State v. Sylvester

• Decision Date: 25 May 1994
• Docket Number: No. 93-698,93-698
• Citation: 516 N.W.2d 845
• Parties: STATE of Iowa, Appellant, v. Kimberly Kay SYLVESTER, Appellee.
• Court: Iowa Supreme Court

Page 845

516 N.W.2d 845

62 USLW 2757

STATE of Iowa, Appellant, v. Kimberly Kay SYLVESTER, Appellee.

No. 93-698.

Supreme Court of Iowa.

May 25, 1994.

Rehearing Denied June 17, 1994.

Bonnie J. Campbell, Atty. Gen., Bridget Chambers, Asst. Atty. Gen., Denver Dillard, County Atty., and Harold L. Denton, Asst. County Atty., for appellant.

Karla M. Wolff, Cedar Rapids, for appellee.

Considered en banc.

PER CURIAM.

I. Introduction.

The State appeals the district court's dismissal of charges against Kimberly Sylvester for second-degree theft. Iowa Code §§ 714.1(2), .2(2) (1991). After being charged, Sylvester filed a motion to adjudicate law points and a motion to dismiss, arguing that a partner cannot be found guilty of embezzling partnership assets. The district court agreed and, finding the issue dispositive of the charges, dismissed the State's case. The State appeals pursuant to Iowa Code section 814.5(1)(a). The issue on appeal is whether a partner can be found guilty of embezzling partnership assets. Our review is for errors of law. Iowa R.App.P. 4.

II. Facts.

The facts are not disputed. Sylvester's partner, Pam Clary, complained to police that Sylvester was embezzling from their partnership, Gregory's Hair Designers. After a police investigation, Sylvester was charged with second-degree theft.

III. Discussion of law.

Under Iowa law, a person commits theft when the person:

Misappropriates property which the person has in trust, or property of another which the person has in the person's possession or control, whether such possession or control is lawful or unlawful, by using or disposing of it in a manner which is inconsistent with or a denial of the trust or of the owner's rights in such property, or conceals found property, or appropriates such property to the person's own use, when the owner of such property is known to the person.

Iowa Code § 714.1(2).

We held a partner could not be convicted for embezzling partnership funds in Gary v. Northwestern Masonic Aid Association, 87 Iowa 25, 31-32, 53 N.W. 1086, 1087-88 (1893). We affirmed the rule in State v. Quinn, 245 Iowa 846, 849, 64 N.W.2d 323, 324 (1954). The rationale for the rule rested on the common-law principle that:

Partners sustain the character of principals as well as agents, and have a community of property and interest in partnership effects, and therefore cannot embezzle the funds of the partnership which they wrongfully apply to their individual use without mutual consent.

.... A partner cannot be guilty of embezzlement of partnership funds, because such partner combines in himself at once the character of principal and agent. The partners have a community of property and interest in the partnership effects. In law they are treated, in a qualified sense, as joint tenants of the partnership property, having an interest therein per my et per tout.

Gary, 87 Iowa at 31, 53 N.W. at 1087-88; see Quinn, 245 Iowa at 849-50, 64 N.W.2d at 327.

Since deciding Quinn, our legislature adopted the Uniform Partnership Law ("Uniform Partnership Act" or "UPA") outlining the nature of a partner's right in partnership property. Iowa Code §§ 486.8, .21, .25 (1993) (formerly codified at Iowa Code §§ 544.8, .21, .25 (1991)). Section 486.8 defines partnership property in relevant part as follows:

1. All property originally brought into the partnership stock or subsequently acquired by purchase or otherwise, on account of the partnership, is partnership property.

2. Unless the contrary intention appears, property acquired with partnership funds is partnership property.

See also In re Estate of Allen, 239 N.W.2d 163, 167 (Iowa 1976). Section 486.25 provides in pertinent part:

1. A partner is co-owner with the other partners of specific partnership property holding as a tenant in partnership.

2. The incidents of this tenancy are such that:

a. A partner, subject to the provisions of this chapter and to any agreement between the partners, has an equal right with other partners to possess specific partnership property for partnership purposes; but the partner has no right to possess the property for any other purpose without the consent of the other partners.

Section 486.21 provides in pertinent part:

1. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by the partner without the consent of the other partners from any transaction connected with the formation, conduct, liquidation of the partnership or use of its property.

The Uniform Partnership Act is law in forty-nine states. Despite this fact, states are hardly uniform in their agreement regarding whether partners are immune from criminal liability for embezzling partnership property. See generally Jane M. Draper, Annotation, Embezzlement, Larceny, False Pretenses, or Allied Criminal Fraud By a Partner, 82 A.L.R.3d 822 (1978). The leading case against imposing criminal liability for embezzlement on partners, despite the UPA's provisions on partnership property, is People v. Zinke, 76 N.Y.2d 8, 556 N.Y.S.2d 11, 12-15, 555 N.E.2d 263, 264-67 (1990); see also People v. Clayton, 728 P.2d 723, 725-26 (Colo.1986); State v. Birch, 36 Wash.App. 405, 675 P.2d 246, 248-49 (1984); Patterson v. Bogan, 261 S.C. 87, 198 S.E.2d 586, 589 (1973).

In Zinke, the New York Court of Appeals distinguished possession or use of partnership property from ownership of partnership property. Zinke, 556 N.Y.S.2d at 12-15, 555 N.E.2d at 264-67. The court maintained that under the UPA, even a dishonest partner retains ownership of partnership property as a "tenant in partnership" until the partnership winds up. Id., 556 N.Y.S.2d at 14, 555 N.E.2d at 266. Under the New York larceny statute, the crime occurs when a person "wrongfully takes, obtains or withholds 'property from an owner thereof' with intent to deprive the owner of it...." Id., 556 N.Y.S.2d at 12, 555 N.E.2d at 264.

Colorado also adheres to the common-law rule that partners are immune from criminal liability for embezzling partnership property. See Clayton, 728 P.2d at 725. In Clayton, the Colorado Supreme Court held the UPA's provisions change the common-law concept of partnership property, but do not create or define, either expressly or implicitly, a crime. Id. at 725-26.

In Birch, the Washington Court of Appeals rejected the argument that because partners hold partnership property in trust, they are immune from criminal liability for embezzling partnership property. Birch, 675 P.2d at 248-49. The Washington theft statute analyzed in Birch required the property stolen to be property "of another." Id., 675 P.2d at 247 n. 3. The court reasoned that because property held in trust does not convert title to the property to the trustee, the property is not that "of another." See id., 675 P.2d at 249. The court acknowledged the UPA modified the common-law theory of joint tenancy regarding ownership of partnership property. Id. It noted the "tenancy in partnership" theory was developed "to deal with problems created by the joint tenancy theory." Id. Nonetheless, the court refused "to take such a nebulous concept and reduce it, by judicial opinion, to a criminal rule." Id. To rule otherwise, the court stated, would be to deprive citizens of fair notice of proscribed conduct. Id.

In other jurisdictions partners are criminally liable for embezzling partnership property. The leading case for this position is People v. Sobiek, 30 Cal.App.3d 458, 106 Cal.Rptr. 519, 522-26 (1973). See also State v. Siers, 197 Neb. 51, 248 N.W.2d 1, 6 (1976); State v. Sasso, 20 N.J.Super. 158, 89 A.2d 489, 490 (1952).

In Sobiek, the embezzlement statute was not expressly applicable to partners. However, under the statute, a "person otherwise entrusted with or having in his control property for the use of any other person" could be found criminally liable for embezzlement. Sobiek, 106 Cal.Rptr. at 522. The California Court of Appeals held the statute would include partners within its proscriptions. Id. Moreover, the court disagreed with other state interpretations of the term "of another." Id., 106 Cal.Rptr. at 523. The court held these cases improperly extend the words "of another" into meaning "wholly of another." Id.

The California court also noted the trend in law away from recognizing partnerships as an aggregation of individuals and toward recognizing partnerships as separate legal entities. Id., 106 Cal.Rptr. at 524. Moreover, the court believed:

It is both illogical and unreasonable to hold that a partner cannot steal from his partners merely because he has an undivided interest in the partnership property. Fundamentally, stealing that portion of the partners' shares which does not belong to the thief is no different from stealing the property of any other person.

Id., 106 Cal.Rptr. at 525-26.

A New Jersey court construed a statute making it a crime for agents to embezzle property from their principals in Sasso, 89 A.2d at 489. The court held that under the UPA partners are agents of the partnership. Id., 89 A.2d at 490. The partnership, according to the court, is the principal. Id. The court also held that partners are responsible as fiduciaries to the partnership. Id. The court then held the terms of the embezzlement statute could not be read exclusive of the UPA. Id.

IV. Contentions of the parties.

The State argues that the UPA changes the common-law nature of partnership property. The State contends that under the UPA partners hold partnership property in trust for the partnership. Because of this trust relationship, the State contends the misappropriation of partnership property constitutes theft under Iowa Code section 714.1(2).

Sylvester contends that in the absence of a specific criminal statute providing otherwise, the State cannot convict partners for embezzling partnership property. Sylvester also argues that the UPA does not abrogate the common-law rule regarding embezzlement of partnership...