Apr 08

Are Bitcoin Transactions Private Under the Law?

By Brandon Barnett | Warrantless Search

Do You Have a Fourth Amendment Privacy Interest in Your Bitcoin Transactions?

Bitcoin Privacy 4th Amendment No, the Fifth Circuit Court of Appeals recently held that people do not have a reasonable expectation of privacy in the information (1) contained on the Bitcoin blockchain and (2) that you provide to cryptocurrency exchanges.¹ The Court reached this decision through an analysis of the facts under the “third party doctrine” of Fourth Amendment jurisprudence. This doctrine is explained in further detail below.

Read full case HERE. US v. Gratkowski, 964 F.3d 307 (5th Cir. 2020).

First Off, what is Bitcoin?

Bitcoin is a “collection of concepts and technologies that form the basis of a digital money ecosystem.”² More colloquially, the word “bitcoin” refers to a bitcoin—a unit of digital currency used to store and transmit value among participants in the bitcoin network. Bitcoin derives its value not from physical characteristics like gold or trust in a central authority like fiat money. Instead, bitcoin is backed by the cryptographic technology behind it.

Bitcoin is powered by open-source code known as blockchain, which creates a shared public ledger that is viewable by anyone. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. In order to transfer anything in this world, you need to be able to send and receive your items to and from a certain location. Bitcoin is no different. Like an email, Bitcoin is transferred between locations on the internet called Bitcoin addresses. A Bitcoin address indicates the source or destination of a Bitcoin payment. The Bitcoin blockchain contains only the sender’s address, the receiver’s address, and the amount of bitcoin transferred. Bitcoin wallets provide these addresses and utilize software that allows you to securely send, receive, and store bitcoin in the bitcoin network.

The central tenet behind the creation of Bitcoin was that willing parties should be able to transact directly with each other without the need for a trusted third party.³ A large part of the value in that kind of decentralization is in the privacy that it assumes will accompany the transaction. However, as the use and influence of cryptocurrencies expands, so too does the need of law enforcement to crack down on the illicit activities of crypto users that our society finds to be reprehensible. Analyzing the block chain for evidence of crimes involving bitcoin inevitably means that information of bitcoin transactions will be collected. This kind of forensic analysis, aside from collecting information on whether the bitcoin was used for something illegal, “can include the collection of large amounts of personal information about a user’s spending habits [and] total holdings[.]”⁴ The natural question for criminal law attorneys is whether a bitcoin user has a Fourth Amendment privacy interest in the information related to their bitcoin transactions.

Bitcoin Transactions and the 4th Amendment

The Fifth Circuit Court of Appeals in United States v. Gratkowski recently held that individuals do not have a Fourth Amendment privacy interest the information related to their bitcoin transactions.⁵ More specifically, the court found that there is no Fourth Amendment privacy interest in: (1) information on the bitcoin blockchain itself, and (2) bitcoin transactions in virtual currency exchanges.⁶

Gratkowski became the subject of a federal investigation when federal agents began investigating a child-pornography website. Users like Gratkowski paid the website bitcoin in exchange for downloadable child pornography. As mentioned above, the bitcoin blockchain only contains the sender’s address, the receiver’s address, and the amount of bitcoin transferred between the two parties. The identity of the owners do not appear on the bitcoin blockchain, but it is possible to discover the owner of a bitcoin address by analyzing the blockchain:

“For example, when an organization creates multiple Bitcoin addresses, it will often combine its Bitcoin addresses into a separate, central Bitcoin address (i.e., a “cluster”). It is possible to identify a “cluster” of Bitcoin addresses held by one organization by analyzing the Bitcoin blockchain’s transaction history. Open source tools and private software products can be used to analyze a transaction.”⁷

Federal agents used an outside service to analyze the publicly viewable bitcoin blockchain and identify a cluster of bitcoin addresses controlled by the website.⁸ They then served a grand jury subpoena on Coinbase (a prominent cryptocurrency exchange) for all information the exchange had on the Coinbase customers whose accounts sent Bitcoin to any of the addresses in the child-pornography website’s cluster. Coinbase turned over Gratkowski’s information, and federal agents obtained a warrant to search Gratkowski’s house. The agents found a hard drive containing child pornography and subsequently charged Gratkowski with one count of receiving child pornography and one count of accessing websites with intent to view child pornography.

At trial, Gratkowski moved to suppress the evidence the government obtained under the warrant, arguing that both the subpoena to Coinbase and the analysis done on the blockchain violated the Fourth Amendment. For the government to infringe upon an individual’s Fourth Amendment protection against unreasonable searches, the person must have a “reasonable expectation of privacy” in the items obtained.⁹ The “third-party doctrine” instructs that a person generally “has no legitimate expectation of privacy in information he voluntarily turns over to third parties.”¹⁰

For instance, the Supreme Court in United States v. Miller held that bank records were not subject to Fourth Amendment Protections.¹¹ The Court also held that telephone call logs were not subject to Fourth Amendment protections because the telephone numbers we dial are voluntarily conveyed to the phone company when we place a call.¹² However, the Supreme Court recently held that individuals do have a privacy interest in their cell phone location records, despite the records being held by a third party.¹³ In deciding this, the Court set-up the current framework under which courts are to determine whether the third-party doctrine applies to certain information that is shared with third parties: The sole act of sharing the information is no longer determinative as to whether we have a Fourth Amendment privacy interest in it. Rather, courts are to consider, “‘(1) the nature of the particular documents sought,’ which includes whether the sought information was limited and meant to be confidential, and (2) the voluntariness of the exposure.”¹⁴

The Fifth Circuit reasoned that the information on the Bitcoin blockchain is more similar to bank records and telephone call logs than to cell phone location records.¹⁵ The court held that the information contained on the Bitcoin blockchain (the amount of Bitcoin transferred and the Bitcoin addresses of the sender and receiver) is limited, and Bitcoin users are unlikely to expect that information to be kept private as it is well known that it is recorded on the publicly available blockchain.¹⁶ The court also reasoned that the public exposure of this information is voluntary because transferring and receiving Bitcoin requires an affirmative act by the Bitcoin address holder.¹⁷ The Fifth Circuit therefore held that there is no reasonable expectation of privacy in the information contained on the Bitcoin blockchain.¹⁸

The Court used similar reasoning regarding the question of privacy in the Bitcoin transactions on Coinbase. Coinbase is a financial institution like a bank. Both are subject to the Bank Secrecy Act as regulated financial institutions, and both keep records of customer identities and currency transactions. The Court held that, “[h]aving access to Coinbase records does not provide agents with ‘an intimate window into a person’s life’; it provides only information about a person’s virtual currency transactions.”¹⁹ The court also held that, “[s]econd, transacting Bitcoin through Coinbase or other virtual currency exchange institutions requires an ‘affirmative act on the part of the user[,]’ which speaks to the voluntariness with which the information was turned over to Coinbase.²⁰

Conclusion

The Gratkowski decision makes it difficult to imagine any situation in which a court would find there to be a Fourth Amendment privacy interest in information on the Bitcoin blockchain itself. Although Bitcoin users may truly value and believe in the privacy considerations contained in the monetary philosophy of Bitcoin, there is no getting around the fact that a “block” on the blockchain requires two Bitcoin addresses and the amount of bitcoin exchanged. And as long as private blockchain analytics companies continue to analyze only that information in determining the identity of Bitcoin users, courts will likely continue to find there to be no Fourth Amendment privacy interest in that information.

There appears to be more room to work with when it comes to cryptocurrency exchanges. Perhaps a court could find there to be a privacy interest in information given to an exchange whose business centers around user confidentiality. However, exchanges must comply with the same federal financial laws that govern Coinbase, and the record-keeping requirements under those laws would likely provide for a strong analogy to the Gratkowski case.

ENDNOTES:

1. United States v. Gratkowski, 964 F.3d 307 (5th Cir. 2020).
2. A. M. Antonopoulos, Mastering bitcoin: Programming the open blockchain (2nd ed.). Beijing etc.: O’Reilly.
3. Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, https://bitcoin.org/bitcoin.pdf (2008).
4. Sasha Hodder & Rafael Yakobi, Bitcoin Fungibility, Mixing and the Legal Limits on Maintaining Privacy, https://bitcoinmagazine.com/culture/bitcoin-fungibility-mixing-and-the-legal-limits-on-maintaining-privacy (2020).
5. Gratkowski, 964 F.3d 307 (5th Cir. 2020).
6. Id.
7. Id. at 309.
8. Private blockchain analytics companies also provide services of this nature to cryptocurrency exchanges to help the exchanges meet their obligations under federal money laundering laws. See footnote 4 on the previous page for a discussion of privacy and these laws.
9. United States v. Jones, 565 U.S. 400, 406 (2012).
10. Smith v. Maryland, 442 U.S. 735, 743–44 (1979).
11. United States v. Miller, 425 U.S. 435, 439-40 (1976).
12. Smith v. Maryland, 442 U.S. 735, 743-44 (1979).
13. Carpenter v. United States, 138 S. Ct. 2206, 2217 (2018).
14. Gratkowski (quoting Carpenter, at 2219-20).
15. Id., at 311.
16. Id. at 312.
17. Id.
18. Id.
19. Id. (quoting Carpenter, at 2217).
20. Id. (quoting Carpenter, at 2220).

Mar 29

DWI Madness | “The Final Four” Reasons Texans are Stopped for DWI

By Jason Howard | DWI

March Madness is here again. With the Final Four approaching, we built a bracket of our own. In this article, DWI attorney Jason Howard discusses the top four reasons people are stopped or detained for a DWI investigation in Texas. We’ve compiled and power-seeded our list based on the numerous Tarrant County DWI cases we handle every year. Before we get to the “Final Four,” here are some honorable mentions that didn’t quite make the tournament list:

Sleeping in a running vehicle
Driving the wrong way on a one-way street
Rolling through a stop sign
Expired registration as seen by police scanner
No license plate light

Of course, there are many more reasons that folks are stopped and investigated for DWI, but below are the top four reasons that we see the most.

The Top Four Reasons Drivers Are Stopped for a DWI Investigation in Texas

#4 – Auto Accident

By auto accident, we mean everything from a head-on collision to a run-in with a mailbox. More serious accidents will usually generate the presence of officers on scene within a matter of minutes. Officers are usually looking to rule out the possibility of someone being intoxicated as soon as they arrive on scene. Minor accidents where there are no injuries might elicit a call to 911 (when there would otherwise just be a swap of insurance) if the other party involved suspects a DWI. Easy to see that if you’ve consumed alcohol and are involved in an accident, there is a high probability of a DWI investigation.

#3 – Swerving or Weaving

Please note – there is a difference between the two. Swerving is the more blatant failure to maintain a single lane by driving the vehicle all across the road. Weaving, on the other hand, is usually more subtle and sometimes observed within the lane. Regardless, if it’s late at night and a police officer is behind you and observes either of these driving behaviors, the red and blues are probably going to come on and the driver asked to step out of the vehicle for field sobriety testing.

#2 – Lane Change Problems

The #3 and #4 seeds were probably the top guesses, right? Surprisingly, we see more of numbers 1 and 2 than any other. And they probably weren’t the ones you guessed. I’ve grouped lane change issues because they can vary from the failure to signal a lane change or turn to the failure to make a proper turn at intersection (aka the “wide right” or “wide left” turn.) If you monitor your daily driving (when you’ve consumed no alcohol,) you’ll probably see that you commit many of these types of traffic infractions constantly. You’ll certainly see other people commit them. So, how does that translate to a police officer’s suspicion of drinking and driving? If it’s late at night on a Friday or Saturday, most patrol officers are quick to pull people over for any traffic violation just to check them out and make sure they’re not DWI.

That brings us to our number one reason people are stopped prior to a DWI arrest…

#1 – Speeding

We’re not talking 100mph in a 30mph zone, although we have seen some crazy speeds. No, we’re talking general, everyday speeding; 5 or 10 miles an hour over the speed limit. Nighttime patrol officers love to use their speed detection devices to initiate stops to find DWIs. That’s right! Patrol officers aren’t just looking for obvious impaired driving clues. It’s clear from our experience in handling DWI cases in Tarrant County that most officers are suspicious of anyone out late at night (especially on the weekends.) They know they only need a legal reason to stop someone at any given time. And once they establish their legal reason (even if it’s just speeding,) they then get to proceed with the “where are you coming from, where are you going, have you had anything to drink?” line of questioning. Once they get an admission of “yeah, I had a couple” or smell even the faintest odor of alcohol from the vehicle, they then get the driver out of the vehicle and begin the field sobriety tests. And once they start with the field sobriety tests, the possibility of being arrested goes up astronomically – even if you’re not intoxicated!

If we were to play out the DWI Final Four tournament, Speeding would be your Texas State Champion.

What Should You Do If You Are Suspected of Driving While Intoxicated?

We’ve written on this topic several times, including:
– DWI Information Page
– May I Legally Refuse a Field Sobriety Test?

If you have been arrested for DWI in Tarrant County after being stopped for one of these four reasons (or any other reason), contact our Tarrant County DWI attorneys for a free case evaluation.

Mar 18

What Evidence Must a Prosecutor Disclose to the Defense?

By Brandon Barnett | Evidence

New CCA Opinion – Watkins v. State – Clearly Interprets the Duty of the State in Discovery.

Watkins 39.14 Texas Evidence Prosecutors in Texas must disclose almost all of the evidence in their possession to the defense. Disclosure is the rule and not the exception in Texas.¹ Section 39.14(a) of the Texas Code of Criminal Procedure requires the prosecution to disclose anything that “constitutes or contains evidence material to any matter involved in the action. . .”²

The Texas Court of Criminal Appeals in Watkins v. State (see opinion HERE) recently interpreted the word “material” to mean the equivalent of “relevant,” while interpreting the phrase, “any matter involved in the action,” as covering “any number of subsidiary issues impacting the outcome of the proceedings.”³ This interpretation requires Texas prosecutors to disclose virtually all of the evidence in their possession—more than they are mandated to under the federal Constitution as interpreted by the Supreme Court in Brady v. Maryland. In fact, for some types of evidence, the statute does not require the evidence to meet any materiality requirement.⁴ According to § 39.14(h), evidence tending to negate the guilt or mitigate the punishment of a defendant must be disclosed, regardless of whether the evidence is considered material or requested by the defense.⁵

Article 39.14 and the case law that accompanies it effectively establish an open-file policy between the prosecution and defense. As the Watkins court put it: “[w]ith the exception of privileged evidence and evidence specifically covered by other statutory provisions, the only obstacle to disclosure of evidence not [exculpatory in nature] is the lack of a specific request.”⁶

The “materiality” language that the Watkins court addressed is actually language that was carried over from a previous version of Article 39.14—language with its own case law that prosecutors and trial courts carried into practice even after the statute was amended.

How did Prosecutors Interpret 39.14 Before Watkins?

The current version of Article 39.14 came about through the Michael Morton Act, signed into law by Governor Perry in 2013. This bill was a response to the case of Michael Morton, a man wrongfully convicted for the murder of his wife in 1987 after the prosecutor in that case withheld evidence that could have proven his innocence. Morton was exonerated in 2011 after DNA evidence revealed that someone else committed the murder, and the state legislature took up the task of passing a complete overhaul of discovery procedure in Texas.

Because the same language— “material to any matter involved in the action”—was retained by the Morton amendments, confusion persisted among some attorneys about whether the pre-Morton “materiality” jurisprudence is properly attributed to the new, post-Morton version of Article 39.14. However, as the Watkins court addressed, those pre-Morton cases never actually spoke to the issue of what “material” actually meant.⁷

The Confusion Surrounding “Material”

You see, the pre-Morton Article 39.14 gave trial courts the discretion whether to order the prosecution to disclose evidence upon a motion showing good cause from the defense.⁸ The pre-Morton “materiality” jurisprudence was inextricably linked with the standard for determining whether a trial court abused its discretion in refusing to issue such an order, and it did not have anything to do with the phrase, “material to any matter involved in the action.”⁹

The standard for determining whether a trial court abused its discretion in this way was whether the judge’s ruling deprived the defendant of access to evidence that was material to the defendant’s defense.¹⁰ “Material,” in this sense, was defined “’under Texas law in the due process terms employed by the Supreme Court in United States v. Agurs.’”¹¹ This meant that a trial judge abused his or her discretion in refusing to order the disclosure of evidence when it was exculpatory in nature.¹²

Watkins Clearing Things Up

As we now know, the procedure that discovery followed before the Morton amendments was completely removed from Article 39.14, and the “materiality” jurisprudence that was tied to it went out the door as well.¹³ Because of the confusion that accompanied the judicial use of similar language in close contexts pre-Morton, it is understandable if some prosecutors may have—before Watkins—interpreted the, “material to any matter involved in the action,” language as being loaded with the pre-Morton jurisprudence. Other prosecutors, as shown in Watkins below, applied their own limiting interpretations to the language.

In Watkins, the defense counsel sent a discovery request to the prosecutor pursuant to § 39.14 asking for, “any other tangible things not otherwise privileged that constitute or contain evidence material to any matter involved in the case.”¹⁴ He “also requested notice of the State’s intent to offer any extraneous offenses, which the prosecution provided.”¹⁵ Watkins was convicted of second-degree possession of a controlled substance, and during the punishment phase of trial, the state sought to introduce 34 exhibits for the purpose of proving up Watkins’ prior felony convictions for enhancement purposes.¹⁶ The defense objected—the prosecutor did not disclose the exhibits to the defense because he did not believe Article 39.14 applied to punishment.¹⁷ The Trial court overruled the objection, allowing the evidence to be admitted.¹⁸

The issue surrounding the prosecution’s non-disclosure eventually worked its way up to the Court of Criminal Appeals, where the Watkins court seized the opportunity to review the requirements of Article 39.14 in light of the Michael Morton Act amendments. In short, the Court laid out the history of Article 39.14 explained above, and it clearly established that Texas now has disclosure requirements that track the spirit of the Michael Morton Act.¹⁹

[1] Watkins v. State, NO. PD-1015-18 (Tex. Crim. App. 2021).
[2] Tex. Code Crim. Proc. Ann. art. 39.14(a) (West 2017).
[3] Watkins, at 24-25.
[4] Tex. Code Crim. Proc. Ann. art. 39.14(h) (West 2017).
[5] Id.
[6] Watkins, at 23.
[7] Id. at 35.
[8] TEX. Code Crim. Proc. art. 39.14 (2009).
[9] Watkins at 35.
[10] Id. at 41-42.
[11] Id. at 40 (quoting United States v. Agurs, 427 U.S. 97 (1976)).
[12] Id. at 41.
[13] See generally Watkins.
[14] Watkins at 4.
[15] Id.
[16] Id.
[17] Id.
[18] Id. at 5.
[19] See generally Watkins.

Feb 17

Accidents on Icy Texas Roads: Who is Liable?

By Jesse Lotspeich | Car Wreck

When we think of extreme weather in Texas, we generally think of severe thunderstorms, hail, wind, and tornados, but, as we have learned in February 2021, ice and snow storms can be just as dangerous and deadly. There’s also a human factor when snow and ice hit Texas that increases the likelihood of severe injuries and even death for the untrained, inexperienced, and careless driver.

A Federal Highway Administration report states that on average, icy roads cause 151,944 vehicle accidents, 38,770 crash injuries, and 559 crash fatalities a year. These ice-related accidents produce roughly 11% of all weather-related accidents in the country. This is alarming because it shows how dangerous icy roads can be, but it should also alert you to the possibility of personal injury or property damage if you decide to drive in icy conditions.

Icy Roads in the Texas News (2021)

February 11, 2021 – Ice Storm in Fort Worth Kills 8 Drivers

The Basics of Negligent Driving in Texas

In the simplest form, negligence involves:

A duty to a person (the duty to be a careful, safe driver);
A breach of that duty (driving too fast, etc); and
That breach causing damages to another person (property damage, injuries, or death caused by a car accident).

Every driver has a basic duty to other drivers to drive safely and not collide with anyone. This requires them to drive as a reasonably prudent person would drive in the given situation. When they breach that duty, or collide with another person or vehicle, they may be liable for the physical or financial damages they caused. But what if the roads were icy and the driver lost control?

Ice is NO Defense to an Accident! | Liability for Accident and Injuries in Winter Conditions

Drivers are expected to take note of weather and road conditions and adjust their driving accordingly. When the temperatures are near or below freezing and precipitation is present, there is a strong possibility of ice on the roads. Because a driver should know of the chance of icy conditions, they should drive as a reasonably prudent person would drive on icy roads. Blaming the ice will not work if the driver crashes into another car on the road.

Precautionary Measures for Driving in Icy Weather | Driving in Texas in the Winter

When there may be ice on the roads, you should take precautionary measures when driving:

Don’t drive unless you have to;
Follow your local news or go to drivetexas.org* to get updates on road conditions;
Drive below the speed limit;
Do not get distracted from the road; and
Avoid hills, bridges, and low spots if you can.

If you are hit by a driver who was driving in icy conditions, even if they lost control, they may be liable for negligently driving. You should contact your attorney with the accident report and any other information from the accident to help work through your options.

For more winter weather driving tips, click here.

*drivetexas.org is run by the Texas Department of Transportation who also posts on social media outlets.

Feb 10

Marijuana Smell Warrantless Search Texas

Is the Smell of Marijuana Enough to Permit a Warrantless Vehicle Search?

By Brandon Barnett | Drug Crimes

Does the Smell of Marijuana Allow Officers to Search My Vehicle Without a Warrant?

In Texas, the answer is yes. The possession of marijuana is a crime in Texas, so if an officer smells marijuana emanating from your car, he has probable cause to believe a crime is being committed. With probable cause, the law permits the officer to stop and search your car— regardless of whether you consent.

The officer has the ability to do this through what is called the “automobile exception” to the 4th Amendment’s warrant requirement.¹ Generally, the 4th Amendment to the United States Constitution requires police officers to first obtain a warrant before they can search a person’s property. However, because automobiles can quickly move locations and evade law enforcement, the Supreme Court reasoned that it would be impractical to require officers to first secure a warrant before they are permitted to search a vehicle.² So by claiming to smell marijuana, law enforcement officers can also claim to have probable cause to believe a crime is being committed—allowing them to take advantage of the automobile exception and search a vehicle without anything more.

Will the Search Laws Change if Marijuana Becomes Legal?

Maybe. There have been small changes in the law with the current trends in marijuana legalization. A couple of state courts adopted the rule that, after legalization or decriminalization, the smell of marijuana is no longer enough on its own to justify a warrantless search of a vehicle. For example, in Vermont, after the decriminalization of adult possession of less than one ounce of marijuana, the Vermont Supreme Court held that the odor of marijuana alone is insufficient to establish probable cause to search a vehicle.³ The Massachusetts Supreme Court ruled that the state’s decriminalization policy means that the possession of marijuana is now a civil infraction, making the smell of it an insufficient basis for officers to believe a crime is being committed.

However, most states where marijuana is legalized or decriminalized still follow the rule that the smell of it establishes probable cause in support of a vehicle search.⁴ This is because these states still criminalize the possession of larger amounts of marijuana—meaning that the smell of it still indicates that a crime could be underway. This is the logic that the Washington, Maryland, Colorado, and Arizona courts follow.⁵

But what about Texas?

As stated above, the possession of marijuana in Texas is a crime, and officers are still justified in searching vehicles if they smell marijuana coming from them. However, Texas legalized the cultivation of industrial hemp in 2019, which smells like just like marijuana. The issue of whether probable cause can still be supported by the odor of marijuana in light of hemp’s legalization was raised in state court in 2020, but the court left it undecided as the vehicle search in question occurred before the legalization of hemp.⁶ It remains to be seen if or when Texas will legalize marijuana, and what attitude Texas courts will take towards the question of marijuana odor and vehicle searches.

[1] Carroll v. United States, 267 U.S. 132 (1925).
[2] Id., at 153.
[3] Zullo v. State, 2019 Vt. LEXIS 1, * (Vt. January 4, 2019).
[4] Cece white, The Sativas and Indicas of Proof: Why the Smell of Marijuana Should Not Establish Probable Cause for a Warrantless Vehicle Search in Illinois, 53 UIC J. Marshall L. Rev. 187, 211 (2020).
[5] Id., at 211.
[6] Geberkidan v. State, 2020 WL 5406243, NO. 12-19-00296-CR (2020).

Jan 13

Texas Stowers Doctrine Insurance Settlement

The Stowers Doctrine | Good Faith in the Settlement of Claims

By Jesse Lotspeich | Car Wreck, Personal Injury

What is the Stowers Doctrine and How Does it Apply to a Personal Injury Case in Texas?

Texas Stowers Doctrine Insurance Settlement Under the typical Texas liability insurance policy both the insurer and the insured have mutual obligations and rights. The insured pays a premium to their insurance company to protect against unexpected losses and claims. On the other hand, the insurance company has a duty to defend against claims covered under the policy and a right to control the defense of litigation should it arise.¹ Included in the right to control litigation is the insurer’s authority to make the decisions concerning policy coverage, the merits of claims made by third parties against the insurance company, and the settlement of such claims.² But what happens when an insurance company refuses an offer to settle within the policy limits?

According to the Stowers Doctrine, the insurer has an implied duty to act in good faith and accept reasonable settlement demands within policy limits.³ This is called the Stowers duty. Through this duty the insurer protects the insured against judgements in excess of policy limits. Under the Stowers Doctrine, if an insurance company negligently failed to accept a reasonable offer within policy limits and a jury then returns a verdict in excess of the policy limits, the insurance company may be liable for the entire verdict, even though it exceeds policy limits.⁴

History of the Stowers Doctrine

The Stowers Doctrine originated in 1929 from the Texas Supreme Court case G.A. Stowers Furniture Co. v. American Indemnity, Co., 15 S.W.2d 544 (Tex.). Stowers Furniture Co. had an auto insurance policy with American Indemnity for $5,000. During the policy term, a furniture employee’s truck was involved in an accident and suit was brought by the injured passenger, claiming $20,000 in damages. While the suit was pending, the injured party served Stowers with a letter offering to settle for $4,000—within policy limits. The letter gave a deadline to accept the offer and provided proof of the excessive damages. American Indemnity refused to settle and went to trial with the intention of saving money. They lost at trial and a jury awarded the injured party more than twice the amount of the policy. The terms of the insurance policy stated that Stowers was responsible for a judgment in excess of the policy limits. Stowers paid the judgement and then sued the insurance company for reimbursement.

The Texas Supreme Court held that American Indemnity owed a duty to Stowers to exercise ordinary care in the settlement of claims. American Indemnity was responsible for protecting the insured up to the policy limit. The Court remanded the case to the district court to allow testimony of the serious nature of the passenger’s injuries to determine if American Indemnity was negligent in refusing the settlement offer.⁵ If American Indemnity rejected a reasonable settlement within the policy limits, they would potentially be liable for the entire judgement, even that in excess of the policy.⁶

The purpose behind Stowers is to encourage insurance companies to settle claims for the policy limit. Because insurance companies have complete power over litigation, they have a corresponding duty to their insured to exercise the same degree of care that a prudent person would exercise under similar circumstances. Failing to exercise such care is deemed negligent on the part of the insurance company.⁷ Put simply, the insured is protected from the insurance company taking a risk when a reasonable person would have settled.

How Does a Stowers Demand Work?

The Stowers Doctrine is a tool unique to Texas law and has created a new type of settlement demand: the Stowers demand. This demand is a time-sensitive letter sent to a third-party insurance carrier with an offer to settle within the insured’s policy limits.⁸ For a Stowers demand to be valid, five requirements must be met:

the claim against the insured is within the scope of coverage;
liability is reasonably clear;
the demand is within the limits of the policy;
the settlement terms are such that an ordinarily prudent insurer would accept it when considering the likelihood and degree of the insured’s potential exposure to an excess judgment; and
the demand offers the insurer an unconditional, full release for liability.⁹

If these requirements are met and the insurer fails to accept the offer by the deadline, the defendant’s insurance company may be held responsible for verdict in excess of its insured’s policy limits.¹⁰

Footnotes:

Stephen G. Cochran, Texas Practice Series: Consumer Rights and Remedies § 5.13 (3d ed. 2017).
Id.
American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 846 (Tex. 1994).
See G.A. Stowers Furniture Co. v. American Indemnity, Co., 15 S.W.2d 544, 547 (Tex. 1929).
Id. at 548
Id. at 547
Texas Farmers Ins. v. Soriano, 881 S.W.2d 312, 314 (Tex. 1994).
American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 844–45 (Tex. 1994).
Id. at 849; Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex. 1998).
See Ecotech Int’l, Inc. v. Griggs & Harrison, 928 S.W.2d 644, 646 (Tex. App.—San Antonio 1996, writ denied); Stowers Doctrine, Int’l Risk Mgmt. Inst.

Jan 12

What Can Happen if I File a False Police Report in Texas?

By Brandon Barnett | Domestic Violence

If You Lie or Exaggerate in a Police Report or File a False Report, You Could be Charged with a Class B Misdemeanor

Filing False Police Report Texas As Fort Worth criminal defense attorneys, we are often asked by witnesses and victims what might happen if it comes to light that the story they told the police was not exactly true. We often see this in Domestic Violence cases, when a victim decides that the statement he or she gave on the night of the incident was perhaps embellished a little during a fit of anger. Witnesses later become fearful when they realize they might have to take the witness stand and give a different (truthful) account of the event. They worry that they might be charged with a crime themselves for filing a false police report.

Filing a False Police Report in Texas | Texas Penal Code Section 37.08

Section 37.08 of the Texas Penal Code provides:

(a) A person commits an offense if, with intent to deceive, he knowingly makes a false statement that is material to a criminal investigation and makes the statement to:
(1) a peace officer or federal special investigator conducting the investigation; or
(2) any employee of a law enforcement agency that is authorized by the agency to conduct the investigation and that the actor knows is conducting the investigation.

Filing a false report under Section 37.08 is a Class B Misdemeanor, punishable by up to 180 days in jail and a fine up to $2,000.

*Filing a false report about a missing child or missing person is a Class C offense, punishable by fine only.

Charges for Filing a False Report Do Not Happen Very Often in Texas

In our line of work, we see false reports on a daily basis. Be they embellished statements, outright lies, or statements that simply omit important details, false reports happen all the time. In over 10 years, we have yet to see a case filed on a victim or witness for filing a false report or giving a false statement. While we’re sure it has happened, it doesn’t happen very often in our experience. Perhaps it is because the state does not want to chill victims from reporting or because no one knows which story was actually true. Either way, it is unlikely that a victim or witness who changes their story is going to be charged with an offense. Regardless, we always tell witnesses to simply TELL THE TRUTH. If you tell the truth, even if the truth has changed since the first time you told the story, you’ll probably be in good shape.

*Note: this post does not discuss the offense of Perjury, which is a separate offense involving swearing to a false statement. See Texas Penal Code Section 37.02.

Jan 11

Recording Conversations Texas Wiretapping

Can I Record a Conversation Without the Other Party’s Consent in Texas?

By Brandon Barnett | Criminal Defense

Recording Conversations Without Consent in Texas | Wiretapping Laws

Recording Conversations Texas Wiretapping With roadway cameras at nearly every street corner, video surveillance in businesses, doorbell cameras on homes, web cams on computers, and recording capabilities on mobile phones – we must navigate carefully in a digital world. We’ve seen titillating news reports exposing a secret audio tape of a public figure having scandalous phone conversations, or video surveillance of questionable traffic stops that escalate in shocking fashion. You may have had a suspicious feeling that you were being recorded, or on the other hand, felt as if you needed to record a conversation with another for your own protection.

With privacy seemingly harder to come by as compared with days long past—what does Texas law say about recording conversations? Is it illegal to record a phone conversation with another person? What about in person?

The short answer is: YES, you can record a conversation with another person without that person’s consent. But this answer requires more explanation.

Recording Phone Calls in Texas | Texas is a One-Party Consent State

Under Texas Law, it is a crime intercept or record any wire, oral or electronic communication without the consent of at least one party. The good news is that you count as one party and if you’re recording then you have probably given yourself consent to record the conversation. Generally speaking, state wiretapping laws turn on whether the state is a one-party consent state. While some states require the consent of all of the parties to a conversation prior to recording, Texas permits the recording of telephone calls, so long as the consent of one of the parties is obtained. As stated, if you are one of the parties on the phone call, then you may consent to having your own conversation recorded—you need not alert the other party. Additionally, a parent may give vicarious consent to the recording of a child’s conversation if the parent has a good faith objectively reasonable belief that the recording is necessary for the welfare of the child.

However, if during a phone call there are multiple parties who are in different states, then be aware that other state laws may require pre-recording consent of all of the parties. In this scenario, if the recording party obtains consent from the other parties before the recording begins, then the recorder is not in violation of wiretapping laws.

See this link to learn more about the various state wiretapping laws.

Recording In-Person Conversations in Texas | Can I Record Someone Else’s Public Conversation?

Texas law (Penal Code §16.02) does not permit you to record in-person communications when the parties have an expectation that such communication is not subject to interception (i.e. If there is a reasonable expectation of privacy). If you wish to record a conversation to which you are not a party, all of the parties must give consent before the recording device is turned on or there must be no reasonable expectation of privacy (e.g. If the recording is taken from your doorbell camera and the parties are standing on you doorstep). If you are a party to the conversation, record away.

Further, you are able to record in-person communication at a public place, like a mall food court or at a football game for example, where parties do not have the expectation of privacy. Remember—if you say it in a public place, within earshot of others who may overhear, you do not have an expectation of privacy in those statements. Generally, such statements may be recorded without violating that state’s wiretapping laws.

A Word of Caution of Recording Conversations in Texas

Please be aware that there are both federal and state wiretapping laws that may limit your ability to making recordings of telephone calls or in person conversations. This article addresses state wiretapping laws in Texas only. Additionally, if a person has violated a state or federal wiretapping statute, he may be both charged criminally and be sued civilly by the damaged party.

Further, while a person may have successfully recorded a conversation under state and federal wiretapping laws, the act of disclosing the recording to other third parties could be, in and of itself, punishable criminally or civilly under other legal theories (such as slander, for example).

If you are faced with a wiretapping charge, or have questions about wiretapping, please contact an attorney who will address both the state and federal regulations as they are related to the facts of your specific case. Wiretapping charges are potentially serious felonies that could land a person in jail or prison, with fines ranging from $200 to $10,000. If you are faced with charges related to wiretapping in Texas, please contact our offices at (817) 993-9249 for a consultation.

Summary on Texas Wiretapping

A person can record a conversation to which you are a party in Texas without violating wiretapping laws, so long as the other party is in a “one party consent” state.
A person can record a conversation (to which he is not a party) if one of the participants gives him permission.
A person can record a conversation when, in a public setting, the participants do not have a reasonable expectation of privacy.
It is almost always illegal to record a phone call or private conversation to which one is not a party, does not have consent from at least one of the parties, and could not naturally overhear the conversation.

This article is for educational purposes only and should never be substituted for legal advice.

Dec 02

Top 5 Reasons for Arrests During the Christmas Holiday Season

By Brandon Barnett | Criminal Defense

Christmastime Arrests Texas When you think about the Christmas season, you probably think about family time, presents, good food, and celebration. We think about those things too, but as criminal defense attorneys, we also think about the reasons that some of our clients get arrested during the holiday season. For this article, we took a look at the last 6 years of holiday season arrests (for clients that we represented) and compiled an (anecdotal) list of the top 5 reasons that folks get arrested during the Christmas/New Year’s season. Our goal is that this list will serve as a warning, so that your holiday season can be filled with the good stuff, rather than jail, bail, and calls to our office. Here goes:

5. Shoplifting

Many retailers slash their prices and offer steep discounts in the weeks leading up to Christmas and even bigger discounts after Christmas, but we have yet to see any retailer offer the “five finger discount” for their merchandise. Regardless, we see plenty of shoplifting cases during the Christmas season, making it our #5 reasons that people get arrested during Christmas. Depending on the regular price value of the item (not the discounted price), shoplifting theft charges can range from misdemeanors to felonies. Learn more about Theft law in Texas here.

4. Package Theft

In a similar vein to shoplifting, our #4 reason for holiday arrests is package theft. Many shoppers choose the convenience of online shopping and have their Christmas purchases delivered right to their front door. Some people see this as an easy target, following behind UPS or FedEx trucks to steal those would-be Christmas gifts from the front porch. However, with the increase in doorbell cameras, it is getting easier to catch the porch pirates in the act. Further, some law enforcement agencies have begun using dummy packages to bait thieves into getting caught. Package theft can range from a misdemeanor to a felony depending on what unknown treasure lay inside the brown box.

3. Airport Contraband (Guns and Drugs)

Going to visit grandma can require air travel for many families. This means that thousands more people than usual flood through DFW Airport between Thanksgiving and New Year’s. It matters not from where these travelers hail. From Maryland to Oregon to France, if a person is arrested at DFW Airport, their case will be filed in Tarrant County, Texas and they will have to travel back to DFW to attend court. During the holidays, we see a surge in airport arrests when people bring items into the airport that are not allowed. These mostly consist of:

- Airport Gun Charges; and
- Possession of a Controlled Substance (CBD oil, THC oil, marijuana, etc.).

Even if the state from which a traveler is coming has legalized marijuana and the state to which they are traveling has legalized marijuana, if they are caught possessing marijuana in the airport, they will be arrested and charged. The combination of airport gun arrests and airport drug arrests make these types of cases our #3 reason for holiday arrests.

2. Assault Family Violence

In the movie Christmas Vacation, Clark Griswold showed an enormous amount of restraint when his extended family pushed him to the limit (especially Cousin Eddie), but not everyone is blessed with such a cool head. Christmas time brings added stressors into the family environment that can sometimes lead to verbal or physical altercations between family members, so much so, that these arrests rank at #2 in our book. Depending on the nature of the assault, a domestic violence arrest can be charged as a misdemeanor or a felony. Learn more about Family Violence under Texas law.

1. Driving While Intoxicated

With all of the Christmas and New Year’s parties and the increase in No Refusal Weekends, it is not hard to guess that DWI arrests are #1 on our list. Driving While Intoxicated in Texas can range from a misdemeanor (if it is a first or second offense) to a felony (if there is a child in the car or if the person arrested has been convicted of DWI twice in the past). Our advice is to plan ahead and do not even take your car to a Christmas party when you plan to drink. Catch a ride from a friend or take an Uber or Lyft. That would be a lot cheaper than hiring an attorney and a lot less hassle too. Learn more about Texas DWI law here.

We Hope You Never Need Us, But We’re Here if Your Do.

We wish you a very merry Christmas and a happy New Year. As always, we hope you never need us to represent you or one of your loved ones for a criminal offense. This is even more true during the Christmas season. Hopefully this list will help you avoid trouble that looms during the holiday season. If you do happen to need us, we are only a phone call away at (817) 993-9249.

Oct 26

My Contractor Pulled a Houdini! Now what? | Construction Fraud Under Texas Law

By Brandon Barnett | Fraud

Contractor Fraud Texas Tarrant Have you sustained property damage in a powerful storm? If so, you probably had to call a contractor to do necessary repairs. It is sometimes customary in the construction industry for contractors to ask homeowners to pay for some of the work up front, and pay the remaining balance upon completion. Some contractors will ask you to fork over a hefty deposit to someone you do not know, yet you are trusting to get the job done. You are not alone. The good news is that most contractors will operate above the board. Even though social media reviews and ratings sites, such as Angie’s List, are sensible ways of vetting contractors and service providers in 2020, they cannot predict future white collar crimes perpetrated by individuals who are focused on scamming construction deposits out of desperate homeowners.

What Happens if Your Contractor is a Crook? | Construction Fraud in Tarrant County

What legal remedies are available to homeowners in Texas when a contractor pulls a Houdini, vanishing into thin air, cash in hand, without completing the repair work? Contractual breach is the most common civil cause of action. Generally, a contractual breach occurs when (1) there is an existing contractual agreement that is (2) performed (paid for) by one party, yet (3) the other party did not perform as agreed to, which (4) caused damages to the performing (paying) party. Material breach of a roofing contract may occur without intention, when a contractor takes too long to complete a project, or perhaps uses substandard materials, for example. This civil cause of action addresses the damages to the individual, but does not hold the wrongdoer accountable in a criminal court.

So what about those instances in which a scammer intentionally preys upon homeowners in the hopes of pocketing the cash and skipping town? Is this a criminal act?

Construction Fraud Prosecutions in Texas

Tarrant County, Texas has recently begun focusing prosecution efforts on contractor fraud. Homeowners in Tarrant County may call their local police agency to make an initial report. Additionally, homeowners may call the Tarrant County District Attorney’s White Collar Crime and Public Integrity Unit, created by Sharen Wilson, the District Attorney in Tarrant County. Wilson stated in a recent news article, “Construction fraud is a crime, and our citizens need to be protected from it.”

When homeowners call the DA’s office, they will talk with a representative to see if the wrongdoing rises to the level of a complaint. If a complaint is filed, the DA’s office reviews the facts of the complaint for potential prosecutable offenses based on a variety of legal theories in criminal law. If the DA’s office finds elements of criminality, an investigation ensues which may result in criminal charges for the wrongdoer.

Construction Fraud Under the Texas Penal Code

The Texas Penal Code does not specifically provide a code section for construction or contractor fraud crimes. What are some of the legal theories and statutes the DA’s office is using to go after these home repair Houdinis? The Tarrant County DA’s office has prosecuted construction and roofing contractors who have absconded with the funds for misappropriation of fiduciary property, theft, insurance fraud, and elder financial abuse, to name a few.

Recently, the Tarrant County DA’s White Collar Crime Team prosecuted a man for theft from elderly victims. For his crimes, this man received three years in jail and an order to make restitution of $77,000.00 to his elderly victims. On multiple occasions, the man used aliases to approach homeowners in the mid-cities and Fort Worth areas, soliciting demolition and repair work. He accepted large sums of money, but never completed the work, or, did substandard work.

In January of 2019, another man pled guilty to Theft of $150,000- $300,000, for scamming 41 residents in the Arlington, North Richland Hills, and Mansfield areas, out of funds they paid him for roofing repairs. This man’s scheme involved sending employees door-to-door to sign customers up for repairs. The employees took checks from the victims, but the roofing work never began. As part of his plea agreement, the man was ordered pay the victims $230,000.00 in restitution.

Each of these types of cases is fact-specific and context-laden. Tarrant County has decided to take a strong stand against construction fraud. “We have made it a priority to put white-collar criminals on notice in Tarrant County—we will not tolerate scammers preying on our residents,” says Matt Smid, chief of the DA’s White Collar Crime Team. The county has also taken steps to provide the public with information regarding scams and fraud that is targeted at seniors. If you feel that you have been a victim of contractor fraud, you do have some options in Tarrant County.

Special Note to Attorneys who represent victims or perpetrators of constructions scams, implicating civil and criminal causes of action: Texas Disciplinary Rule of Professional Conduct 4.04(b) states that a lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to gain advantage in a civil matter. According to the Texas Center for Legal Ethics, “giving notice required by law or applicable rules of practice, or procedure as a prerequisite to instituting criminal charges, does not violate the Rule, unless the underlying criminal charges were made without probable cause.”