Bridwell v. State

• Decision Date: 27 February 1991
• Docket Number: Nos. 1359-88,1360-88,s. 1359-88
• Parties: Phillip E. BRIDWELL, Appellant, v. The STATE of Texas, Appellee.
• Court: Texas Court of Criminal Appeals

Page 900

804 S.W.2d 900

Phillip E. BRIDWELL, Appellant, v. The STATE of Texas, Appellee.

Nos. 1359-88, 1360-88.

Court of Criminal Appeals of Texas En Banc.

Feb. 27, 1991.

George R. Milner, on appeal only, Dallas, for appellant.

John Vance, Dist. Atty., Anne B. Wetherholt, Mark Danielson and Walter Johnson, Asst. Dist. Attys., Dallas, Robert Huttash, State's Atty., Austin, for the State.

Before the court en banc.

OPINION ON APPELLANT'S PETITION FOR DISCRETIONARY REVIEW

CAMPBELL, Judge.

Appellant was found guilty of two fraud violations of the Texas Securities Act, ¹ TEX.REV.CIV.STAT. art. 581-29(C)(1) (Supp.1988). The jury assessed punishment at two twenty-year sentences, to run consecutively. The Fifth Court of Appeals affirmed appellant's conviction. Bridwell v. State, 761 S.W.2d 401 (Tex.App.--Dallas 1988). We granted appellant's petition for discretionary review, pursuant to TEX.R.APP.P. 200(c)(2), in order to determine whether the evidence was sufficient to show fraud as charged in the indictment; whether the indictment fails to state the offense of fraud under the Texas Securities Act ²; whether appellant was required to reveal information concerning his dealings Appellant was charged with five counts of fraud, and convicted of two counts of fraud under article 581-29(C)(1), supra, for failing to disclose his prior fraudulent dealings to James L. Purdy and W.E. Vaughan, investors in his drilling ventures. Testimony at trial revealed that Loretta Lowe first met appellant, Phillip E. Bridwell, through a mutual friend in Dallas in the spring of 1981. He told her that he was from the famous Bridwell oil family of Wichita Falls. He took her to the Bridwell Library at Southern Methodist University and told her that he was a major contributor and grandson of the founder, Joseph Bridwell. Lowe testified that appellant told her of his deep religious beliefs and Christian commitment, and of his involvement in the oil business, through his family interests. Following a divorce and move, Lowe next encountered appellant at her church in Houston in 1982.

with prior investors in violation of the privilege against self-incrimination under the United States and Texas Constitutions; and whether articles 581-29(C) and 581-4(F) of the Texas Securities Act are unconstitutional as applied, because they violate appellant's privilege against self-incrimination under the United States and Texas Constitutions. We will affirm the judgment of the court of appeals.

In early 1983, appellant first approached Lowe as a prospective investor for a drilling venture. He told her that he and his cousin, Joe B. Hood, had been "hitting a lot of wells." He sent her plats and information on the venture agreement. In April and May, Lowe and her father invested over $100,000 with appellant in the venture. Appellant was to drill two wells on a specific lease in Archer County, Texas. Appellant deposited the Lowes' funds into his personal bank accounts, and used the funds to pay outstanding debts and personal expenses. Appellant told Lowe that the two wells had been unproductive. Lowe demanded to know more. When appellant failed to produce the information requested, Lowe called Hood and found that he and appellant had never acquired the Archer County lease, although they had briefly held an option on it. Appellant eventually sent Lowe Railroad Commission reports, and some expense receipts, later determined to be fakes. Lowe testified that she and her father had "initiated legal proceedings" against appellant and Hood about two and one-half years prior to the trial in the instant cause.

James L. Purdy met appellant in July of 1983 through appellant's then fiancee, Kathryn Payne. Appellant told Purdy that he was successful in the oil business with his cousin Hood, and that he could make money for Purdy. Appellant offered Purdy a chance to get involved in drilling Well No. 1 on the Patton lease. In October and December 1983, Purdy borrowed $100,000 and invested it with appellant. Certified copies of Railroad Commission reports demonstrated that Patton Well No. 1 had already been drilled and plugged as a dry hole at the time of Purdy's investment. Appellant deposited Purdy's funds into personal bank accounts and used the funds for personal expenses. Purdy testified that appellant never disclosed his prior dealings with Lowe, and that had he known of appellant's prior dealings with Lowe, he would not have "ever gotten involved with anything to do with him [appellant]."

W.E. Vaughan met appellant through his son in late 1983. Appellant told him that he had "a for-sure lease." Vaughan invested almost $250,000 in April, May and June of 1984 in appellant's drilling venture in exchange for a partial working interest in four wells in Wichita and Wilbarger Counties. Appellant showed Vaughan two wells and told Vaughan that the wells were producing and the tract was worth $4,457,000. When Vaughan failed to get any money in return from the wells, he asked his accountant and a geologist to investigate the problem. Their investigation revealed that there were no working wells on the lease in question. Vaughan also obtained a forged invoice from appellant purporting to show $153,000 of work done for appellant by a local drilling company in connection with one well on the lease. Vaughan's accountant testified that expenses for such a well should run between $10,000 and $20,000.

Bank records in evidence reveal that appellant deposited at least $81,000 of In his first and second grounds for review, appellant argues that the evidence is insufficient because there is no evidence that what he was charged with doing is fraud within the meaning of articles 581-29(C)(1) and 581-4(F) of the Texas Securities Act, and that the indictment(s) failed to state the offense of fraud because the facts he allegedly failed to disclose do not constitute fraud in this case. Essentially, appellant challenges the sufficiency of the evidence to show that he was guilty of fraud, and the sufficiency of the indictments to show that he was charged with an offense. Appellant contends that his prior fraudulent dealings were not material facts, and thus, disclosure was not required by the Act.

Vaughan's money directly into his personal bank account and used it to pay personal expenses, including almost $30,000 in closing costs on his Highland Park home, and an $8,000 watch. Appellant also deposited some of Vaughan's funds into a business account, and used approximately $50,000 to pay off a lien on his home. As part of a settlement with appellant, Vaughan received a working interest in four other wells. Vaughan testified that appellant never disclosed his prior dealings with Lowe or Purdy, and that he considered the Purdy deal to be a material fact. Vaughan testified that he would not have invested with appellant, if he had known about his prior dealings with Purdy and Lowe.

The State responds that appellant has been properly charged and convicted of fraud within the meaning of article 581-29(C)(1) and 581-4(F), in that his prior fraudulent dealings were material facts, which he was required to disclose to his investors.

Article 581-29(C)(1) prohibits the use of fraud or fraudulent practices in connection with the sale or offer of securities. Article 581-4(F) defines "fraud" or "fraudulent practice," for purposes of the Securities Act, to include "an intentional failure to disclose a material fact."

The term "material fact" is not defined in either Texas or federal securities fraud laws and regulations. Materiality is the one common-law element still strongly viable under federal securities fraud laws. ³ Bromberg & Lowenfels, Securities Fraud and Commodities Fraud § 8.3 (1989). Materiality has been the subject of much discourse in connection with securities fraud and disclosure requirements. With respect to securities fraud violations under Rule 10b-5, supra note 2, the materiality standard has been formulated in a variety of tests. ⁴ Nonetheless, all of the generally accepted formulations concentrate on the importance of the misrepresentation or nondisclosure as they relate to the reasonable investor's decision whether to invest or act.

The United States Supreme Court, in construing § 14(a) of the Securities Exchange Act, ⁵ held that an omitted fact is material if there is a substantial likelihood that the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. "[T]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly We find that the Supreme Court's definition of "materiality" provides the most objective standard yet applied to securities transactions, and therefore is appropriately applied to interpret "material fact" in connection with articles 581-29(C)(1) and 581-4(F). Restated, an omitted fact is material if there is a substantial likelihood that it would have assumed actual significance in the deliberations of a reasonable investor, in that it would have been viewed by the reasonable investor as significantly altering the total mix of available information used in deciding whether to invest. ⁶

altered the 'total mix' of information made available." TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976); see Kirk v. State, 611 S.W.2d 148, 151 (Tex.App.--El Paso 1981, no writ); Huett v. State, 672 S.W.2d 533, 540 (Tex.App.--Dallas 1984, rev. ref'd).

Applying the "substantial likelihood" test of TSC Industries, Inc. v. Northway, Inc. to the facts in the instant case, we find that the evidence was sufficient to support a rational jury finding beyond a reasonable doubt that appellant's failure to disclose his prior fraudulent dealings was fraud within the meaning of articles 581-29(C)(1) and 581-4(F) ⁷.

With the evidence viewed in the light most favorable to the verdict, we find...