PEOPLE v. HEDDERLY.*
Defendant, William D. Hedderly, was convicted of ten counts of grand theft. He waived a jury and was tried by the court.
Defendant was an agent of Pacific Mutual Life Insurance Company. He was convicted of taking $22,140 that had been deposited by him in a bank to pay insurance premiumes to the insurance company.
Proceedings were suspended as to Counts 1 through 10 of the amended indictment and defendant was granted probation, on condition that he spend six months in the county jail, and make restitution. He appeals from an order denying his motion for a new trial, and from the judgment of conviction.
One major defense has been emphasized and asserted by defendant at every stage in these proceedings: that there is a material variance between the indictment and the proof in the case.
The indictment charges the unlawful taking of money belonging to Pacific Mutual. Defendant contends that the money did not belong to that company.
To understand this defense it is necessary to set forth the relations of defendant, the insurance company, and the persons insured.
Defendant specialized in group insurance, particularly for trade associations. Associated Plumbing Contractors of California desired to secure health, accident, and other insurance, for plumbers employed by members of that association. So arrangements were made for the insurance company to carry the risk, and for the plumbers and members of the association to contribute moneys to pay the premiums therefor.
A trust was set up by indenture, appointing trustees to collect the premium money, and to pay it to the insurance company.
It was agreed among the insurance company, the groups, and defendant that defendant would collect the money, do the clerical work, billing, and general administrative work for trustees of several such groups.
The shortage here involved was in money collected by defendant from the Associated Plumbers group and from the Western States Meat Packers Association, and deposited by defendant in a trustee account in Crocker First National Bank of San Francisco.
It was agreed between defendant and the insurance company that he would be paid 5% for his services in writing the insurance, and 3% more for his services in collecting the premium money.
So, argues the defendant, under the facts in this case he cannot possibly be guilty of grand theft because:
(a) The offense, if any, was embezzlement. An indispensable element of embezzlement is that the person defrauded must have been the owner of, and have title to, the property involved, and
(b) Title to the money here in question was in the trustees for the groups insured and was not in the insurance company at all.
This contention is untenable for the following reasons:
Defendant was entrusted with, and had under his control property belonging to the insurance company, within the meaning of Section 506 of the Penal Code. This section provides that every person who fraudulently appropriates property of another to any use or purpose not in the due and lawful execution of his trust is guilty of embezzlement. Section 506a declares that every such person who collects money shall be deemed to be an agent for the person for whom he collects it.
Section 1730 of the Insurance Code provides that all funds received by any person acting as an insurance agent, broker, or solicitor, life agent of any type, are held by such person in his fiduciary capacity. ‘Any such person who diverts or appropriates such fiduciary funds to his own use is guilty of theft and punishable for theft as provided by law.’ The signature card of the trustee account, over defendant's signature, recited: ‘The above account is maintained under the provisions of Section 1730 of the Insurance Code of California.’
A similar contention was made in People v. Applegate, 91 Cal.App.2d 163, 204 P.2d 689. In that case it is said:
‘The main point here raised, i. e., that the inforamtion was defective because the evidence showed that ownership of the money placed in defendant's hands was in the landowners rather than the Association, appears to us to be more technical than real. * * * (91 Cal.App.2d at page 171, 204 P.2d at page 694.)
‘It is conceded that the property here involved (the money) was not owned by defendant or his Corporation. He did not have title thereto. He merely held it as a trustee as between the owners and the Association. * * * (91 Cal.App.2d at page 172, 204 P.2d at page 694.)
‘In People v. Gallagher, 100 Cal. 466, 35 P. 80, the court sustained a conviction for embezzlement where the money converted had never been in the possession of the person having legal title. In People v. Treadwell, 69 Cal. 226, 10 P. 502, 509, it was held that an endorser of a note who turned it over for collection still had an interest in it sufficient to sustain an averment of an ownership on a charge of embezzlement. Then follows the conclusion that ‘Any legally recognizable interest in property is sufficient for that purpose.’ In People v. Torp, 40 Cal.App.2d 187, 104 P.2d 542, money was given by one Austin to defendant Torp, an attorney, to pay over to one Gaine for the purchase of certain property. Defendant delivered to Austin a deed executed by Gaine and appropriated the money received therefor to his own use. The information did not allege whose money it was. Defendant there raised the same point as here indicated and argued that it was necessary to establish legal title to the money which was paid by Austin to Torp. The court there held that the evidence showed that defendant held the money as trustee and appropriated it to his own use and not in the due and lawful execution of his trust; that the title to the property involved need not be absolute, for any ‘legally recognizable interest’ is sufficient; that to establish legal title thereto was unnecessary; that it was sufficient if the money was given to defendant by Austin and was given as a trust fund for a specific purpose; that ‘Whether the legal title to the money was in the Austins, the Gaines or Mrs. Costa, is immaterial in this criminal proceeding. As far as the defendant is concerned he had no legal title to the money and his possession was for a limited purpose only. He cannot, in defense of his act, raise the question of title as between others.’ See, also, Seavey v. State Bar, 4 Cal.2d 73, 47 P.2d 281; People v. Foss, 7 Cal.2d 669, 62 P.2d 372. * * *' 91 Cal.App.2d at pages 172, 173, 204 P.2d at pages 694, 695.
The evidence in support of the people's case is substantial and sufficient. Indeed, defendant makes no contention to the contrary. Testimony of auditors showed the amount of shortage in the trustee account. Defendant was the only person authorized to draw upon it. His conduct in destroying some of his records, and in selling his house and paying to the insurance company what he thought the shortage then was was evidence of knowledge of guilt.
The only argument defendant makes on this appeal is the same technical one of ownership of the money in the trust account. Therefore, except for one thing, the case could be left at this point with an affirmance. Let's see if we can make this clear.
The record has been examined from beginning to end, including the exhibits and the contents of the judgment roll in the Clerk's office. Some parts of the record have been gone over more than one. It presents a baffling question. What really did happen to the money defendant is charged with taking?
Defendant also collected premiums for several other groups insured with Pacific Mutual. The business grew rapidly. It was a new type of business for the insurance company.
The trial judge commented that the accounts were loosely kept, to say the least.
Defendant has insisted all the way through the case, even in his statements to the Probation Officer after his conviction, that the collection of the premiums cost him more than the 3% allowed him by the insurance company; that when he brought this situation to the attention of his superiors in the insurance company he was told time and again not to worry about that, to keep right on going, that losses in the collections would be taken care of by the insurance company; and that it was his constant practice to intermingle funds in the trust accounts of the several groups. He testified that sometimes he would put in money and sometimes he would take money out of one or more of these accounts, including the account here in question, and that the insurance company well knew at all times what he was doing. He also testified that he put back into these accounts all of his commissions received from time to time except what was required for his living and business expenses.
From the ‘feel’ of this case which the record discloses, intuition of experience that outruns analysis, this Court is of the opinion that there may be something lacking in that essential requisite in a criminal prosecution that always a defendant must be found guilty beyond all reasonable doubt.
Here we have an able, well-educated man, with a wife and three children, striving to build up a business. He spent three years in military service in the second world war as a tanker overseas. His friends believe in him. His brother offered to turn over his restaurant to help his finances. His wife wrote a letter to the Probation Officer that in terms of trust and confidence in her husband has strengthened the faith of this Court in the innate goodness and loyalty of womankind. Even the workmen, beneficiaries of the group insurance, have expressed their confidence in defendant.
Undoubtedly the trial judge and the Probation Officer felt that there were ameliorating circumstances in defendant's case. The Probation Officer recommended probation with a fine. The trial judge followed that recommendation, but with six months in the county jail. He said it didn't seem right to treat the theft of over $20,000 as lightly as the Probation Officer recommended when every day he was sending men to the penitentiary for thefts of sums trifling when compared with that amount.
Nothing in the record shows any undue diversion of money to defendant's personal use. When he bought his home he borrowed a large part of the purchase price. When he sold it at a profit, he turned the money over to the insurance company.
Defendant's iteration and reiteration of a pseudo defense when he said over and over again ‘Suppose I did take the money, I couldn't be guilty because I didn't take it from the insurance company?’ tended to obscure what may be a real defense. No one who listens to that kind of a defense can have much sympathy for the man who makes it. It is like one who has lost the focus of truth, and sees all things out of perspective.
It has always been the law of embezzlement that intent to convert property to the use of the person charged with the taking is essential. In one of the first definitions of embezzlement by our Supreme Court in California, in Ex parte Hedley, 31 Cal. 108, it is said that a defendant charged with embezzlement ‘must convert the money to his own use, with the intent to steal and embezzle it.’
Therefore, it was error for the trial court to sustain objections to evidence offered by defendant as to what was done in collecting premium money of other insurance groups that he was taking care of for the insurance company; to narrow the issues to the one trustee account of the two groups already mentioned.
For example, consider the following from the reporter's transcript of defendant's testimony on direct examination:
‘Q. In 1951, did you sell a plan to the Arizona Plumbers' Union? A. I did.
‘Mr. Loucks. I will object to the question as incompetent, irrelevant and immaterial.
‘The Court. Sustained.
‘Q. By Mr. Judson. Did you open an office, or did Group Consultants open an office, in Phoenix, for the purpose of collecting those premiums?
‘Mr. Loucks. I will object to the question as incompetent, irrelevant and immaterial.
‘The Court. Sustained.
‘Q. By Mr. Judson. And did you sell a plan to the Plumbers' Union Local No. 38, in San Francisco?
‘Mr. Loucks. I will object to the question as incompetent, irrelevant and immaterial. I am assuming that that is not one, the A.P.C. contract. Is that right, Mr. Judson?
‘Mr. Judson. Yes, that is correct, uh huh.
‘Q. By Mr. Judson. Did you sell a plan to the Union Local—Plumbers' Union Local Nos. 342 and 444, in Oakland, California?
‘Mr. Loucks. I will object to the question on the ground it is incompetent.
‘The Court. Are they in this group plan?
‘Mr. Judson. No, they are not, your Honor.
‘The Court. Well, counsel knows the Court's ruling on those matters. I think it is trespassing on the ruling of the Court.’
Defendant is entitled to have his defense of intent fully presented to a judge or jury. He has the right to prove, if he can, the agreement for reimbursement that he testified to; and to also prove, if he can, what caused the shortage in the trustee account that he is accused of converting to his own use. If that money was used to pay expenses of collection in other group plans and if defendant was promised reimbursement, it goes to the vital question of intent. On a new trial of the cause that must be ordered, the entire history of defendant's transactions with the insurance company and with all the groups for which he made collections shall be at large.
Defendant purports to appeal from the ‘judgment’ of conviction, but in the instant case the proceedings were suspended and no judgment was pronounced, defendant having been granted conditional probation. However, under the provisions of section 1237 of the Penal Code, as amended in 1951, an order granting probation ‘shall be deemed to be a final judgment within the meaning of this section.’
For the foregoing reasons, the order granting probation and the order denying defendant's motion for a new trial are, and each is, reversed and the cause remanded for a new trial.
WHITE, P. J., and DORAN, J., concur.