The California Supreme Court – July 22, 2022 | Dorsey & Whitney LLP

Siry Investment, LP c. Farkhondehpur, No. S262081: The Supreme Court resolved two issues: whether (1) a defaulting party has standing to file a motion for a new trial alleging an error of law in calculating damages, and (2) a trial court court may award treble damages and attorney’s fees under criminal law. Section 496(c) of the code in cases of fraudulent misappropriation of cash distributions from a partnership. The plaintiff was a limited partner in a partnership formed to renovate and lease space in a building. The plaintiff sued the general partner and two of the trustees of the other limited partners (“defendants”), alleging that they had improperly diverted rental income from the partnership to an entity created by the defendants.

The road to the Supreme Court began with a jury decision for plaintiff, which the Court of Appeal overturned due to an “ambiguity” in the special verdict form. While on remand, the defendants refused to respond to discovery requests and related court orders. The trial court entered default judgment against the defendants and awarded the plaintiff actual damages, treble damages and costs under section 496(c), and punitive damages. The defendants then filed a motion for a new trial alleging an error of law. The court granted the motion in part and denied it in part, finding that the treble damages were appropriate but miscalculated and the punitive damages were excessive. It also forced the plaintiff to choose between treble and punitive damages. The plaintiff elected treble damages and the court entered a modified judgment. The defendants appealed the default and amended judgments, and the plaintiff cross-appealed the amended judgment, arguing that the defendants lacked standing to seek a new trial as defaulting parties. The Court of Appeal ruled in favor of the defendants on the standing and section 496(c) issues.

The Supreme Court granted the review. As for standing, she agreed with the Court of Appeal, asking the question as if a defaulting party could ask for a new trial when, because of the default, there was no trial. He answered in the affirmative to this question. First, the Code of Civil Procedure allows the defaulting defendant to call a default judgment for error of law. It would be illogical to prevent the trial court, which already knows the case, from examining the same alleged errors of law and to burden the appellate courts with questions that could be resolved at the level of the trial court. .

As to section 496(c), however, the Court disagreed with the Court of Appeal. The law’s “unambiguous” language allows civil plaintiffs to recover treble damages and attorneys’ fees when their “property was obtained in a manner that constituted theft.” The defendants’ fraudulent misappropriation of partnership funds fell within the scope of conduct criminalized in the statute, so the plaintiff could properly collect treble damages and attorneys’ fees.

Judge Groban, joined by Judge Kruger, agreed but wrote separately to allay concerns that majority participation would turn most commercial cases into “theft” cases with the possibility of treble damages.

The full review is available here.

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