Criminal Liability. In January 1988, David Ludvigson was hired as chief executive officer of Leopard Enterprises, a group of companies that owned funeral homes and cemeteries in Iowa and sold "pre-need" funeral contracts. Under Iowa law, 80 percent of

Question

the funds obtained under such a contract must be set aside in trust until the death of the person for whose benefit the funds were paid. Shortly after Ludvigson was hired, the firm began having financial difficulties. Ludvigson used money from the funeral contracts to pay operating expenses until the company went bankrupt and was placed in receivership. Ludvigson was charged and found guilty on five counts of second-degree theft stemming from the misappropriation of these funds. He appealed, alleging, among other things, that he was not guilty of any crime, because he had not intended to permanently deprive any of the clients of their trust funds. Furthermore, because none of the victims whose trust funds were used to cover operating expenses was denied services, no injury was done. Will the court agree with Ludvigson? Explain.

Answer 1

Criminal liability
The court did not agree with Ludvigson. Under state law, second-degree theft results when a person "[m]isappropriates property which the person has in trust, * * * by using or disposing of it in a manner which is inconsistent with or a denial of the trust." The court noted that "Ludvigson candidly admitted under oath that he intentionally disregarded the [statutory] trust requirements." Ludvigson knowingly withheld payments from the trust fund—that was his crime. As for Ludvigson's argument on appeal that no injury was done, the court pointed to the "lengthy list" of persons who had made payments to be held in trust. Five were named victims in the case against Ludvigson, although only one of these had demanded funeral services or merchandise during the period in question. Because Ludvigson used the trust payments to finance current operations, service to this one victim was not denied. The court explained, however, that misappropriation occurs when "a person, knowing he had no right or permission to do so, exercises control over property * * * so that the benefit or the value of the property is lost to the owner [or] when a person knowingly disposes of the property for his own benefit or for the benefit of a third person." Given the size of the deficiency in the trust account and the fact that the payments were earmarked for future use, the court concluded that "the benefit of the trust funds was lost to the purchasers of these funeral services. Likewise, a jury could reasonably find that Ludvigson knowingly [applied] the trust property * * * toward the payment of salaries and commissions" for himself and others.