I. Summary
The California Supreme court recently held in People v. Hubbard, 63 Cal. 4th 378 (2016) that a school superintendent was properly convicted of misappropriating public funds under Penal Code Section 424[1]. The Court reasoned that the superintendent was a public officer who exercised a degree of material control over public funds and could be characterized as being charged with the receipt, safekeeping, transfer or disbursement of public moneys. Accordingly, Hubbard was properly convicted under Section 424 after directing district payroll staff to pay an employee a $20,000 stipend without school board approval.
II. Discussion
Jeffrey Hubbard (“Hubbard”) served as superintendent of the Beverly Hills School District (“District”) from 2003 to 2006. During that time, Hubbard sent two separate memos to payroll staff directing an increase in an employee’s auto allowance and paid the employee a $20,000 stipend. The school board never authorized or approved these payments, and Hubbard was criminally charged and convicted for misappropriating public funds in violation of Penal Code Section 424. On appeal, the court concluded that Hubbard could not have violated Section 424 because, while certainly a public “officer,” he was not a person “charged with the receipt, safekeeping, transfer or disbursement of public moneys” because Hubbard lacked formal authority to approve the increased payments. The Court of Appeal held that Hubbard was merely the first step in a process that results in the expenditure of public funds, and because he lacked unilateral authority to approve the increased payments, he could not be criminally liable under Section 424.
Upon review, the California Supreme Court reversed, finding Hubbard could properly be convicted under Section 424 because he was an officer charged with the receipt, safekeeping, transfer or disbursement of public moneys and had a degree of material control over public funds. The Court noted that Section 424(a)(1) provides that “[e]ach officer of this state, or of any county, city, town, or district…and every other person charged with the receipt, safekeeping, transfer or disbursement of public moneys who… without authority of law, appropriates the same to his or her own use, or to the use of another” is guilty of a crime. The Court held that this language makes clear that only officers and “every other person”[2] who are charged with the safekeeping of public moneys can be convicted under Section 424 and not all public officers in general. Furthermore, the Court held that for an officer to come within the scope of Section 424, he or she must have “some measure of responsibility over the public funds at issue.” Control of public funds need not be the primary function of the officer in his or her job, nor must the officer physically possess the public funds to fall within the scope of Section 424. Rather, the Court held that “so long as he or she exercises a degree of material control over public funds,” a public officer is charged with the receipt, safekeeping, transfer or disbursement of public moneys for purposes of criminal liability under Section 424.
Accordingly, evaluation of whether an officer “exercises this degree of material control over public funds depends on actual function as much as – if not more than – formal title.” Therefore, “[s]crutinizing a person’s actual and formal responsibilities as they pertain to public funds is therefore essential to the fact finder’s determination whether the person has the degree of material control over public funds that will satisfy the standard we have articulated.” The Court held that Hubbard, as the chief executive officer of the District, met this standard: he oversaw various departments related to the expenditure of public funds, he was responsible for implementing policies in the realm of budgeting and business affairs, preparing and submitting a budget, preparing an accountability plan, entering into contracts on behalf of the District, and other fiscally related duties. It was not uncommon for Hubbard’s subordinates in the payroll department to receive direction from him to change an employee’s pay. Finally, Hubbard was entrusted with the responsibility of “bringing expenditures to the Board for approval and then ensuring District funds were spent according to the Board’s instructions.” Collectively, these duties demonstrate Hubbard had a material degree of control over how public funds were allocated. Given that the increased payments would not have happened absent Hubbard’s directives, there was substantial evidence that he had a degree of material control over public funds that amounted to being charged with those funds’ safekeeping and disbursement.
III. Conclusion
This decision makes clear that public officers and employees can be guilty of misappropriating public funds even if their primary duties do not directly involve public funds. So long as the officer has some degree of practical control over how public funds are kept or expended, the officer can be guilty of misappropriation. This analysis is very fact specific and a careful evaluation of each officer’s actual duties and authority is necessary.
The above information is for general use and is not legal advice. This J&M Legal Alert is not intended to create, and receipt of it does not constitute an attorney – client relationship. Should you have any questions or require further clarification of the above, please contact Keith F. Collins at (714) 446-1400 or kfc@jones-mayer.com.
[1] All further statutory references are to the Penal Code.
[2] This includes employees who are not necessarily “public officers.”