Lawyer pleads guilty to mishandling oil heirs’ money


A former Austin lawyer who had been accused by authorities of stealing and otherwise mishandling thousands of dollars he held for his cousins — heirs of a wealthy Texas oil family— pleaded guilty to a third degree felony in state a Travis County court today in an agreement that will land him on probation for 10 years.

Stephen Allie Peyton, who resigned his law license in 2004 after repeated allegations that he acted unethically in his law practice, pleaded guilty to misapplication of fiduciary property.

He admitted that he misapplied between $20,000 and $100,000 of his cousins’ money in 2002 and 2003.

Peyton will be formally sentenced at a later date but his agreement with prosecutors calls for him to receive 10 years probation, 250 hours of community service and to pay $54,907 in restitution, prosecutor Laurie Drymalla said. Drymalla said that Peyton has already paid about $49,000.

The money came from a settlement that John Peyton, his brothers and their family members reached in a lawsuit seeking part of their inheritance. Among the defendants in that suit was the brothers’ mother.

The Peyton brothers’ great-great-grandfather was John C. Townes, a judge who in 1902 became the first dean at the University of Texas Law School, whose main building now bears his name. Their grandfather is Edgar Townes, the original general counsel of Humble Oil, forebear of Exxon Mobil Corp.

Three of the five Peyton brothers are now dead. A civil lawsuit filed by the other two against Stephen Peyton and two other lawyers is pending in state District Court.

Kiele Linroth Pace said that there were weaknesses in the state’s case but that her client struck a deal because he regrets what happened and wants to get on with his life.

John Peyton, an Austin musician and radio show host who was in court for the plea, said that he is happy his cousin was held accountable in criminal court. But he believes his cousin stole more than $100,000, money he hopes to recoup in the civil case.

Read a detailed account of the Peyton family fight here.


Lawyer pleads guilty to mishandling oil heirs’ money
Steven Kreytak
April 1, 2011
Austin American-Statesman

Additional coverage:

Once ‘Texas royalty,’ Peyton brothers now touched by tragedy, money fight
Steven Kreytak
October 4, 2009
Austin American-Statesman

When they were kids, John Peyton and his four brothers ate at Houston’s finest restaurants, swam at the city’s exclusive River Oaks Country Club and spent summers at their family’s sprawling ranches in Brenham and near Dripping Springs.

The youthful brothers were worth millions, their uncles told them. Their great-grandfather, after all, had helped found Humble Oil & Refining Co., forebear of Exxon Mobil Corp.

But those millions never came.

Today, three of John Peyton’s brothers are dead — one died of a drug overdose, and another died while broke and battling addiction. His last living brother is in jail, trying to overcome his own drug addictions and the feeling that he was cheated out of the good life due him as an oil heir. To claim what they saw as their rightful inheritance, the brothers sued their mother at one point.

John Peyton, 50, is now an Austin musician and blues radio show host. When he tells his family’s story, the Texas drawl that is so robust on the airwaves becomes tinged with sadness. He’s keenly aware of the dysfunction and tragedy that have scarred his immediate family’s section of one of Texas’ most accomplished family trees.

“Me and my brothers come from, some people say, Texas royalty. … It’s all so tragic,” he said.

While John describes his mother as a woman of great wealth, it’s not clear that any inheritance set aside for the brothers was ever very substantial. Their 2002 lawsuit was settled quickly, with the brothers to receive about $600,000 in cash and stock from a family trust that named them among the beneficiaries.

Their mother got land held by the trust; she and her lawyer declined to comment for this story.

That settlement did not end the Peyton family feud. The surviving brothers sued their lawyers — including a cousin — accusing them of stealing some of their settlement money, and of filing frivolous suits to cover it up and telling the brothers it was their mother who had cheated them.

The cousin, Stephen Allie Peyton, 45, was indicted in June by a Travis County grand jury, accused of misusing the brothers’ money.

“We’ve been devastated,” John said. “Emotionally, financially devastated by this.”

High society

John Peyton’s great-great-grandfather was John C. Townes, a judge who in 1902 became the first dean at the University of Texas Law School, whose main building now bears his name.

Townes’ son, Edgar, was the original general counsel of Humble Oil in 1917 and later helped found Houston’s South Texas College of Law. Edgar Townes died very wealthy in 1962 and left trusts for his children, as his widow did later for the grandchildren.

Among those grandchildren was Aileen Townes, who in 1952 married then-Louisiana State University boxer George C. Peyton, son of a state district judge and eventually a lawyer himself. The couple lived in Houston, and 19-year-old Aileen gave birth in 1954 to the first of five sons — George, Matthew, David, Mark and John — over 5 1/2 years.

John said his father drank too much, leading to his parents’ divorce in 1964, when John was 5.

Splitting time between their parents, the brothers acted out. John said he recalls that he and his brothers made gunpowder in their mother’s blender and emulated cowboy movies by riding their bikes next to the amusement ride train in Hermann Park and jumping aboard.

Inseparable, the brothers took up drinking and doing drugs during junior high and high school, John said.

“Heroin,” he said. “It has always been heroin.”

They attended sleep-away camps, and some went to private schools, but while friends drove nice cars and received big allowances from family wealth, the Peyton brothers got neither, John, Matthew and Mark Peyton said in interviews.

(Matthew was interviewed about two months before he died Sept. 4.)

Their father always made sure they had money in their pockets, but their mother refused to dole out any cash, John said.

On birthdays, “our friends were getting cars, and we were getting, ‘Oh, you’re 17; you are getting a $17 check,’ ” he said.

The Peyton brothers’ mother has been remarried twice, now lives in Houston and goes by Aileen McHenry Jones. A court filing from her lawyer says she spent more than $400,000 on her sons but provides no details.

Troubled lives

Apart from the legal settlement, the only family money the brothers received as adults was a few thousand dollars apiece from the sale of family land around 1980, John said. Their father, who saved little, left his sons nothing when he died in 1985 at 51, John said.

When they asked about a possible inheritance from the other, wealthier side of the family, “we were told, ‘Don’t ask; you’ll get something when we die,’ ” John said of his mother and her cousin Paul Pressler III, a former appeals court judge.

John and three of his brothers joined the military after high school. The middle brother, David, earned two degrees from Sam Houston State University in Huntsville, working at a prison and a sawmill to pay tuition.

After a career as a teacher and at the Texas Education Agency, David died of a heart attack at 48 in 2005.

George, the eldest, went to prison repeatedly for burglary and theft from the 1970s through the ’90s. He was working as a plumber in Houston when, according to an autopsy, he died of a heroin overdose at age 48 in 2002.

Mark, 51, the second-youngest, was convicted of theft and burglary in Travis and Comal counties during the 1990s and has been to prison three times, most recently for robbing an Austin bank in 2003, according to court records and prison officials. He is in the Travis County Jail on a heroin possession charge.

Mark said in an interview before his arrest that his addiction to drugs drove his crimes. John said the same was true for George.

Matthew was convicted of misdemeanors including driving while intoxicated and drug possession.

Before his heart attack and death last month, he said he fought alcohol and prescription drug abuse, which he blamed on a bad knee from serving in Southeast Asia in the Marines.

He once ran a successful litigation support business in Houston, he said, but had stopped working and begun collecting disability payments. A divorce in 1999 “just ruined me,” he said.

John said he “never missed a party” but has avoided life-changing addictions. After the Air Force, he worked sound and lighting on Houston’s entertainment circuit and started a landscaping company before attending college in San Marcos and Austin.

In radio since the 1990s, he hosts shows, including the “Blueseum of Fine Art” nationally syndicated radio show about blues music with Chris Jagger, Mick’s brother. His harmonica playing has earned him studio backup gigs.

He has been married for 25 years to Sheryl, a forensic scientist. They have three daughters in college and a son in elementary school.

As the brothers struggled, John said, they watched others in the family live an easier life.

“They were going to the country clubs and driving Cadillacs” yet turned down requests for money, he said of Jones and her cousins. “Every time you go up and ask, you are like a vulture.”

After his wife suffered a brain hemorrhage in 2000, John asked his mother for $600 to pay a health insurance premium, he said.

“She said, ‘Let us pray on it,’ ” he recalled. John declined an offer of $300 from Jones and her husband and came up with the money himself, he said.

Legal action

John’s wife recovered, but the incident prompted the brothers to demand an accounting of their inheritance. They called Stephen Peyton, a cousin on their father’s side who was a lawyer in Austin and who John sometimes met at UT football tailgate parties.

“We trusted him implicitly,” John said.

The brothers did not know, John said, that Stephen had that year agreed to be placed on probation by the State Bar of Texas for professional misconduct related to a medical malpractice client.

John said the brothers initially wanted Stephen to send a letter on their behalf. Instead, Stephen and another lawyer filed suit focusing on a family trust that names Jones and her children as beneficiaries. John acknowledged that the brothers could have stopped the suit but said they felt that once it was filed “the cat was already out of the bag” and they agreed to follow through with it. The 2002 suit accused Jones and Pressler of committing fraud and breach of fiduciary duty by paying money from the trust to Jones and not to the brothers.

In their legal response, lawyers noted the criminal records and addiction problems of some of the brothers and said the trust allowed Jones and Pressler, two of the fund’s trustees, to distribute the assets only when it was in the “best interests” of the beneficiaries, including the brothers.

Shortly after the suit was filed, George, who had been out of prison for several years, needed medical attention for heart problems, John said.

Their mother refused requests to help pay, including one plea from a longtime family doctor, according to John and the brothers’ recent lawsuit against their lawyers.

In the weeks before he died of a heroin overdose, George “would cry to me on the phone,” John said. “He’d say, ‘I don’t understand how she could do this, man.’ ”

John said their mother paid for George’s funeral.

Suing the lawyers

Reeling from George’s death and hoping to reconcile with their mother, John said, the surviving brothers decided to end their suit against her by accepting the cash and Exxon stock held by the trust — valued at the time at $600,000 — and giving her the real estate and mineral interests.

While the court filings don’t include a full list of the assets, one document filed by Jones’ lawyers said the trust owned one-twelfth of a 1,539-acre family tract near Dripping Springs.

Most of that land, the Hazy Hills Ranch, was sold to developers in 2004 for more than $8 million, according to news reports.

In an interview, Pressler, the former judge who is Jones’ cousin, said the settlement was fair for both sides.

John, his surviving brothers and the children of his deceased brothers claim in the latest lawsuit that after the settlement, the brothers’ lawyers began to steal from them and tried to cover it up by filing other, unsuccessful, lawsuits. The brothers’ current lawyer, Hector Cardenas, estimates that the brothers received only about $120,000 of the settlement.

The latest suit, pending in state District Court in Travis County, claims that the proceeds were misused by Stephen and another lawyer, Joseph Simmons of Austin, who helped with the 2002 suit.

Stephen’s wife and another lawyer, James Patterson of Kerrville, are also named as defendants in the suit, which seeks millions in damages.

In an e-mailed statement, Stephen’s lawyer Kiele Linroth Pace said: “This case began as a civil suit over an accounting dispute. The plaintiffs (Peyton brothers) threatened criminal prosecution in an effort to extort money from my client and force him to settle, which is highly unethical. He looks forward to presenting his side of the story at the proper time.”

In an interview, Simmons said he did nothing wrong. He said he stopped representing the brothers after the settlement had been reached. “There is no basis for this case,” he said.

Lawyers for Patterson and Stephen’s wife, Christa Peyton, declined to comment.

John said that in April 2007, he and his brothers asked Stephen what happened to the settlement money. By that time Stephen had agreed to surrender his law license after a series of other clients accused him of misconduct, including allegations that he misused their money.

Stephen twice acknowledged to the brothers that he owed them money — once in a conversation with them at a restaurant and again in a phone conversation that John secretly recorded, according to John and the brothers’ lawsuit. At mediation, Stephen said he used the brothers’ money to pay other clients, estimating that he owed the brothers $550,000, the suit said.

After Stephen failed to follow through on his promise to repay the money, John took the case to authorities, he said.

On June 29, a Travis County grand jury indicted Stephen on one charge of aggregated misapplication of fiduciary property, a first-degree felony that could carry a penalty of five to 99 years or life in prison if Stephen were convicted.

The indictment charges that in 2002 and 2003 Stephen held money for the brothers and used it for himself, paid his own expenses with the money and produced an incomplete accounting of the funds.

The prosecutor in the case, Blake Williams, said there are no plans to charge anyone else. No trial date has been set for Stephen.

‘We should have never asked’

John said the brothers never wanted to sue their mother and only wanted their inheritance. He said he believes that Stephen filed the suit against her because a lawsuit entitled him to a larger share of any trust money recovered.

John, who blames his brothers’ deaths on stress from the legal battle, said he talks to his mother from time to time, but the conversations are a bit shallow.

“In hindsight, we should have never asked what was there,” he said. “I’d rather have my brothers than any amount of money.”