State v. Lucas

• Decision Date: 22 July 2015
• Docket Number: No. 14–0458.,14–0458.
• Parties: STATE of Iowa, Plaintiff–Appellee, v. Alan Lee LUCAS, Defendant–Appellant.
• Court: Iowa Court of Appeals

870 N.W.2d 687 (Table)

STATE of Iowa, Plaintiff–Appellee
v.
Alan Lee LUCAS, Defendant–Appellant.

No. 14–0458.

Court of Appeals of Iowa.

July 22, 2015.

Mark C. Smith, State Appellate Defender, and Martha J. Lucey, Assistant Appellate Defender, for appellant.

Thomas J. Miller, Attorney General, Kevin Cmelik, Bridget A. Chambers, and Robert H. Sand, Assistant Attorneys General, Gerald Alan Vander Sanden, County Attorney, for appellee.

Considered by TABOR, P.J., McDONALD, J., and SACKETT, S.J.^*

Opinion

SACKETT, S.J.

Alan Lee Lucas appeals from the judgment entered following his convictions for ongoing criminal conduct and theft in the first degree. He contends the evidence is insufficient to support his convictions and his trial counsel was ineffective in several respects. Lucas also appeals his sentence, contending the court abused its discretion by improperly considering an unproven offense. After reviewing the issues raised, we affirm Lucas's convictions and sentence, but preserve two claims of ineffective assistance of counsel for a possible postconviction-relief proceeding.

I. BACKGROUND FACTS AND PROCEEDINGS.

Covenant Investment Fund, L.P. (Covenant) is a hedge fund formed by Noah Auwles, who acted as the fund's general partner. It consists of a “family” of different funds, or what is known as “a fund of a fund.” Some of Covenant's investors complained to the Iowa Insurance Commissioner about its poor performance. Auwles was advised to break up Covenant by liquidating each of the funds and distributing the money to the fund's investors. Auwles liquidated one of Covenant's funds, UltraSharp, before selling Covenant.

In May 2010, Auwles sold Covenant to Lucas for the purchase price of one dollar and Lucas's agreement to assume liability for a $62,540 debt Covenant owed. Lucas owned a number of shell corporations that were not profitable when he took control of Covenant. One of those corporations, Phalanx Technology Holdings, was about to be evicted from its office because it owed $9000 for rent.

When Lucas took control of Covenant, it had $189,000 in the bank from the UltraSharp liquidation. Although that money was supposed to be distributed to investors, Lucas had spent between $157,000 and $167,000 of that $189,000 within a year of assuming control of Covenant. Lucas used Covenant funds to pay the rent for Phalanx Technology Holdings, start-up expenses for a data center Lucas wanted to build, and the salary of the person hired to raise capital for the data center. Lucas also used Covenant funds to purchase a BMW for business and pay a number of personal expenses, including his wife's credit card debt and the property taxes on his personal residence.

The State filed a trial information charging Lucas with ongoing criminal conduct and first-degree theft on June 9, 2011.¹ Following a jury trial in October 2013, Lucas was convicted as charged. He was sentenced to a term of not more than ten years in prison on the first-degree theft conviction and a term not more than twenty-five years in prison on the ongoing criminal conduct conviction. The sentences were ordered to be served concurrently.

II. SUFFICIENCY OF THE EVIDENCE.

Lucas first contends there is insufficient evidence to support either of his convictions. We review sufficiency-of-the-evidence claims for correction of errors at law. State v. Robinson, 859 N.W.2d 464, 467 (Iowa 2015). We will not disturb a finding of guilt if it is supported by substantial evidence when reviewing the record as a whole. Id. We view the evidence in the light most favorable to the State. Id. In order to be considered substantial, the evidence must be enough to convict a rational factfinder the defendant is guilty beyond a reasonable doubt. Id.

The jury was instructed that in order to convict Lucas of theft, the State was required to prove Lucas had possession of money owned by Covenant investors and intentionally misappropriated the money by disposing of it in a manner inconsistent with the owners' rights. The jury was further instructed that misappropriation occurs when

a person, knowing he had no right or permission to do so, exercises control over property or aids a third person in exercising control, so that the benefit or value of the property is lost to the owner. Misappropriation may also occur when a person knowingly disposes of property for his own benefit or for the benefit of a third person.

However, the jury was also instructed on the claim-of-right defense, which states that “[a] person who disposes of property is not guilty of Theft if he reasonably believes he has a right, privilege, or permission to do so, or if he does in fact have such right, privilege or permission.”

To be convicted of ongoing criminal conduct, the jury was instructed the State had to prove Lucas committed thefts on an ongoing basis for financial gain and those thefts were punishable as indictable offenses. In other words, the State was required to prove Lucas committed a number of thefts of property valued at more than $200 on an ongoing basis.

Lucas challenges both convictions on the basis the State cannot establish he committed one theft, let alone multiple thefts. He argues he had a right to the Covenant funds he spent. Specifically, he argues that as Covenant's general partner, he was entitled to the money in the form of management fees and reimbursement for expenses.

A. Management Fees.

Covenant investors were provided with a private placement memorandum (PPM) that outlines Covenant's general operating procedures. Under Article VI of the PPM, entitled “Fees and Expenses: Brokerage Practices,” it states that “[i]n consideration for the provision of certain administrative services, the General Partner shall receive a management fee ... equal to 1/4th of 2.00% per Fiscal Quarter of each Limited Partner's share of the Partnership's Net Asset Value.” The management fee “shall be payable quarterly in advance and calculated as of the first day of each Fiscal Quarterly [sic].” Lucas claims the State failed to present any evidence of the partnership net asset value, and therefore, it cannot disprove he was entitled to spend the money as part of his management fees.

Lucas faults the State for failing to introduce evidence of the fund's value.² Because the State failed to prove its value, he argues it cannot prove he was not entitled to the money he spent from the fund, claiming they were management fees. We disagree. The evidence, viewed in the light most favorable to the State, shows Lucas was not entitled to management fees in the amount disposed of and did not have a reasonable belief that he was entitled to management fees in this amount.

The evidence shows Covenant's net asset value was unclear during the period Lucas was in control of it. Covenant's records were poorly kept before Lucas took control. Robyn Palmer testified that when Lucas first received the Covenant documents, “[i]t was a mess. Like I said, there were records scattered everywhere. Trying to figure out the flow of money, where it was coming, where it was going, who had invested, what their current balances were. There was very incomplete information.” Lucas hired Palmer “to piece together exactly what it was we had” in the fund. She worked for Lucas for approximately four months before quitting over concerns about how he was handling the money. When Palmer quit on September 10, 2010, the results of her investigation into where the money had gone and how much money was within the various funds remained “inconclusive.”

Lucas was not entitled to the money he spent as management fees. Lucas was unaware of the Covenant's net asset value from May 2010 until at least September 10, 2010. While he had no basis upon which to calculate his management fees paid during this period, he spent over $35,000 in Covenant funds during the same period, making twenty-five withdrawals of more than $200 from Covenant's bank account. These withdrawals include the initial $9000 payment for the rent Phalanx Technology Holdings owed for office space, plus two additional payments of $3300 to the same lessor. Lucas also paid over $2000 in personal property taxes from the account during this period and made a $4881.80 payment on his wife's Discover card.

The evidence of Lucas's behavior shows Lucas also lacked a good-faith belief he was entitled to the money. Lucas moved money between eleven bank accounts and gave false or misleading testimony at an administrative hearing with regard to how the funds were used. One of the fund's investors testified Lucas had falsely informed him the State had taken control of Covenant's funds and was working to distribute them during a period when Lucas was still in control of the funds. These actions indicate Lucas knew he had no right or permission to the use the funds.

B. Reimbursement for Expenses.

Lucas also contends the State cannot prove he misappropriated any partnership money he was legally entitled to as reimbursement of operating expense and liquidation expenses. Under section 6.02(b), entitled “Operating Expenses,” the PPM states:

The Partnership shall pay or reimburse the General

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