Siry Inv., L.P. v. Farkhondehpour

• Decision Date: 03 March 2020
• Docket Number: B277750 (Consolidated with B279009,B285904)
• Citation: 259 Cal.Rptr.3d 466,45 Cal.App.5th 1098
• Court: California Court of Appeals Court of Appeals
• Parties: SIRY INVESTMENT, L.P., Plaintiff and Appellant, v. Saeed FARKHONDEHPOUR et al., Defendants and Appellants.

45 Cal.App.5th 1098

259 Cal.Rptr.3d 466

SIRY INVESTMENT, L.P., Plaintiff and Appellant,

v.Saeed FARKHONDEHPOUR et al., Defendants and Appellants.

B277750 (Consolidated with B279009

B285904)

Court of Appeal, Second District, Division 2, California.

Filed March 3, 2020

As Modified on Denial of Rehearing March 23, 2020

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen, San Diego, and Robert Cooper, Los Angeles, for Plaintiff and Appellant.

Richard L. Knickerbocker, Santa Monica, for Defendants and Appellants Saeed Farkhondehpour, individually and as trustee of the 1994 Farkhondehpour Family Trust, and 416 South Wall Street, Inc.

Fisher & Wolfe and David Fisher for Defendant and Appellant Morad Neman, individually and as former trustee of the Neman Family Irrevocable Trust and the Yedidia Investments Defined Benefit Plan.

Greines Martin Stein & Richland, Robert A. Olson, and Edward L. Xanders, Los Angeles, for Defendant and Appellant Morad Neman, individually and as former trustee of the Neman Family Irrevocable Trust and the Yedidia Investments Defined Benefit Plan.

HOFFSTADT, J.

This is the fourth appeal in this longstanding lawsuit, and challenges a $7 million default judgment entered after the trial court issued terminating sanctions. Among the many issues raised by the parties on appeal, three present significant legal questions: (1) May a trial court issue terminating sanctions when the discovery a party contumaciously refuses to provide encompasses fewer than all the issues in a case; (2) May a party in default file a motion for new trial raising "[e]rror[s] in law," including the inapplicability of certain remedies under the allegations as pled; and (3) May a trial court award treble damages and attorney fees under Penal Code section 496, subdivision (c), in a case involving the fraudulent diversion of business funds rather than trafficking in stolen goods?

On the first question, we conclude that a trial court is not foreclosed from issuing terminating sanctions just because the underlying discovery encompasses only a subset of the issues in the case. On the second question, we conclude that a party against whom a default has been entered may file a motion for new trial attacking the default judgment as containing "error[s] in law." And on the third question, we conclude that Penal Code section 496, subdivision (c) only authorizes an award of treble damages or attorney fees when the underlying conduct involves trafficking in stolen goods; in so doing, we respectfully part ways with Switzer v. Wood (2019) 35 Cal.App.5th 116, 247 Cal.Rptr.3d 114 ( Switzer ), which holds to the contrary.

After considering all of the parties’ arguments in these consolidated cross-appeals, we affirm the entry of terminating sanctions but modify the judgment to eliminate the awards of treble damages and attorney fees.

FACTS AND PROCEDURAL HISTORY

I. Facts¹

In 1998, Moe Siry, Saeed Farkhondehpour (Farkhondehpour), and Morad Neman (Neman) formed a limited partnership to renovate and lease space in a mixed-use building in downtown Los Angeles. The partnership agreement named one general partner (namely, 416 South Wall Street, Inc. (416 South Wall Street), of which Farkhondehpour was president) and four limited partners (namely, Siry Investment, L.P. (Siry), the 1993 Farkhondehpour Family Trust (of which Farkhondehpour was trustee), the Neman Family Irrevocable Trust (of which Neman was trustee), and the Yedidia Investment Defined Benefit Plan Trust (of which Neman was also trustee)). The agreement divvied up the partnership’s cash distributions as follows: Siry was to receive 39.60 percent; the Farkhondehpour Family Trust, 29.70 percent; the Neman Family Irrevocable Trust, 19.80 percent; and the Yedidia plan, 9.90 percent. A separate entity—namely, Investment Consultants, LLC (Investment Consultants)—was responsible for acting as property manager, for making the required cash distributions, and for managing the renovations.

In 2003, Farkhondehpour, Neman, and 416 South Wall Street created an entity named DTLA, required the building’s tenants to pay their rent to DTLA, and through these means started to "improperly divert rental income away from the ... [limited] partnership and into DTLA." Farkhondehpour and Neman also began to charge personal and other non-partnership expenses to the partnership. The net effect of these actions was to direct Investment Consultants to underpay Siry its cash distributions. What is more, Farkhondehpour and Neman ensured that Siry remained unaware of the underpayments by misrepresenting to Siry the building’s rental income and the partnership’s expenses, effectively lying to Siry about what its cash distributions should have been.

II. Procedural Background

A. Siry’s lawsuit, first trial and reversal

In June 2007, Siry sued Neman, Farkhondehpour, 416 South Wall Street, and the trusts over which they were trustees (collectively, defendants) for underpaying Siry and improperly diverting the partnership’s rental income to their own coffers.²

The matter proceeded to a jury trial in October 2009. At that time, Siry’s operative second amended complaint sought (1) dissolution and winding up of the limited partnership, (2) an accounting, (3) damages for breach of the agreement, and (4) damages for breach of fiduciary duty. The jury found for Siry, awarding actual damages of $242,975 and punitive damages of $1.1 million against Farkhondehpour and $2 million against Neman. The trial court denied a subsequent motion for a new trial, but reduced the punitive damages awards to $728,925 against each Farkhondehpour and Neman.

In December 2012, we reversed the jury’s verdict. ( Siry Inv., L.P. v. Farkhondehpour (Dec. 12, 2012, B223100, B234655) 2012 WL 6182858, 2012 Cal.App.Unpub.LEXIS 9014 [nonpub opn.].) We did so because the special verdict form submitted to the jury did not require the jury to specify whether Farkhondehpour and Neman were liable to Siry individually or as trustees of the various trusts. This defect rendered the verdict "hopelessly ambiguous" and, because "who is liable [was] key," necessitated a remand for a re-trial. ( Id. , at *1, *4–6, 2012 Cal.App.Unpub.LEXIS 9014 at *2, *4, *6-*7, *11.)

B. Issuance of terminating sanctions on remand

On remand, Siry propounded two rounds of discovery on defendants—a first round in October 2013 and a second in January 2014. As discussed in more detail below, defendants did not compliantly respond to the discovery or to the trial court’s subsequent orders to respond to that discovery without objection.

In late June 2015, Siry moved for terminating sanctions due to defendants’ steadfast refusal to respond to Siry’s discovery requests or to obey the court’s multiple orders compelling responses. At that time, Siry’s operative fifth amended complaint sought (1) compensatory damages for breach of the partnership agreement, breach of an oral contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and fraud;³ (2) punitive damages; (3) treble damages pursuant to Penal Code section 496, subdivision (c) ; and (4) attorney fees under Penal Code section 496 as well as Code of Civil Procedure section 1029.8⁴ (on the ground that defendants were acting as unlicensed contractors and unlicensed broker-dealers). Siry had not sought treble damages or attorney fees prior to the first trial. Mere weeks before filing its motion for terminating sanctions, Siry served defendants with notices that it was seeking $4 million in punitive damages against each of them.

Defendants opposed the motion with a brief and nearly 1,700 pages of exhibits. The court held two hearings and issued a written order striking defendants’ answers and entering their default.

C. Default prove-up and entry of judgment

Siry filed over 2,000 pages of documents in anticipation of the hearing at which it would prove up its damages.

After reviewing the documentation, the court in July 2016 issued an order finding that Siry had "met its evidentiary burden as to all claims." The court went on to enter default judgment against defendants awarding Siry (1) actual compensatory damages of $956,487, comprised of $534,118 in actual damages plus $422,369 in pre-judgment interest; (2) treble damages of $2,869,461 pursuant to Penal Code section 496, subdivision (c) ; (3) punitive damages of $4 million (plus $1 against only 416 South Wall Street); (4) attorney fees totaling $4,010,008.97; and (5) costs of $187,109.13. The total came to $12,023,067.10.⁵

D. Reduction of damages upon a new trial motion

In August 2016, defendants filed a motion for new trial on several grounds. Among other things (and as pertinent to this appeal), defendants argued that the trial court had awarded excessive damages and committed errors in law by (1) awarding treble damages under Penal Code section 496, subdivision (c) ; (2) miscalculating the treble damages award; (3) awarding a constitutionally excessive amount of punitive damages; (4) allowing Siry to collect both treble damages and punitive damages, rather than requiring Siry to elect between them; and (5) awarding Siry attorney fees under Penal Code section 496, subdivision (c) and section 1029.8.

After Siry opposed the motion, the trial court in September 2016 partially denied and partially granted the motion. As a threshold matter, the court ruled that defendants had standing to make a new trial motion notwithstanding the entry of default. On the merits, the court ruled that (1) treble damages were properly awarded under Penal Code section 496, subdivision (c), but (2) it had miscalculated the treble damages award (and reduced them to $1,912,974); (3) its award of $4 million in punitive damages was constitutionally excessive (and reduced the damages to $1 million each against Farkhondehpour and Neman); (4) Siry would have to elect between treble damages and punitive damages; and (5) attorney fees were properly awarded under Penal Code section 496, subdivision (c) and ...