning an omission to disclose a material

fact. Huett v. State, 672 S.W.2d 533, 540 (Tex.App.—Dallas

1984, pet. ref’d). See also Morgan v. State, 557 S.W.2d 512,

914 (Tex.Crim.App.1977). In Huett we held that, viewed

in light of the circumstances of that case, the term ‘‘material

fact’’ was not unconstitutionally vague. Huett, 672 S.W.2d at

539. In Huett, the defendant seller of securities failed to dis-

close three prior felony theft convictions, all of which were

pending on appeal. Furthermore, the defendant was the senior

executive officer in charge of the corporation whose stock was

being offered for sale. We held there that, viewed in light of

common understanding and practices in selling securities, any

seller of securities would ‘‘be well aware’’ that the convic-

tions were material facts which should be disclosed. Huett is

controlling here.

In this case, appellant failed to disclose that the oil and gas

lease was mortgaged and that the equipment on the lease was

secured by a UCC-1 filing. Dr. Popkess testified that this in-

formation was something that he would have wanted to know

before he invested in the limited partnership. Further, the doc-

tor testified that he would not have invested had he known

of the mortgage on the property. Indeed, any investor would

have wanted to know the existence of the mortgage. Viewed

in light of common understanding and practices in selling

| ai

9a

securities, any seller of securities would ‘‘be well aware’’ that

the existence of a mortgage is a material fact which should

be disclosed. Accordingly,we over-rule appellant’s seventh

ground of error.

Admission of Evidence

Appellant contends in his eighth and ninth points of error

that the trial court abused its discretion in admitting certain

State’s exhibits and in admitting the expert testimony of Ken-

neth Huff because the exhibits and testimony were not rele-

vant or material to any fact in issue, and the prejudicial nature

of the evidence outweighed their probative value.

With respect to the expert testimony, generally opinion tes-

timony is inadmissible. But if the jurors are not competent

to infer, without the aid of greater skill than their own, the

probable existence of the facts to be determined from other

facts actually proved, expert opinion evidence is rendered ad-

missible. Holloway v. State, 613 S.W.2d 497, 500 (Tex.Crim.

App.1981). Admission of an expert’s opinion is dependent on

the offering party’s showing that the testimony is appropriate

because of the unfamiliarity of jurors with a body of expertise

relevant to the resolution of the litigation. /d. at 502.

Here, Kenneth Huff, Chief of Staff Services for the State

of Texas Securities Board in Austin, was called as a witness

for the State. Huff was asked to analyze some of appellant's

business and banking records. His testimony summarized

banking transactions from 1980 to 1982, in order to show the

misapplication and commingling of funds, testimony relative

to counts three and four of the indictment. Huff also express-

ed, in his opinion as an expert, that appellant was engaged

in a ‘‘Ponzi scheme.’’ Considering the complex financial tran-

10a

sactions involved, we hold that the trial court did not abuse

its discretion in admitting Huff’s testimony.

Appellant next contends that the exhibits and Huff’s tes-

timony were inadmissible as an attempt to show extraneous

offenses not alleged in the indictment. He also argues that

several exhibits were admitted with no testimony or explana-

tion as to their relevance. We cannot agree. Extraneous of-

fenses are admissible if shown to be relevant to a material issue

in the case and if that relevancy value outweighs its prejudicial

effect. Moreno v. State, No. 69, 268, May 28, 1986 (Tex.Crim.

App.1986) (not yet reported). These conditions need not be

met if the extraneous offense is part of a continuous episode

or so closely interwoven with the offense being tried. In this

situation the extraneous offense is admissible on the ground

that the jury is entitled to know all of the relevant surround-

ing circumstances of the charged offense. Mitchell v. State,

650 S.W.2d 801, 811 (Tex.Crim.App.1983).

We now turn to the exhibits admitted over objection. All

of the exhibits complained of were used to aid Huff in his

testimony concerning appellant’s intricate banking transactions,

even though not all documents were specifically referred to

by Huff during his testimony. The tenor of Huff’s testimony

was to show a unique pattern of the flow of deposits and with-

drawals from appellant’s bank accounts revealing commingling

and misapplication of investors’ funds. Thus, these exhibits

which show extraneous offenses were admissible because they

show the surrounding circumstances of the offense charged

and they are a part of a continuing episode of conduct. Con-

sequently, no error is presented.

Furthermore, the admission of Huff’s testimony and the ad-

mission of the documents even if error is not reversible er-

lla

ror. In determining harmless error, the question is whether

there is a reasonable possibility that the inadmissible evidence

might have contributed to either the conviction or to the

punishment assessed. See Plante v. State, 692 S.W.2d 487,

495 (Tex.Crim.App.1985). Neither the admission of Huff's

testimony, nor the exhibits attendant thereto, contributed to

the conviction because appellant was not convicted under the

counts of commingling or misapplication of funds. Rather, ap-

pellant was convicted for failure to disclose the mortgage on

the Archer #1 property to Dr. Popkess. In the latter respect,

there was direct evidence of appellant’s guilt in that both the

existence of the mortgage and the failure to disclose the ex-

istence of the mortgage was shown, which was a material fact

to Dr. Popkess. Since Huff’s testimony and the exhibits did

not relate to the existence of the mortgage or to the failure

to disclose the mortage as an inducement to invest in the

security, it cannot be said that there was a reasonable possibili-

ty that any of this evidence contributed to the conviction or

to the punishment assessed so as to be harmful. Accordingly,

we overrule appellant’s eighth and ninth grounds of error.

Affirm.

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