Siry Inv., L.P. v. Farkhondehpour

• Decision Date: 21 July 2022
• Docket Number: S262081
• Citation: 13 Cal.5th 333,513 P.3d 166,296 Cal.Rptr.3d 1
• Parties: SIRY INVESTMENT, L.P., Plaintiff and Appellant, v. Saeed FARKHONDEHPOUR et al., Defendants and Appellants.
• Court: California Supreme Court

13 Cal.5th 333

513 P.3d 166

296 Cal.Rptr.3d 1

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

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

S262081

Supreme Court of California.

July 21, 2022

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

Law Offices of Steven P. Scandura and Steven P. Scandura as Amicus Curiae on behalf of Plaintiff and Appellant.

Knickerbocker Law Firm, Richard L. Knickerbocker, Santa Monica; and Mohammad Fakhreddine, Hermosa Beach, for Defendant and Appellant Saeed Farkhondehpour.

Fisher & Wolfe, David Fisher, Beverly Hills; Greines Martin Stein & Richland, Robert A. Olson and Edward L. Xanders, Los Angeles, for Defendant and Appellant Morad Neman.

Opinion of the Court by Cantil-Sakauye, C. J.

We granted review to address apparent conflicts in the Courts of Appeal concerning (1) whether a party in default has standing to file a motion for a "new trial" asserting legal error relating to calculation of damages and (2) whether a trial court may award treble damages and attorney's fees under Penal Code section 496, subdivision (c)¹ in a case involving, not trafficking of stolen goods, but instead, fraudulent diversion of a partnership's cash distributions. The Court of Appeal below answered "yes," and "no," respectively.

We answer yes to both questions — and hence affirm the appellate court's judgment in the first respect, and reverse it in the second. As we will explain, the standing conclusion is supported by the statutory scheme as construed by well-reasoned prior appellate decisions and considerations of judicial economy. Likewise, the second conclusion — that treble damages and attorney's fees are available under section 496(c) when, as here, property "has been obtained in any manner constituting theft" — is compelled by the statute's unambiguous words and our obligation to honor them. If, as the Court of Appeal below determined, such remedies are problematic as a matter of policy, the Legislature can be expected to amend the statute accordingly.

I. FACTS AND PROCEDURE

We set forth the facts and procedural background, as recited in the Court of Appeal's decision below ( Siry v. Farkhondehpour (2020) 45 Cal.App.5th 1098, 1109–1113, 259 Cal.Rptr.3d 466 ( Siry )), with minor adjustments.

In 1998, Moe Siry, Saeed Farkhondehpour (Farkhondehpour), and Morad Neman (Neman) formed the "241 E. 5th Street Partnership" to renovate and lease space in a mixed-use building in downtown Los Angeles. The partnership agreement named one general partner — 416 South Wall Street, Inc. (of which Farkhondehpour was president) — and four limited partners — Siry Investment, L.P. (hereinafter plaintiff), 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 divided the partnership's cash distributions as follows: Plaintiff was to receive 39.60 percent; the Farkhondehpour Family Trust, 29.70 percent; the Neman Family Irrevocable Trust, 19.80 percent; and the Yedidia Defined Benefit Plan Trust, 9.90 percent. A separate entity, Investment Consultants, LLC (hereinafter Investment Consultants), was responsible for acting as property manager, making the required cash distributions, and overseeing the renovations.

In 2003, Farkhondehpour, 416 South Wall Street, and Neman (hereinafter defendants) created an entity named DTLA and required the building's tenants to pay their rent to DTLA. Defendants then began to improperly divert rental income away from the limited partnership and into DTLA. Farkhondehpour and Neman also commenced charging personal and other nonpartnership expenses to the partnership. The net effect of these actions was to direct Investment Consultants to underpay plaintiff its cash distributions. Farkhondehpour and Neman ensured that plaintiff remained unaware of the underpayments by misrepresenting to plaintiff the building's rental income and the partnership's expenses, effectively lying to plaintiff about what its cash distributions should have been.

A. Plaintiff's Lawsuit, First Trial, and Reversal

In June 2007, plaintiff sued defendants and the entities over which they were trustees for underpaying plaintiff 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, plaintiff'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 plaintiff, 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 late 2012, the Court of Appeal reversed the judgment because the special verdict form submitted to the jury did not require the jury to specify whether Farkhondehpour and Neman were liable to plaintiff individually or as trustees of the various trusts. ( Siry Investment, L.P. v. Farkhondehpour (Dec. 12, 2012, B223100, B234655) [nonpub. opn.].) The court explained that this defect rendered the verdict "hopelessly ambiguous" because "who is liable [was] key" — and hence remanded the matter for retrial. ( Ibid . )

B. Issuance of Terminating Sanctions on Remand

On remand, plaintiff propounded two rounds of discovery on defendants — in late 2013, and again in early 2014. Defendants failed to adequately respond to the discovery or to the trial court's subsequent orders directing them to do so without objection.

In 2015, plaintiff served defendants with notices that it was seeking $4 million in punitive damages against each of them. Plaintiff subsequently moved for terminating sanctions based on defendants’ steadfast refusal to respond to plaintiff's discovery requests or to obey the trial court's multiple orders compelling responses. At that time, plaintiff'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 section 496(c) ; and (4) attorney's fees under that same statute. Plaintiff's demands for treble damages and attorney's fees were new — those remedies had not been sought in connection with the first trial.

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

C. Default Prove-up and Entry of Judgment

Plaintiff filed more than 2,000 pages of documents in anticipation of the hearing at which it would prove its damages. In mid-2016, the trial court issued an order finding that plaintiff had "met its evidentiary burden as to all claims." The court entered default judgment against defendants, awarding plaintiff (1) actual compensatory damages, with interest, of $956,487; (2) treble damages of $2,869,461 pursuant to section 496(c) ; (3) punitive damages of $4 million (plus $1 against only 416 South Wall Street); (4) attorney's fees totaling $4,010,008.97; and (5) costs of $187,109.13 — for a total of $12,023,067.10.

D. Motion for a New Trial and Ensuing Reduction of Damages

Defendants filed a motion for "new trial" (or, more precisely, in this setting, a new judgment hearing) premised on several grounds. Among other things, and as pertinent now, defendants argued that the trial court had awarded excessive damages and erred by (1) affording treble damages under section 496(c) ; (2) miscalculating the treble damages award; (3) granting a constitutionally excessive amount of punitive damages; (4) allowing plaintiff to collect both treble damages and punitive damages, rather than requiring plaintiff to elect between them; and (5) permitting attorney's fees under section 496(c).

The trial court partially denied and partially granted defendants’ motion. As a threshold matter, the court ruled that defendants had standing to move for a new trial despite the entry of default against them. On the merits, the court ruled that it had properly awarded treble damages and attorney's fees under section 496(c), but had miscalculated the treble damages award. Similarly, the trial court concluded that its punitive damages award was constitutionally excessive, and that plaintiff must choose to collect either treble damages or punitive damages.

Plaintiff filed a notice electing to collect treble damages, rather than punitive damages. Thereafter, the trial court entered an amended judgment against defendants, jointly and severally, awarding plaintiff (1) actual compensatory damages, with interest, of $956,487; (2) another $1,912,974, reflecting trebling pursuant to section 496(c) ; (3) attorney's fees totaling $4,010,008.97; and (4) costs of $187,109.13 — for a total of $7,066,579.10.

E. The Court of Appeal's Decision

Defendants appealed from the original default judgment and from the amended judgment, challenging the trial court's award of treble damages and attorney's fees under 496(c). Plaintiff cross-appealed from the amended judgment, challenging defendants’ standing, as parties in default, to file a motion for a new trial asserting legal error relating to calculation of damages. As noted, the appellate court below ruled for defendants — finding they had standing, and that section 496(c) is inapplicable in this setting. We granted review to address apparently conflicting Court of Appeal decisions concerning those two issues.⁴

II. DISCUSSION

A. Standing to Move for a New Trial To Contest the Amount of the Default Judgment

Code of...